• 1. Valuation of growing cane

Under IFRS, the Group is required to fair value its growing cane.

As disclosed in note 10, the carrying value of the growing cane balance amounted to K 35 137 million. The value of growing cane is based on the estimated sucrose content of the growing cane, which is then valued at the estimated sucrose price for the following season less the estimated costs for harvesting and transport. Significant management judgment is required in estimating the expected cane yield, the average maturity of the cane, the estimated sucrose content, exchange rates and the estimated selling prices for the various sugar markets which is necessary to determine the sucrose price.

Accordingly, the carrying value of growing cane is considered to be a key audit matter due to the significance of the balance to the financial statements as a whole, combined with the judgement associated with determining the fair value.

In considering the appropriateness of the valuation of growing cane, we performed various procedures, including but not limited to the following:

Based on our procedures, we noted no exceptions and consider management’s key assumptions used in the valuation models to be within a reasonable range and management’s disclosures to be appropriate.

IAS 41 Agriculture was revised in respect of bearer plants. The revised standard was effective for financial years beginning on or after 1 January 2016. Cane roots would therefore be accounted for under IAS 16 property, plant and equipment. Illovo Sugar (Malawi) plc has implemented the revised standard for the year ended 31 March 2017. Therefore, cane roots for prior years have been restated to realign the change in accounting policy of cane roots valuation from fair value model under IAS 41 to cost model under IAS 16.

Cane roots are initially measured at cost representing the amount of cash paid in exchange for the activities and services necessary to plant the cane roots. The planting of cane roots is accounted for in the same way as a self-constructed item of property, plant and equipment.

IFRS requires that the amounts for the impact of the change in accounting policy be accounted for and disclosed in accordance with relevant accounting standards.

Since cane roots are significant to the financial statements as a whole and the value is dependent on correct costs being capitalised, we determined cane roots valuation and related restatements as a result of the change in accounting policy to be a key audit matter. Our procedures included the assessment of the appropriateness of the costs capitalised to cane roots and the related useful lives used. We also assessed the correctness of the restatement computations and adjustment thereof.

We assessed the appropriateness of the prior year historical costs and disclosures regarding the change in accounting policy. We assessed the appropriateness of the revised cane roots accounting policy, including disclosures, in accordance with IAS 16: Property, Plant and Equipment.

No exceptions were noted and the accounting and disclosures pertaining to the subject matter were found to be reasonable and in accordance with International Financial Reporting Standards.

Under IFRS, the Group is required to measure its growing crops at fair value and cane roots at depreciated cost.
Standing cane: The value of standing cane is based on the estimated cane price and sucrose content less costs for harvesting, transport and over the weighbridge costs. Significant judgement is required in estimating the expected cane yield, the maturity of the cane, the estimated sucrose content, exchange rates and the forecast sucrose price for the various markets and is thus considered to be a key audit matter. Roots: The value of roots is stated at cost less depreciation calculated over the period of their productive life of between 6 and 12 years. The total value of growing crops amounts to R2,549 billion (2016 restated: R2,914 billion), as set out in note 8. The total value of roots amounts to R2,617 billion (2016 restated: R3,097 billion). Due to the significance of the balance to the financial statements as a whole, combined with the judgement associated with determining the carrying value, this is considered to be a key audit matter.

• We assessed the appropriateness of the principles used in the valuation of standing cane and roots and assessed the assumptions such as projected rainfall and the discount rate as used in the valuation models against market data and predictions;
• Detailed testing was performed on the key inputs into the cane valuation model including the expected yields, expected sucrose content, expected prices as well as exchange rates in translating valuations in other African countries to confirm validity, accuracy and completeness of the data. This included comparing the inputs to market data;
• We performed retrospective reviews by comparing the above key inputs used in the prior period valuations, to actual outcomes, to assess the reasonableness and accuracy of the estimates used;
• Detailed testing was performed on the key inputs into the roots valuation around establishment costs, planting costs, remaining lives of roots and hectares to confirm validity, accuracy and completeness of the data by comparing these to actual costs, and other market data available; and
• Sensitivities were performed to assess the impact of changes in the key inputs.

Based on our testing performed the growing crops and cane roots valuations appear to be within a reasonable range.

