Aer Lingus 2013 Annual Report Download - page 78

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In our audit, we tested and examined information, using sampling and other auditing techniques, to the extent we considered necessary to
provide a reasonable basis for us to draw conclusions. We obtained audit evidence through testing the effectiveness of controls, substantive
procedures or a combination of both.
We considered the following areas to be those that required particular focus in the current year. This is not a complete list of all risks or
areas of focus identified by our audit. We discussed these areas of focus with the Audit Committee. Their report on those matters that they
considered to be significant issues in relation to the financial statements is set out on page 73.
Area of focus
How the scope of our audit addressed the area of focus
Pension arrangements – Irish Airlines (General
Employees) Superannuation Scheme “IASS” and the
Irish Airlines (Pilots) Superannuation Scheme “IALP”.
As explained in Note 25 there are significant deficits on
the IASS and IALP pension schemes.
We focused on this because, while the Group’s position
is, supported by legal advice, that they have no legal or
constructive obligation in respect of the deficit in either
scheme, the Group has indicated that it is willing to assist
in a process that will seek a solution that balances the
interests of all parties, and such process may involve
once off payments to a new scheme provided certain
conditions are met. Industrial or other actions may arise.
We obtained an understanding of key developments for the current year and
since the year end and considered the potential impact from a financial
statements perspective, including disclosures.
In particular we focused on whether there had been any change in
circumstances during the year or since year end which might require an
obligation to be recognised.
We read the Final Recommendation of the Labour Court in respect of the
IASS issued on 24 May 2013 and assessed the complex steps and approvals
on which implementation would be dependent. We read relevant background
papers and obtained an understanding from the Audit Committee of the
Group’s oversight framework and position in relation to this matter and its
potential impact on the financial statements.
We considered the disclosures included in the financial statements.
Property, Plant and Equipment Impairment assessment
The directors performed an impairment assessment as
they identified an impairment trigger indicated by IAS 36
in that the carrying amount of the Group’s net assets was
more than its market capitalization as at 31 December
2013 (Refer to note 14 to the financial statements).
We focused on this area due to the identified impairment
trigger, the size of this balance and because it involves
complex and subjective judgements by the directors
about the future results of the business, in particular
revenue and costs, fleet composition and discount rate
assumptions.
We compared the directors’ future cash flow forecasts to the latest Board
approved budgets and tested the calculations therein.
We challenged the directors’ key assumptions which include passenger
numbers and yield, price and certain costs such as fuel and airport charges by
reference to historical experience and other observable data where
appropriate. We compared long term growth rates to economic forecasts. We
challenged the discount rate applied by assessing the Group’s cost of capital
with comparable organisations.
We also performed sensitivity analysis on key trading assumptions and on the
discount rate. Having ascertained the extent of change in those assumptions
that either individually or collectively would be required for the assets to be
impaired, we considered the likelihood of such change in those key
assumptions arising.
Fraud in revenue recognition
ISAs (UK & Ireland) presume there is a risk of fraud in
revenue recognition because of the pressure management
may feel to achieve the planned results. We focused on
the timing of the recognition of revenue and its
presentation in the income statement as the timing of
recognition is usually dependent on delivery of the
service which, for the most part, occurs after payment
has been received for the service.
We evaluated the IT systems and internal control over the recording of
revenue and tested the controls between the booking, cash and revenue
systems.
We tested the timing of revenue recognition by reference to ticket class and
service delivery.
We considered journal entries posted to revenue accounts to identify and test
unusual or irregular items.
Risk of management override of internal controls
ISAs (UK & Ireland) require that we consider this.
We assessed the overall control environment of the Group, including the
arrangements for staff to “whistle-blow” inappropriate actions, and
interviewed senior management and the Group’s internal auditors.
We discussed the risk of management override in internal controls with the
Audit Committee and obtained their perspectives on the Group’s monitoring
process over internal control. We observed the Audit Committee’s oversight
by attendance at regular Audit Committee meetings.
We tested key reconciliations and journal entries. We considered whether
there was evidence of bias by the directors in the significant accounting
estimates and judgements relevant to the financial statements by challenging
their assumptions against other observable data where appropriate.