The key audit matter How the matter was addressed in our audit Impairment assessment of the Electricity distribution, Gas distribution, Natural gas and Liquigas cash generating units (inclusive of $1,101.0 million of goodwill). Refer to Note 12 of the financial statements.
We considered the impairment assessment of the Electricity distribution and Gas distribution cash generating units to be a key audit matter due to the significance of goodwill of $1,101.0 million to the financial position of the group and the significant judgment used to estimate future pricing of the regulated revenue streams beyond the timeframe of the current Commerce Commission regulatory price paths. We considered the impairment assessment of the Natural gas and Liquigas segments to be a key audit matter due to the competitive margin trading environment and the potential impact of the response on the global climate change.
The procedures we performed to evaluate the impairment assessments included: assessing whether the methodology adopted in the discounted cash flow models was consistent with accepted valuation approaches of NZ IAS 36 Impairment of Assets and within the energy industry; evaluating the significant future cash flow assumptions by comparing to historical trends, budgets and where applicable, Asset Management Plans, and regulatory pricing models; comparing the discount rates applied to the estimated future cash flows and the terminal growth rates to relevant benchmarks using our own valuation specialists; challenging the above assumptions and judgements by performing sensitivity analysis, considering a range of likely outcomes based on various scenarios; calculating the regulated asset base (‘RAB’) multiple implied by valuation of the Regulated Network cash generated unit and comparing this to the range of RAB multiples observed in the marketplace; and comparing the group’s net assets as at 30 June 2023 to its market capitalisation at 30 June 2023. We found the methodology to be consistent with industry norms, specifically: the discount and terminal growth rates were in an acceptable industry range; future cash flow assumptions were supported by comparison to the sources we considered above; and the overall comparison of the group’s net assets to market capitalisation did not indicate an impairment.
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Vector Annual Report 2023
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