Vodafone 2014 Annual Report Download - page 94

Our signicant ndings in respect of each risk are communicated to the Audit and Risk Committee and a high level summary is as follows.
Risk How the scope of our audit responded to the risk
The assessment of the carrying value of
goodwill and intangible assets required
signicant judgement.
During the year the Group recorded impairment
charges in Europe as a result of challenging
economic conditions and continuing downward
pressure on prices.
Our work focused on detailed analysis and challenge of the assumptions used by management in
conducting the impairment review as described in Note 4 to the Group nancial statements.
This included:
a challenging forecasts, with particular attention paid to the European businesses, where
we have evaluated recent performance, carried out trend analysis and compared
to market expectations;
a using our valuations specialists to independently develop expectations for the key
macroeconomic assumptions driving the analysis, in particular discount rates, and comparing
the independent expectations to those used by management; and
a comparing growth rates against those achieved historically and external market data
where available.
We have also evaluated the sensitivity analysis performed by management and the disclosures
relating to the impairment review.
The key judgements in respect of the
transaction to dispose of the Group’s investment
in Verizon Wireless relate to the valuation of the
consideration and calculation of the related gain
on disposal.
There are a number of additional accounting
complexities including assessment of
embedded derivatives, the tax effect of the
disposal, and the related acquisition of a
controlling interest in Vodafone Italy.
We have involved our valuation, nancial instruments and tax specialists in responding to this risk
and focused our work on:
a assessing the appropriateness of the fair values assigned to each element of the consideration
received by reference to third party data as applicable;
a evaluating management’s assessment of embedded derivatives within the sale and
purchase agreement;
a challenging the fair value of Vodafone Italy and the related allocation of the purchase price
to the assets and liabilities acquired by reference to the key assumptions used; and
a testing of controls around the transaction process.
We also evaluated the presentation and disclosure of the transactions within the Group nancial
statements.
The tax affairs of the Group are complex,
particularly as they relate to the legal claim in
respect of withholding tax on the acquisition of
Hutchison Essar Limited and the recognition and
measurement of deferred tax assets in Germany
and Luxembourg.
Evaluation of the legal claim in respect
of the withholding tax on the acquisition
of Hutchinson Essar Limited is subject to
signicantuncertainty.
The recognition of deferred tax assets
in Germany and Luxembourg requires
assessmentof both the availability of losses
andfuture protability.
Our approach was to use our tax specialists to evaluate tax provisions and potential exposures for
the year ended 31 March 2014, challenging the Group’s assumptions and judgements through
our knowledge of the tax circumstances and a review of relevant correspondence.
In particular, we have assessed legal advice obtained by management to support the judgement
taken in relation to the withholding tax case in India, which included discussion with external
counsel. We also considered the adequacy of disclosure in this respect.
In respect of deferred tax assets, we have considered the appropriateness of management’s
assumptions and estimates. We have assessed management’s view of the likelihood of generating
suitable future taxable prots to support the recognition of deferred tax assets, including a
consideration of whether the changing circumstances of the Group affect the conclusion, in
particular with regard to recent acquisitions, disposals and impairment charges.
The accounting for the acquisition of Kabel
Deutschland Holding AG required a signicant
amount of management estimation.
Key judgements relate to the allocation of
the purchase price to the assets and liabilities
acquired and adjustments made to align
accounting policies.
We have made use of our valuations specialists to support a review of the acquisition accounting
and in particular the purchase price allocation. This involved challenging both the identication
and valuation of tangible and intangible assets.
We also reviewed the work of the local auditors and conducted additional audit procedures to
assess other aspects of the accounting including the adjustments made to align accounting
policies with those of the Group.
We identied deciencies in certain privileged
user access controls at the IT infrastructure
level that could have a negative impact
on the Group’s controls and nancial
reporting systems. A number of the Group’s
signicant IT applications depend upon the
infrastructure affected.
Where these deciencies affected specic applications within our audit scope, we extended our
controls testing to provide assurance over both compensating controls and the completeness
and accuracy of management information used in other key controls. In addition, and where
appropriate, we extended the scope of our substantive procedures.
Vodafone Group Plc
Annual Report 201492
Audit report on the consolidated and parent company nancial statements (continued)