Management Report 2020
Management Report 2020
The results of our audit procedures, including the procedures performed to ad-
dress the matters below, provide the basis for our audit opinion on the accompa-
nying financial statements.
Measurement of biological assets
As mentioned in Note 8, the Company and its subsidiaries measure their biologi-
cal assets, which correspond to agricultural products, mainly soybean, corn and
cotton, based on their fair value from the pre-harvest stage. This measurement
is a significant estimate based on several assumptions and methodologies
adopted by the Company's management, for which internal and external infor-
mation was used, mainly related to active market prices, productivity and planted
areas. At December 31, 2020, the Company recorded biological assets in the
amount of R$739,267 thousand and R$891,804 thousand in current assets in the
Individual and Consolidated financial statements, respectively.
This was considered a key audit matter due to the materiality of the amounts of
the biological assets in relation to total assets and to the net income for the year,
as well as due to the uncertainties inherent in this type of estimation, and the
required level of judgment to be made by management in determining the as-
sumptions for calculating fair value.
How our audit addressed this matter
Our audit procedures included, among others, reviewing the calculation method
used by the Company, and using specialists in the physical inspection of a sample
of planted areas to determine the existence of the biological assets and their
physical conditions. Additionally, we assessed the assumptions related to active
market prices, expected productivity and planted areas, among others. We also
tested a sample of documents with costs that were added throughout the year.
Finally, we assessed the adequacy of the disclosures made by the Company in
this regard in the footnotes.
Based on the results of the audit procedures performed for the measurement of
biological assets, which are consistent with management's assessment, we con-
sider that the criteria and assumptions relating to the measurement of biological
SLC
Agrícola
assets adopted by management, as well as the related disclosures in Note 8, are
appropriate in the context of the individual and consolidated financial statements
taken as a whole.
Hedge accounting
As described in Note 25, the Company and its subsidiaries enter into derivative
financial instruments to hedge currency risks and commodity price risks for ag-
ricultural products, in relation to future revenue highly probable of occurring,
recorded in accordance with the hedge accounting model. At December 31, 2020,
the Company recorded R$207,640 thousand, net of deferred taxes, in equity (In-
dividual and Consolidated), in "Other comprehensive income."
Designation of financial instruments as hedged items (hedge accounting) and
measuring their effectiveness require compliance with some formal obligations
and the use of significant estimates of probable forecast revenues. Due to the
large number of transactions entered into, the complex measurement of the fair
value of transactions and assessment of hedge effectiveness, in addition to the
potential impact that changes in future forecast revenue may have on the Com-
pany's results and cash flows, we consider this a key audit matter.
How our audit addressed this matter
Our audit procedures included, among others: understanding the design of the
risk management process and the hedge accounting structure, including the
analysis of the policy adopted by the Company; reperforming the measurement
of the fair value of transactions, with the involvement of specialists in derivative
financial instruments to assist us in the preparation of an independent valuation
calculation; crosschecking the amount recorded by the Company with the infor-
mation provided by the financial institutions through confirmation procedures -
sending out confirmation letters to the respective counterparties to the transac-
tions; reviewing the documents with the designation of financial instruments and
the corresponding transactions and prospective effectiveness tests prepared by
management; reviewing the forecast of probable future revenues based on the
analysis of outright sale agreements and sales estimates; and reviewing the
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