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Carrying value of goodwill
Refer to Note 15 ‘Intangibles’.
Included in the Group’s consolidated statement of financial
position at 31 December 2016 is goodwill relating to Services
of $360.5 million, Mining and Mineral Processing of $98.1
million, and Construction of $455.4 million.
Management has assessed the recoverable amount of the
goodwill relating to Construction utilising discounted cash flow
models which incorporate significant judgement in respect of
assumptions such as discount rates and future contract wins,
as well as economic assumptions such as growth rates.
We focused on this area as a key audit matter due to the
judgement involved in forecasting future cash flows and the
selection of assumptions.
In conjunction with valuation experts, our procedures
included, amongst others:
•
Evaluating the ‘value in use’ discounted cash flow model
developed by management to assess the recoverable
amount of the goodwill, including critically assessing the
following assumptions:
-
discount rate;
-
forecast cash flows and capital expenditure;
-
growth rates by reference to recent bid wins and
pipeline of prospective projects; and
-
terminal growth rate.
Where possible we corroborated market related
assumptions by reference to external data.
•
Testing on a sample basis the mathematical accuracy of
the cash flow model and agreeing relevant data to the
latest Board approved forecasts.
•
Assessing the historical accuracy of forecasting of the
Group in relation to cash flows of cash generating units.
•
Performing sensitivity analysis on a number of
assumptions, including discount rates and forecast
profitability.
•
Assessing the appropriateness of the relevant disclosures
in the financial statements.
Acquisition of UGL Limited
Refer to Note 30 ‘Acquisitions, disposals and discontinued
operations’.
On 10 October 2016 the Group made an unconditional cash off-
market takeover offer for all of the shares it did not own in UGL
Limited (“UGL”) for $3.15 per share. On 24 November 2016 the
Group increased its ownership interest in UGL to over 50% and
thereby gained control at that date. The purchase consideration
paid for UGL was $262.1 million. As at 31 December 2016, the
Group’s ownership interest in UGL was 95%.
Accounting for this transaction is complex, requiring
management to exercise judgement to determine the fair value
of acquired assets and liabilities, including contracts and
determining the allocation of purchase consideration to
goodwill and separately identifiable intangible assets such as
customer contracts.
We focussed on this area as a key audit matter due to the size
of the acquisition and the judgement involved in accounting for
the transaction.
In conjunction with valuation experts, our procedures
included, amongst others:
•
Reading the bidder’s statement and target’s statement for
the unconditional cash off-market takeover offer to
understand key terms and conditions.
•
Critically evaluating the fair value model developed by
management to determine the value of UGL’s intangible
customer contracts to the Group.
•
Assessing the reliability of third party valuations utilised
by management in their determination of fair value of
acquired assets and liabilities including provisions for loss
making contracts.
•
Performing testing on certain fair value adjustments,
including to contracts, within the provisional fair value
accounting for the transaction.
•
Assessing the appropriateness of the relevant disclosures
in the financial statements.
Other Information
The directors are responsible for the other information. The other information comprises the information included in the Executive
Chairman and CEO’s Review, Directors’ Report and Additional Information within the Company’s annual report for the year ended
31 December 2016, but does not include the financial report and the auditor’s report thereon.
Our opinion on the financial report does not cover the other information and we do not express any form of assurance conclusion
thereon.
In connection with our audit of the financial report, our responsibility is to read the other information and, in doing so, consider
whether the other information is materially inconsistent with the financial report or our knowledge obtained in the audit or otherwise
appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement
of this other information, we are required to report that fact. We have nothing to report in this regard.
Directors’ Responsibilities
The directors of the Company are responsible for the preparation of the financial report that gives a true and fair view in accordance
with Australian Accounting Standards and the
Corporations Act 2001
and for such internal control as the directors determine is
necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement,
whether due to fraud or error.
In preparing the financial report, the directors are responsible for assessing the ability of the Group to continue as a going concern,
disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors
either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so.
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