ACCA has published Technical Factsheet 184 on the reporting requirements for the accounts of IATA travel agents introduced in 2013.
In June 2013 IATA introduced new UK local criteria for the approval and retention of agents that were published in IATA Travel Agent’s Handbook 2013 (Resolution 818g edition).
The new UK criteria adopted by IATA require all accredited agents, or those seeking accreditation, to provide audited accounts. The audit requirements apply for all accounts provided to IATA on or after 1 June 2013 and apply to all agents, therefore including small companies, sole traders and partnerships.
The IATA criteria require audited accounts covering at least 12 months of trading to be provided by all agents that want to apply to become accredited by IATA, or that want to continue to be accredited, not later than six months after each financial period end. If an agent has been in business for less than six months at the time of application, it must submit an opening balance sheet, certified by a statutory auditor.
Under the IATA criteria, financial information extracted from the agent’s audited accounts is then used to evaluate the agent by applying a set of financial tests that are expressed as follows:
‘(a) There must be positive Net Equity.
(b) Profitability: the accounts must show that the Agent and their UK registered Parent Company(ies) as applicable, have made a profit before tax at the end of an accounting period.
(c) Liquidity: the accounts must show a positive liquidity ratio i.e. current assets must exceed current liabilities at the end of an accounting period.’
Additionally there must have been no defaults against the agent’s IATA licence in the previous 24 months.
An agent that has been accredited for more than two years and that fails to pass any of the criteria must provide IATA with a financial security calculated in accordance with the local criteria rules. Agents accredited for two years or less must provide a financial security in any case.
The requirements to produce audited accounts for agents were introduced by IATA without prior consultation with ACCA or other UK accountancy bodies and their wording is, in some respects, not clear.
ACCA has drawn the need for guidance to the attention of IATA and has published Technical Factsheet 184 Audited Accounts for IATA Agents – interim guidance that clarifies some of the requirements and highlights some of the key issues in accepting or performing engagements under the new IATA criteria. The guidance has been acknowledged by IATA and ACCA will continue to liaise with that organisation with the objective of developing reporting guidelines that achieve a more appropriate balance of the mitigation of risk and the costs thereof compared to an audit.
The technical factsheet indicates, amongst other things, what is considered an acceptable financial reporting framework when preparing accounts for an IATA agent. Additionally there is clarification as to what constitutes an opening balance sheet for an IATA client that has been in business for less than 6 months. The issue of duty of care to third parties is also discussed together with the alternative forms of reports that could be agreed with IATA in certain circumstances.
Post contributed by ACCA