Air NZ changes its airpoints accounting in Enron's wake

Nick Stride, Business editor

Friday 30th August 2002

Further evidence of a less accommodating post-Enron audit environment emerged this week with a significant change to Air New Zealand's accounting policies.

Announcing a $318 million bottom-line loss, the airline revealed it had changed the way it accounts for frequent-flyer points (FFP).

Until now it has recognised FFP revenues immediately - that is, before the flights to which the points entitle travellers have been taken up.

Under the new policy revenues will be "deferred" until the points have been redeemed.

The effect in the June 2002 year has been to chop $25.1 million from Air New Zealand's revenue and to increase the balance sheet FFP liability by the same amount. Prior-year adjustments cut a further $52.6 million from revenue with a corresponding increase in the liability.

The shift follows significant accounting changes by Tranz Rail and Telecom.

Tranz Rail will now treat its lease of the ferry Aratere as a finance lease rather than as an operating lease, effectively increasing its gearing but boosting accounting profits.

A lease on rolling stock remains off balance sheet.

Telecom last year wrote down the value of its investment in AAPT by $850 million to $2 billion and may have to make a further heavy writedown this year.

Analysts said Telecom had been under pressure from the investment community for some time to write down AAPT but has done so only in the wake of the accounting scandals that have shaken corporate America.

Telecom also introduced a policy constraining its external auditors from supplying non-audit services, the first and so far only company to do so.

The change resulted in the resignation of its auditor, PricewaterhouseCoopers.

Accounting policy changes are also expected among the smaller companies reporting in the current season but these may become apparent only when the annual reports are released over the next couple of months.

Air New Zealand result

Comments from our readers

No comments yet