I.A. Hedin Bil - Annual Report 2018 1
Key audit matters How our audit addressed the Key
audit matter Valuation of inventories The Group's inventory amounts to SEK 2,736 million as of 31 December 2018, which is a significant item in the balance sheet. If the net selling price is lower than the acquisition value, an obsolescence allowance for stock obsolescence is recorded. The obsolescence allowance is based on an individual assessment of the vehicle inventory and for the spare part inventory it is based on an aging analysis. Please see note 1 and note 3 in the annual report for more information regarding inventory. Valuation of Goodwill and customer relations The Group acquired new companies during the year, which has contributed to the increase of intangible assets in the form of customer relations and goodwill, to a total book value of SEK 360 and SEK 1,152 million, respectively as of December 31, 2018. The valuation of these is based on estimates and assessments of future cash flows. The Group examines at least annually if any impairment loss exists for goodwill. For customer relations amortizations are made and in cases of any indication of impairment a test is performed. See note 1, note 3 and note 13 in the annual report for information regarding goodwill, intangible assets and impairment test of non-financial assets. Revenue recognition Net sales for the Group amounted to SEK 21,043 million. Net sales refer primary to sales of vehicles and the aftermarket service. The company has to take a position on various variables in the income recognition regarding sales of vehicles and the aftermarket in order to report revenue in connection with the control being transferred to the customer, which can be done on delivery or over the contract period. Please see note 1, note 3 and note 4 in the annual report for information regarding revenue recognition and net sales. In our audit we have for a selection of transactions assessed if the timing of the income recognition is correct. For the impairment test based on the calculation of value in use, our audit procedures include the following elements: - An assessment of the mathematical correctness of the cash flow calculation and a reconciliation of the cash flow forecasts against the assumed budget and business plan. - Assessment that the company's valuation model is consistent with established valuation techniques. - An assessment of the assumptions with the greatest impact on the impairment tests. - For intangible assets that are subject to amortizations we have evaluated whether an indication of impairment testing has existed. In our audit we have assessed the Group's routines and controls regarding the valuation of the inventories. We have also analyzed the outcome of aging analysis and individual valuation of vehicle inventories and compared the value towards external transactions. I.A. HEDIN BIL AB / ANNUAL REPORT / 2018 87