Information Perspective and Measurement Perspective on Financial Reporting and Decision Usefulness

¶ … 2010 annual report of WestJet and discusses their information and measurement approaches on financial reporting.

The following items from the annual report follow the measurement perspective on decision usefulness: Frequent Guest Program FGP), financial instruments and compensation plan. WestJet has "a frequent guest program that allows guests to accumulate credits that entitle them to a choice of various rewards, primarily discounted travel. Revenue received in relation to credits issued is deferred as a liability at fair value until a reward is ultimately utilized, at which time it is recognized as guest revenue. Fair value is management's estimate of the expected awards for which the credit will be redeemed and is reduced by the proportion of credits that have been redeemed relative to the total number expected to be redeemed" (WestJet 67).

Also included in the FGP is WestJet's co-branded MasterCard " with the Royal Bank of Canada (RBC). RBC issues FGP credits to cardholders as a percentage of their total retail spend. The fair value of these credits is deferred and recognized on redemption as described above. Ancillary revenue from the issuance of FGP credits on the credit card is measured as the difference between the cash received and the fair value of the credit and is recognized in other revenue on their issuance. Revenue related to new cards issued is recognized in other revenue immediately upon activation" (WestJet 67). These items follow the measurement perspective because they are reported at their fair market value, as opposed to historical cost. The fact that WestJet tries to estimate the amounts is an attempt to assist investors in predicting firm value, including these items.

WestJet describes the following financial instruments, also reported using measurement perspective, as follows: "A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument to another entity. Financial assets and financial liabilities, including derivatives, are recognized on the consolidated balance sheet at the time the Corporation becomes a party to the contractual provisions. Upon initial recognition, financial instruments are measured at fair value and, for the purpose of subsequent measurement, financial instruments are allocated to one of the following five categories: held-for-trading, held-to-maturity, loans and receivables, available-for-sale or other financial liabilities" (WestJet 67). These items are also measured at fair value. T his valuation method again assists investors in their ability to analyze and predict the future firm performance, which is a characteristic of measurement perspective.

WestJet's stock-based compensation plan is also reported according to the measurement perspective. WestJet describes their treatment of grants: "Grants under the Corporation's stock-based compensation plans are accounted for in accordance with the fair-value-based method of accounting. For stock-based compensation plans that will settle through the issuance of equity, the fair value of the option or unit is determined on the grant date using a valuation model and recorded as compensation expense over the period that the stock option or unit vests, with a corresponding increase to contributed surplus. The fair value of stock options is estimated on the date of grant using the Black-Scholes option pricing model, and the fair value of the Corporation's voting shares on the date of the grant. Upon the exercise or settlement of stock options and units, consideration received, together with amounts previously recorded in contributed surplus, are recorded as an increase in share capital" (WestJet 10). The stock compensation plan is also reported using fair value, not historical cost, which assists investors in predicting WestJet's value and future performance.

The following items from the annual report follow the information perspective on decision usefulness: inventories, accounts receivable bad debts, and software.

WestJet reports inventory using information perspective: "Inventories are valued at the lower of cost and net realizable value, with cost being determined on a first-in, first-out basis. The Corporation's inventory balance consists of aircraft fuel, de-icing fluid and retail merchandise. Aircraft expendables are expensed as acquired" (WestJet 69). Inventories are reported using historical financial information, which is typical of the information perspective. Historical cost and net realizable value report useful information and leave it to the investor to predict WestJet's future performance for purposes of making investment decisions.