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Independent Auditor's Report (continued)
Our key audit matters
Report of the
Report of the
Financial
Sustainability
Other
Introduction
Executive Board
Supervisory Board
Statements
Review
Information
Heineken N.V. Annual Report 2017
Our Group audit mainly concentrated on significant components in terms of size and financial interest or where significant risks or complex activities
were present, leading to full scope audits performed for 25 components.
We have performed audit procedures ourselves at corporate entities and the operations in the Netherlands. Furthermore, we performed audit
procedures at Group level on areas such as consolidation, disclosures, goodwill, intangible assets, joint ventures, financial instruments, acquisitions and
divestments. Specialists were involved amongst others in the areas of treasury, information technology, tax, accounting, pensions and valuation.
For selected component audit teams, the Group audit team provided detailed written instructions, which, in addition to communicating the
requirements of component audit teams, detailed significant audit areas and information obtained centrally relevant to the audit of individual
components including awareness for risk related to management override. Furthermore, we developed a plan for overseeing each component audit
team based on its relative significance to the Company and certain other risk characteristics. This included procedures such as visiting components
(Mexico, D.R.Congo, Brazil, Cambodia, Singapore, Belgium, Poland, United Kingdom, Spain, Nigeria, South Africa, Ireland and Ivory Coast) during the
year, performing file reviews, holding conference calls, attending meetings and reviewing component audit team deliverables to gain sufficient
understanding of the work performed. For smaller components we have performed review procedures or specific audit procedures.
By performing the procedures mentioned above we have been able to obtain sufficient and appropriate audit evidence on the Group's financial
information to provide an opinion on the consolidated financial statements.
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements. We have
communicated the key audit matters to the Supervisory Board. The key audit matters are not a comprehensive reflection of all matters discussed.
These matters were addressed in the context of our audit of the financial statements as a whole and in forming our opinion thereon and we do not
provide a separate opinion on these matters.
Acquisition accounting: identification and valuation of intangible assets and valuation of liabilities
Risk As set out in note 6, the Company concluded acquisitions throughout the year most notably the acquisition of Brasil Kirin
on 31 May and Punch Taverns on 29 August 2017. Accounting for these acquisitions in accordance with IFRS 3 requires
management to apply estimates to determine the fair value of the identifiable assets and liabilities, and any
resulting goodwill,
The valuation of intangible assets of €399 million and the valuation of property, plant and equipment of €1.948 million
arising from the acquisitions were considered to be a key risk as the valuation is based on a number of assumptions such
as discount rate and growth rate which are subject to significant judgement.
We further considered there to be a risk in determining the fair value of acquired provisions and contingent liabilities
within the Kirin acquisition of €1.761 million due to the estimates required in valuing liabilities of inherently uncertain
outcome, such as the outcome of civil, labour and tax claims against the acquired company.
We have obtained management's calculations for the accounting of the acquisition and evaluated management's
determination of the fair value of the net assets acquired, focusing on the valuation of intangible assets, property,
plant and equipment and provisions recognised. We evaluated the fair value of the acquired assets, focusing on
the valuation methodologies and key assumptions applied. We further challenged management's methodology
and assumptions underlying the valuation of provisions and contingent liabilities assumed. We evaluated the
competence of specialists involved by management and involved internal valuation and real estate specialists to
assist in our assessment of the fair value of the noncurrent assets acquired. We considered whether adjustments to
the original valuations were appropriate in light of additional facts and circumstances that have become available in
the measurement period to date. Further, we have evaluated the appropriateness of the related disclosures in note 6
of the financial statements.
How the scope of our
audit responded to
the risk
Revenue recognition - Accruals for promotional allowances and volume rebates
Risk Auditing standards require a presumed risk related to revenue recognition. Accounting for promotional allowances and
volume rebates impacts the amounts of revenue recognised during the period. The revenue accounting policies are
specified in note 3 to the financial statements. Management estimates the values of promotional allowances and volume
rebates and this estimate is considered to be a key audit matter relevantto our audit of the financial statements.
Our audit procedures included, amongst others, evaluating controls relating to management's process for determining
the value of promotional allowances and the volume rebates. In addition we performed substantive testing and
analytical procedures to test the accuracy and completeness of the underlying calculation of the accruals.
These procedures included challenging the appropriateness of management's assumptions and estimates and agreeing
input data, including pricing and allowance data to underlying agreements with customers.
How the scope ofour
audit responded to
the risk