Blue Label Telecoms Integrated Annual Report 2019

Blue Label annual financial statements 2019 13 Key audit matter How our audit addressed the key audit matter Management’s impairment assessment process relating to the investment in Blue Label Mexico is consistent with the process followed for goodwill as described previously. For the investment in OSI, management determined that the fair value less cost of disposal is higher than the value-in-use given the uncertainties regarding the future cash flow projections of the Company due to a lack of funding. Management outsourced the valuation of the investment in OSI to qualified independent third-party valuation specialists. Management determined the fair value less cost of disposal by applying a gross revenue multiple, using relevant information generated by similar market transactions that have been concluded by comparable businesses. Key inputs in determining the fair value less cost of disposal are the gross revenue and the revenue multiple applied. Other assumptions are also disclosed in the financial statements. Refer to note 2.1 for details of management’s impairment test and assumptions. The process of assessing impairment is complex and highly judgemental, and is based on a number of critical assumptions, estimates and judgement including the terminal growth rate, discount rate and forecast cash flows, which are affected by expected future market or economic conditions. Changes in these assumptions may lead to an impairment charge being recognised for the investment in Blue Label Mexico. The impairment tests were considered a matter of most significance to our audit because of the quantum of the goodwill and the investments in Blue Label Mexico and OSI and the complexity involved in the impairment assessments. u u we performed independent sensitivity calculations on the impairment assessments, to determine the degree by which the key assumptions needed to change in order to trigger an impairment. We discussed these with management and based on the evidence obtained we accepted management’s conclusion that the key assumptions, estimates and judgements applied in the models were reasonable. For the investment in OSI, for which the recoverable amount was determined through fair value less costs of disposal estimation, our audit procedures included the following: u u we evaluated the reasonableness of management’s use of the fair value less cost of disposal as the appropriate recoverable amount in terms of IAS 36 – Impairment of Assets , and found this to be appropriate; and u u we made use of our internal valuations experts to identify and assess the reasonableness of the revenue multiple applied with reference to similar transactions, and evaluated key assumptions utilised by management in their valuation. We found the multiple to be reasonable and key assumptions to be appropriately applied.