Singapore Airlines 2016 Annual Report Download - page 99

Accounting for aircra related assets and carrying values
Refer to note 2(h) ‘Property, plant and equipment’, note 2(i) ‘Depreciation of property, plant and equipment’, note 3(a) ‘Impairment of property, plant and
equipment – aircra fleet’ and note 3(b) ‘Depreciation of property, plant and equipment – aircra fleet’ for the relevant accounting policy and a discussion
of significant accounting estimates.
The key audit matter How the matter was addressed in our audit
The accounting for aircra has a material impact on Singapore Airlines due
to the cumulative value of the aircra and long lived nature of these assets.
The key aspects requiring judgement include:
• Thedeterminationoftheusefullivesandresidualvaluesofthe
aircra. This takes into account physical, economic and commercial
considerations;
• Thedeterminationofcomponentsofaircra;and
• Reviewingofcarryingvaluesofaircraallocatedtodierentparts
of the business that use the aircra (cash generating units (CGUs)).
When it is necessary to test whether the asset values are impaired,
the carrying value of all assets in the CGU are compared to an
estimate of the amount that can be recovered from each CGU, based
on discounted future cash flows. This requires an estimate to be
made of future revenues, operating costs, capital expenditure and
discount rates for each CGU.
The assessment of these judgements is a key focus area of our audit.
We compared the estimates of useful lives and residual values to the
Singapore Airlines’ fleet plan, recent aircra transactions and contractual
rights. We assessed the determination of the significant components of
aircra assets against our understanding of significant components of
aircra as identified across the aviation industry.
We assessed the determination of the dierent CGUs that make up Singapore
Airlines, based on our understanding of the nature of Singapore Airlines’
business and the economic environment in which its segments operate.
We reviewed the potential indicators of impairment that would require
impairment testing of CGUs. Where a CGU required testing, we challenged
the forecast future revenues, operating costs, capital expenditure and
discount rates based on our knowledge of the business and the aviation
industry. We assessed the accuracy of the discounted cash flow models
by re-performing the mathematical calculations.
Findings
We found that the estimates of useful lives and residual values were balanced and residual values are adjusted appropriately to reflect Singapore
Airlines’ fleet plans. Upon acquisition, components of aircra are aggregated. Major inspection events are capitalised upon occurrence as components
and they are depreciated over an appropriate useful life.
Where CGU testing was required to be conducted, cash flow forecasting was found to be in accordance with approved plans and to be balanced overall.
Annual Report FY2015/16 97