Annual report 2019

145

KEY AUDIT MATTER

OUR AUDIT APPROACH

KEY OBSERVATIONS

RECOGNITION OF CONTRACT REVENUE AND VALUATION OF UNBILLED AND DEFERRED REVENUE (SEE NOTE 3.12, 3.22, 3.24, 6, 20, 26 AND 29) The contracting industry is characterised by contract risk with significant judgments involved in the assessment of contract financial We assessed that the Company’s revenue recognition accounting policies were appropriately applied and disclosed in accordance with the revenue recognition

Our audit procedures on contract revenue included an assessment of the company’s project control, substantive audit procedures and testing of management’s positions against underlying documentation. In the planning and execution of our audit we considered the impact of challen- ging market conditions on project results, both for on-going projects and projects in the orderbook. We tested the adequacy and support for cost-to-complete estimates and also tested management review for potential losses in projects in the orderbook for adequacy and completeness. We herewith considered developments noted at ongoing projects and assessed updated tender- and work budgets. Other substantive procedures comprised of testing contractual terms and conditions, including performance obligations, disputes, claims and variation orders, costs incurred, including local representatives’ fees, and forecasted cost to complete including progress measurement. We challenged management’s assumptions at the project and group management level. We discussed, also during site visits, a range of financial and other risks, disputes and related estimation uncertainties with management and project staff, assessing whether these have been adequately addressed in the financial statements.

performance. Market conditions especially in the Offshore Energy Contracting markets remain challenging and cause pressure on project margins. As a result significant project losses in this market segment were recognized, both on projects in execution and projects that are still part of the orderbook. Revenue and positive margin from contracting activities are recognised based on the stage of completion of individual contracts. Negative margins are recognized immediately when they are foreseen. The status of contracts is updated on a regular basis. In doing so, management is required to exercise significant judgment in their assessment of the valuation of contract variations, claims and liquidated damages; the completeness and accuracy of forecasts regarding costs to complete; and the ability to deliver contracts within forecast timescales. The potential final contract outcomes can cover a wide range. Changes in these judgments, and the related estimates, as contracts progress can result in material adjustments to revenue and margin, which can be both positive and negative. We therefore identified correct and complete recognition of contract revenue and (negative) margin as significant to our audit. We also considered the risk of non-compliance with relevant law and regulations related to the acquisition of projects. The assessment of the valuation of floating and other construction equipment is significant to our audit because this process is complex and requires significant management judgments, such as of future market and economic conditions, in particular in Offshore Energy. No material impairment charges were recognized in the profit and loss account of 2019 (2018: EUR 136.9 million). current and future business operations. Boskalis operates in a range of jurisdictions subject to different tax regimes. The cross-border operations may result in estimation differences or disputes with national tax authorities. If management considers it probable that such disputes will lead to an outflow of resources, accruals have been formed accordingly. Based on the above, we identified correct and complete recognition of accruals for uncertain tax positions and adequate disclosure of uncertain tax positions as significant to our audit.

accounting standard (IFRS 15). We verifed that contract revenues, including claims and variation orders, meet the recognition criteria and are valued accurately and complete. Where applicable, losses were completely and accurately accounted for. Furthermore, we have assessed that management assumptions and estimates are within an acceptable range and that the disclosure notes are appropriate. As part of our audit procedures with respect to compliance with laws and regulations related to acquisition of projects and local representatives’ fees, we assessed the adequacy of the Company’s policies and that these are adhered to.

VALUATION FLOATING AND OTHER CONSTRUCTION EQUIPMENT (SEE NOTE 3.5, 3.7, 10 AND 16) Property, plant and equipment includes floating and other construction equipment amounting to EUR 2.4 billion as at 31 December 2019, which represent 52% of the balance sheet total. In our audit approach we evaluated management’s assessment of impairment indications and we assessed the historical accuracy of management’s estimates.

We consider management’s assessment of impairment indicators as appropriate and the key assumptions and estimates to be within an acceptable range. We agree with management’s conclusion that no impairment is required in 2019. We further assessed that the required disclosures were appropriate.

Furthermore, we evaluated the adequacy of the company’s disclosures regarding the valuation of these floating and other construction equipment.

RECOGNITION AND VALUATION OF UNCERTAIN TAX POSITIONS (SEE NOTE 3.28 AND 12, 13, 14) As a result of the OECD BEPS project, Boskalis aligned its Transfer Pricing model with its In our audit approach, we tested the acceptability of the accruals formed in this estimation process. In doing so, we used tax specialists in reviewing the assumptions

We assessed that the Company’s accounting policies were appropriately applied. Furthermore, we have assessed that management assumptions and estimates are within an acceptable range. We further assessed that the disclosure notes relating to uncertain tax positions are appropriate.

underlying the estimates and discussing them with management in the light of (local) tax rules & regulations and revisions to the transfer pricing policy. In connection with this, we also devoted attention to the substantiation of the estimated probability of the positions taken and details provided thereon by management and we assessed the historical accuracy of management’s assumptions.

ANNUAL REPORT 2019 – BOSKALIS