AUDITING IN

AIRLINES
CO 1. KNOW THE NATURE AND
BACKGROUND OF THE PARTICULAR
NT SPECIALIZED INDUSTRY

EN 2. LEARN THE OVERVIEW,

STATISTICS, AND UPDATES OF THE
T SPECIALIZED INDUSTRY IN THE
PHILIPPINE SETTINGS

3. IDENTIFY THE DIFFERENT AUDIT

CONSIDERATION AND TRENDS FOR
THE INDUSTRY
NATURE AND BACKGROUND

The airline industry encompasses a wide

range of businesses, called airlines, which
offer air transport services for paying
customers or business partners. These air
transport services are provided for both
human travelers and cargo, and are most
commonly offered via jets, although some
airlines also use helicopters

WHAT IS
AIRLINES?
WHAT IS THE DIFFERENCE BETWEEN THE AIRLINE
INDUSTRY AND THE AVIATION INDUSTRY?

The airline industry refers to companies that offer air transport services
to paying customers, whereas the aviation industry includes all
aviation-related businesses.
Aspects of Comparison Airlines Industry Aviation Industry

The Airline industry primarily focuses on providing The Aviation industry encompasses a
Primary Focus passenger transportation services. It revolves broader spectrum of activities beyond
around the operation of scheduled flights that carry passenger services. It encompasses a
passengers from one destination to another. wide array of operations, including the
Airlines play a pivotal role in offering air travel as a management and maintenance of
means of transportation for individuals and airports, pilot and technician training,
tourists. aircraft manufacturing, air traffic control,
and various support services that are vital
for the functioning of the aviation
ecosystem.

In the Airline industry, the primary source of The Aviation industry derives
Main Revenue Source revenue comes from ticket sales and revenue from a diverse range of
passenger-related services. sources. While passenger-related
services contribute significantly,
other revenue streams include
airport fees, aircraft maintenance
and servicing, aircraft sales and etc
 Airlines industry Aviation Industry

The core operations of the The Aviation industry

Key Operations Airline industry revolve around encompasses a wide spectrum
the execution of scheduled of key operations. It includes the
flights. Airlines operate and management and operation of
manage aircraft fleets, flight airports, air traffic control
schedules, passenger check-in, systems, aircraft maintenance
boarding, and in-flight services. and repair, pilot and crew
They focus on ensuring training, aircraft manufacturing,
passenger safety, comfort, and and research and development
satisfaction throughout their in aviation technologies.
journey
What makes an Airlines Industry
consider a Specialized Industry?
A specialized industry is a distinct
market that has a unique way of
accounting for transactions and
reporting its financial results. These
differences are allowed under the
applicable accounting framework,
such as IFRS or GAAP
 Different Types of Airlines
International airlines are a group National airlines represent the next Regional airlines are the smallest
of the largest, most high-profile, step down from the largest of the three main types and focus
and most successful airlines. international airlines. They will on offering services within specific
They make billions in revenue typically offer both medium-sized regions. In many cases, they
each year and operate large and large-sized jets and will often provide passenger services to parts
passenger jets. These airlines also focus on offering services to areas of the world with lower levels of
tend to focus their efforts on within their home country. demand and where services are not
offering global services, carrying offered by either national or
passengers and cargo over large international airlines.
distances.

International National Airlines Regional

Airlines Airlines
BUSINESS MODEL OF AIRLINES

• Full-Service Carriers
• Low-Cost Carriers
• Charter Airlines
• Cargo Airlines
OVERVIEW, UPDATES
AND STATISTICS OF
THE SPECIALIZED
INDUSTRIES IN
THE PHILIPPINES
 Overview of the Philippine Aviation Industry

The aviation industry is a significant contributor to the Philippine

economy, with air transportation accounting for over 95 percent of
tourist arrivals to the country in the years prior to the pandemic.
Currently, there are about 80 airports nationwide that can handle
both domestic and international flights. The biggest is the Ninoy
Aquino International Airport (NAIA), also known as the Manila
International Airport, which consists of four passenger terminals.
The airport serves as a hub for the major commercial airlines in the
country. In 2022, about 31 million passengers were recorded in the
NAIA airport terminals, the majority of whom were flying
domestically.
The global aviation industry has finally shown signs of recovery after
the disruptions caused by the coronavirus (COVID-19) pandemic,
which has led to dwindling passenger and cargo traffic. In the
Philippines, air passenger traffic recovered in 2022, although figures
remain lower than the pre-pandemic passenger volume. Recovery was
dominated primarily by domestic travel, which accounted for the
majority of air passenger traffic in that year. The rehabilitation of the
aviation industry in the Philippines significantly contributed to the
growth of the industry’s gross value added has also significantly
increased in 2022.
Gross value added generated from the air
transportation industry in the Philippines
from 2018 to 2023
DIFFERENT AUDIT
CONSIDERATION
AND TRENDS
Revenue
Recognition
Is a complex task within the airline industry.
The Company records passenger ticket sales
and tickets sold by other airlines for use on
United as passenger revenue when the
transportation is provided or upon estimated
breakage.
Impact of PFRS 16- Leases in Airline
Industry, Output Depreciation Method
on Right-of-use Asset
The IASB published IFRS 16 Leases in January 2016 with an
effective date of 1 January 2019. The new standard requires
lessees to recognize nearly all leases on the balance sheet which
will reflect their right to use an asset for a period and the
associated liability for payments.
Scope of Standard
The standard covers every lease except for rights to explore
non regenerative resources, rights held under certain
licensing agreements, leases of biological assets and service
concession arrangements. For lessors, licenses of
intellectual property granted are excluded from IFS 16.
What is right to control the use of assets?
A customer has the right to control the use of an identified asset if
they have the right to obtain substantially all of the economic benefits
from the use of the asset and the right to direct the use of the asset, i.e.
to decide how and for what purpose it is used

When is an arrangement split into separate lease components?

