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British Airways is one of the largest international companies with the largest length of airlines. It would be very interesting process to have a look at its financial position. As British Airways have been already issued their audited financial statements and annual report for year-end 2017, there is a possibility to analyze and overview their financial statements. Annual report of British Airways was found and taken from Official website “Companies House”. Various companies of United Kingdom of Great Britain are incorporated and registered with CH. It stores detailed information regarding the company and gives access to its annual report and financial statements.
To begin with lets deep into the historical establishment of British Airways. The history of British Airways dates back to August 25, 1919, when its predecessor, the British airline Aircraft Transport and Travel Limited (AT & T), began regular flights from London to Paris. On this day, the single-engine biplane de Havilland DH4A, carrying one passenger, as well as newspapers, Devonshire sour cream and ptarmigan, flew from a small town called Hounslow Heath, located not far from where Heathrow airport is now, and two and a half hours later landed in Paris at the Le Bourget airport. Further than more confusing and foggy history, no European company has. A continuous series of changes of names, mergers and divisions continued until 1974, in which, in fact, the current name – British Airways – was determined.
Since the formation of modern British Airways in 1974, the tail of the aircraft of the airline was decorated with the flag of Great Britain. The original coloring was then replaced by a new scheme, with a predominantly dark blue color and the British Airways coat of arms. June 10, 1997 was introduced a new coloring of the tailings of aircraft – abstract images, dishes or hieroglyphics, depending on the direction in which the aircraft operates. This caused controversy, and on June 6, 1999, the company’s executive director Bob Isling announced that all aircraft of the airline will be decorated with the flag of the UK based on the color of Concorde.
British Airways, is considered the largest airline in the UK. The history of its formation goes back to the beginning of the 20th century, as early as 1924 four small airlines merged into one large and large Imperial Airways. The main purpose then was to carry out transportation between the UK itself and its colonies. Having followed this path, the famous British Airways was formed, which became a national carrier simultaneously with Imperial Airways. Both companies became national carriers as far back as 1939, at that time, this status was received by airlines and as a result, a single organization was formed.
The beginning of the British Airways era
In 1959, a flight was made from the airport to Heathrow, directly to Moscow, to Vnukovo airport. It is believed that it was from this moment on that the air communication between Great Britain and the Soviet Union itself was established and continued to develop. The passenger of this flight was the president of one company; the flight then lasted about 6 hours, which was very good in the framework of that time.
However, education in a single company happened not at once and lasted a long time. Only 1974 marked the creation of British Airways in the form in which we see it now. The company has been successfully developing since that time and is gaining new momentum, improving passenger comfort and of course, getting better every year. However, at the time of the company’s creation, it did not even have jet aircraft, which was corrected in 1976, when the company began using jet aircraft. Already in 1990 British Airways was considered one of the most famous brands in the world and one of the leaders in the list of profitable companies. Of course, by this time the company has come a long way, not without state support and huge marketing potential.
The final formation of British airlines
It was with the company and a few incidents that made it the way we see it now. After the formation of British Airways, since the 70’s, the aircraft of the company were painted in the original colors, and on the tail of each of the aircraft was depicted a British flag. About 20 years in a row the company found out the aircraft by the flag on the tail. However, in 1997, a rather strange decision was made to change the image on the tail, so now various figures and hieroglyphs began to be depicted there, which could not but anger the politicians of Great Britain. What happened almost immediately, the Prime Minister, who was then in the UK, Margaret Thatcher was outraged, and the company had to return the national flag to its legitimate place, according to many.
In 2004, the company began providing all its customers with a full service. However, in order for this to happen, customers have to pay significantly for the services of British Airways and for this reason, the company focuses mainly on customers who are willing and will pay for it extra money.
British Airways today
Today, the famous British Airways airline, arranges air transportation around the world, having permits and carrying out its activities in more than 220 localities. The company is considered one of the largest in the world and has one of the largest fleets. The number of aircraft reaches a mark in more than 50 aircraft. This figure is very impressive manufacturers and anyone who understands the airline industry.
The company serves passengers according to their financial capabilities and for this, in each plane of the British company British Airways there are 3 classes of tickets. Anyone can find an airline ticket that he can afford.
To maintain loyalty and encourage all regular customers, the company has developed a special program Executive Club, which has become quite a popular program among the company’s customers. Within the framework of which, each passenger accumulates miles and bonus points. Miles will give you the opportunity to get a bonus or bonus air ticket. Points give the opportunity to receive discounts or privileges in service, and even sometimes you can get free service.
