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Wednesday, June 24, 2015

AirAsia rebuts claims it condones "accounting gimmicks"

PETALING JAYA: AirAsia Bhd has rebutted claims made by GMT Research Ltd questioning the airline’s corporate governance and accusations that it condones “accounting gimmicks”.
While its audit committee refused to comment on GMT’s analysis of AirAsia’s business, it added that the research house would not have been able to do so if the airline had not made sufficient disclosures in its financial statements.
The audit committee highlighted in a statement issued yesterday its concern of GMT’s allegation of improper accounting for AirAsia’s associate companies, and that its auditors PricewaterhouseCoopers (PwC) are “malleable”.
“The audit committee, the board and management are therefore somewhat distressed and peeved to have been accused of corporate governance abuses and condoning accounting gimmicks,” it said.
It said it is of “clear opinion” that its associate companies should be consolidated. It has, in fact, been through a series of meetings with PwC, legal advisers, management of the associate companies and aviation regulators for this matter.
“These meetings were not mere discussions but supported by board papers and opinions from our auditors and legal advisers from the territories in which the associate companies operate,” it said.
It added that it was expressed to PwC that it is exposed to or has rights to variable returns from its involvement with its associate companies. “In fact, it is involved to the extent that AirAsia does affect the returns over its associate companies,” it said.
AirAsia believes that consolidating its associate companies would reflect its actual performance and financial position.
However, it is not allowed to have legal control or legal power over its associate companies. This is due to aviation regulations in Indonesia, the Philippines, Thailand and India. “Power in practice is, however, not legal control,” it said.
It added that any change in its relationship with the associate companies, that gives AirAsia legal control, would result in a loss of the associates’ airline operating licences.
AirAsia’s auditors have, therefore, advised that the company cannot consolidate its associate companies.
“Their view is power in substance is insufficient to meet the criteria for consolidation, as such substantive power can be withdrawn at anytime by the associate companies.
“Therefore, contrary to the GMT report that AirAsia did not want to consolidate its associate companies, we were compelled not to consolidate as a result of the opinion of our auditors. Consolidation would have attracted an audit qualification,” it said.
Although consolidation would paint a true and fair view of AirAsia’s relationship with its associate companies, it would breach the MFRS 10 standard and the “true and fair” override would not be allowed.
“Due to its inability to consolidate AirAsia presented full disclosure of the associate companies financials and also its operating statistics, as given in the first-quarter 2015 announcement, for stakeholders to have information on the performance and financial position of the associate companies,” it said.

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