Vodafone 2015 Annual Report Download - page 67

Signicant judgements and issues
Matter considered Action
Revenue recognition
The timing of revenue recognition, the recognition of revenue on
a gross or net basis, the treatment of discounts, incentives and
commissions and the accounting for multi-element arrangements are
complex areas of accounting.
See note 1 “Basis of preparation” for more detail.
In addition there is heightened risk in relation to the accounting for
revenue as a result of the inherent complexity in the underlying billing
and related IT systems.
An in-depth review of revenue accounting was undertaken by the
Committee during the year. Management outlined the Group’s
approach to revenue recognition, particularly for more complex
enterprise transactions.
PricewaterhouseCoopers LLP shared their approach to the audit of
revenue, as part of their presentation of the detailed audit plan. This
identied the primary risks attaching to the audit of revenue to be (a)
the controls over the underlying accuracy of rating by billing systems
and (b) presumed fraud risk. PricewaterhouseCoopers LLP reported
on the results of their work in relation to the revenue accounting cycle
as part of their Committee reporting from their half-year review and
the year end audit.
Goodwill impairment testing
This is an area of focus for the Committee given the materiality of the
Group’s goodwill balances (£22.5 billion at 31 March 2015) and the
inherent subjectivity in impairment testing. The judgements in relation
to goodwill impairment continue to relate primarily to the assumptions
underlying the calculation of the value in use of the business, being:
a the achievability of the long-term business plan; and
a the macroeconomic and related modelling assumptions underlying
the valuation process.
See note 4 “Impairment losses” for further detail.
The Committee received detailed reporting from management and
challenged the appropriateness of the assumptions made including:
a the consistent application of management’s methodology;
a the achievability of the business plans;
a assumptions in relation to terminal growth in the businesses at the
end of the plan period; and
a discount rates.
A separate in-depth review on setting discount rates for impairment
purposes was also conducted in the year.
This remains an area of audit focus and PricewaterhouseCoopers
LLP provided detailed reporting on these matters to the Committee
including sensitivity testing.
Liability provisioning
The Group is subject to a range of claims and legal actions from a
number of sources including competitors, regulators, customers,
suppliers, and on occasion fellow shareholders in Group subsidiaries.
The level of provisioning for contingent and other liabilities is an
issue where management and legal judgements are important and
accordingly an area of Committee focus.
The Committee received a presentation from the Group’s General
Counsel and the Director of Litigation in both November 2014 and May
2015 on management’s assessment of the most signicant claims.
As this is an area of audit focus PricewaterhouseCoopers LLP also
reviews these claims and relevant legal advice received by the Group,
to form a view on the appropriateness of the level of provisioning that
is shared with the Committee.
Acquisitions and disposals
The Group made one signicant business acquisition during the
year being the purchase of Ono in Spain. This gave rise to a number
of complex accounting and disclosure requirements particularly in
relation to the valuation of acquired tangible and intangible assets.
See note 28 “Acquisitions and disposals” for further details.
Management outlined the key accounting and disclosure impacts in
relation to this transaction.
The Committee received detailed reporting from PricewaterhouseCoopers
LLP on their assessment of the accounting and disclosures made by
management in both the half-year and annual financial statements.
IT controls in relation to privileged user access
The Group’s IT infrastructure platform hosts a number of nancial
reporting related applications. In the 2014 nancial year, an issue was
identied in respect of privileged user access controls within part of
the IT infrastructure platform which could have had an adverse impact
on certain of the Group’s controls and nancial systems.
Management has implemented new controls in the year to provide
assurance over access to these systems.
PricewaterhouseCoopers LLP tested these controls as part of their
audit approach and conrmed they were operating effectively.
Key business controls
The Group has continued to concentrate resources on key business
controls to ensure a robust system of internal control. During the year
this work has included particular focus over controls over general
ledger accounts given the inherent risks and the high volume of
related processing, and user access to the Group’s core ERP system.
This work was also responsive to both the identification of a number of
weaknesses and potential improvements to these processes identified by
Group Internal Audit.
The Committee received reports of work performed by management
in relation to the maintenance and development of these controls
during the year together with the results of related reviews performed
by Internal Audit.
PricewaterhouseCoopers LLP included these key business controls
on their audit scope and reported to the Committee the results of
their audit testing in these areas. Further detail is provided in the
PricewaterhouseCoopers LLP audit report on pages 97 to 104.
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Annual Report 2015
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