Blue Label Telecoms Integrated Annual Report 2019

Blue Label annual financial statements 2019 11 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 of the current period. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. In addition to the matters described in the basis for qualified opinion and material uncertainty relating to going concern sections, we have determined the matters described below to be the key audit matters to be communicated in our report. Key audit matter How our audit addressed the key audit matter Assessment of impairment of investment in Cell C Limited The Group holds a 45% interest in Cell C and accounts for this investment as an associate in terms of IAS 28 – Investments in Associates and Joint Ventures. During the current year management identified impairment indicators in relation to the investment in Cell C as at 31 May 2019. These impairment indicators prompted management to perform an impairment assessment. Management appointed an independent third-party valuation specialist to assess the value of the investment in Cell C. Based on management’s assessment, the investment in Cell C was impaired to a nil value. The impairment assessment was considered a matter of most significance to our current year audit because of the following: u u the financial significance of impairment to the consolidated financial statements; and u u the impairment assessment required management to apply judgement in determining the key assumptions, which include the cash flow forecasts, discount rate and terminal growth rate. Refer to note 2.1 for the related disclosures. We obtained management’s calculations of the recoverable amount based on fair value less cost of disposal. Using this information, and the assistance of our internal valuations experts, we performed the following procedures: u u cash flow forecasts were agreed to the approved budgets and current trading performance of Cell C; u u we tested the reasonability of management’s calculations in determining the discount rate and corroborated the assumptions applied by management with third-party sources. We found the calculations to be within a reasonable range; u u we assessed the reasonability of the terminal growth rate against long-term GDP growth rate forecasts for South Africa; u u with the assistance of our internal valuations experts, we assessed the reasonability of management’s recoverable amount calculation by flexing certain inputs and assumptions to reflect independently determined values. We concurred with management’s decision to impair the investment in Cell C to nil, as this fell within the reasonable range we had determined; and u u we reviewed the disclosures regarding the impairment losses in the consolidated financial statements and noted no material differences.