1 The Airline Industry .01-.75
Background .01-.11
History of Regulation .12-.13
U.SGovernment Regulation .14-.25
Department of Transportation .14-.18
Federal Aviation Administration .19-.20
Department of Homeland Security .21
Transportation Security Administration .22
Environmental Protection Agency .23
Occupational Safety and Health Administration .24
Other .25
International Air Transportation .26-.29
The International Air Transport Association .27-.28
Open Skies or Route Authorities .29
Air Transport Association of America .30-.32
Regional Airline Association .33
Characteristics of the Industry .34-.59
Operating Environment .34-.37
Airline Classifications .38-.44
Fuel .45-.47
Taxes and Fees .48
Insurance .49
Maintenance .50-.51
Unionization .52-.53
Marketing Strategy .54-.59
Airline Investments .60-.68
Aircraft Fleet .60-.62
Airport Facilities .63-.65
Fuel Facilities .66
Routes, Slots, and Gates .67-.68
Insurance .69-.75
Aviation Insurance .70-.72
Hull Insurance .73
Terrorism Insurance .74-.75
2 General Auditing Considerations .01-.146
Introduction .01-.03
Scope of This Chapter .04-.05
Planning and Other Auditing Considerations .06-.27
Audit Planning .07-.08
Establishing an Understanding With the Client .09-.10
2 General Auditing Considerations—continued Audit Risk .11-.23
Materiality .24-.27
Assessment of Risks of Material Misstatement at the Assertion Level .28-.30
Understanding the Entity, Its Environment, and Its Internal Control .31-.61
Risk Assessment Procedures .34 -.37
Discussion Among the Audit Team .38
Understanding of the Entity and Its Environment, Including the Entity’s Internal Control .39-.43
Understanding of Internal Control .44 -.61
Risks Assessment and the Design of Further Audit Procedures .62-.89
Identifying and Assessing the Risks of Material Misstatement .63-.69
Designing and Performing Further Audit Procedures .70-.89
Evaluation of Misstatements Identified During the Audit .90-.92
Consideration of Fraud in a Financial Statement Audit .93-.115
Professional Skepticism .95-.97
Discussion Among the Engagement Team .98-.101
Fraud Risk Factors .102-.104
Considering the Results of the Analytical Procedures Performed in Planning the Audit .105
Identifying Risks That May Result in a Material Misstatement Due to Fraud .106-.110
Identification and Assessment of the Risks of Material Misstatement Due to Fraud .111
Responses to the Assessed Risks of Material Misstatement Due to Fraud .112-.115
Analytical Procedures .116-.129
Concluding the Audit .130-.145
Going Concern Considerations .132-.135
Considering Subsequent Events .136-.138
Obtaining Written Representations From Management .139
Written Representations as Audit Evidence .140
Management From Whom Written Representations Are Requested .141-.142
Written Representations About Management’s Responsibilities and Other Written Representations .143-.145
Exhibits .146
3 Marketing, Selling, and Providing Transportation .01-.140
Introduction .01-.05
Process Description .06-.47
Airline Pricing .06-.08
3 Marketing, Selling, and Providing Transportation—continued Sources of Airline Revenue .09
Industry Resolutions .10
Ticketing .11-.14
Sales Reporting .15-.25
Sales Audit .26
Payment Processing .27-.33
Passenger Travel .34-.36
Refunds, Exchanges, and Reissues .37-.41
Statistics .42
Air Traffic Liability .43-.47
Revenue Accounting Issues .48-.139
General .48-.49
Revenue Recognition Methods .50-.55
Interline .56-.61
Air Traffic Liability Verification .62-.66
Unmatched Usage .67
ATL Breakage .68-.80
Passenger Revenue Recognition Model .81-.88
Change and Other Transaction Fees .89-.93
Taxes and Fees .94-.99
Frequent Flyer Programs .100-.137
Capacity Purchase Agreements Gross Versus Net Presentation .138-.139
Inherent Risk Factors .140
4 Acquiring and Maintaining Property and Equipment .01-.140
Background .01-.10
Fleet Strategy .07-.10
Owned Property and Equipment .11-.65
Aircraft Modifications .11-.16
Manufacturer Incentives .17-.28
Liquidated Damages .29-.30
Advanced Delivery Deposits and Capitalized Interest .31-.36
Developmental and Pre-operating Costs .37-.40
Used Aircraft .41-.43
Impairment of Long-Lived Assets .44-.65
Leased Property and Equipment .66-.94
Leasehold Improvements .73-.77
Return Conditions .78-.82
Maintenance Deposits .83-.87
Lease Termination .88-.93
Capacity Purchase Agreements .94
4 Acquiring and Maintaining Property and Equipment—continued Depreciation .95-.107
