easyJet Financial Reporting
Recent History Regarding Corporate Accounting Policy
The recent corporate accounting practices of easyJet Airlines reflects financial accounting policies at the company, which were in disapproval by Sir Stelios Haji-Ioannou, founder -- easyJet (Waller, 2008) . The Board of Directors are responsible for drafting and adopting of company accounting policies. Sir Stelios' rejection of the boards annual accounts is reflective of the agency/principle problem such that the board is now potentially viewing the corporation in a different light than from the founder.
The founder proclaimed the accounting policies adopted by the board of easyJet to be inaccurate and not reflective of the "current commercial realities and the macro-economic climate" says Sir Stelios (Waller, 2008). Stelios recommends changes to the policies in place and suggests appointment of two directors of non-executive capacity to serve on the board to provide financial accounting insight into the policies established and set forth by the board.
Stelios' refusal to sign off on the accounting policies ostensibly arises from the policies inability to provide the confidence or the returns necessary for the board to vote to provide a dividend or increase the rate of growth of the company or its stock to the shareholder. According to Waller, (2008) "The figures themselves show the effect of high oil prices with underlying pre-tax profit down from £191 million to £123 million." (Waller, 2008)
According to Walsh (2008), "easyJet has yet to say if it will accede to Sir Stelio's wish to have two existing employees appointed to the board. However, legally, the company's accounts can be passed without Sir Stelios' approval." (Walsh, 2008) In fact, the accounts were passed by the rest of the board and by easyJet's auditor PwC. One must ask whether the founder is in the wrong or in the right. History shows that founders are inherently right about their organizations.
The specific argument, according to Walsh (2008), "His criticism of the board's accounting policies centres around the other directors' decision to regard the company as a "single cash generating unit" rather than as a series of businesses, as rival Ryanair does. He believes the value put on landing slots at Gatwick acquired with GB Airways a year ago is "based on optimistic assumptions about future revenues, particularly in the current economic climate. Sir Stelios also thinks the aircraft acquired with GB Airways -- seven with one more to be delivered in future -- should be written down in the accounts to their estimated market value." (Walsh, 2008)
However, Andy Harrison, the CEO of easyJet, explains Stelios disenchantment to the accounting policies in place. According to Walsh (2008), "The concerns Stelios has raised in his letter are not new news. They have been fully considered by management, the audit committee and by the auditors. The issues that Stelios has raised are non-cash items, they are non-trading items and therefore have no impact on the value or commercial strength of the company. The board's view is that it's just premature to be talking about dividends at the point in the cycle where we are now. The board had no "point of principle" against paying a dividend when the airline was sufficiently profitable." (Walsh, 2008)
The company's auditor PwC had given easyJet an unqualified report, which is synonymous with a passing accounting standards report rendering the accounting practices in line with the International Financial Reporting Standards or IFRS. According to the 2008 annual report, the audit report produced by PwC reported the following.
According to the PwC report, "the Group financial statements give a true and fair view in accordance with IFRSs as adopted by the European Union, of the state of the Group's affairs as at 30 September 2008 and of its profit and cash flows for the year then ended. The parent company financial statements give a true and fair view, in accordance with IFRSs as adopted by the European Union as applied in accordance with the provisions of the Companies Act 1985, of the state of the parent company's affairs as at 30 September 2008 and cash flows for the year then ended." (PricewaterhouseCoopers LLP, 2008)
The accounting policies were in accordance to the reporting standards in 2008. In 2010, the accounting policies included the accounting details that Sir Stelios felt were missing from the 2008 audit. According to the 2010 annual report, "Section 23: Financial risk and capital management included explanations regarding easyJet's exposure to financial risks including fluctuations in exchange rates, jet fuel prices and interest rates. Financial risk management aims to limit these market risks with selected derivative hedging instruments being used for this purpose, easyJet policy is...
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