Cathay Pacific 2015 Annual Report Download - page 53

Annual Report 2015
51
Independent Auditor’s Report
Provisions for taxation, litigation and claims
Refer to notes 4, 19 and 28 to the consolidated financial statements and the accounting policies on page 105.
The key audit matter How the matter was addressed in our audit
The Group had disputes with certain taxation authorities and
was the subject of antitrust proceedings in certain
jurisdictions at the reporting date.
Provisions recorded at 31st December 2015 for taxation,
litigation and claims, which represented management’s best
estimates of the amounts likely to be required to settle these
matters, totalled HK$1,338 million and are included within the
balance of other payables classified as current liabilities in
note 19 to the consolidated financial statements.
We have identified provisions for taxation, litigation and
claims as a key audit matter because the estimates on which
these provisions are based entail a significant degree of
management judgement and may be subject to
management bias.
Our audit team included tax specialists in Hong Kong and the
relevant overseas jurisdictions, who assessed the adequacy
of the Group’s provisions for potential exposure to each
material tax dispute by discussing with management to
understand the dispute and reviewing correspondence with
the relevant tax authorities to understand the relevant
associated risks.
We challenged the assumptions and critical judgements
made by management which impacted their estimations of
the provisions required. Consideration was also given to
judgements previously made by the taxation authorities in
the relevant jurisdictions and any relevant opinions given by
third party advisors.
We discussed the status and potential exposures in respect
of significant litigation and claims with the Group’s internal
legal counsel and also obtained letters regarding the
progress of litigation and claims from the Group’s external
legal counsel, including their views on the likely outcome of
each litigation or claim and the magnitude of potential
exposure.
We challenged management’s estimates using information
and evidence that we gathered, as noted above, to assess
whether or not there was an indication of management bias.
Carrying value of aircraft and related equipment
Refer to note 8 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 carrying value of the Group’s aircraft and related
equipment as at 31st December 2015 was HK$89,299
million and the related depreciation charge for the year
ended 31st December 2015 was HK$7,565 million.
Depreciation rates and the carrying value of aircraft and
related equipment are reviewed annually taking into
consideration factors such as changes in fleet composition,
current and forecast market values and technical factors
which may affect the useful life expectancy of the assets and
therefore could have a material impact on any impairment
charges or the depreciation charge for the year.
We have identified the carrying value of aircraft and related
equipment as a key audit matter because of its significance
to the consolidated financial statements and because
applying the Group’s accounting policies in this area involves
a significant degree of judgement by management in
considering the nature, timing and likelihood of changes to
the factors noted above which may affect both the carrying
value of the Group’s aircraft and related equipment as well
the depreciation charge for the current year and future years.
Our audit procedures were designed to challenge the
application of the Group’s depreciation policies, with
reference to the estimated useful lives and residual values of
aircraft and related equipment as well as management’s
plans for future fleet composition including future
acquisitions and retirement of aircraft.
We assessed the reasonableness of management’s
assertions and estimates using valuation reports published
by third party specialists, our knowledge of the airline
industry, policies of other comparable airlines and the
Group’s historical experience and future operating plans.
We discussed indicators of possible impairment of aircraft
and related equipment with the finance management team
and, where such indicators were identified, assessed
whether management performed impairment testing in
accordance with the requirements of HKFRSs.
We also challenged the assumptions and critical judgements
used by management by comparing management’s past
estimates and plans the current year’s estimates and plans
and taking into account recent developments in the airline
industry and future operating plans.