General .95-.100
Depreciation of Rotable Parts .101
Estimated Useful Life and Salvage Value .102-.103
Amortization of Leasehold Improvements .104-.107
Aircraft Maintenance .108-.139
Expense Recognition .113-.118
Outsourcing Maintenance .119-.130
Spare Parts .131-.139
Inherent Risk Factors .140
5 Employee-Related Costs .01-.51
General .01
Amendable Labor Contracts .02-.20
Background .02-.04
Accounting Guidance .05-.20
Pensions .21-.35
Background .21-.23
Critical Assumptions .24-.31
Termination of Pension Plans .32-.35
Other Postretirement Benefits .36-.38
Other Key Employee Benefits .39-.49
Workers’ Compensation .40-.41
Severance Benefits .42-.47
Pilot Disability (Permanently or Medically Grounded) .48
Voluntary Furloughs .49
Flight Crew Payroll .50
Inherent Risk Factors .51
6 Other Accounting Considerations .01-.112
Intangible Assets .01-.56
Domestic Assets .03-.22
International Route Authorities and Slots .23-.55
Inherent Risk Factors .56
Bankruptcy Matters .57-.80
Statement of Operations .59-.66
Rejected Aircraft .67
Balance Sheet .68-.73
Fresh Start Accounting and Reporting .74-.79
Inherent Risk Factors .80
Guarantees and Indemnities .81-.90
Parent’s Guarantee of Its Subsidiary’s Third-Party Debt or Operating Lease Payments .85
6 Other Accounting Considerations—continued Guarantees Contained in Lease Agreements .86-.88
Guarantees of Indebtedness of Others .89
Inherent Risk Factors .90
Variable Interest Entities .91-.98
Capacity Purchase Agreements .92
Aircraft Leases .93-.95
Enhanced Equipment Trust Certificates .96
Airport Fuel Facilities .97
Inherent Risk Factors .98
Airport Financings .99-.100
Inherent Risk Factors .100
Fuel Hedging .101-.105
Inherent Risk Factors .105
Insurance .106-.112
Captive Insurance .106-.107
Insurer Insolvency .108-.111
Inherent Risk Factors .112
7 Financial Reporting and Disclosures .01-.79
Introduction .01-.04
Accounting Policies and Disclosures .05-.72
Passenger and Other Revenue Recognition .07-.11
Cargo Carriers Revenue Recognition .12-.14
Frequent Flyer Programs .15-.17
Credit Card Holdbacks .18
Aircraft Acquisition Costs .19
Spare Parts .20
Maintenance and Repair Costs .21-.23
Leases .24-.25
Asset Impairment .26-.29
Restructuring and Special Charges .30-.34
Financing Arrangements .35-.44
Capacity Purchase Agreements .45-.48
Air Cargo Capacity Guarantees .49
Segment Disclosures (SEC)* .50-.60
Pensions and Other Postretirement Benefits .61-.63
Risks and Uncertainties .64-.70
Sales Taxes .71-.72
Other SEC Disclosures (SEC)* .73-.79
Risk Factors .73-.74
Critical Accounting Policies, Judgments, and Estimates .75-.76
Off-Balance Sheet Arrangements .77-.78
Tabular Disclosure of Contractual Obligations .79
8 Air Cargo Operations .01-.33
Background .01-.06
General .01
Aircraft Crew Maintenance and Insurance Contracts .02-.04
Customs Services .05
Other Ancillary Services .06
Accounting and Auditing Considerations .07-.33
Revenue Recognition and Measurement .08-.25
Cargo Claims Accruals .26-.28
Passenger-to-Freighter Aircraft Conversions .29-.33
9 Regional Airlines .01-.78
Introduction .01-.04
History of Regional Airlines .01
Effect of Collective Bargaining on Regional Airlines .02-.03
Revenue Sharing and the Evolution of Capacity Purchase Agreements .04
Revenue .05-.26
Prorate Agreements .05-.09
Capacity Purchase Agreements .10-.26
Accounting Issues .27-.77
Regional Carriers’ Revenue Recognition—Capacity Purchase Agreements .28-.61
Presentation of Revenue and Expenses Under Capacity Purchase Agreements—Gross Versus Net .62-.74
Other Contract Provisions .75-.77
Inherent Risk Factors .78
10 Special Reports and Example Reporting .01-.18
Passenger Facility Charges .01-.06
Reporting on PFC Schedules .02-.03
Reporting on Internal Control Over Administering PFCs .04-.05
Illustrative Agreed-Upon Procedures Report Related to a Carrier’s Evaluation of Its Compliance With the Requirements of 14 Code of Federal Regulations Part 158 .06
Immigration and Naturalization Services .07-.08
Illustrative Agreed-Upon Procedures Report on INS Schedules .08
Transportation Security Administration Security Fee .09
DOT Reporting .10-.18
DOT Form 41 .15-.18
Appendix
A Mapping and Summarization of Changes—Clarified Auditing Standards
B International Financial Reporting Standards
C Schedule of Changes Made to the Text From the Previous Edition
Glossary
Index of Pronouncements and Other Technical Guidance
Subject Index
