AirAsiaBhd –Substance Over Form ?

For its financial year ended 30 th June 2006, AirAsiaBhd almost run foul of the local Malaysian Regulations when its bottomline –profit After taxation is materially distorted by its application of using the local accounting for taxes(FRS112 2004) compared to international accounting standard (IAS 12).

What AirAsiaBhd did was to disclose this discrepancy vide its Notes To The Accounts. ( Refer below )

AirAirBhd’s audited accounts:

It’s interesting what’s the Directors said in the Notes of Accounts ( Note 26 eferred Taxation):

“ they are of the view that compliance with FRS112 2004 does not in substance fairly present the financial position and performance of the Group and Company. Based on the confirmed number of new Airbus A320 aircraft ordered by the Company ,the agreed purchase price and an assumption of reasonable future proftability,the unutilized capital allowances is anticipated to accumulate substantially. Over and above the unutilized capital allowances,the Company will have an increasing amount of unutilized investment tax allowances granted by the Malaysia Government over the next few years as its aircraft acquisition program continues,which can be carried forward indefinitely. Accordingly,the Company does not expect to pay any tax in the foreseeable future.”

So,what’s the hu-ha of this miserable accounting treatment affecting the financial performance of the company?

Well,it’s the responsibility of the Management of AirAsia Bhd to show that the Company is performing in the eyes of the lending /fund managers. Wherever possible,a better financial picture need to be depicted hence the need to apply what should in substance be instead of the present local accounting rule. [ read more about what’s Substance Over Form ]

{Footnote:}

Under International accounting standard IAS 12,deferred tax assets can be recognized with further evidences

unlike

the local Malaysian FRS 112 2004 on Income Tax wherein under Paragraph 36 specifically disallowed the recognition of deferred tax asset on initial recognition of an asset qualifying for re-investment or other allowances in excess of its normal capital allowances.

• Income Tax
• FRS 112-Reconciliation Of Effective Tax Rate To Statutory Rate