AAK Annual Report 2019

122 Key audit matters Key audit matters of the audit are those matters that, in our professional judgment, were of most significance in our audit of the annual accounts and consolidated accounts of the current period. These matters were addressed in the context of our audit of, and in forming our opinion thereon, the annual accounts and consolidated accounts as a whole, but we do not provide a separate opinion on these matters. Key audit matter Market valuation of inventory and complete- ness, existence and market valuation related to open sales and purchase contracts The Group applies hedging of fair value in relation to raw material in inventory, meaning that a change in the price of the hedge has a direct impact on the value of the inventory. Open sales and purchase contracts are recognized according to IFRS 9, and thus measured and recognized at market value on the balance sheet date. Recognition of raw mate- rial purchases is complex and fluctuations in the price of raw material can have a significant impact on the financial information. An incorrect valuation of purchase contracts and inventory has a direct impact on the Group’s costs and earnings. The Group’s raw material purchasing process is based on the premise that the underlying currency and raw material are hedged as soon as a sales contract has been signed. A possible omission in recognizing entered contracts or the risk that a fictive contract is recognized would limit AAK’s possibilities to implement appropriate risk manage- ment and would also affect the recognized result. How the Group works with risk management and the measurement of sales and entered purchase contracts is described in Note 3.