Question

According to ISA 520, analytical procedure means “the evaluation of financial information through
the analysis of plausible relationships among both financial and non-financial data. It includes the
investigation of identified fluctuations, or relationships that are inconsistent with other relevant
information, or that differ from expected values by significant amount”. Corona virus or the COVID19 pandemic has affected most, if not all, of the business industries not only in Oman but all
over the world. This is due to the imposed “lockdown” of areas affected by the pandemic to not
spread the disease and worsen the situation. One of the industries that are considered affected by this
pandemic is the Airline Industry. Based on the news, countries have been closing their airports both
international and domestic and airlines were cancelling flights. Because employees are getting sick
or afraid to contract the virus, only few are able to report to work. Assume that you are a member of
an audit team assigned to analyze the effects of the corona virus (COVID19) pandemic on
businesses. Answer the following questions related to this business sector: Airline Industry
(example Oman Air).
Required: Answer the following questions on analytical procedures:
1. In your opinion, will this business sector be favorably or unfavorably affected by the COVID19
pandemic? Explain your answer focusing on the financial impact.
2. How could the auditor analyze the financial impact to the industry given? Give at least two
suitable examples of analysis that you can use to analyze the impact of the pandemic to a specific
business belonging to the airline industry, like the Oman Air..*i need example* .?

i want the example of question 2

Answer 1

1.Airline and associated hospitality business is going to be worst affected by Covid 19

Immediate impact is complete lockdown in few countries, where all airports are closed. No flights are allowed - Neither departure nor arrivals.

Most of the Airlines have leased planes - Fixed lease costs are to be paid essentially, even during lockdown. If the planes are owned, there is a huge debt to be repaid, the service cost for it is high. Other fixed expense is rental to be paid to airports for parking the planes. Other fixed expenses like salaries & maintenance (even during down time) are to be incurred. These all add up to huge costs, potentially crippling airline finances and making them go into losses for long period

Even if the services were to start, the current fear about Corona, will force government to impose strict guidelines on distancing customers inside the plane, which effectively means, planes run at half or 1/3rd seats. The airline can increase prices but an increase to 2-3 times may not be practically feasible.

Passengers will avoid tourist destinations for the fear of catching Corona, so major/profitable routes may no longer have takers.

Businesses too will start using online meetings, instead of traveling to meet.

The only silver line is the reduced costs of fuels, which has come down considerably, thereby reducing the variable costs.

2. The Auditor could look at few of the matrices to see the financial impact -

• Hours in the Air for each plane
• Miles traveled/ day/ week/month
• Down time for each plane
• Overall ticket sold during the month/ week/ day
• Seat occupancy per plane
• Sensitivity of fuel costs on profits

These data points could be compared with historical values. A clear drop would be observed, which can guide, to relating it with profits/ losses