Vodafone 2016 Annual Report Download - page 83

Overview Strategy review Performance Governance Financials Additional information
Vodafone Group Plc
Annual Report 2016
81
Area of focus How our audit addressed the area of focus
Carrying value of goodwill
Vodafone Group Plc has goodwill of £22,789 million
contained within 22 cash generating units (‘CGUs’).
Impairment charges to goodwill have been
recognised in prior periods. With challenging trading
conditions continuing in certain territories, the Group’s
performance and prospects could be impacted
increasing the risk that goodwill is impaired.
For the CGUs that contain goodwill, the determination
of recoverable amount, being the higher of fair value
less costs to sell and value-in-use, requires judgement
on the part of management in both identifying and
then valuing the relevant CGUs. Recoverable amounts
are based on management’s view of variables such as
future average revenue per user, average customer
numbers and customer churn, timing and approval of
future capital, spectrum and operating expenditure and
the most appropriate discount rate.
In the year ended 31 March 2016, a pre-tax impairment
charge of £450 million was recognised related to
goodwill in Romania.
Refer to the Audit and Risk Committee Report, note1
– Critical accounting judgements and key sources of
estimation uncertainty, note 4 – Impairment losses and
note 10 – Intangible assets.
We evaluated the appropriateness of management’s identication of the Group’s CGUs
and the continued satisfactory operation of the Group’s controls over the impairment
assessment process.
Our procedures included challenging management on the suitability of the impairment
model and reasonableness of the assumptions, with particular attention paid to the
European businesses, through performing the following:
a benchmarking Vodafone’s key market-related assumptions in management’s valuation
models with industry comparators and with assumptions made in the prior years
including revenue and margin trends, capital expenditure on network assets and
spectrum, market share and customer churn, foreign exchange rates and discount
rates, against external data where available, using our valuation expertise;
a testing the mathematical accuracy of the cash ow models and agreeing relevant data
to Board approved Long-Range Plans; and
a assessing the reliability of management’s forecast through a review of actual
performance against previous forecasts.
We validated the appropriateness of the related disclosures in note 4 and note 10 of the
nancial statements, including the sensitivities provided with respect to Germany, Spain,
and Romania.
Based on our procedures, we noted no exceptions and consider management’s key
assumptions to be within a reasonable range.
Provisions and contingent liabilities
There are a number of threatened and actual legal,
regulatory and tax cases against the Group. There is a
high level of judgement required in estimating the level
of provisioning required.
Refer to the Audit and Risk Committee Report, note1
– Critical accounting judgements and key sources
of estimation uncertainty, note 17 – Provisions and
note30 – Contingent liabilities and legal proceedings.
Our procedures included the following:
a testing key controls surrounding litigation, regulatory and tax procedures;
a where relevant, reading external legal opinions obtained by management;
a meeting with regional and local management and reading subsequent
Group correspondence;
a discussing open matters with the Group general counsel, Group litigation, regulatory,
general counsel and tax teams;
a assessing and challenging management’s conclusions through understanding
precedents set in similar cases; and
a circularising where appropriate relevant third party legal representatives and direct
discussion with them regarding certain material cases.
Based on the evidence obtained, while noting the inherent uncertainty with such legal,
regulatory and tax matters, we determined the level of provisioning at 31 March 2016
tobe appropriate and at a level consistent with previous periods.
We validated the completeness and appropriateness of the related disclosures through
assessing that the disclosure of the uncertainties in note 17 and note 30 of the nancial
statements was sufcient.