Boskalis Annual Report 2018

ANNUAL REPORT 2018 – BOSKALIS 139

In total above mentioned procedures represent approximately 85% of the group’s revenue.

auditors and local management on the audit fndings and fnancial reporting. We interacted with all component teams where appropriate during various stages of the audit and were responsible for the scope and direction of the audit process. By performing the procedures mentioned above at group entities, together with additional procedures at group level, we have been able to obtain suffcient and appropriate audit evidence about the group’s fnancial information to provide an opinion about the consolidated fnancial statements. OUR KEY AUDIT MATTERS Key audit matters are those matters that, in our professional judgment, were of most signifcance in our audit of the fnancial statements. We have communicated the key audit matters to the Supervisory Board. The key audit matters are not a comprehensive reflection of all matters discussed. These matters were addressed in the context of our audit of the fnancial statements as a whole and in forming our opinion thereon, and we do not provide a separate opinion on these matters. In the current year’s auditor’s report, we identifed ‘Valuation of Towage joint ventures’ as a new key audit matter, since the market conditions deteriorated which impacted the valuation of joint ventures active in harbor towage.

We performed audit procedures on certain accounting areas at group level, such as impairment tests of goodwill, towage joint ventures and property, plant and equipment and other areas such as uncertain tax positions and pension accounting. We also visited project sites in Singapore, Bangladesh, India and Oman where we had meetings with local project management to discuss and to obtain a better understanding of the progress and risks of the related projects and we performed substantive procedures. For the other group entities we performed review procedures or other audit procedures to respond to any risks of potential material misstatements in the fnancial statements. INVOLVEMENT WITH COMPONENTS TEAMS Component materiality was determined by our judgment, based on the relative size of the component and our risk assessment. Component materiality did not exceed EUR 13.5 million and the majority of our component auditors applied a component materiality that is signifcantly less than this amount.

Based on our risk assessment, we visited component locations in Singapore and Mexico. We had meetings with the external

RISK

OUR AUDIT APPROACH

KEY OBSERVATIONS

RECOGNITION OF CONTRACT REVENUE, MARGIN AND RELATED RECEIVABLES AND LIABILITIES (SEE NOTE 3.12, 3.21, 3.23, 3.33, 6, 20, 26 AND 29) The contracting industry is characterised by contract risk with significant judgments involved in the assessment of contract financial perfor- mance. Market conditions in most of Boskalis’ markets remain challenging and cause pressure on project margins. Revenue and margin are recognised based on the stage of completion of individual contracts. The status of contracts is updated on a regular basis. In doing so, Our audit procedures on projects relating to contract revenue included an assessment of the company’s project control, substantive audit procedures and testing of management’s positions against underlying documentation. We performed substantive procedures relating to We assessed that the Company’s revenue recognition accounting policies were appropriately applied and disclosed in accordance with the new revenue recognition accounting standard (IFRS 15). Furthermore, we have assessed that management assumptions and estimates are within an acceptable range and that the disclosure notes are appropriate.

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. In the planning and execution of our audit we considered the impact of challenging market conditions on the valuation of work in progress. We also analysed differences with prior project estimates and assessed consistency with the developments during the year. We verified that claims and variation orders on projects meet the recognition criteria and are valued accurately and complete. In connection with the above, 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 state- ments. We challenged management’s assumpti- ons at the project and group management levels in order to evaluate the reasonableness and consistency of the recognition of contract revenue and related receivables and liabilities. We also assessed the adequacy of required disclosures including the impact of the new revenue recognition accounting standard (IFRS 15) which is adopted by the Company as of 1 January 2018 (note 2.3).

management is required to exercise significant judgment in their assessment of the valuation of contract variations, claims and liquidated damages (revenue items); 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, margin and related receivables and liabilities as significant to our audit.