Unilever 2014 Annual Report Download - page 43

2 OUR ASSESSMENT OF RISKS OF MATERIAL MISSTATEMENT
In arrvng at our audt opnon above on the Fnancal Statements the rsks of materal msstatement that had the greatest effect
on our audt (key audt matters) were as set out below
These are the matters that, n our professonal udgment, had the greatest effect on the overall audt strategy the allocaton of resources
n our audt and drectng the efforts of the engagement team We have communcated these matters to the Audt ommttee Our
audt procedures relatng to these matters were desgned n the context and solely for the purposes of our audt of the Fnancal
Statements as a whole, and n formng our opnon thereon, and we do not express dscrete opnons on these matters
Revenue recognton
• The rsk – Revenue s measured takng account of dscounts, ncentves and rebates earned by customers on the roup’s sales
Due to the multtude and varety of contractual terms across the roup’s markets, the estmaton of dscounts, ncentves and
rebates recognsed based on sales made durng the year s consdered to be complex
Revenue s recognsed when the rsks and rewards of the underlyng products have been transferred to the customer
There s a rsk that revenue may be overstated because of fraud resultng from the pressure local management may feel to
acheve performance targets The roup focuses on revenue as a key performance measure whch could create an ncentve
for revenue to be recognsed before the rsks and rewards have been transferred
• Our response – Our audt procedures ncluded consderng the approprateness of the roup’s revenue recognton accountng
polces ncludng those relatng to dscounts, ncentves and rebates and assessng complance wth the polces n terms of
applcable accountng standards We tested the effectveness of the roup’s controls over calculaton of dscounts, ncentves
and rebates and correct tmng of revenue recognton
We assessed sales transactons takng place at ether sde of the balance sheet date as well as credt notes ssued after the year
end date to assess whether that revenue was recognsed n the correct perod We also developed an expectaton of the current
year revenue balance based on trend analyss nformaton takng nto account hstorcal weekly sales and returns nformaton
and our understandng of each market We then compared ths expectaton to actual results
We also consdered the adequacy of the roup’s dsclosures (n note 2) n respect of revenue
Indrect tax provsons and contngences
• The rsk – Provsons for ndrect tax requre the Drectors to make udgments and estmates n relaton to the ssues and
exposures In Brazl (one of the roup’s largest markets) the complex nature of the local tax regulatons and ursprudence
make ths a partcular area of sgnfcant udgment
• Our response – Our procedures ncluded usng our own ndrect tax and legal specalsts to consder the level of provsons
requred n lght of the nature of the roup’s exposures, applcable regulatons and the roup’s correspondence wth the
authortes We also assessed relevant hstorcal and recent udgments passed by the court authortes n consderng any
legal precedent or case law, as well as assessng legal opnons from thrd party lawyers We also ganed an understandng
of the roup’s provsonng methodology and challenged assumptons usng the knowledge and experence of our own
specalsts In addton, we obtaned formal confrmatons from the roup’s external counsel, where approprate
We also consdered the adequacy of the roup’s dsclosures (n note 19) made n relaton to ndrect tax provsons and
contngences
Drect tax provsons and contngences
• The rsk – The roup has extensve nternatonal operatons and n the normal course of busness the Drectors make
udgments and estmates n relaton to tax ssues and exposures Ths s a key udgment due to the roup operatng n a
number of tax ursdctons, the complextes of transfer prcng and other tax legslaton
• Our response – Our audt procedures ncluded testng the effectveness of the roup’s controls around the recordng and
contnuous re-assessment of tax provsons
Our own tax specalsts performed an assessment of the roup’s correspondence wth relevant tax authortes, to consder
the completeness of tax provsons for all relevant rsks We also challenged the assumptons used, takng nto consderaton
our own tax specalsts’ knowledge and experence In addton, we assessed relevant udgments passed by relevant authortes
n consderng any need for a provson, as well as assessng relevant opnons from thrd partes
We also consdered the adequacy of the roup’s dsclosures (n note 20) n respect of tax and uncertan tax postons
For each rsk noted above refer to related dsclosure wthn the Report of the Audt ommttee (page 56), accountng polces and
fnancal dsclosures wthn the notes to the onsoldated Fnancal Statements
80 Unilever Annual Report and Accounts 2014Financial statements
INDEPENDENT AUDITORS’ REPORTS
ONTINUED