Singapore Airlines 2016 Annual Report Download - page 100

Capitalisation of aircra maintenance and overhaul costs
Refer to note 2(h) ‘Property, plant and equipment’, note 2(i)(i) ‘Depreciation of property, plant and equipment – Aircra, spares and spare engines’, note 2(j)
‘Leases’, note 2(v) ‘Provisions’ and note 3(e) ‘Aircra maintenance and overhaul expenditure under power-by-hour agreements’ for the relevant accounting
policy and a discussion of significant accounting estimates.
The key audit matter How the matter was addressed in our audit
Singapore Airlines has entered into several power-by-hour engine
maintenance agreements with engine manufacturers, to reduce the volatility
of maintenance costs and cash flows relating to periodic inspections and
overhauls during the useful life of an engine.
A portion of the cost incurred for overhauls under these agreements has the
economic eect of extending the useful lives of the engines. This portion is
first recognised as a prepayment, and is capitalised in the carrying amount
of the engine when an overhaul is carried out. The remaining portion of
these payments are recognised as maintenance expenses when incurred.
Major inspection costs relating to heavy maintenance visits for airframes
and overhauls of engines and landing gear and other significant events
are capitalised. These amounts are depreciated over the average expected
life between major overhauls or, if on an operating leased aircra, the
shorter of the average expected life between major overhauls and the
remaining lease term.
The assessment of the apportionment of costs to be capitalised and expenses
associated with these power-by-hour agreements requires judgement.
Determining the useful lives of maintenance inspections also requires
judgement and these areas are a key focus for our audit.
We read the power-by-hour agreements to gain a detailed understanding
of the significant terms which influence the economics of, and hence,
accounting for the agreements.
We reviewed correspondence with the major engine manufacturers
regarding the allocation of costs under the agreements.
We tested the design and implementation of key internal controls in place
to assess the appropriateness of the methodologies and assumptions used
in determining the appropriate accounting outcomes for these agreements.
We recomputed the interval between major overhauls and ascertained
the reasonableness of the estimates of the useful lives of major engine
overhaul events.
Findings
We found that a framework for determining the appropriate basis of accounting for these power-by-hour agreements based on the key terms of these
agreements has been developed. We determined that appropriate assessments of the useful lives of major inspections, and of the proportion of the
power-by-hour payments that have the eect of extending the useful lives of the engines, have been made.
Independent Auditors’ Report
To the members of Singapore Airlines Limited
Singapore Airlines98
FINANCIAL