0
164
Independent Auditor's Report
Heineken N.V.
Annual Report 2020
Introduction
Report of the
Executive Board
Report of the
Supervisory Board
Financial
Statements
Sustainability
Review
Other
Information
Expected credit losses for contracts with customers -
Refer to Notes 7.2, 8.4 and 11.5 to the financial statements
Risk HEINEKEN determines the impairment of receivables using a model which estimates the
lifetime expected credit losses that will be incurred. Individually significant financial assets
are tested for impairment on an individual basis. The remaining financial assets are assessed
collectively in groups that share similar credit risk characteristics. In 2020 the outbreak of
the COVID-19 pandemic and the related containment measures (including the closure of
outlets) inherently resulted in a substantial decline in outstanding trade receivables with
simultaneously more judgement involved in the calculation of expected credit losses on
these and associated receivables (such as loans or advances to customers).
Further details on the accounting and disclosure requirements under IFRS 9 Financial
Instruments, including management's policies around credit management, are included in
Notes 7.2, 8.4 and 11.5 to the financial statements respectively. These notes also explain the
allowances for expected credit losses recorded at December 31, 2020 for a total amount of
€504 million.
Because of increasing judgement involved with the calculation of expected credit losses
and the related higher decree of auditor judgement, we considered the recognition of
impairments on receivables a key audit matter for our 2020 audit.
How the scope Our audit procedures related to management's assessment of expected credit losses
of our audit included, amongst others:
- We obtained an understanding of management's process and evaluated relevant controls
related to valuation of allowances of allowances for expected credit losses and the
disclosure of credit risks under IFRS 9 Financial Instruments;
- We obtained an understanding of management's process for the recognition of allowances
for expected credit losses based on reasonable and supportable information available
such as whether there has been a breach or deterioration of payments terms, a request for
extended payment terms or a request for waived payment terms.
- We evaluated management's ability to appropriately estimate allowances for credit losses
and tested the amount recorded at year end through a combination of:
- Developing an expectation for the amount based on the historical collection data and
current supportable data on changes in customer payment behaviour and comparing
our expectation to the amount recorded by management.
- Testing subsequent collection of outstanding receivables and/or circulating
confirmations to customers to confirm contractual agreements and/or the outstanding
receivables net of discounts payable.
Observation Applying the aforementioned materiality, we have audited the allowances for credit
losses as recorded in the financial statements and the related disclosures required under
IFRS 9 Financial Instruments included in Note 7.2, 8.4 and 11.5. Based on our procedures
performed, we did not identify any reportable matters.
Impairment testing of intangible assets and property, plant and equipment -
Refer to Notes 8.1, 8.2 and 8.3 to the financial statements
Risk Intangible assets (including goodwill) and property, plant and equipment amounted to
EUR 27,318 million at December 31, 2020 and represented 64 per cent of the consolidated
total assets. For purposes of impairment testing, goodwill is allocated and monitored on
a (groups of) Cash Generating Unit ('CGU') basis. Other intangibles and property, plant
and equipment, are grouped to the smallest Cash Generating Units ('CGUs'). For goodwill,
management is required to assess the recoverable amount of the respective CGUs (of groups
of CGUs). Recoverable amounts of other non-current assets are assessed upon the existence
of a triggering event. Following the impact of COVID-19 on HEINEKEN's markets and
businesses, HEINEKEN has assessed all CGUs for an indication of an impairment, prepared
multiple recovery scenarios for the impairment trigger tests (e.g. if and when the CGUs can
return to pre-COVID-19 sales volumes) and performed impairment tests based on the single
most likely scenario, accordingly.
The estimated sales volumes, revenues and discount rates used in management's trigger
and impairment tests involved a higher degree of uncertainty due to the current market
circumstances. Further details on the accounting and disclosure requirements under IAS
36 Impairment of Assets are included in notes 8.1, 8.2 and 8.3 to the financial statements.
These notes also explain the total impairment recorded in 2020, for a total amount of EUR
963 million due to the impact of COVID-19 in some developing economies and in the on-
trade business (like cafés, bars and restaurants) in some developed economies.
Given the significant judgement made by management to estimate recoverable amounts in
the current economic climate, procedures to evaluate the reasonableness of estimated sales
volumes, revenues and discount rates used in management's trigger and impairment tests
of intangible assets and property, plant and equipment required a high degree of auditor
judgement, including the need to involve our fair value specialists.
