Experian 2014 Annual Report Download - page 106

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Area of focus How the scope of our audit addressed the area of focus
Tax – uncertain tax positions and tax planning
The Group is subject to several tax regimes owing to the
geographical diversity of its businesses.
The directors are required to exercise significant judgement in
determining the appropriate amount to provide in respect of
potential tax exposures and uncertain tax positions. The most
significant of these relate to Brazil and the UK.
(Refer also to notes 16 and 35 to the financial statements.)
We obtained an understanding of the Group’s tax strategy to identify tax
risks relating to business and legislative developments.
We recalculated management’s valuations of tax provisions and determined
whether the calculations were in line with the Group’s tax policies and had
been applied consistently.
We challenged the key underlying assumptions, particularly in Brazil and the
UK, and in territories with new cross-border tax structures, having due regard
for ongoing correspondence between the Group and local tax authorities.
We also assessed the recoverability of deferred tax assets by evaluating
forecasts of future profits.
Litigation
The Group is subject to a large number of claims and class
actions relating to the disclosure and use of credit scores in
Brazil which could have a significant impact on the results if the
potential exposures were to materialise. The directors applied
judgement when determining whether, and how much, to
provide for these matters.
We focused on this area due to the magnitude of potential
exposures, and the inherent complexity and judgement in
whether to provide for or disclose certain exposures.
(Refer also to note 45 to the financial statements.)
We understood, assessed and tested management’s controls in respect of
litigation at the Group and local level. We discussed the nature and status
of these exposures with in-house and external legal counsel. We obtained
letters from the Group’s external legal counsel to corroborate management’s
position. We assessed the appropriateness of provisions recorded in the
financial statements and the completeness of disclosures in respect of
contingent liabilities.
Goodwill and intangible asset impairment assessment
We focused on this area because goodwill and intangible
asset balances are material and there is significant
judgement involved in the assumptions underpinning the
cash flow forecasts used by the directors to support their
carrying amounts.
(Refer also to note 20 to the financial statements.)
We tested and challenged the directors’ cash flow forecasts, and
the process by which they were drawn up, including comparing them to
the latest Board-approved plans from which forecasts are derived, and
testing the underlying calculations.
We challenged:
• the directors’ key assumptions for long-term growth rates in the forecasts
by comparing them to historical results and economic forecasts;
• the discount rate by assessing the cost of capital for the Group and
comparable organisations; and
• the short-term forecasted profit margins for the EMEA and Asia
Pacific regions.
We also performed sensitivity analysis around the key drivers of the cash flow
forecasts. Having ascertained the extent of change in those assumptions that
either individually or collectively would be required for the goodwill to be impaired,
we considered the likelihood of such a movement in those key assumptions. We
also assessed the appropriateness and completeness of disclosures in respect of
these sensitivities.
Acquisition accounting
On 1 October 2013, the Group acquired The 41st Parameter, Inc.
and on 21 November 2013 the Group acquired Passport Health
Communications, Inc. There is judgement around the valuation
of the intangible assets acquired, which directly impacts the
valuation of the goodwill recognised.
We focused on this area because it required the directors
to exercise a significant level of judgement.
(Refer also to note 40 to the financial statements.)
We tested the valuation of the assets and liabilities acquired, particularly those
that are most reliant on judgement, notably intangible assets and related
deferred tax. For the valuation exercise we examined the directors’ cash flow
forecasts for the acquired businesses, comparing them to Board-approved
plans and challenging the underlying assumptions (mainly being the discount
rates used and the remaining useful economic lives applied to the intangible
assets), and we compared the forecasts against historical performance of the
acquired component businesses.
Independent auditors’ report
to the members of Experian plc continued
Financial statements • Independent auditors’ report: Group financial statements