Cathay Pacific 2015 Annual Report Download - page 54

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Cathay Pacific Airways Limited
52
Aircraft maintenance provisions
Refer to note 13 to the consolidated financial statements and the accounting policies on pages 101-102.
The key audit matter How the matter was addressed in our audit
The Group operated 55 aircraft held under external operating
leases at 31st December 2015. Under the terms of the
operating lease arrangements, the Group is contractually
committed to return the aircraft to the lessors in a certain
condition agreed with the lessors at the inception of each
lease.
Management estimates the maintenance costs as well as the
costs associated with the restitution of life-limited parts at the
end of each reporting period and accrues such costs over the
lease term. The calculation of such costs includes a number of
variable factors and assumptions, including the anticipated
utilisation of the aircraft, the expected cost of maintenance
and the estimated lifespan of the life-limited parts.
Maintenance provisions for aircraft maintenance costs
totalled HK$1,561 million as at 31st December 2015 and are
included within other long-term payables and trade and other
payables in the consolidated statement of financial position.
We have identified aircraft maintenance provisions as a key
audit matter because of the inherent level of complex and
subjective management judgements required in assessing
the variable factors and assumptions in order to quantify
such provision amounts.
Our audit procedures included testing the design and
implementation of management’s controls over making
maintenance provisions for aircraft held under operating
leases and performing substantive procedures relating to
the provisioning model.
We evaluated the methodology and key assumptions
adopted by management in estimating the provisions.
The evaluation included testing the integrity and arithmetic
accuracy of the provision model through recalculation,
reviewing the terms of the operating leases and comparing
assumptions to contract terms, information from lessors and
the Group’s maintenance cost experience.
We discussed with managers in the engineering department
responsible for aircraft engineering the utilisation pattern and
expected useful lives of life-limited parts of the aircraft and
considered the consistency of the provisions with the
engineering department’s assessment of the condition of
aircraft.
We also challenged the assumptions used by management
by comparing past assumptions made by management in
prior years with actual events as well as the current year’s
assumptions.
Independent Auditor’s Report
Information other than the consolidated
financial statements and our auditor’s report
thereon
The Directors are responsible for the other information. The
other information comprises the information included in the
annual report but does not include the consolidated
financial statements and our auditor’s report thereon.
Our opinion on the consolidated financial statements does
not cover the other information and we do not express any
form of assurance conclusion thereon.
In connection with our audit of the consolidated financial
statements, our responsibility is to read the other
information and, in doing so, consider whether the other
information is materially inconsistent with the consolidated
financial statements or our knowledge obtained in the audit
or otherwise appears to be materially misstated. If, based
on the work we have performed, we conclude that there is a
material misstatement of this other information, we are
required to report that fact. We have nothing to report in this
regard.
Responsibilities of the directors for the
consolidated financial statements
The Directors are responsible for the preparation of the
consolidated financial statements that give a true and fair
view in accordance with HKFRSs issued by the HKICPA and
the Hong Kong Companies Ordinance, and for such internal
control as the Directors determine is necessary to enable
the preparation of consolidated financial statements that
are free from material misstatement, whether due to fraud
or error.
In preparing the consolidated financial statements, the
Directors are responsible for assessing the Group’s ability
to continue as a going concern, disclosing, as applicable,
matters related to going concern and using the going
concern basis of accounting unless the Directors either
intend to liquidate the Group or to cease operations, or have
no realistic alternative but to do so.
The Directors are responsible for overseeing the Group’s
financial reporting process.