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SUMMARY OF CERTAIN SIGNIFICANT DIFFERENCES BETWEEN
THAI GAAP AND US GAAP
The following is a general summary of certain significant differences between Thai GAAP and US
GAAP that we believe are applicable to us.
We have prepared our financial statements, as listed in the accompanying index on page XXX
contained in this offering circular, in accordance with Thai GAAP. The financial statements comprise
the consolidated financial statements of Thai Airways International Public Company Limited and its
subsidiaries and the separate financial statements of Thai Airways International Public Company
Limited only.
For the purposes of this offering circular, we have provided below a summary of significant
differences between Thai GAAP and US GAAP. The differences identified below are limited to those
significant differences that are applicable to our financial statements. They should not be construed as
being exhaustive and no attempt has been made to identify all differences in disclosure, presentation
and classification that would affect the manner in which transactions and events are presented in the
financial statements. No attempt has been made to identify future differences as a result of prescribed
changes in accounting standards nor to identify all future differences that may affect our financial
statements as a result of transactions or events that may occur in the future
In certain instances, the disclosures required to present financial statements in accordance with Thai
GAAP differ from those required to present financial statements in accordance with US GAAP.
Management has not quantified the effects of the following differences between Thai GAAP and US
GAAP. Accordingly, there can be no assurance that net income and shareholders’ equity reported in
accordance with Thai GAAP would not be negatively impacted if determined in accordance with US
GAAP.
Presentation of financial statements
Under Thai GAAP, items related to comprehensive income are presented as separate lines or columns
in the balance sheets or in the statements of changes in shareholder’s equity. Comprehensive income
is net income plus gains and losses that are recognized directly in equity rather than in net income.
Under US GAAP, there are three options for the presentation of comprehensive income: (1) in the
statement of income and comprehensive income under “one-statement approach”, (2) in the statement
of comprehensive income which is separated from the statement of income under the “two-statement
approach” and (3) in the statement of changes in equity.
Impairments of assets
Thai GAAP states that the impairment of an asset exists if an asset’s carrying amount exceeds the
higher of the asset’s value-in-use (discounted present value of the asset’s expected future cash flows)
and fair value less costs to sell. Except for goodwill, the reversal of impairment of an asset is
generally allowed under Thai GAAP.
US GAAP requires a two-step approach: first, the impairment indication of an asset exists if an asset’s
carrying amount exceeds the undiscounted expected future cash flows of the asset and secondly, if the
impairment indication exists, the impairment loss is measured as the difference between the carrying
amount and fair value. The reversal of impairment of an asset is generally prohibited under US
GAAP.
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Major overhaul costs
Thai GAAP does not address the specific accounting treatment for costs related to significant regular
overhauls of aircraft. THAI has adopted a policy whereby it capitalizes such costs and amortizes
them over the period until the next scheduled overhaul of four to seven years depending on the type of
aircraft.
US GAAP provides three accounting options for major overhaul: (1) the built-in overhaul method, (2)
deferral method and (3) direct expensing method. Under the built-in overhaul method, major
maintenance costs are considered a component of the initial asset. The estimated cost of the first
planned major maintenance activity is separated from the purchase price of the equipment and
amortized to the date of the initial planned major maintenance activity. The cost of that first planned
major maintenance activity is then capitalized and amortized to the next occurrence of the planned
major maintenance activity, at which time the process is repeated. The deferral method is similar to
built-in overhaul method but without the initial segregation requirements. Under this method, the
actual cost of each planned major maintenance activity is capitalized and amortized to expense in a
systematic and rational manner over the estimated period until the next planned major maintenance
activity. The direct expensing method recognizes major overhaul costs as incurred. An airline using
the accrual, deferral, or built-in overhaul methods must make certain assumptions as to the cost and
timing of the scheduled maintenance events, which can affect the recorded results. In addition an
airline must apply the method selected consistently and should not switch back and forth between
methods.
Financial instruments
Thai GAAP has certain disclosure requirements for financial instruments but only very limited
guidance on the recognition and measurement of financial instruments.
US GAAP has extensive guidance on the recognition, measurement and disclosure of financial
instruments, including the accounting for derivative and hedging activities. Under US GAAP, all
derivative instruments must be recorded in the balance sheet as either an asset or liability and
measured at fair value. For derivatives designated and qualified as fair value hedges, changes in fair
values are recognized in earnings as offsets to the earnings recognition of changes in fair values of
related hedged assets, liabilities or firm commitments. For derivatives designated and qualified as
cash flow hedges, the effective portion of the change in fair value is recorded as a component of
equity until the hedged transaction occurs. The ineffective portion of a cash flow hedging derivative’s
change in fair value must be immediately recognized in earnings.
