Singapore Airlines 2016 Annual Report Download - page 102

Carrying amount of investment in Virgin Australia Holdings Limited
Refer to note 2(e) ‘Subsidiary, associated and joint venture companies’ 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 equity-accounts its 23.1% holding in Virgin Australia
Holdings (VAH). The carrying value of VAH at 31 March 2016 was
$354.2 million.
On 21 March 2016, VAH announced a review of its capital structure and that
short-term liquidity funding was sought from its major shareholders. On
29 March 2016, one of its major shareholders, Air New Zealand, announced
that it would review its 25.9% strategic shareholding in VAH. VAH’s share
price fell from AUD 43.0 cents per share on 15 March 2016 to AUD 36.5
cents on 31 March 2016, on which date, SIA’s investment in VAH exceeded
its closing market value.
Accounting standards require an assessment of impairment for associates
where there are indications that it may be potentially impaired. As the
series of events relating to VAH’s capital needs have only recently surfaced
and continue to unfold, new information could become available aer
the issue of the financial statements that could change the assessment
of whether there are indications of impairment or the assessment of the
value of the holdings in VAH.
Assessing whether any such impairment had occurred on or aer the
31 March 2016 balance sheet date is also a highly subjective judgement,
because of the many factors that contribute to an assessment of whether
there are indications of impairment, compounded by these factors happening
in quick succession on either side of the balance sheet date.
Because of the inherent diiculties in obtaining audit evidence on an event
that has recently surfaced and on which developments continue to unfold,
this is a key area of focus for our audit.
We studied recent market announcements made by VAH to obtain
information relevant to an understanding of the financial position and
capital needs of VAH.
We read the Board papers supporting the decision by Singapore Airlines to
provide shareholder support for the 12 month loan facility to VAH.
We then held discussions with key management personnel to understand
their assessment of the dierent possible scenarios and their likely responses
to those scenarios.
Findings
We found the assessment that no indications of impairment existed at 31 March 2016 was a reasonable conclusion, on the weight of all the information
available to date, noting nevertheless that there remains room for continuing developments in the imminent future to change the assessment of the
value of the investment in VAH.
Independent Auditors’ Report
To the members of Singapore Airlines Limited
Singapore Airlines100
FINANCIAL