134 / 158
ANNUAL REPORT 2016 – BOSKALIS
134
RISK
OUR AUDIT APPROACH
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 2.5 billion as at
31 December 2016, which represents 45% of the balance
sheet total. A deteriorating market outlook indicated the risk of
impairment, specifically in certain market segments of the
Offshore Energy division. Management performed impairment
tests of their floating equipment. Their assessment of the valuation
of floating and other construction equipment was significant to
our audit because this process is complex and requires
significant management judgments, such as of future market and
economic conditions. Impairment charges of EUR 366.2 million
were recognized in the profit and loss account of 2016.
In our audit approach we evaluated management’s assessment
of impairment indications, tested management’s assumptions
used in the value in use calculations and we assessed the
historical accuracy of management’s estimates. We evaluated
supporting external broker reports obtained by management to
evaluate the fair value less cost of disposal, where applicable.
We involved our valuation experts to assess the valuation
model and to evaluate the discount rate used, performed
sensitivity analyses where considered necessary, and assessed
the consistency of valuation methodologies applied. Furthermore,
we evaluated the adequacy of the company’s disclosures
regarding the impairments of these property, plant and
equipment.
VALUATION OF GOODWILL (SEE NOTE 3.5, 3.6, 10 AND 15)
Goodwill amounts to EUR 0.3 billion as at 31 December 2016,
which represents 5% of the balance sheet total. A deteriorating
market outlook indicated the risk of impairment, specifically in
certain market segments of the Offshore Energy division.
Management’s annual goodwill impairment test is considered
complex and requires significant management judgment with
respect to future market and economic conditions, developments
in revenue, margins, working capital levels and investments,
which individually may have a material effect on the result of the
calculation. Therefore it is significant to our audit. Impairment
charges of EUR 382.3 million were recognized in the profit and
loss account of 2016.
In our audit approach we evaluated the goodwill impairment
testing model including the main assumptions used. This includes
assessing the forecasted margins, working capital and investment
levels and discount rate. The procedures performed include
comparing assumptions to external data. Furthermore, we
analysed sensitivities, compared the projected cash flows to
budgets and management’s forecast and assessed the historical
accuracy of management’s estimates. We included valuation
experts in our team to assess the valuation models and
parameters used and assist us with these procedures. We
specifically focused on the sensitivities in the assumptions and
calculations of the cash generating unit Offshore Energy, where
the impairment loss was recognized. Furthermore, we evaluated
the adequacy of the company’s disclosures regarding the
impairments of goodwill.
ACCOUNTING FOR BUSINESS COMBINATIONS (SEE NOTE 3.2.5, 3.8 AND 5)
During 2016 Boskalis acquired the offshore activities of
VolkerWessels, including the remaining shares in the joint venture
VBMS between VolkerWessels and Boskalis, thereby providing
Boskalis control over VBMS. The acquisition is significant to our
audit due to the impact on the financial statements and because of
significant judgments and assumptions involved in the purchase price
allocation. The increase in the goodwill recognized under intangibles
related to this transaction amounted to EUR 154.9 million and a
profit of EUR 39.8 million was recognized due to the step up of the
existing interest in the joint venture.
The company also completed the sale of its European harbor towage
activities to KOTUG SMIT Towage, a joint venture company of the
combined harbor towage activities of the partners in this area. The
accounting treatment due to loss of control is largely based on
management estimations about the fair value of the consideration
transferred and the fair value of the identifiable assets acquired and
liabilities assumed. This makes it significant to our audit. As part of
the transaction a profit of EUR 34.0 million was recognized.
In 2016 the Group reduced its participation in Fugro N.V. from
28.6% to 9.4%. The remaining investment was reclassified from
associated company to an available-for-sale financial asset and
is valued at the quoted price per year-end.
With respect to the first two transactions we have, amongst others,
read the agreements, confirming the correct accounting treatment
has been applied and appropriate disclosure has been made.
For the acquisition of the offshore activities of VolkerWessels we
evaluated the work of the management’s specialist used for the
purchase price allocation. We also audited the identification and
fair valuation of the assets and liabilities the group acquired. In
doing so we have utilized valuation specialists to assist us. The
transaction with KOTUG resulted in the derecognition of activities.
We evaluated the work of the management’s specialist used for the
company valuations. We also audited, amongst others, the
valuation assumptions used by management in calculating the
fair value of the consideration transferred. Furthermore, we
evaluated the adequacy of the company’s disclosures regarding
the acquisition and disposal.
With respect to Fugro we have amongst others confirmed the
correct accounting treatment and evaluated the adequacy of the
company’s disclosures including the subsequent sale in the
financial year 2017.