A right to use an asset is a separate lease component if the lessee
can benefit from the asset on its own (or together with readily available
resources) and the asset is neither interdependent nor highly correlated
with any other underlying asset in the contract.
Recognition of Balance sheet
Lessees will recognize almost all leases on the balance sheet (as a "right-of-use
asset" and "lease liability"). Lessors will still distinguish between finance leases(recognize
a lease receivable) and operating leases (continue to recognize the underlying asset)

• Initial Measurement by Lessees

The lessee recognizes:
- a lease liability at the present value of future lease payments; and
-a right-of-use asset to an equal amount plus initial direct costs and restoration costs

• In a profit or Loss
A lessee will recognize:
-interest on the lease liability
-depreciation of the right of use asset
Variable case payments not included in the lease liability are recognized in the
period the obligation is incurred
 Specific accounting principles
and auditing procedures
applicable to an airline industry
Revenue accounting:
Airline revenue is derived primarily from the carriage of passengers, cargo, and
mail. The objective of the revenue accounting system is to recognize revenue according
to the principle, Revenue is generally recognized when both of the following conditions
are met:

1. the earning process is complete or virtually complete

2. and an exchange has taken place

TYPES OF REVENUE:

• TICKETING PROCEDURES • AIR TRAFFIC LIABILITY VERIFICATION

• AIR TRAFFIC LIABILITY • AIR CARGO
• INTERLINE ACCOUNTING
• REFUNDS AND EXCHANGE
Auditing
Considerations
• Station Sales
• Travel agency sales
• Interline Receivables
• Interline payables
• Sales/ Lift match method
• Sampling method
Airframe and Engine overhaul expense

The Federal Aviation Administration has established overhaul cycles

for each airframeand engine component to prevent potential hazards and
to purposes, airframe and aircraft engine overhauls encompass all
inspections or replacements of major components, which the civil air
regulations require at specific maximum periodic intervals to recertify
that the frame or engine is completely airworthy.

• Lease aircraft
require the aircraft to be returned to the lessor with a
minimum number of hours remaining to the next overhaul

• Used aircraft
acquired in various conditions and at various times
between overhauls.
• Accounting method
Air carriers should adopt an accounting method that
recognizes overhaul expenses in the appropriate period.
This may result in different methods for different
aircraft, as well as different methods for airframe
overhauls.
The following accounting methods

1. Direct expensing method

2. Built-in overhaul method
3. Deferral method
4. Accrual method
Audit Consideration

• Airframe modification
• Insurance
• Payroll (Flight personnel)
 Latest Trends in the Philippine Airline
Industry
White sand beaches, tall majestic buildings, and the constant need to meet with foreign
managers have made flying a usual activity for a lot of Filipinos. According to the
latest Nielsen Global Survey of Consumer Confidence and Spending Intentions,
Filipinos’ first priority in saving is intended for holidays and vacations. In order to
compliment this behavior, the airline industry has adapted trends for better flight
services. These trends include the following:
3
Going digital with
2 majority of the
Increasing low cost transactions
1 carriers 4
Developing in- Hosting travel
flight entertainment expos
1. Developing in-flight entertainment
One of the features airlines compete and customers look out for is the in-flight
entertainment. Most airlines have offered movies, TV shows, and magazines to keep
passengers busy in long flights. PAL has recently developed a new in-flight entertainment
feature app. The app had to be downloaded and passengers had to connect to their internal
Wi-Fi server in order to watch movies and TV shows, read magazines, and get real time
updates of the status of the flight.

2. Increasing low cost carriers

Pricing is one concern when it comes to ticketing. With travel becoming more frequent
among Filipinos, competitive pricing became a trend. Flights are now offered at affordable
prices and if a customer is lucky enough and knows where to look, they can even manage
to get fares as low as P1. This is all made possible because airlines have been getting low
cost carriers.
3. Going digital with majority of the transactions
From booking a flight, paying, to checking-in, everything can be done digitally. This isn’t
just for the convenience of the passengers; it is also to regulate the traffic of people inside the
airport. Even the tickets are electronic.

4. Hosting travel expos

Travel expos held in the country in 2016 all contributed to the improvement in sales in the
airline industry. For instance, the world travel 2016 expo was hosted by Ad Asia Conventions
and Exhibitions International Corp. It aimed to be a means for global and national travel
communities to be connected, according to Business Mirror. It was just one of the many
travel expose held this year.
Auditing Considerations in Airline Industry
Fuel Hedging
Revenue Recognition and
Practices
Ticketing

Station Locations
and Operational
Controls

Information
Technology and
Data Security Impacts of Regulatory
External Factors Compliance
THANK YOU