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U.S$3.5 billion of net assets have been wiped off the opening balance of airlines on transition under IFRS, according to KPMG International’s Disclosure Handbook: Accounting and Financial Reporting in the Global Airline Industry which is launched today at the IATA Annual General Meeting in Paris.

KPMG International surveyed the 2005 public financial regulatory filings of 23 of the world’s airlines, including Air France, KLM, British Airways, and United that currently or in the near future will report under U.S. GAAP or IFRS. The report aims to highlight some of the key financial reporting trends and issues that impact airlines. It considers their critical accounting policies, disclosures around transition from previous GAAP to IFRS; and disclosure of risk (or cautionary factors).

KPMG International survey findings include:

* The transition to IFRS adjustments has been significant in terms of size and nature on the balance sheet and the income statement in the areas of recognition and measurement of financial instruments, property, plant and equipment, revenue recognition and accounting for post-employment benefits
* Readers of airline financial reports should still be wary of comparing airlines in areas such as maintenance, financial instruments and the treatment of debt funding costs in relation to aircraft acquisitions. U.S. GAAP and IFRS are still yet to converge in these areas. While prima facie the requirements are similar, differences in the detail can have a material impact.
* U.S. reports are required to disclose significant information in regard to airline risk factors and accounting estimates that underpin their financial reports. It remains to be seen whether IFRS disclosure will expand to include commentary on this area.
Martin Sheppard, KPMG’s Global Head of Aviation, and partner in KPMG’s Australian firm said:

“Looking ahead, the increasing trend to a fair value measurement basis under IFRS is likely to lead to greater volatility for airlines. Airlines have significant exposures to fuel prices, exchange rates and interest rates and the complex new accounting rules governing hedging activities are burdensome and will lead to increased profit volatility. New rules over asset valuation measurement will also leave airlines vulnerable to asset impairment.

“With the current industry focus on reducing costs in times of record oil prices, and continued global conflict, at no time has it been more important to have transparency in the reporting practices of airlines.”

Dr Ashley Steel, Global Chair of KPMG’s Transport practice, and partner in KPMG’s U.K. firm, said:

“We are delighted to launch this review today; and hope it will become essential reading for the CFO’s of all airlines. Direct dialogue should be considered with standard setting bodies to help ensure the airline industry is understood.”