Vodafone 2014 Annual Report Download - page 64

Signicant issues
The Committee discussed with management the critical accounting judgements and key sources of estimation uncertainty outlined in note 1
“Basis of preparation”. The signicant areas of focus considered by the Committee in relation to the 2014 accounts, and how these were addressed,
are outlined below:
Matter considered Action
Goodwill impairment testing
This continued to represent a signicant area of focus for the
Committee given the materiality of the Group’s goodwill balances
(£23.3 billion at 31 March 2014) and the inherent subjectivity
in impairment testing. The judgements in relation to goodwill
impairment continue to relate primarily to the assumptions underlying
the calculation of the value in use of the business, being the
achievability of the long-term business plan and the macroeconomic
and related modelling assumptions underlying the valuation process.
The Committee received detailed reporting from management
and challenged the appropriateness of the assumptions made.
Areas of focus were the achievability of the business plans, assumptions
in relation to terminal growth in the businesses at the end of the
plan period, particularly in Europe where adverse trends in nancial
performance have been experienced, and discount rates, which have
been subject to volatility given the current macroeconomic conditions.
This remains a prime area of audit focus and Deloitte LLP provided
detailed reporting on these matters to the Committee including
sensitivity testing.
Taxation
The Group is subject to a range of tax claims and related legal actions
across a number of jurisdictions where it operates. The most material
claim is from the Indian tax authorities in relation to our acquisition
of Vodafone India Limited from Hutchison Telecommunications
International Limited group in 2007, for the amount of INR142billion
(£1.4 billion) including interest. Further details of this claim are
described in note 30 “Contingent liabilities”.
Further, the Group has extensive accumulated tax losses as outlined
in note 6 “Taxation”, and a key management judgement is whether
a deferred tax asset should be recognised in respect of these losses.
As at 31 March 2014 the Group had recognised a £21.2 billion deferred
tax asset in respect of these tax losses.
The Group Tax Director presented management’s view of both the
provisioning and disclosure of tax contingencies and deferred tax asset
recognition at the May 2014 meeting of the Committee. In respect
of tax contingencies, including the India case noted opposite, this
involved a discussion of the extent and strength of professional advice
received from external legal and advisory rms. In relation to the
recognition of the deferred tax assets, management’s plans and
expectations for future taxable prots were critically reviewed.
This is also an area of higher audit risk and accordingly, the Committee
receives detailed oral and written reporting from Deloitte LLP
on these matters.
Liability provisioning
The Group is subject to a range of claims and legal actions from
a number of sources including competitors, regulators, customers,
suppliers, and on occasion fellow shareholders in Group subsidiaries.
The level of provisioning for contingent and other liabilities is an issue
where management and legal judgements are important and
accordingly an area of Committee focus. The most material claim
is from Telecom Egypt in relation to allegations of breach of non-
discrimination provisions within an interconnect agreement.
Details of the claim are outlined in note 30 “Contingent liabilities”.
The Committee received a presentation from the
Group’s General Counsel and Company Secretary in May 2014
on management’s assessment of the most material claims, including
relevant legal advice received and the level of provision held against
each. Deloitte LLP also reviews these matters, forming an independent
view that is discussed with the Committee.
Revenue recognition
The timing of revenue recognition, the recognition of revenue
on a gross or net basis, the treatment of discounts, incentives and
commissions and the accounting for multi-element arrangements are
complex areas of accounting.
Deloitte LLP outlined to the Committee their approach to the audit
of revenue, as part of their presentation of the detailed audit plan.
The Committee also considered any observations made by the
auditors as part of their reporting to the Committee.
Acquisitions and disposals
The Group made a number of highly material business acquisitions and
disposals during the year including the disposal of Verizon Wireless,
and the acquisition of interests in Kabel Deutschland and Vodafone
Italy. This gave rise to a number of complex accounting and disclosure
requirements in the nancial statements.
Management outlined the key accounting and disclosure impacts
in relation to these transactions. The Committee requested and
received detailed reporting from Deloitte LLP on their assessment
of the accounting and disclosures made by management in both the
half-year and annual nancial statements.
IT controls in relation to privileged user access
The Group’s IT infrastructure platform hosts a number of nancial
reporting related applications. An issue was identied in respect
of privileged user access controls within part of the IT infrastructure
platform which could have had an adverse impact on certain of the
Group’s controls and nancial systems.
Management outlined tested alternative controls in place
which provided assurance over the completeness and accuracy
of the information derived from the impacted nancial reporting
related applications.
Deloitte LLP extended their controls and substantive testing to obtain
assurance over both the compensating controls and the completeness
and accuracy of the management information derived from
these applications.
Vodafone Group Plc
Annual Report 201462
Corporate governance (continued)