158
Independent Auditor's Report (continued)
Report of the
Report of the
Financial
Sustainability
Other
Introduction
Executive Board
Supervisory Board
Statements
Review
Information
Heineken N.V. Annual Report 2017
Intangible assets (including goodwill) and property, plant and equipment impairment test - Management assessment of recoverability
Risk Intangible assets (including goodwill) and property, plant and equipment represent 70% of the Statement of Financial
Position. Procedures over management's annual impairment test were significant to our audit because the assessment
process is complex and the test relies on estimates and assumptions.
How the scope of our
audit responded to
the risk
Intangibles and property, plant and equipment are allocated to Cash Generating Units (CGUs) and groups of CGUs.
The Company uses assumptions in respect of future market and economic conditions such as economic growth,
expected inflation rates, demographic developments, expected market share, revenue and margin development.
The details on the accounting for intangibles and property, plant and equipment and disclosure requirements under IAS
36 Impairment of assets are included in notes 3,14 and 15 to the financial statements. For our audit we assessed and
tested the assumptions, the discount rates, methodologies and data used by the Company, for example by comparing
them to external data such as expected inflation rates, external market growth expectations and by analysing
sensitivities in the Company's valuation model. We included valuation specialists in ourteam to assist us. We specifically
focused on the sensitivity in the available headroom of CGUs and whether a reasonably possible change in assumptions
could cause the carrying amount to exceed its recoverable amount. We also assessed the historical accuracy of
management's estimates. We assessed the adequacy of the Company's disclosure notes 14 and 15 in the financial
statements about those assumptions to which the outcome of the impairment test is most sensitive.
Taxes - provisions for uncertain tax positions and valuation of deferred tax assets
Risk The Company operates across a number of different tax jurisdictions and is subject to periodic challenges by local tax
authorities during the normal course of business, including transaction-related taxes and transfer pricing arrangements.
In those cases where the amount of tax payable or recoverable is uncertain, the Company establishes provisions based
on its judgement of the probable amount of the liability or recovery. Deferred tax assets fortax losses carried forward are
recognised by the Company to the extent that it is probable that future taxable income will be available against which
unused tax losses can be utilised. The income tax related accounting policies are specified in note 3 to the
financial statements.
How the scope of our We focused on these areas because of the level of judgement that is applied in quantifying appropriate provisions for
audit responded to uncertain tax positions and in determining assumptions about future market and economic conditions, as it relates to
the risk the recoverability of deferred tax assets. Using our own tax specialists, we obtained a detailed understanding of the
Company's tax strategy including current transfer pricing arrangements. We assessed tax risks, legislative developments
and the status of ongoing local tax authority audits. We evaluated and challenged the Company's judgements in
respect of estimates of tax exposures, recoverable amounts and contingencies. We considered correspondence with tax
authorities and relevant historical and recent judgements, and also assessed legal opinions from third party tax advisors.
With regard to recorded deferred tax assets, we evaluated the Company's assumptions and estimates in relation to the
likelihood of generating sufficient future taxable income based on budgets and business plans.
Finally we considered the adequacy of the Company's disclosures in notes 13,18,24 and 32 regarding uncertain tax
positions and recognised deferred tax assets.
Internal controls over financial reporting
Risk The Company operates various processes and proceduresthat are important for reliable financial reporting.
These processes are operated both centrally as well as locally.
We identified the Company's internal controls over financial reporting as an area of focus as we consider internal controls
over financial reporting as a basis for designing our procedures for the audit. In those instances where accounting
procedures, associated IT and process level controls are not designed and/or operating effectively, there are risks
associated with financial reporting to which we need to tailor our audit procedures.
We have performed audit procedures on both the centrally and locally established process level controls of the Company,
including the diverse information technology landscape. We performed walkthroughs to gain an understanding of the
entity and to identify relevant controls. We have tested the design of those controls and, where effective for the audit,
we also tested their operating effectiveness. In cases of deficiencies, we have evaluated the compensating controls and
measures of the Company and/or tailored procedures our procedures to address the risk.
We are however not required nor engaged to perform an audit of internal controls over financial reporting. Accordingly,
we do not express an opinion on the effectiveness of the Company's internal controls overfinancial reporting.
How the scope of our
audit responded to
the risk