Independent Auditor's Report (continued)
O Q,
Introduction Report of the Executive Board Report of the Supervisory Board
Revenue recognition
Observation Applying the aforementioned materiality, we have evaluated the accruals for
promotional allowances and volume rebates as recorded in the financial statements.
Based on our procedures performed, we did not identify any reportable matters in
management's valuation of the promotional allowances and volume rebates accrual.
As disclosed in note 4(a), the adoption of IFRS 15 has not resulted in any changes
impacting shareholders' equity and (operating) profit. The restatement of revenues due
to the revised presentation of excise taxes, is disclosed in the same note. In addition, a
footnote is included in the consolidated income statement to explain the restatement.
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 amounted to
€28,818 million as at December 31, 2018. They represent close to 70% of the Company's
total assets. These assets are allocated to Cash Generating Units (CGUs) and groups
of CGUs for which management is required to assess the recoverability of the goodwill
carrying value annually. Recoverability of other intangible assets and property, plant and
equipment is assessed upon the existence of a triggering event.
The Company uses assumptions and forecasts in respect of future market and
economic conditions, such as economic growth, expected inflation rates, demographic
developments, expected market share, revenue and margin development. Further details
on the accounting and disclosure requirements under IAS 36 Impairment of assets
are included in notes 8.1 and 8.2 to the financial statements. These notes also explain
certain impairments recorded in 2018, for a total amount of €153 million.
Procedures over management's impairment test are considered to be a key audit matter,
given the level of judgement and complexity involved with the valuation models and
assumptions used within these models.
Heineken N.V. Annual Report 2018
Financial Statements
Sustainability Review
Other Information
Intangible assets (including goodwill) and property, plant and equipment impairment test - Management
assessment of recoverability
How the scope For our audit we assessed and tested the assumptions, the discount rates,
of our audit methodologies and data used by the Company, for example by comparing them to
responded external data such as expected inflation rates, external market growth expectations
to the risk and by analysing sensitivities in the Company's valuation model. We included valuation
specialists in our team 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 obtained
supporting evidence for impairments recognised in the year.
We assessed the historical accuracy of management's estimates and tested the
effectiveness of the Company's internal controls around the goodwill accounting,
including their forecasted financial information. We also assessed the adequacy of
the Company's disclosure notes 8.1 and 8.2 in the financial statements about those
assumptions to which the outcome of the impairment test is most sensitive.
Observation We did not identify any reportable matters in management's assessment of the
recoverability of intangible assets and property, plant and equipment and the
corresponding disclosures in note 8.1 and 8.2.
Taxes - provisions for uncertain tax positions and valuation of deferred tax assets
Risk The Company operates across several 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 for tax 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 or the extent of the deferred tax liability.
The accounting for uncertain tax positions and deferred tax assets, as detailed in
note 12.1 to the financial statements, is significant to our audit because of the level of
judgement applied in quantifying appropriate provisions for uncertain tax positions and
in determining assumptions about future profitability, as it relates to the recoverability of
deferred tax assets.
