Vodafone 2016 Annual Report Download - page 82

Vodafone Group Plc
Annual Report 2016
80
Audit report on the consolidated and parent company nancial statements (continued)
The scope of our audit and our areas of focus
We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) (‘ISAs (UK and Ireland)’).
We designed our audit by determining materiality and assessing the risks of material misstatement in the nancial statements. In particular,
we looked at where the Directors made subjective judgements, for example in respect of signicant accounting estimates that involved making
assumptions and considering future events that are inherently uncertain. As in all of our audits, we also addressed the risk of management override
of internal controls, including evaluating whether there was evidence of bias by the Directors that represented a risk of material misstatement due
to fraud.
The risks of material misstatement that had the greatest effect on our audit, including the allocation of our resources and effort, are identied
as “areas of focus” in the table below. We have also set out how we tailored our audit to address these specic areas in order to provide an opinion
on the nancial statements as a whole, and any comments we make on the results of our procedures should be read in this context. This is not
a complete list of all risks identied by our audit.
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 2016, the Group has current taxes payable of
£540 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. During the current year,
£3,207 million of deferred tax assets have been utilised
or de-recognised connected with the revaluation of
investments for Luxembourg GAAP purposes.
Refer to the Audit and Risk Committee Report, note1
– Critical accounting judgements and key sources of
estimation uncertainty, note 6 – Taxation and note 30 –
Contingent liabilities and legal proceedings.
We evaluated 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;
a evaluating the results of local statutory impairment assessments including reversals;
a considering the impact of recent regulatory developments, as applicable; 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 and derecognition 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 carrying value of deferred tax assets at 31 March 2016 was
supported by management’s plans including intercompany funding arrangements.
We validated the appropriateness of the related disclosures in note 6 and note 30 of the
nancial statements, including the enhanced disclosures made in respect of the utilisation
period of deferred tax assets.