Vector Annual Report 2020

85 ―

statements as a whole was set at $9.3 million determined with reference to a benchmark of group profit before tax. We chose the benchmark because, in our view, this is a key measure of the group’s performance.

Key audit matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the consolidated financial statements in the current period. We summarise below those matters and our key audit procedures to address those matters in order that the shareholders as a body may better understand the process by which we arrived at our audit opinion. Our procedures were undertaken in the context of and solely for the purpose of our statutory audit opinion on the consolidated financial statements as a whole and we do not express discrete opinions on separate elements of the consolidated financial statements.

The key audit matter

How the matter was addressed in our audit

1. Capitalisation and asset lives (Property, plant and equipment of $4,368 million, Software of $97 million, with additions during the year of $489 million). Refer to Notes 10 and 11 of the financial statements.

Capitalisation of costs and useful lives assigned to these assets are a key audit matter due to the significance of property, plant and equipment and software to the group’s business, and due to the judgement involved in determining the carrying value of these assets, principally: — the decision to capitalise or expense costs relating to the metering, electricity and gas distribution networks. This decision depends on whether the expenditure is considered to enhance the network (and is therefore capital), or to maintain the current operating capability of the network (and is therefore an expense). There is also judgement when estimating the extent of recovering internal salary costs, particularly within digital projects; and — the estimation of the useful life of the asset once the costs are capitalised. Estimated lives range between 2 and 100 years, resulting from the diversity of property, plant and equipment and software assets across a portfolio of businesses. There is also judgment when estimating asset lives due to the uncertainty of the impact of technological change.

Our audit procedures in this area included, among others: — examining the operating effectiveness of controls related to the approval of capital projects; — assessing the nature of capitalised costs by checking a sample of costs to invoice to determine whether the description of the expenditure met the capitalisation criteria in the relevant accounting standards; — assessing the useful economic lives stated in the accounting policies of the group by comparing to industry benchmarks and our knowledge of the business and its operations; and — assessing whether the useful economic lives of each individual asset capitalised in the current period was within the stated policies. We found no material errors in the nature and amount capitalised in the period and that the estimated useful lives of assets were within an acceptable range when compared to those used in the industry.

2. Impairment assessment of the Regulated Networks segment and the Metering and E-Co Products cash generating units (inclusive of $1,073 million of goodwill). Refer to Note 10 of the financial statements.

We considered the impairment assessment of the Regulated Networks segment to be a key audit matter due to the significance of goodwill of $1,050 million to the financial position of the group and the significant judgment used to estimate future pricing of the regulated revenue streams

The procedures we performed to evaluate the impairment assessments included: — assessing whether the methodology adopted in the discounted cash flow models was consistent with

independent auditor's report

Made with FlippingBook Learn more on our blog