Vodafone 2016 Annual Report Download - page 51

Signicant judgements and issues
Matter considered Action
Goodwill impairment testing
This is an area of focus for the Committee given the materiality of the
Group’s goodwill balances (£22.8 billion at 31 March 2016) 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.
See note 4 “Impairment losses” for further detail.
The Committee received detailed reporting from management and
challenged the appropriateness of the assumptions made, including:
a the consistent application of management’s methodology;
a the achievability of the business plans;
a assumptions in relation to terminal growth in the businesses at the
end of the plan period; and
a discount rates.
This remains an area of audit focus and PricewaterhouseCoopersLLP
provided detailed reporting on these matters to the Committee,
including sensitivity testing.
The Committee was satised with both the appropriateness of
the analysis performed by management that indicated a goodwill
impairment charge of £450 million in relation to Vodafone Romania,
and the impairment related disclosures set out in note 4 to the
nancialstatements.
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. See note 30 “Contingent
liabilities and legal proceedings” for further detail.
The Committee received a presentation from the Group’s General
Counsel and Company Secretary and the Director of Litigation in both
November 2015 and May 2016 on management’s assessment of the
most signicantclaims.
As this is an area of audit focus, PricewaterhouseCoopers LLP also
reviews these claims and relevant legal advice received by the Group,
to form a view on the appropriateness of the level of provisioning that
is shared with the Committee.
The Committee challenged both management and
PricewaterhouseCoopers LLP on the level of provisioning for legal
claims and was satised that the amounts recorded appropriately
reected the risk of loss.
Signicant one-off transactions
The Committee reviewed the accounting and reporting of a number of
material one-off transactions. These included:
a The recognition of spectrum assets and a corresponding liability
of £2.7 billion during the 2016 nancial year in relation to Vodafone
India. See note 22 “Liquidity and capital resources” for further detail.
a The issue by the Group in February 2016 of £2.9 billion
of mandatory convertible bonds. See note 22 “Liquidity and capital
resources” for further detail.
Management outlined the key accounting and disclosure impacts in
relation to these transactions.
The Committee received detailed reporting from
PricewaterhouseCoopers LLP on their assessment of the accounting
and disclosures made by management in both the half-year and
annual nancial statements and were satised with the accounting
and disclosure in the nancial statements for both matters.
Key business controls
The Group has continued to devote considerable resources to the
development of key business and related IT controls to ensure a
robust system of internal control. During the year, this focused on
ongoing work programmes over general ledger account controls
and user access to the Group’s core Enterprise Resource Planning
(‘ERP’) system as well as new activity, including a multi-year project to
implement a suite of standard controls over the Group’s core nancial
processes and managing the business and IT control implications of
changes to the scope of the Group’s section 404 of the US Sarbanes-
Oxley compliance activities.
The Committee reviewed the work performed by management in
relation to the implementation and maintenance of these controls,
including the degree to which they operated effectively throughout
the year and at the year end. This was supplemented by the results of
related reviews performed by Internal Audit.
The audit scope of PricewaterhouseCoopers LLP included certain
of these key business and IT controls and they reported to the
Committee the results of their audit testing in these areas. Further
detail is provided in the PricewaterhouseCoopers LLP audit report on
pages 79 to 86.
The Committee was satised with the basis of management’s report
on internal control over nancial reporting as required by section 404
of the US Sarbanes-Oxley Act and with management’s ongoing focus
on enhancements to the internal control environment.
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Vodafone Group Plc
Annual Report 2016
49