The International Accounting Standards Board (IASB)

The International Accounting Standards Board (IASB) Conceptual Framework is made up of concepts that drive the accounting performance of firms. Its use is demonstrated by the fact that it establishes the accounting principles for the IFRS that IAG employs, allowing internal and external auditors to follow identical methods while conducting accounting (Bonham and Ernst & Young 2008, p.91). Furthermore, the IASB Conceptual Framework defines accounting ideas for outside readers of financial statements, such as potential investors, customers, and the government (Smith 2010, p.37). Moreover, it keeps on reviewing the existing accounting concepts and makes the necessary adjustments so as to create a process that supports a correct reporting of the financial affairs of an enterprise.

Significance of Intangible Assets Figure

IAG reported a positive figure of €3,246,000,000 for the intangible assets for the accounting year ended 31 December 2015. The existence of this class of property significantly illustrates that the organization has an additional value other than the ones for the tangible resources (IAG 2015, p.99). Therefore, it helps the potential investor to determine the entire value of the organization. For instance, the inclusion of the brand as part of the intangible assets point to the fact that the organization is a recognized entity that already gained a sufficient number of customers to ensure sustainability. Also, the goodwill that also forms part of the assets illustrates that the corporation has attained some level of high status where it has a good reputation as well as assured sales due to the already acquired customers. Notably, the purchase of Aer Lingus further contributed to the amount of goodwill (Nikolai, Bazley, and Jones 2010, p.87). The valuation of landing rights under this category further points to the fact that the company is assured of continued business transactions into a reasonable period.

Significance of Pensions Figures

The existence of net financing pension charge and the amount of the distributed pension under the income and cash flow statements respectively show that the organization often have an obligation towards their retired employees. The expense in the income statement indicates the costs incurred towards the payment of the obligations (IAG 2015, p.100). Therefore, the potential investor would become aware of the pension plan that the organization runs. Apparently, the incoming investor will be psychologically prepared that some of the business appropriations go towards the payment of retirement benefits. In such a case, the likely investor will not have to anticipate having all the net profits only cater for dividends and retained earnings (Collings 2012, p.39). Moreover, the present figures give an estimate of the future values, thus, making the potential investor aware of the probable amounts that the business will incur and pay towards pension.

Overall, the pension scheme and the related costs are significant for decision-making by the incoming investor (Mirza and Holt 2011, p.172). The person considering investing in IAG will have to decide whether it is proper to have part of the income attributable to them apportioned towards paying the pensions. In the case that they are not comfortable with such an arrangement, it is likely that the potential investor will consider investing in another organization that either has not pension plan, or that pays a lower amount of the same (Alexander and Archer 2008, p.129). Nevertheless, there are other important factors of consideration that include some profits that the companies under consideration earn. Besides, the incoming financier has to find out whether having a pension scheme is a legal requirement before seeing it as a burden to the organization.

Significance Deferred Taxes Figure

Deferred tax liability for the financial year ended 30 December 2017 was €419,000,000. The figure shows the amount of money that IAG expects to pay taxes for the immediate past accounting year. It came up due to the difference between the business income before tax and the actual amount in the tax return (IAG 2015, p.100). The difference is temporary given that the organization will have to settle the obligation which is categorized under the non-current liabilities. The figure for the deferred tax liability is of great significance to the potential investor since it allows for the ascertainment of the exact profit after tax for the year that just ended (Mehnert, 2010, p.51). The person considering investing in the company will only need to deduct the figure from the income statement’s profit after tax so as to know the amount of money attributable to the shareholders.

Moreover, the existence of the liability prepares the likely to be an investor of the increment of the corporate tax for the immediate following financial year since the firm will have to pay the money to the tax authorities (Kirk 2009, p.60). Notably, the firm did not have a deferred tax asset for the year under scrutiny. However, the same would point to the amount of money that the business expects as compensation from the tax body. In such a case, the company would likely pay a less amount of tax than the actual one after deducting the one owed by the taxation institution (Maynard 2017, p.94). Apparently, the deferred tax asset often arises when the management remits an excess amount of tax to the tax bodies. Therefore, the deferred tax is necessary for the analysis by the potential investor given the significance it has in the financial outlook of the balance sheet.

References

Alexander, David., & Archer, Simon. (2008). International Accounting/Financial Reporting Standards Guide 2009. Chicago: CCH.

Bonham, M., & Ernst & Young (2008). International GAAP 2008: Generally accepted accounting practice under International financial reporting standards. Chichester, West Sussex, England: J. Wiley & Sons.

Collings, S. (2012). IFRS for dummies. Chichester: Wiley.

IAG (2015). Annual Report & Accounts. International Airline Group.

Kirk, R. J. (2009). IFRS: A quick reference guide. Oxford: CIMA.

Maynard, J. (2017). Financial accounting, reporting, and analysis. Oxford University Press.

Mehnert, M. (2010). The Accounting of Deferred Taxes under IFRS. München: GRIN Verlag.

Mirza, A. A., & Holt, G. J. (2011). Wiley IFRS: Practical implementation guide and workbook. Hoboken, N.J: John Wiley & Sons.

Nikolai, L. A., Bazley, J. D., & Jones, J. P. (2010). Intermediate accounting. Australia: South-Western/Cengage Learning.

Smith, B. (2010). Introductory Financial Accounting. Maidenhead: McGraw-Hill International (UK) Ltd.

Note: the financial statements of IAG are on pages 99 to 161 of its annual report for the year ended 31 December 2015. Information on other pages of the annual report is not relevant to this assignment.

Note: accounting policies on pages 105 to 114 may be of particular use to your assignment, as this is where the accounting treatment IAG has used for each accounting area is explained.