Vodafone 2015 Annual Report Download - page 101

Area of focus How our audit addressed the area of focus
Taxation matters
The Group operates across a large number of
jurisdictions and is subject to periodic challenges by
local tax authorities on a range of tax matters during the
normal course of business including transfer pricing,
indirect taxes and transaction-related tax matters. As at
31 March 2015, the Group has current taxes payable of
£599 million.
We have focused on two matters relating to the legal
claim in respect of withholding tax on the acquisition
of Hutchison Essar Limited and the recognition and
recoverability of deferred tax assets in Luxembourg
andGermany.
Provisioning claim for withholding tax – there continues
to be uncertainty regarding the resolution of the
legal claim from the Indian authorities in respect
of withholding tax on the acquisition of Hutchison
EssarLimited.
Recognition and recoverability of deferred tax assets in
Luxembourg and Germany – signicant judgement is
required in relation to the recognition and recoverability
of deferred tax assets, particularly in respect of losses in
Luxembourg and Germany.
Refer to the Audit and Risk Committee Report, note1
– Basis of preparation (Critical accounting judgements
and key sources of estimation uncertainty), note 6 –
Taxation and note 30 – Contingent liabilities.
We satised ourselves with the design and implementation of controls in respect of
provisioning for withholding tax and the recognition and recoverability of deferred
taxassets.
We used our specialist tax knowledge to gain an understanding of the current status of
the Indian tax investigation and monitored changes in the disputes by reading external
advice received by the Group, where relevant, to establish that the tax provisions had been
appropriately adjusted to reect the latest external developments.
In respect of the deferred tax assets, we assessed the recoverability of losses from a tax
perspective through performing the following:
a understanding how losses arose and where they are located, including to which
subgroups they are attributed;
a considering whether the losses can be reversed;
a assessing any restrictions on future use; and
a determining whether any of the losses will expire.
In addition we assessed the application of International Accounting Standard 12 – Income
Taxes including:
a understanding the triggers for recognition of deferred tax assets;
a considering effects of tax planning strategies; and
a assessing recoverability of assets against forecast income streams, including reliability
of future income projections.
We determined that the recognition of deferred tax assets during the period was
appropriate, and that the recoverability of the deferred tax assets in Luxembourg and
Germany is supported by forecast future taxable prots.
We validated the appropriateness of the related disclosures in note 6 and note 30 to the
nancial statements, including the enhanced disclosures made in respect of the utilisation
period of deferred tax assets.
Carrying value of goodwill
Vodafone Group Plc has goodwill of £22,537 million
contained within 22 cash-generating units (‘CGUs’).
Impairment charges to goodwill have been recognised
in prior periods. With challenging trading conditions
continuing in certain territories, particularly in Europe,
the Group’s performance and prospects could be
impacted increasing the risk that goodwill is impaired.
For the CGUs which contain goodwill, the determination
of recoverable amount, being the higher of fair value
less costs to sell and value-in-use, requires judgement
on the part of management in both identifying and
then valuing the relevant CGUs. Recoverable amounts
are based on management’s view of variables such
as future average revenue per user (‘ARPU’), average
customer numbers and customer churn, timing and
approval of future capital, spectrum and operating
expenditure and the most appropriate discount rate.
Refer to the Audit and Risk Committee Report, note1
– Basis of preparation (Critical accounting judgements
and key sources of estimation uncertainty), note 4 –
Impairment losses and note 10 – Intangible assets.
We evaluated the appropriateness of management’s identication of the Group’s CGUs
and tested the operating effectiveness of controls over the impairment assessment
process, including indicators of impairment, noting no signicant exceptions.
Our procedures included challenging management on the suitability of the impairment
model and reasonableness of the assumptions, with particular attention paid to the
European businesses, through performing the following:
a benchmarking Vodafone’s key market-related assumptions in management’s valuation
models with industry comparators and with assumptions made in the prior years
including revenue and margin trends, capital expenditure on network assets and
spectrum, market share and customer churn, foreign exchange rates and discount
rates, against external data where available, using our valuation expertise;
a testing the mathematical accuracy of the cash ow models and agreeing relevant data
to Board-approved Long-Range Plans; and
a assessing the reliability of management’s forecast through a review of actual
performance against previous forecasts.
We validated the appropriateness of the related disclosures in note 4 and note 10 to the
nancial statements, including the sensitivities provided with respect to Germany, Spain
and Italy.
Based on our procedures, we noted no exceptions and consider management’s key
assumptions to be within a reasonable range.
Overview Strategy review Performance Governance Financials Additional information Vodafone Group Plc
Annual Report 2015
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