• We assessed whether the change was in accordance with the amended IFRS standard;
• Confirmed that the variables used in the restatement agreed to the previously audited valuation model;
• The previous valuation, as allowed by the amendments to become the deemed cost, was agreed to the audited valuation as at 31 March 2015;
• The depreciation charge for the year was recalculated and the rates used were assessed for reasonableness based on the expected remaining number of ratoons (seasons) for the roots; and
• The disclosure was assessed against the amended standard and the requirements of IAS 8: Change in accounting policy (IAS 8).

Based on the procedures performed the restatement was accounted for in accordance with the revised standards and IAS 8 with no material variances noted.

In Tongaat Hulett Developments, project cost of sales determination and cost allocation to sites includes a future development expenditure accrual. This involves significant judgement in determining the total expected project costs, expected sales price and allocations of common infrastructure costs. Accordingly, the calculation of the accrual for future development expenditure is a key audit matter. This accrual has been included in accounts payable.

• For existing development projects/phases, details and expenditure input estimates were assessed against those made previously, as well as actual costs, substantiating any material amendments to corroborating documentation;

We concurred with Tongaat Hulett Developments’ determination of the accrual.

• Obtained the useful lives and residual values assessment and confirmed that this was reviewed and considered in the year under review;

In considering whether impairments are required the Group’s consideration of impairment indicators such as reduced capacity, forecasts, market demand for products, and the condition of the plants was reviewed. In addition, the following was performed:

• In corroborating the view, production analyses at the various mills was performed and compared to standard capacity to assist in identifying possible impairment indicators;

Based on the testing performed the property, plant and equipment appears to be valued appropriately.

• Discussions were held with management to understand the system, the revised business processes, related controls and control activities based on the new ERP system as well as the detailed implementation plan;

Based on the procedures performed above the implementation of SAP has not resulted in material misstatement on the financial statements.

The group has a significant value of goodwill, other intangible assets and property, plant and equipment that has arisen from acquisitions and capital investments. The UK Bakeries (£260 million), AB Mauri (£745 million) and Australian meat (£157 million) businesses have all experienced challenging trading environments in recent years.

The UK Bakeries and Australian meat businesses
operate in environments of significant retailer pressure on price and competitor activity.

AB Mauri’s profitability has been impacted by competitive pricing pressures in some of its businesses compounded by macro-economic conditions, including high inflation rates and
currency devaluations.

There is a risk that these cash generating units (‘CGUs’) may not achieve the anticipated business performance to support their carrying value, leading to an impairment charge that has not been recognised by management.

Significant judgement is required in forecasting the future cash flows of each CGU, together with the rate at which they are discounted.

Refer to the audit committee report (page 72); accounting policies (page 115); accounting
estimates and judgements (page 116); and notes
8 and 9 to the consolidated financial statements
(pages 124 to 127).

We understood the methodology applied by management in performing its impairment test for each of the relevant CGUs and walked through the controls over the process.

For all CGUs we calculated the degree to which the
key inputs and assumptions would need to fluctuate before an impairment was triggered and considered the likelihood of this occurring. We performed our own sensitivities on the group’s forecasts and determined whether adequate headroom remained.

For CGUs where there were indicators of impairment or low levels of headroom, including the three CGUs described, we performed detailed testing to critically assess and corroborate the key inputs to the valuations, including:

• Analysing the historical accuracy of budgets to actual results to determine whether forecast cash flows are reliable based on past experience;

We assessed the disclosures in notes 8 and 9 against the requirements of IAS 36 Impairment of Assets, in particular in respect of the requirement to disclose further sensitivities for CGUs where a reasonably possible change in a key assumption would cause an impairment.

For the AB Mauri CGU, the audit procedures performed to address this risk were performed by the group audit team. The Australian meat and UK Bakeries operating intangible assets and property, plant and equipment were subject to full scope audit procedures by the respective component teams, and reviewed by the group team.

We agreed with management’s conclusion that no impairments were required, based on the results of our work. Of the group’s assets, the portion relating to the UK Bakeries business is very sensitive to reasonably possible changes in key assumptions. Management describes these sensitivities appropriately in the property, plant and equipment note to the group financial statements, in accordance with IAS 36. Similar disclosures have
also been made for the AB Mauri and Australian meat businesses given their levels of sensitivities.

Management applies judgement in assessing tax exposures in each jurisdiction, many of which require interpretation of local tax laws.

Given this judgement, there is a risk that tax provisions are misstated.