Debt acquisition costs
Thai GAAP does not address the specific accounting treatment for the amortization of the debt
acquisition costs. Currently, THAI capitalizes and amortizes debt acquisition costs over the debts
period using the straight-line method.
US GAAP requires the capitalization of debt acquisition costs and subsequent amortization of such
amounts over the life of the related debt using the effective interest method.
Employee benefits
Thai GAAP does not prescribe specific accounting treatments for employee benefits. THAI’s
primary obligations in respect of employee benefits include (1) short-term vacation accrual, (2)
defined contribution plans for staff pension and provident funds, (3) defined benefit plans on
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statutory severance employee benefits, and (4) other post-employment benefits e.g. free medical care
from THAI-employed physicians and rebates for air travel on THAI. THAI recognizes the current
expense associated with a defined benefit retirement fund and has adopted a policy whereby it
provides for the deemed total liability at and as of each period.
Under US GAAP, a liability should be accrued for vacation benefits that employees have earned but
not yet taken. For both Thai GAAP and US GAAP, the accounting treatments for the defined
contribution plan are similar where the expense is recorded on an accrual basis. Under US GAAP,
costs associated with a defined benefit plan are recognized annually based on service cost, interest
cost, return on plan assets (if any), amortization of unrecognized prior services (if any), and gains and
losses from changed assumptions. Such calculations are generally actuarially determined. Postemployment benefit plans are accounted for based on the type of benefit whereas post-retirement
benefits are classified as either defined contribution or defined benefit plans.
Uncertain tax positions
Thai GAAP does not prescribe specific accounting treatments for uncertain tax positions. Some
companies may record a tax benefit based on the management assessment and may record the
subsequent tax exposures following the recognition principles in IAS 37 on provisions and
contingencies.
US GAAP requires that the Company follow the two-step process under FIN 48. The first step is to
apply a recognition threshold to determine whether an uncertain tax position should be recognized
within an entity’s financial statements. If the threshold is met, an entity must then apply the second
step, which is a measurement process, where the Company may retain the possible tax benefit
outcome that has a more than 50% chance of being realised upon the ultimate tax settlement with the
tax authority.
Operating segments
Thai GAAP’s accounting applications for segment reporting are similar to IAS 14: Segment
Reporting (which was subsequently replaced by IFRS 8: Operating Segment). The key focus on the
segment reporting under Thai GAAP is to disclose financial information of business and geographical
segments.
US GAAP requires identification of operating segments on the basis of internal reports that are
regularly reviewed by the entity’s chief operating decision maker, in order to allocate resources to the
segment and assess its performance. US GAAP requires the disclosure of financial information of
segments including segment profit and loss, assets and liabilities, and other material items. US GAAP
also requires the disclosures of entity-wide information including products and services, geographical
areas and major customers.
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SUMMARY OF CERTAIN SIGNIFICANT DIFFERENCES BETWEEN
THAI GAAP AND IFRS
The following is a general summary of certain significant differences between Thai GAAP and IFRS
that we believe are applicable to us.
We have prepared our financial statements, as listed in the accompanying index on page XXX
contained in this offering circular, in accordance with Thai GAAP. The financial statements comprise
the consolidated financial statements of Thai Airways International Public Company Limited and its
subsidiaries and the separate financial statements of Thai Airways International Public Company
Limited only.
For the purposes of this offering circular, we have provided below a summary of significant
differences between Thai GAAP and IFRS. The differences identified below are limited to those
significant differences that are applicable to our financial statements. They should not be construed as
being exhaustive and no attempt has been made to identify all differences in disclosure, presentation
and classification that would affect the manner in which transactions and events are presented in the
financial statements. No attempt has been made to identify future differences as a result of prescribed
changes in accounting standards nor to identify all future differences that may affect our financial
statements as a result of transactions or events that may occur in the future.
In certain instances, the disclosures required to present financial statements in accordance with Thai
GAAP differ from those required to present financial statements in accordance with IFRS.
Management has not quantified the effects of the following differences between Thai GAAP and
IFRS. Accordingly, there can be no assurance that net income and equity reported in accordance with
Thai GAAP would not be negatively impacted if determined in accordance with IFRS.
Presentation of financial statements
Under Thai GAAP, items related to comprehensive income are presented as separate lines or columns
in the balance sheets or in the statements of changes in shareholder’s equity. Comprehensive income
is net income plus gains and losses that are recognized directly in equity rather than in net income.
