Finance

Azure Airline

Azure, a limited liability company, was incorporated in Sepiana on 1 March 20X8. In April, the company exercised an exclusive right granted by the government of Pewta to provide twice weekly direct flights between Lyme, the capital of Pewta, and Darke, the capital of Sepiana.

 

The introduction of this service has been well advertised as ‘efficient and timely’ in national newspapers. The journey time between Sepiana and Pewta is expected to be significantly reduced, so encouraging tourism and business development opportunities in Sepiana.

Azure operates a refurbished 35-year old aircraft which is leased from an international airline and registered with the Pewtan Aviation Administration (the PAA). The PAA requires that engines be overhauled every two years. Engine overhauls are expected to put the aircraft out of commission for several weeks.

The aircraft is configured to carry 15 First Class, 50 Business Class and 76 Economy Class passengers. The aircraft has a generous hold capacity for Sepiana’s numerous horticultural growers (eg of cocoa, tea and fruit) and general cargo.

 

The six hour journey offers an in-flight movie, a meal, hot and cold drinks and tax-free shopping. All meals are prepared in Lyme under a contract with an airport catering company. Passengers are invited to complete a ‘satisfaction’ questionnaire which is included with the in-flight entertainment and shopping guide. Responses received show that passengers are generally least satisfied with the quality of the food – especially on the Darke to Lyme flight.

Azure employs ten full-time cabin crew attendants who are trained in air-stewardship including passenger safety in the event of accident and illness. Flight personnel (the captain and co-pilots) are provided under a contract with the international airline from which the aircraft is leased. At the end of each flight the captain completes a timesheet detailing the crew and actual flight time.

Ticket sales are made by Azure and travel agents in Sepiana and Pewta. On a number of occasions Economy seating has been over-booked. Customers who have been affected by this have been accommodated in Business Class as there is much less demand for this, and even less for First Class. Ticket prices for each class depend on many factors, for example, whether the tickets are refundable/non-refundable, exchangeable/non-exchangeable, single or return, mid-week or weekend, and the time of booking.

 

Azure’s insurance cover includes passenger liability, freight/baggage and compensation insurance. Premiums for passenger liability insurance are determined on the basis of passenger miles flown.

 

Required

 

(a)Identify and explain the business risks facing Azure.             

(b)Describe how the risks identified in (a) could be managed and maintained at an acceptable level by Azure.

(c)Suggest four measures of operational performance and the evidence that should be available to provide assurance on their accuracy.               

 

Note. Assume it is 11 December 20X8.

 

The management of Azure is considering producing an integrated report on the company which would include a range of financial and non-financial information. A particular focus would be the company’s attempts to contribute positively to its social and natural environment.

 

In order to add credence to the proposed report, management would like to engage a firm of professional accountants to provide an assurance report on its contents. It is worried, however, that such a report would be of little benefit to its users, and would like some clarification about the level of assurance that would be provided, and the types of conclusion that might be given.

 

Required

 

(d)Identify and explain the assurance that might be provided by an assurance engagement on an integrated report.              

 

(e)Identify the types of possible conclusion which such a report might give.       

 

Note. You should base your answer on the most recently available technical guidance in this area.

 

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