AirAsia unable to consolidate associate companies

PETALING JAYA: AirAsia Bhd's audit committee has clarified that it is restricted in consolidating its associate companies by aviation regulations in operating countries despite its willingness to do so.
Refuting claims over the transparency and accounting practices, AirAsia's audit committee chairman VU Kumar said in a statement released yesterday that it could not have legal control or power over its associate companies, which, if it did, would result in loss of the associates' airline operating licences.
"PricewaterhouseCoopers (PwC) has however, taken the strict interpretation of power in MFRS10 (consolidated financial statements accounting standard) and advised that AirAsia cannot consolidate its associates companies because it does not have legal power," he said.
Kumar noted that while the consolidation would present a true and fair view of AirAsia's relationship with its associate companies, it had been advised not to do so as it would be in breach of MFRS10.
Hong Kong-based GMT Research had earlier released a report questioning AirAsia's accounting, profit generation, cash-flow issues, leverage and group structure.
"Therefore contrary to the GMT report that AirAsia did not want to consolidate its associate companies, we were compelled not to consolidate as a result of the opinion of our auditors. Consolidation would have attracted an audit qualification.
"So whilst we are of the view that consolidation would present a true and fair view of AirAsia's relationships with its associate companies, we have been advised that doing so would be a breach of MFRS 10 and in addition the 'true and fair' override would also not be allowed," he explained.
Kumar said AirAsia, has – for over a year at least – had a whole series of meetings with PwC, legal advisers, management of the associate companies and aviation regulators to effect consolidation of its associate companies.
At the Paris Air Show last week, AirAsia Group's CEO Tan Sri Tony Fernandes told reporters that he was shocked by the GMT report. "For anyone to be doubting our transparency, it shocks me," he said, and promised a record year of profits.
Kumar said the audit committee, the board and management are therefore somewhat "distressed and peeved" to have been accused of corporate governance abuses and condoning accounting gimmicks.
"The audit committee wishes that statements are verified with those responsible before they are put out in the market place to ensure that they do not unfairly tarnish the image of AirAsia, the board of directors, management and auditors," he added.
AirAsia's share price rose 3 sen to RM1.64 yesterday on some 37.67 million shares done. The counter dived by 15% since the release of GMT's report on June 12.