AB InBev Financial Results
Key Audit Matter
Impairment of goodwill and intangible assets with indefinite useful life
As described in Notes 4, 14 and 15 to the consolidated financial statements,
the Company has recorded goodwill and intangible assets with indefinite
useful life for an amount of $ 113 010 million and $ 37 652 million,
respectively, as of 31 December, 2022. Impairment analyses of goodwill and
indefinite-lived intangible assets are performed annually and whenever a
triggering event has occurred, in order to determine whether the carrying
value exceeds the recoverable amount.
Impairment tests are conducted by management, in accordance with IAS
36, in which management applies a discounted cash flow approach based
on current acquisition valuation models for its cash-generating units showing
an invested capital to EBITDA multiple above 9x and valuation multiples for
its other cash-generating units. The Company uses a strategic plan based
on external sources in respect of macro-economic assumptions, industry,
inflation and foreign exchange rates, past experience and identified
initiatives in terms of market share, revenue, variable and fixed cost, capital
expenditure and working capital assumptions. Management's cash flow
projections include significant judgment, estimates and assumptions,
related to the weighted average cost of capital and the terminal growth rate.
The principal considerations for our determination that performing
procedures relating to the impairment of goodwill and intangible assets with
indefinite useful life is a key audit matter are the following: (i) the high degree
of auditor judgment and subjectivity in applying procedures relating to the
valuation of the cash-generating units due to the significant amount of
judgment by management when developing this estimate, (ii) the audit effort
involved the use of professionals with specialized skill and knowledge to
assist in evaluating the audit evidence obtained from these procedures and
(iii) the significant audit effort necessary in evaluating the significant
assumptions relating to the estimate, related to the weighted average cost
of capital and the terminal growth rate.
How our audit addressed the key audit matter
Addressing the matter involved performing procedures
and evaluating audit evidence in connection with forming
our overall opinion on the consolidated financial
statements. These procedures included testing the
effectiveness of controls relating to management's
goodwill and indefinite-lived asset impairment testing,
including controls over the valuation of the Company's
cash-generating units.
These procedures also included, among others, testing
management's process for developing the fair value.
estimates; evaluating the appropriateness of the
discounted cash flow model; testing the completeness,
accuracy, and relevance of underlying data used in the
models; and, with the assistance of professionals with
specialized skill and knowledge, evaluating the significant
assumptions used by management, related to the
weighted average cost of capital and the terminal growth
rate.
Evaluating management's assumptions involved
evaluating whether the assumptions used by
management were reasonable considering the current
and past performance of the cash-generating unit, (ii) the
consistency with external market and industry data, (iii)
whether these assumptions were consistent with
evidence obtained in other areas of the audit and (iv)
analysis of sensitivities in the Company's discounted cash
flow model.
Key Audit Matter
Uncertain tax positions
As described in Notes 4 and 29 to the consolidated financial statements,
significant judgment by management is required in determining the
worldwide provision for income tax. There are some transactions and
calculations for which the ultimate tax determination is uncertain. Some
subsidiaries within the group are involved in tax audits and local enquiries
usually in relation to prior years. Investigations and negotiations with local
tax authorities are ongoing in various jurisdictions at the balance sheet date
and, by their nature, these can take considerable time to conclude. In
assessing the amount of any income tax provisions to be recognized in the
consolidated financial statements, estimation is made of the expected
successful settlement of these matters.
The principal considerations for our determination that performing
procedures relating to uncertain tax positions is a key audit matter are the
following (i) the high degree of auditor judgment and subjectivity in applying
procedures related to uncertain tax positions due to the significant amount
of judgment by management when developing this estimate, including a high
degree of estimation uncertainty relative to the numerous and complex tax
laws, frequency of tax audits, and the considerable time to conclude
investigations and negotiations with local tax authorities as a result of such
audits, and (ii) the involvement of professionals with specialized skill and
knowledge to assist in evaluating the audit evidence obtained from these
procedures.
How our audit addressed the key audit matter
Addressing the matter involved performing procedures
and evaluating audit evidence in connection with forming
our overall opinion on the consolidated financial
statements. These procedures included testing the
effectiveness of controls relating to completeness of the
uncertain tax positions, as well as controls over
measurement of the liability.
These procedures also included, among others, (i) testing
the information used in the calculation of the income tax
provisions, including intercompany agreements,
international, federal, and state filing positions, and the
related final tax returns; (ii) testing the calculation of the
income tax provision by jurisdiction, including
management's assessment of the technical merits of tax
positions and estimates of the amount of tax benefit
expected to be sustained; (iii) testing the completeness of
management's assessment of both the identification of
uncertain tax positions and possible outcomes thereof;
and (iv) evaluating the status and results of income tax
audits by the relevant tax authorities.
Professionals with specialized skill and knowledge were
used to assist in the evaluation of the completeness and
measurement of the Company's uncertain tax positions,
including evaluating the reasonableness of
management's assessment of the chance of loss related
to tax positions and the application of relevant tax laws.
24View entire presentation