Other information
continued
Overview
Business review
Governance
Financials
Investors
Ahold Delhaize Annual Report 2016
How our audit addressed the matter
We considered this to be a key audit matter because the
recognition of vendor allowance income and receivables
requires judgement from management, for example
concerning the nature and level of fulfilment of the
Company’s obligations under the vendor agreements,
estimates with respect to purchase or sales volumes to
support income recognition.
The Group operates retail stores in Europe and the USA.
The associated store and related assets are important to
our audit due to the material carrying value of those assets
(Note 11) as well as the judgment involved in the identification
of any impairment triggers and subsequent assessment of
the recoverability of the invested amounts. Such judgement
focuses predominantly on future store performance, which is,
amongst others, dependent on the expected store traffic,
basket size and the competitive landscape in local markets.
Management assesses, on a quarterly basis, whether there
are triggering events indicating potential impairment.
In 2016 management recognized a total net impairment loss
of €71 million.
Impairment testing of store assets
Note 11
Furthermore we challenged management’s assumptions used in determining the
unrealized vendor allowances through discussions with management and
performing the following specific substantive procedures. On a sample basis we
agreed the recorded amounts to contractual evidence and confirmed the related
positions and terms with the vendors. In addition, to evaluate the reliability of
management’s estimates, we performed a retrospective review of subsequent
collections on prior period vendor allowance receivables. Finally we tested cut-off
through assessing the obligation fulfilment of vendor allowance income recorded
during a period before and after year-end.
We challenged management’s assumptions underlying the impairment calculation
for those stores where a triggering event was identified and corroborated them
by comparing them to internal forecasts and long term strategic plans that
were approved by management as well as historic trend analyses to determine
management’s ability to reliably estimate such assumptions. We also tested the
applied discount rate calculated by the Group.
Our audit procedures included, amongst others, an evaluation of the Group’s
policies and procedures to identify triggering events for potential impairment
of assets related to underperforming stores by assessing management’s review
of the financial performance on a store by store basis.
Furthermore, we assessed the adequacy of the related disclosures included in
Note 11 to the financial statements.
Key audit matter
Recognition of vendor allowance
Note 17
The Group receives various types of vendor allowances, Our procedures included evaluating the design and testing the operating
as further disclosed in Note 3 to the financial statements. effectiveness of management’s controls around the completeness and accuracy
These allowances are a significant component in cost of sales. of the contractual agreements recognized in the accounting system.
The vendor allowance receivable at January 1, 2017 amounts
to €442 million (Note 17).