British Airways is one of the founding companies of the international alliance One World. The creation of the alliance was aimed at expanding the choice of destinations around the world, which makes air travel easier and more convenient. 23
The company’s flights are carried out from two basic London airports: Heathrow, the largest airport in the world, and Gatwick. The staff of the airline’s employees around the world is about 47 thousand people. British Airways provides its passengers with regular flights to more than 550 destinations around the World to the largest cities and countries. 24
British Airways offers a reward program for frequent flyers. This program is based on the accumulation of award miles and points. Already more than 3 million people in different countries of the world enjoy a number of privileges. Accumulated bonus miles of the Executive Club are exchanged for air tickets. The Executive Club bonus points influence the status of the owner and determine the level of privileges. There are three levels of participation in the program – Blue, Silver, and Gold. The more flights you make, the more points accumulate on your personal account. It should be noted that British Airways is included in One World; this allows the participants of the program to use the transport network of the alliance.
The British Airways fleet is one of the largest in Europe, has about 290 aircraft, one third of which are aircraft for intercontinental flights: 25
As we already know British Airways one of the leading airlines in the worldwide airline industry. The aim of this part is to analyze and overview the annual report and financial statements of British Airways for the financial year 2017.
In the very beginning of every Annual report information regarding the registered office, directors and secretaries should be stated. The directors of British Airways group are Alex Cruz, Alison Reed, Steve Gunning and Gavin Patterson. The registered office is on Waterside, Harmondsworth, and The United Kingdom of Great Britain.
Moving on the “Management review and general outlook”, we obtain information regarding general performance from the top management.
• Total revenue: £12,226 million, up 7.3% (2016: £11,398 million)
• Operating profit before exceptional items: £1,774 million, up 18.5% (2016: £1,497 million)
• Passengers: 45.2 million, up 2.0% (2016: 44.3 million)
• Punctuality: 80%, up 3 points (2016: 77%)
It is challenging to get high figures in revenues in airline industry. Despite all possible obstacles, British Airways ended up with £1,774 million of operational profit for the 2017.
There is an increase in total revenue of 7.3% comparing to 2016. It is reflected with rise in passenger profits of £715 million. 26
From the table below we can see the ASK movement year on year of 0.7%. It is explained by purchase of new aircraft and the newly implemented seat densification plan, which influenced on the results obtained below:
In audit one of the most complex and important testing is Revenue. There is always a presumed significant risk regarding revenue recognition. Many audit engagements will also have additional significant risks around revenue. Revenue is high-risk balance due to the level of complexity and judgement required around the value and point of recognition of revenue combined with risk of fraudulent manipulation. Revenue is the income recorded from the sale of goods and/or services, as part of the core trade of the entity. Income from activities outside the core trade of an entity is not recorded as core revenue, but as other income. To commence on the testing the materiality and risk should be calculated first. After all samples are selected and traced through to supporting documentation, (sales invoices, sales order and delivery documents) identifying any differences in the price and volumes being sold.
Common issues and errors noted during the auditing revenue:
• Missing documentation or insufficient detail included in documentation for testing.
• Level of detail in breakdowns or sub ledgers not sufficient to trace items through to.
• Several items of support are required for each sampled item; each will be in different formats between entities.
During Audit in British Airways, Independent auditors determined group materiality for the FY 2017 of £80 million based on 5% of operating profit. Whereas calculated clearly trivial threshold is 5% of determined materiality. It was concluded with Board of Directors and Independent Auditors that uncorrected misstatements cannot exceed of £4 million.
As an evidence of revenue, testing the sample of passengers’ tickets was tested to conclude that the revenue was recognized in the correct period and balance.
As all the revenue balance is tested and concluded as satisfactory movements of revenue and net income is illustrated in fig 8.
The bar chart below clearly shows movements in Revenue for the 2017 and 2016. If we compare figures of 2016 to 2017, we can notice that the airline is steadily is expanding in terms of Revenue. There is 7.3% rise in income from 2016 to 2017 .Revenue is reflected in Income Statement.
Essential part of the income statement are operating expenses. It is one of the most interesting sections in audit. 27
An operating expense is an expense incurred carrying out the day-to-day activities of the entity, but not directly associated with the production of goods or services.
These expenses are usually subdivided into selling expenses and administrative and general expenses.
The overall balance may sometimes be referred to as ‘Op ex’, ‘administrative expenses’ or ‘admin expenses’. Operating expenses are the operational costs incurred in the running of the entity, other than the direct costs recognized as Cost of Sales. Operating profit is therefore an indicator of the overall operating performance of a business.

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