Under IFRS, comprehensive income may be presented in the statement of comprehensive income
under “single-statement approach” (combining the statement of income and comprehensive income)
or in the statement of comprehensive income under “two-statement approach” (separate the statement
of income and the statement of comprehensive income).
Major overhaul costs
Thai GAAP does not address the specific accounting treatment for costs related to significant regular
overhauls of aircraft. THAI has adopted a policy whereby it capitalizes such costs and amortizes
them over the period until the next scheduled overhaul of four to seven years depending on type of
aircraft.
Under IFRS, major overhaul costs are recognized as part of the carrying amount of PP&E if they meet
the asset recognition criteria in IAS 16. The major overhaul component will then be depreciated on a
straight-line basis over its useful life (i.e., over the period to the next overhaul) and any remaining
carrying amount will be derecognized when the next overhaul is performed.
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Investment Property
THAI owns land and buildings held to earn rental income and land held for undetermined future use
which are currently classified as part of property, plant and equipment and carried at cost less
accumulated depreciation.
Under IFRS, land and buildings held to earn rental income or land held for undetermined future use is
classified as investment property. IFRS allows enterprises to choose either a fair value model or a cost
model to measure the investment property. However, if the cost model is applied, the Company is still
required to disclose the fair value of the investment property.
Financial instruments
Thai GAAP has certain disclosure requirements for financial instruments but only very limited
guidance on the recognition and measurement of financial instruments.
IFRS has extensive guidance on the recognition, measurement and disclosure of financial instrument,
including the accounting for derivative and hedging activities. Under IFRS, all derivative instruments
must be recorded in the balance sheet as either an asset or liability and measured at fair value. For
derivatives designated and qualified as fair value hedges, changes in fair values are recognized in
earnings as offsets to the earnings recognition of changes in fair values of related hedged assets,
liabilities or firm commitments. For derivatives designated and qualified as cash flow hedges, the
effective portion of the change in fair value is recorded as a component of equity until the hedged
transaction occurs. The ineffective portion of a cash flow hedging derivative’s change in fair value
must be immediately recognized in earnings.
Debt acquisition costs
Thai GAAP does not address the specific accounting treatments for the amortization of debt
acquisition costs. Currently, THAI capitalizes and amortizes debt acquisition costs over the debt
period using the straight-line method.
IFRS requires the capitalization of debt acquisition costs and subsequent amortization of such
amounts over the life of the related debt using the effective interest method.
Employee benefits
Thai GAAP does not prescribe specific accounting treatments for employee benefits. THAI’s
primary obligations in respect of employee benefits include (1) short-term vacation accrual, (2)
defined contribution plans for staff pension and provident funds, (3) defined benefit plans on
statutory severance employee benefits, and (4) other post-employment benefits e.g. free medical care
from THAI-employed physicians and rebates for air travel on THAI. THAI recognizes the current
expense associated with a defined benefit retirement fund and has adopted a policy whereby it
provides for the deemed total liability at and as of each period.
Under IFRS, a liability should be accrued for vacation benefits that employees have earned but not yet
taken. For both Thai GAAP and IFRS, the accounting treatments for the defined contribution plan are
similar where the expense is recorded on an accrual basis. Under IFRS, costs associated with a
defined benefit plan are recognized annually based on service cost, interest cost, return on plan assets
(if any), amortization of unrecognized prior services (if any), and gains and losses from changed
assumptions. Such calculations are generally actuarially determined. Post-employment benefit plans
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are accounted for based on the type of benefit whereas post-retirement benefits are classified as either
defined contribution or defined benefit plans.
Related party disclosures
Thai GAAP’s accounting applications related to the related party disclosures are based on the IAS 24
issued in 2006 (which was subsequently replaced by IAS 24 issued in 2008). The major difference
between Thai GAAP and IFRS related to the related party disclosures is that IFRS requires the
disclosure of compensation costs for key management personnel in total and analyses into
components (short-term, post-employment, other-long term and termination benefits) whilst current
Thai GAAP does not have such specific requirements.
Operating segments
Thai GAAP’s accounting applications for segment reporting are similar to IAS 14: Segment
Reporting (which was subsequently replaced by IFRS 8: Operating Segment). The key focus on the
segment reporting under Thai GAAP is to disclose financial information of business and geographical
segments.
IFRS requires identification of operating segments on the basis of internal reports that are regularly
reviewed by the entity’s chief operating decision maker, in order to allocate resources to the segment
and assess its performance. IFRS requires the disclosures of financial information of segments
including segment’s profit and loss, assets and liabilities, and other material items. IFRS also requires
the disclosures of entity-wide information including products and services, geographical areas and
major customers.
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