Independent Auditor's Report (continued)
Revenue recognition
Recoverability of non-current assets
O O Qs
Introduction Report of the Executive Board Report of the Supervisory Board
Our key audit matters
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. The key audit matters are
consistent with these identified in the prior year with the addition of the Company's implementation of IFRS
16 'Leases'. Other than the sale of operating entities in China and Hong Kong that were already classified
as held for sale in the 2018 financial statements and completion of the announced acquisition of an
effective economic interest in China Resources Beer (Holdings) Co. Ltd., no significant business acquisitions
or disposals took place. Consequently, we did not include a separate key audit matter related to acquisitions
and disposals in current year's auditor's report.
The following 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.
Risk In our audit we have determined that promotional allowances and volume rebates are the
most relevant risk areas in relation to revenue recognition. In the normal course of business
the Company provides a wide variety of discounts, promotional allowances and volume
rebates to its on-trade and off-trade customers. Unconditional discounts are recognized at
the same moment as the related sales transaction. The Company also provides conditional
discounts which are recognised based on target realisation as specified in note 6.1 to the
financial statements. The target realisation requires judgement and management estimate
for sales related accruals at balance sheet date.
Because of the level of judgement involved and the inherent fraud risks presumed, we have
considered the recognition of promotional allowances and volume rebates under IFRS 15
Revenue From Contracts with Customers to be a key audit matter relevant to our audit of
the financial statements.
To address the risks related to promotional allowances and volume rebates, our audit
procedures included, amongst others, assessing the appropriateness of the company's
revenue recognition accounting policy for promotional allowances and volume rebates
as detailed in note 6.1 to the financial statements, evaluating controls relating to
management's process for determining the value of promotional allowances and the
volume rebates. In addition, at group and component level, we performed substantive
testing and analytical procedures to evaluate 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.
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.
How the scope
of our audit
responded
to the risk
Observation
Heineken N.V. Annual Report 2019
Financial Statements
Sustainability Review
Other Information
Risk Intangible assets (including goodwill) and property, plant and equipment amounted to EUR
31,038 million at December 31, 2019 and represent close to 67 percent of the Company's
total assets. These assets are allocated to cash generating units and groups thereof for
which management is required to assess the recoverability of goodwill. Recoverability of
other non-current assets 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 2019, for a total amount of EUR 72 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.
How the scope We evaluated the historical accuracy of management's estimates and tested the
of our audit effectiveness of the Company's internal controls around the goodwill accounting including
responded their forecasted financial information. We also assessed the adequacy of the Company's
to the risk 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.
For our audit we evaluated 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 our team to assist
us. In addition, 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 recognized in the year.
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.
