AAK Annual Report 2016

86 Key audit matter +RZ RXU DXGLW DGGUHVVHG WKH .H\ DXGLW PDWWHU Revenue recognition – accounting of entered sales contracts 7KH DFFRXQWLQJ RI UHYHQXHV FRPSULVHV D VLJQL¿FDQW ULVN EDVHG RQ WKHLU LPSRUWDQFH LQ WKH ¿QDQFLDO LQIRUPDWLRQ DQG WKH FRPSOH[LW\ LQ the valuation of entered sales contracts. As seen on page 22 and Note 3 of the annual report, AAK applies active risk management. The value of the sales contracts entered, are reported in accordance with IAS 39 which implies that all of these are valued and reported at market value as at balance sheet date. The market value is determined, as appropriate, on the basis of liquid market prices in an open market and on stock exchange prices. Any possible error in the applied market price has a direct impact on the reported revenues and results. Any possible omission in the reporting of entered contracts, or WKH ULVN RI ¿FWLWLRXV DJUHHPHQWV EHLQJ UHSRUWHG ZRXOG LPSO\ DQ impact on reported revenues and would limit AAK’s possibility to achieve appropriate risk management measures. In order to verify that revenues are complete, correctly reported and valued, and that they comprise of existing sales contracts, our audit has included, amongst other things, a combination of : - a review and testing of AAK’s internal controls - tests of detail through, amongst other measures, random sampling - analytical procedures, amongst other things, with the help of data analyses The audit activities described above refer to the sales process in its entirety (registration of sales contracts, delivery to the customer, inventory transac- tions, invoicing, receipt of payments and valuation). In order to ensure the completeness and correctness of the reporting regarding signed contracts, we have, amongst other things: - created an understanding for, and tested, the controls intended to identify un-allowed activities linked to the signing and valuation of sales contracts, - tested confirmations from counterparties regarding established sales contracts. No deviations have been noted in the reporting of established sales con- tracts based on the executed audit, as described above. Acquisition As seen on page 38 and in Note 27, in the annual report, AAK acquired California Oils in the US during the year. After allocation of the purchase price, the acquisition resulted in negative goodwill of MSEK 135 which, in accordance with the regulations in effect, was reported in income. At the same time, AAK has provided for future integration costs, the net of which has positively impacted results in an amount of MSEK 15. The work with identifying and ensuring the completeness and YDOXDWLRQ RI VHSDUDWHO\ LGHQWL¿DEOH DVVHWV DQG OLDELOLWLHV LV FRPSOH[ DQG LQFOXGHV MXGJPHQWV $Q HUURU HLWKHU LQ LGHQWLI\LQJ RU YDOXLQJ WKHVH LWHPV FDQ OHDG WR DQ LQFRUUHFW FODVVL¿FDWLRQ LQ WKH EDODQFH sheet at point of acquisition and also, later, in the income state- ment. We have received copies of and studied and understood the management’s assessment of the value of the acquired assets and liabilities, and of their nature. We have evaluated the management’s assumptions based on the group’s accounting policy by, amongst other things: - reading agreements, decision-making documentation, due diligence reports and audited financial reports, - through, amongst other things, meetings with specialists and visits to the SODQW DW &DOLIRUQLD 2LOV DQ LQGHSHQGHQFH HYDOXDWLRQ WKH REMHFWLYLW\ DQG competence of the specialists contracted by management to assist them in the valuation process with the aim of ensuring that they are qualified and have adequate industry knowledge, - through utilizing our internal valuation specialists to independently evalu- ate the models and assumptions applied by management in identifying and valuing assets and liabilities. - assessed the economic useful lives of the assets and ensured that these agree with our understanding of the acquired assets and of the group’s accounting principles. 6LJQL¿FDQW DVVXPSWLRQV PDGH E\ WKH PDQDJHPHQW KDYH EHHQ GHHPHG to be supported and to be correct against the background of current and known circumstances. Valuation of purchase contracts regarding raw materials and inventory on hand AAK has a purchase process implying that as soon as a sales con- tract has been signed, the equivalent currency and raw material price is hedged. The active risk management applied by AAK is described on page 22 and in Note 3 in the annual report. Entered purchase contracts (physical contracts and derivative instruments), including inventory on hand, are reported according to IAS 39, which implies that all of these items are valued and reported at market value as at balance sheet date. 7KH UHSRUWLQJ RI UDZ PDWHULDOV SXUFKDVHV LV FRPSOH[ DQG ÀXF - WXDWLRQV LQ UDZ PDWHULDOV SULFHV FDQ KDYH D VLJQL¿FDQW LPSDFW RQ WKH ¿QDQFLDO LQIRUPDWLRQ ZKLFK LV WKH UHDVRQ DQ LQFRUUHFW YDOXDWLRQ of purchase contracts and inventories can have a direct impact on costs and results. A possible omission in reporting entered contracts or the risk WKDW D ¿FWLYH FRQWUDFW LV UHSRUWHG ZRXOG LPSO\ DQ LPSDFW RQ reported costs and would limit AAK’s possibilities to achieve an appropriate risk management. In order to verify that raw material costs are complete, correctly reported and valued, and that they are comprised of existing purchase contracts, our audit has included, amongst other things: - a review and testing of AAK’s internal controls regarding the updating and registration of market prices, - data analyses, tests of detail through random sampling and other ana- lytical procedures in order to ensure the registration of signed contracts, received deliveries, inventory transactions, received invoices, payments and registered market prices. In order to ensure the completeness and correctness of the accounts regarding signed purchase contracts, we have, amongst other things: - obtained an understanding of, and tested, the controls referring to the identification of un-allowed activities associated with the subscription and valuation of purchase contracts, - tested the confirmations received from counter parties regarding estab- lished purchase contracts. No deviations have been noted based on the audit activities described above.