AIRASIA's double standards

by Ganesh Sahathevan
The choir boys at Airasia are reported to have said(see below) :

AirAsia Bhd said its net profit for the year ended June 30, stated in accordance with Malaysian Accounting Standard Board (MASB) principles, including FRS 112 (2004) on Income Tax, will be "significantly different" compared with that reported according to International Financial Reporting Standard (IFRS), principally IAS 12. .....AirAsia said its auditors, PricewaterhouseCoopers, had confirmed that the net profit of RM242mil could be reported under IAS 12. It said for future releases, it would provide two sets of results to comply with both MASB and IFRS standards ."The deviation arose because the Malaysian accounting standard does not allow the company to recognise the investment tax allowance granted to it by the government," the statement said.

Readers should note that recognition of the investment tax allowance affects the provisions that AirAsia needs to make for deferred taxes that are charged against revenue. Therefore, it would appear that the relevant standard here is that relating to provisions.In that regard, MASB Financial Reporting Standard 137 (2004) ; Provisions, Contingent Liabilities ,and Contingent AssetsAppendix 1 ( http://www.masb.org.my/masb_FRS/masbstd_FRS137d.htm) ; states:

Compliance with International Accounting Standards
As at the date of issue of this Standard, compliance with this Standard will ensure conformity in all material respects with International Accounting Standard IAS 37 P rovisions, Contingent Liabilities and Contingent Assets.

AirAsia claims that the relevant standards include FRS 112 (2004).

However, MASB Financial Reporting Standard 112 (2004) Income Taxes Appendix 1 ; states: Compliance with International Accounting Standards
As at the date of issue of this Standard, compliance with this Standard will ensure conformity, in all material respects, with International Accounting Standard IAS 12 (revised) Income Taxes.

Hence the following questions, - how does the divergence in standards complained of arise ,-,even if there is a divergence , how does it manifest itself in a profit figure that is 3 times higher,when the MASB maintains, in both cases above that , compliance with (the relevant standard) Standard will ensure conformity, in all material respects, with (the relevant) International Accounting Standard ?
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The Star Online > Business
Saturday November 11, 2006

AirAsia net profit higher under IFRS
PETALING JAYA: AirAsia Bhd said its net profit for the year ended June 30, stated in accordance with Malaysian Accounting Standard Board (MASB) principles, including FRS 112 (2004) on Income Tax, will be "significantly different" compared with that reported according to International Financial Reporting Standard (IFRS), principally IAS 12.
The low-cost airline released its financial statement for the full year yesterday that was stated in accordance with MASB principles.
Under the IFRS, however, the net profit figure would be higher at RM242mil, compared with a lower RM88.4mil in MASB terms, the company said in a statement yesterday.
"The deviation arose because the Malaysian accounting standard does not allow the company to recognise the investment tax allowance granted to it by the government," the statement said.
It said the tax incentive "sheltered'' the company from having to pay tax, which might span many years in the future based on current profit and capital expenditure projections.
AirAsia said its auditors, PricewaterhouseCoopers, had confirmed that the net profit of RM242mil could be reported under IAS 12.
It said for future releases, it would provide two sets of results to comply with both MASB and IFRS standards.
"We have made several representations and given our input to the relevant authorities. We believe the authorities will decide what is best for the Malaysian capital market and keep abreast with the latest developments around the world," AirAsia added.
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