EasyJet 2009 Annual Report Download - page 63

61 easyJet plc Annual report and accounts 2009
NOTES TO THE ACCOUNTS
1 Accounting policies
Statement of compliance
easyJet plc (the “Company”) and its subsidiaries (“easyJet” or the “Group” as applicable) is a low cost airline carrier operating principally in Europe.
The Company is a public limited company whose shares are listed on the London Stock Exchange under the ticker symbol EZJ and is incorporated
and domiciled in the United Kingdom. The address of its registered office is Hangar 89, London Luton Airport, Bedfordshire LU2 9PF.
The accounts are prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union, taking into account
International Financial Reporting Interpretations Committee (IFRIC) interpretations and those parts of the Companies Acts 1985 and 2006 applicable to
companies reporting under IFRS. IFRS as adopted by the EU differs in certain respects from IFRS as issued by the International Accounting Standards Board
(IASB). References to IFRS hereafter should be construed as references to IFRS as adopted by the EU.
Basis of preparation
The accounts are prepared based on the historical cost convention except for certain financial assets and liabilities including derivative financial instruments
that are measured at fair value.
The accounting policies set out below have been applied consistently to all years presented in these accounts.
In adopting the going concern basis for preparing the accounts, the Directors have considered the business activities as set out on pages 16 to 19 as well as
easyJet’s principal risks and uncertainties as set out on pages 28 to 29. Based on easyJet’s cash flow forecasts and projections, the Board is satisfied that easyJet
will be able to operate within the level of its facilities and available cash for the foreseeable future. For this reason easyJet continues to adopt the going
concern basis in preparing its accounts.
Significant judgements, estimates and critical accounting policies
The preparation of accounts in conformity with generally accepted accounting principles requires the use of estimates and assumptions that affect the
reported amounts of assets and liabilities at the date of the accounts and the reported amounts of income and expenses during the reporting period.
Although these estimates are based on management’s best knowledge of the amount, events or actions may mean that actual results ultimately differ
from those estimates, and these differences may be material. The estimates and the underlying assumptions are reviewed regularly.
The following four accounting policies are considered critical accounting policies as they require a significant amount of management judgement and the
results are material to easyJet’s accounts.
Goodwill and landing rights (note 7)
Goodwill and landing rights are tested for impairment at least annually. easyJet has one cash-generating unit, being its route network. In making this
assessment, easyJet has considered the manner in which the business is managed including the centralised nature of its operations and the ability to open or
close routes and redeploy aircraft and crew across the whole route network. The value in use of the cash-generating unit is determined by discounting future
cash flows to their present value. When applying this method, easyJet relies on a number of estimates including its strategic plans, fuel prices, exchange rates,
long-term economic growth rates for the principal countries in which it operates and its pre-tax weighted average cost of capital.
Assets held for sale (note 11)
When an aircraft is held for sale, the carrying value of the asset is assessed by comparison with its fair value less costs to sell the asset. The underlying market
for aircraft is conducted in US dollars. In the current economic environment, where the market for used aircraft is thin, there are few transactions against
which a market comparison of fair value can be made. In these circumstances easyJet uses data available from third party agencies and indications of interest
from prospective purchasers to estimate the fair value at the balance sheet date. The time it will take to sell the aircraft held for sale is also uncertain, and
asset values in sterling could rise or fall before a sale is completed.
Aircraft maintenance provisions (note 17)
easyJet incurs liabilities for maintenance costs in respect of aircraft leased under operating leases during the term of the lease. These arise from legal and
constructive contractual obligations relating to the condition of the aircraft when it is returned to the lessor. To discharge these obligations, easyJet will also
normally need to carry out one heavy maintenance check on each of the engines and the airframe during the lease term.
A charge is made in the income statement based on hours or cycles flown to provide for the cost of these obligations. Estimates required include the likely
utilisation of the aircraft, the expected cost of the heavy maintenance check at the time it is expected to occur, the condition of the aircraft and the lifespan
of life-limited parts. The bases of all estimates are reviewed once each year, and also when information becomes available that is capable of causing a material
change to an estimate, such as renegotiation of end of lease return conditions, increased or decreased utilisation, or changes in the cost of heavy
maintenance services.
Tax (note 5)
In drawing up the accounts, estimates are made of current and deferred tax assets and liabilities for each jurisdiction in which easyJet operates. These
estimates are affected by transactions and calculations where the ultimate tax determination was uncertain at the time the accounts were finalised. The issues
involved are often complex and may take an extended period to resolve. Where the final tax outcome of these matters is different from the amounts that
were initially recorded, such differences will impact the current and deferred tax assets and liabilities in the period in which such determination is made.