Refer to the audit committee report (page 72); accounting policies (page 114); accounting estimates and judgements (page 116); and note 5 to the consolidated financial statements
(page 122).

• The group’s process for determining the completeness and measurement of provisions for tax;

• The methodology for the calculation of the tax charge; and

• Management’s controls over tax reporting.

The group audit team, including tax specialists, evaluated the tax positions taken by management in each significant jurisdiction in the context of local tax law, correspondence with tax authorities and the status of any tax audits. Our work utilised additional support from country tax specialists in Australia, China, Germany, Ireland, Spain and the US.

We assessed the group’s transfer pricing judgements, considering the way in which we observed the group’s businesses operating and the correspondence and agreements reached with tax authorities.

We consider the amounts provided to be within an acceptable range in the context of the group’s overall tax exposures and our materiality.

There continues to be pressure on the group to meet expectations and targets. Management reward and incentive schemes based on achieving profit targets may also place pressure to manipulate revenue recognition.

The majority of the group’s sales arrangements are generally straightforward, being on a point of sale basis and requiring little judgement to be exercised. However, in the Grocery segment, management estimates the level of trade promotions and rebates to be applied to its sales to customers, adding a level of judgement to revenue recognition. Approximately 3% (2016: 4%) of the group’s gross revenue is subject to such arrangements.

There is a risk that management may override controls to intentionally misstate revenue transactions, either through the judgements made in estimating rebates in the Grocery segment or by recording fictitious revenue transactions across the business.

Refer to the accounting policies (page 113); and note 1 to the consolidated financial statements (pages 117 to 119).

We understood each business’s revenue recognition policies and how they are applied, including the relevant controls, and tested controls over revenue recognition where appropriate.

We discussed key contractual arrangements with
management and obtained relevant documentation, including in respect of rebate and returns arrangements. Where rebate arrangements existed, we obtained third party confirmations or performed appropriate alternative procedures, including review of contracts and recalculation of rebates. We also performed hindsight analysis over changes to prior period rebate estimates to challenge the assumptions made, including assessing the estimates for evidence of management bias.

For a number of businesses, including Primark, as part of our overall revenue recognition testing we used data analysis tools on 100% of revenue transactions in the year to test the correlation of revenue to cash receipts to verify the occurrence of revenue. This provided us with a high level of assurance over £10.8 billion (71%) of revenue recognised. For those in-scope businesses where we did not use data analysis tools, we performed appropriate alternative procedures over revenue recognition.

We performed cut-off testing for a sample of revenue transactions around the period end date, to check that they were recognised in the appropriate period.

Other audit procedures specifically designed to address the risk of management override of controls included journal entry testing, applying particular focus to the timing of revenue transactions.

We assessed the disclosures against the requirements of IAS 18 Revenue, in particular in respect of the requirement to disclosure rebate and returns arrangements.

We performed full and specific scope audit procedures over this risk area in 94 locations, which covered 89% of the group’s revenue.

Based on the procedures performed, including those in respect of trade deductions and rebates
in the Grocery segment, we did not identify any
evidence of material misstatement in the revenue recognised in the year.

We focused on this area as Primark, the group’s largest business, implemented a new general ledger system across its business. During any period of significant system change, there is an increased risk to the internal financial control environment. In addition, certain costs will be eligible for capitalisation as an intangible asset.

The audit team focused its procedures on the
following risks:

Refer to the Audit committee report (page 71); accounting policies (page 114); and note 8 to the consolidated financial statements (pages 124 to125)

We performed the following procedures in respect of the implementation:

We performed the following procedures in respect
of the capitalisation of system implementation costs:

• We evaluated whether the costs incurred were either expensed or capitalised in line with the group’s accounting policy and IAS 38. We also evaluated whether the policy has been applied consistently with prior years.

• We tested a sample of costs, both expensed and capitalised, to third party evidence.

• We assessed the useful lives of capitalised costs in the context of the group’s accounting policy and industry benchmarks. We also checked that the timing of commencement of amortisation was appropriate.

• We evaluated management’s assessment as to whether there were any indicators of impairment for the costs capitalised.

The audit procedures to address this risk were performed principally by the full scope component team in Ireland with oversight from the group audit team.

Based on the procedures performed, we were satisfied that financial balances are appropriately
stated following the new finance system implementation.

In performing these procedures, we identified a number of control observations which are being addressed by management.

We are also satisfied that the costs capitalised in respect of the system implementation are appropriate.