Airbus 2015 Annual Report Download - page 297

AIRBUS GROUP FINANCIAL STATEMENTS 2015 l 115 l
Other Supplementary Information Including the Independent Auditor’s Report
5.
Valuation of inventories for contracts accounted for under IAS18 and completeness of provisions for contract losses
andcustomer service obligations
Description
Inventories amount in total to EUR 29billion, including work in progress of EUR 20billion. Key programmes (which are accounted for under
IAS18 Revenue recognition, for which revenue and cost of sales are recognised as each aircraft is delivered) in light of the risks mentioned below
are the A380 and the A350XWB contracts with non-launch customers. With respect to the A380, a key challenge is securing the order flow.
Estimates of total contract costs and selling price per aircraft are necessary to determine if a net realisable value impairment or provision
forcontract loss is required. In addition to the risk of contract cancellations, significant costs or loss of revenue may be incurred in connection
with remedial action required to correct any performance issues detected. Due to the inherent uncertainty involved in forecasting future costs
and interpreting contractual and commercial positions in determining impairments and provisions, this is a key audit area. Updates to these
provisions can have a significant impact on the Group’s result and financial position.
Reference is made to the disclosures on Note3 “Key estimates and judgements”, and notes 20 “Inventories” and 22 “Provisions, contingent
assets and contingent liabilities” of the financial statements.
Our response
We evaluated the design and implementation of internal controls for identifying and recording impairments and provisions and performed
detailed procedures including inquiry of the Head of Programmes and corroboration with other audit evidence. We evaluated management’s
assumptions in the determination of the forecast revenue to be received, costs to be incurred (including any contractual penalties) and gross
margin. Our evaluation was based on our assessment of the historical accuracy of the Group’s estimates in previous periods and included
ananalysis of contingencies and impact of known technical issues on cost forecasts and provisions.
Particular attention was paid to the commercial status of the A380 programme, including discussions with Airbus management on the status
and their ongoing commitment to the A380 programme.
Litigation and claims and risk of non-compliance with laws and regulations
Description
A part of the Group’s business is characterised by competition for individual significant contracts with customers which are often directly
orindirectly associated with governments. The process associated with these activities is susceptible to the risk of non-compliance with laws
and regulations. In addition the Group operates in a number of territories where the use of commercial intermediaries is normal practice.
Subsidiaries of AirbusGroup SE remain under investigation by various law enforcement agencies in Germany, Greece, UK, Romania and Austria.
Breaches of laws and regulations can lead to fines, penalties, criminal prosecution, litigation and restrictions on future business.
Litigation and claims involve amounts that are potentially significant and the estimate of the amount to be provided as a liability, if any, isinherently
subjective. The outcome of these matters may have a material effect on the Group’s result and financial position.
Reference is made to the disclosure on Note3 “Key estimates and judgements”, and Note36 “Litigation and claims” of the financial statements.
Our response
Our audit procedures included, among others, assessment of documents with the Group’s general counsel and the Group/divisional Compliance
Officers on all significant legal and alleged compliance cases. In addition we obtained letters from the Group’s legal counsel and external lawyers
for all significant litigation. We used our own forensic specialists to assess risks and perform procedures to identify actual and potential non-
compliance with laws and regulations relevant to the Group’s business, analysed correspondence with enforcement agencies, and monitored
external sources of information. With respect to cases regarding alleged non-compliance with laws and regulations, weassessed the adequacy
of management’s response (including investigations and corrective actions).
We tested payments made to commercial intermediaries during the year, made inquiries of appropriate personnel and evaluated the tone set
by the Board and the Group’s approach in managing these compliance risks. We also assessed whether the Group’s disclosures detailing
significant legal proceedings and suspected breach in laws and regulations adequately disclose the contingent liabilities of the Group within
Note36.
Particular attention was paid to the alleged compliance cases, the enhanced business development policies with regards to Ethics &Compliance
and related disclosures.
Financial Statements 2015
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Annual Report 2015 Financial Statements 2015
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