I.

Specialized Industry
 For air operators, internal audits are conducted by or on behalf of the
organization itself, either for top management review or for other internal goals
like, for example, confirming the efficacy of the management system or gathering
data for its improvement.

 Over 95% of visitors to the Philippines arrive by plane, making the aviation sector
a substantial contribution to the country's economy. There are currently over 80
airports in the country that can accommodate both domestic and foreign flights.
The largest has four passenger terminals and is called the Ninoy Aquino
International Airport (NAIA), also referred to as the Manila International Airport.
Major domestic carriers like Philippine Airlines, PAL Express, Cebu Pacific, and
Philippines AirAsia have their hubs at the airport. The NAIA airport terminals
recorded approximately 11.27 million passengers in 2020, the bulk of them were
traveling domestically. Other notable airports in the nation besides NAIA include
Mactan-Cebu International Airport, which serves the Central Visayas region, and
the Clark International Airport which serves Central Luzon and the Greater
Manila area.

 The International Air Transport Association's Operational Safety Audit (IOSA) has
once again certified Cebu Pacific as having complied fully with all applicable
international aviation safety regulations. Cebu Pacific was able to attain full
compliance with the IOSA and become a member of IATA, the trade association
for the international airline industry, in 2019.
 In order to provide the finest experience for its passengers, the IOSA Audit uses the
highest level of safety procedures in conformity with international aviation standards.
Operations management and control systems, flight operations, dispatch, cabin, ground
handling, cargo, maintenance, and security are all covered by the operational
management and control system audits.

 Leading airline in the Philippines, Cebu Pacific (CEB), pioneered the "low fare,
great value" business model when it entered the aviation sector in March 1996.
Over 150 million passengers have travelled on Cebu Pacific flights since the
airline's founding.

 One of the most advanced aircraft fleets in the world, CEB now operates a fleet
of 44 Airbus (36 A320 and 8 A330) and 17 ATR (eight ATR 72-500 and nine ATR
72-600) aircraft. Cebu Pacific has placed orders for 32 Airbus A321neos, seven
Airbus A321 ceos, and seven ATR 72-600 aircraft that will be delivered between
2018 and 2022.

 Along with its 26 international destinations, CEB has established a vast network
with its 37 local destinations around the Philippines.
II. Accounting standards applicable to the industry

The airlines industry will be hugely impacted under IFRS 16 – the new guidelines to replace IAS
17 published by the International Accounting Standard Board (IASB) in January 2016. The main
changes under IFRS 16 relate to how leases are treated on companies’ balance sheets and
income statements. As the majority of airlines lease assets, it’s crucial they familiarize
themselves with this new accounting standard due to come into effect from January 2019.


 IFRS 16 ends the classification of leases as either operating leases or finance leases for
a lessee.
 According to the new standard, all leases are treated in a similar way to finance leases
applying the IAS 17 guideline.
 Leases are capitalized by acknowledgment of the current value of the lease payments
and showing them either as lease assets or as property or equipment.
 If lease payments are made over time, the financial liability is charted and future lease
payments are included.

III. Audit Considerations

 A key component of safety management is safety auditing, which offers a way to spot
possible issues before they endanger safety.

 The term "safety regulatory audit" refers to a methodical, impartial examination carried
out by or on behalf of a national supervisory authority to ascertain whether all safety-
related arrangements, or portions thereof, relating to processes and their results,
products, or services, comply with the necessary safety-related arrangements, are
implemented successfully, and are suitable to produce the desired results.
Audit Procedures

1. Define the Audit:

2. Audit Preparation:
3. Documentation review:
4. Notify the Nominated Person, Department Manage or Supervisor of the Audit:
5. Entry Meeting
6. Data Gathering includes:
7. Data Analysis:
8. Closing Meeting:
9. Report Findings and give Feedback to Accountable Manager and the Quality Assurance
Committee: Report Audit Results
10. Follow-up and Closing Meeting with the Person(s) who’s Department was Audited:
11. Follow Up Audit of Non-Compliant Areas (if applicable)

Key Audit Matters

Accounting for acquisition of companies under common control In 2017, the Group
acquired 51% ownership interest in Zuma Holdings, Inc., the parent company of Air
Philippines, Inc. The Group also obtained control of Fortunate Star Ltd (FSL), previously
accounted for as investment in associate, by increasing the Group’s effective ownership
interest in FSL from 39.56% to 64.29%. The acquisitions of Zuma Holdings, Inc. and
FSL (the “Transactions”) have been accounted for in the consolidated financial
statements as business combination under common control. We considered the
acquisition of the aforementioned companies under common control as a key audit
matter because of its financial significance to the consolidated financial statements.
IV. Reflection and Learning Points

The purpose of the audit is to form an independent opinion on the audited company's annual financial
statements. Opinions include whether the financial statements provide a true and fair view and are properly
prepared in accordance with accounting standards.

V. References (links)

https://egrove.olemiss.edu/cgi/viewcontent.cgi?article=1241&context=aicpa_indev

https://www.aicpa.org/cpe-learning/publication/airlines-audit-accounting-guide

https://www.iata.org/en/programs/safety/audit/

https://ac-aviation.readthedocs.io/en/latest/QA-2017/
Audits_and_Inspections.html#:~:text=Audits%20help%20to%20confirm%20that,and
%20compliant%20with%20CAAT%20requirements.