Audit in Post-9/11 Airline Industry Essay

  • Length: 7 pages
  • Sources: 8
  • Subject: Transportation
  • Type: Essay
  • Paper: #5197605

Excerpt from Essay :

Qantas Risk Factors

Qantas Case Study

Risk Factor Identification

Some of the risk factors for Qantas are general and specific to the airline industry more than they are specific to Qantas, but yet should be mentioned anyway. Other risk factors are things that Qantas in particular is enduring and are not something endemic to the industry as a whole, at least not at this time. The different risks, both specific to Qantas and more general in nature often cause or otherwise feed each other but will each be mentioned in their own section as they all stand in their own right to at least some extent if not significantly.

Risk Factor I -- General Transparency

The first risk factor that Qantas needs to be very wary of, and this is specific to all publicly traded and operating industries, would be general corporate transparency and visibility of operations. This factor is even more important when speaking of companies that are providing an indispensable and non-optional service such as the airlines in general, utilities, government agencies across the board and just about anything else that the public relies on extensively but that tends to have its price swing due to market conditions, political climates and situations and so forth. The airline industry in general obviously falls into this mold. Lack of transparency can manifest in a number of forms. The major forms it can take in the modern political and business climates are transparent in terms of what people (executives as compared to the "little guy" in particular) are paid, who comprises the executive and board membership positions of a firm and how those people are selected, retained and fired, who is involved in preparing reports and how decisions are made relative to what is recorded, how it is record, when it is record and why, among other things (NBER, 2007).

Risk Factor II -- Board & Compensation Actions

Compensation of executives on down to the entry level staff is one subject that elicits a lot of reactions and problematic accusations and actions. There are two very entrenched camps as it relates to what executives make and why. People in favor of paying executives more insist that getting the "best and the brightest" in terms of executives requires spending more money than the competitors are willing or able to spend. They state that global competition for the best minds and best performers has necessitated raising the bar. When these same people are crafting executive compensation packages and there is even a hint of transparency and ethical behavior being limited in any way, even if it is just perceived and not proven, this can cause a lot of bad blood and feelings to bubble up both within the firm and outside of it and the latter will include stockholders, stakeholders and other interest groups such as pro-union forces, income equality voices and so forth (Kelly, 2014).

Transparence about the selection and retaining/non-retaining of people is also a major subject. In the United States, the founder and proverbial face of men's clothier Men's Warehouse was forced out by the board of the company. While transparence was not an ostensible issue in that case, it could absolutely become an issue if the action of a firm is not done "in the daylight" or otherwise does not make a lot of sense and/or is controversial in general. The best way to mitigate concerns about hiring/firing of board members and executives as well as the payment for the same is to involve independent board members that have no financial vested interest in decisions being made and that do not have any axe to grind other than doing the best job they can. Keeping things open to the public in all matters is very important unless there is an overarching reason why not is also wise. Reasons where discretion might be needed is for criminal investigations or, in the case of airlines, crash investigations or anything else that could compromise arrests or people being brought to justice.

Risk Factor III - Terrorism

Another major concern for Qantas, and something else that is more general in nature as it relates to the airlines, is terrorism. As proven by the events and actions of 9/11 in the United States as well as the recent apparent pilot-led hijacking of the Malaysia plane that is still missing, threats can come from outside and within. This would necessitate that Qantas is very clear about the security measures they take to prevent attacks from terrorists or other external people as well as background checks and certifications of the abilities and reputations of the pilots and other professionals that ensure the safety of the plane from terrorism (Ross, 2011). Something else that has to be accounted for, and this is something that Qantas themselves has had issues with, are mechanical issues with the airplanes. Although they have been pretty good as of late, Qantas has had issues in the past and concerns about lack of proper maintenance and audit procedures could absolutely be a sap to the bottom line for Qantas. At the same time, stakeholders are going to insist that costs be reined in and controlled so Qantas is absolutely getting pressure from both ends of the spectrum and they must satiate them both. Obviously, Qantas ultimately has more of a burden with safety then they do in boosting their dividends…at least that's the way it should be.

Risk Factor IV -- Price Manipulation/Controls

To fully prepare themselves for an audit, Qantas can use a number of different tests to prepare for an audit. There are five predefined test types that Qantas can use and these include test of control, substantive tests of transactions, analytical procedures, tests of details of balances and sufficient appropriate evidence. Basically, Qantas needs to show that everything adds up to what they say it adds up to. If the overall "sum" or the portions thereof do not make sense and/or are not supported by the evidence, then something needs to be adjusted. Perhaps the most important for Qantas is the test of controls, whereby four major activities are undertaken. Those activities are to make inquiries of appropriate client personnel, to inspect documents, records and repots, to observe control-related activities and to re-perform client procedures (Arens, Elder & Beasley, 2008).

Probably the two more important of those four overall tasks are the first two, whereby Qantas interviews the personnel actually competing the tasks and assembling the numbers with perhaps an observation of the control-related activities being a good idea so as to make sure that the inquiries and the associated documents and records are in sync with what is actually happening. If there is any sort of disunity what is said to be going in during the workday and/or what is ending up in the documentation, an auditor will certainly catch on to that as well and that needs to be remedied. It is true that two different companies can record the same activity at least slightly differently but such differences should be nominal at best and should never be at odds with reality. Qantas is especially vulnerable and subject to scrutiny due to the price-fixing and other scandals/issues mentioned in this report. As such, their reports and substantiation must be top-notch and not subject to easy dispute (Arens, Elder & Beasley, 2008).

Overall Risk Assessment

On the whole, while there are a lot of social, business and industry factors that affect Qantas, a lot of them are not specific to Qantas. This is not to say that they should not be taken seriously because they should be. However, it also means that Qantas knows the risks of engaging in (or not engaging in) certain behaviors or practices. Thus, Qantas should be careful not to fall into the trappings and shortcomings that befall many other airlines. For example, the terror attacks of 9/11 only involved two airlines, those being United Airlines and American Airlines. However, Qantas needs to be careful about budgeting and preparing for anti-terror efforts and all of the above should be crystal clear in any audit. Indeed, the missing Malaysia airline mentioned before apparently plunged into the ocean roughly a hundred miles off of the Australian coast.

However, there are matters that Qantas needs to be very careful about. The aforementioned executive pay has flared up for Qantas in the form of what happened with Alan Joyce from 2011 to 2013 where is pay was increased by nearly double for 2011 but was later frozen in 2013. This fact that engendered a lot of resistance from the massive cost cutting that has been undertaken by Qantas in recent years to push back against higher fuel costs and against competitors that are highly subsidized and/or state owned or run. Even if the executive pay was necessary retain Joyce, it's perceived by many to be a proverbial thumb in the eye to many people that more than 5,000 people will or have lost their jobs. In short, it would…

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"Audit In Post-9 11 Airline Industry" (2014, April 19) Retrieved January 23, 2017, from

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