Annual integrated report 2017

Recoverability of trade receivables

Refer to note 1.20 for the accounting policy and notes 21, 33.2.1 and 36 of the consolidated financial statements.

The key audit matter

How the matter was addressed in our audit

Trade receivables represent a significant balance on the

statement of financial position.

Management identifies possible impairment of trade

receivables on an ongoing basis. Significant judgement

is applied by management in the following areas when

preforming this assessment:

■

Age of the debtor;

■

Current financial status of the debtor; and

■

Any disputes.

Due to the level of judgment involved in the assessment of

the recoverability of the trade receivables, this is considered

to be a key audit matter.

Our audit procedures included controls testing which was supported by

substantive audit procedures including, among others:

■

Agreeing a sample of outstanding sales invoices at year-end to subsequent

cash receipts from customers and/or obtaining confirmations of selected

balances;

■

Reperforming the ageing of the trade receivables to verify the accuracy of the

age analyses;

■

Reviewing management’s calculation of the trade receivables impairment

allowance by predicting our own impairment allowance based on the age,

financial status and problematic/legal accounts and comparing our impairment

allowance to management’s impairment allowance. The assessment

considered:

–– comparing agreed payment terms to payment history;

–– examining credit insurance policies; and

–– inspecting securities held.

■

Reviewed the adequacy and appropriateness of the disclosures in the financial

statements.

Findings

We found the judgments and estimates made by management in their assessment

of trade receivables to be reasonable and the disclosures to be acceptable in

accordance with the requirements of the financial reporting framework.

Assessment of the carrying value of goodwill

Refer to note 1.13 for the accounting policy and notes 15 and 36 of the consolidated financial statements.

The key audit matter

How the matter was addressed in our audit

Goodwill impairment testing involves valuations which are

complex. Management applies significant judgment in

relation to the assumptions used in the group’s goodwill

impairment models.

As indicated in note 1.13 goodwill was subject to an annual

impairment test using the higher of, the fair value less

costs to sell method and the value-in-use method. A price

earnings multiple, consistent with similar companies, within

the foodservice industry and geographic locations, was

applied to determine the recoverable amount of each cash-

generating unit (CGU). In addition, discounted cash flow

models were used to determine the value-in-use.

The following assumptions significantly impact the models:

■

projected annualised earnings;

■

price earnings multiples;

■

discount rate (WACC);

■

cash flow growth rate; and

■

terminal growth rate.

In addition, included in the Foodservice United Kingdom

(UK) CGU is goodwill relating to the Logistics business

which was impaired as the businesses performance was

below expectation.

Due to the level of judgement involved in relation to the

assumptions used in these impairment models and due to

the work effort required by the audit team, this is considered

to be a key audit matter.

Our audit procedures included, among others, the following:

■

Obtaining the impairment assessments prepared by the management and

gaining an understanding of the methodology applied to determine the

recoverable amounts in respect of goodwill and evaluating the appropriateness

of significant assumptions applied and the critical judgements;

■

Challenging the group’s impairment models, including the allocation to CGUs

based on the geographies of the businesses which is representative of the

internal structure for management purposes, by performing sensitivity analyses;

■

Evaluating the consistency and appropriateness of assumptions and

methodologies used by the Group, in particular those relating to revenue,

operating profit and cash flow growth, discount rates used (WACC rates) and

terminal growth rates applied by comparing the group’s assumptions with our

own assessment in relation to key inputs into the models including assessing

historical financial performance against forecast and by benchmarking discount

rates with similar companies in same geographies;

■

In certain cases, using our valuation specialist to assist us in evaluating the

assumptions and methodologies used by the group; and

■

For the Logistics UK impairment assessment we challenged management’s

assumptions by performing sensitivity analyses on key inputs such as the

discount rate and working capital movements. The range and likelihood of each

of the possible outcomes determined from these sensitivity analyses was then

considered in relation to the assessment performed by management.

Findings

We found that the assumptions used by management were reasonable and we

consider the disclosure of the goodwill to be acceptable in accordance with the

requirements of the financial reporting framework.

Annual integrated report 2017

Bid Corporation Limited