The influence of depreciation policies on financial statement analysis: a case study of airline industry

Abstract

The public and professionals are gradually taking the quality of financial statement of airline’ companies into account since the global airline industry plays a vital role within the international business community. However, methods of airline financial reporting and disclosure vary significantly from coun-try to country due to different accounting standards. This disparity in accounting disclosure represents a large obstacle to the growing globalization of business as international investors need comparable finan-cial information to assess the financial health of different companies. This paper will illustrate one of is-sues observed in the airline industry called the estimation of depreciation expenses, which exerts a huge influence on the stated revenue since depreciation is a major expense in the industry. Assisted by classical financial analysis, we find that companies can perform different depreciation estimation practices which are allowed by different accounting practices to manage earnings.