Refer to note 24 in the annual report.

In January 2011, the company and a number of other companies in the truck industry became part of an investigation by the European Commission regarding a possible violation of EU antitrust rules.

In July 2016, the company reached a settlement with the European Commission in the investigation. Following the adoption of the European Commission’s settlement decision, the company will be dealing with private damages claims from customers and other third parties alleging that they suffered loss by reason of the conduct covered in the decision.

To assess this kind of legal disputes and possible future obligations is complicated and require involvement of experts within relevant areas to assist in the assessment of the financial application aspects of the matters. The outcome of the private damages claims from customers and other third parties require judgement and is uncertain. At this stage it has not been possible for the company to make a reliable estimate of the amount of any liability that could arise from any such proceedings.

Management and the board of directors have been highly involved in the dealing with private damages claims. In our audit, we assess how the private damages claims are treated on management and board level, including reviewing supporting documentation.

We have in our audit taken part of several statements from the company’s external legal advisors as well as requested and received Legal Letter from the company’s external legal advisors about the claims.

Refer to note 8, 21, 24 and 30 in the annual report.

As a result of the downturn of the Chinese mining industry during the last years, many dealers and retail customers of Construction equipment in China have financial difficulties.

On-balance exposure mainly consists of exposure for accounts receivables, entrustment loans to dealers and used equipment that has been bought back while off-balance exposure consists of credit guarantees. Management has put several mitigating activities in place to manage the situation.

During 2016 the financial situation for Chinese dealers and retail customers has developed positively and the exposure is reduced.

The assessment of risk for losses for assets and credit guarantees include judgement where the outcome can differ from the current assessment.

Our audit of credit loss risks in China is performed in several steps and includes to understand and assess the process and models management use to limit the losses through mitigating activities.

We review the risk assessments made by management and thereby also the impairment ratio used for provisions and allowances. The review is made individually per dealer and the objective is to assess the provisions and allowances.

Our procedures include to review the exposure through test of the gross amounts of accounts receivables, entrustment loans to dealers and credit guarantee exposure through testing a sample of supporting documentation.

Refer to note 7 and 21 in the annual report.

The recognised net sales pertain mainly to revenues from sales of goods and services. Revenue from the sale of goods is recognised when significant risks and rewards of ownership have been transferred to external parties, normally when the goods are delivered to the customer.

However, if the sale of goods is combined with a buy-back agreement or a residual value guarantee, the transaction is recognised as an operating lease transaction if significant risks in regard to the goods are retained in the group. Revenue is then recognised over the period of the residual value commitment.

If the residual value risk commitment is not significant the revenue is recognized at the time of sale and a provision is made to reflect the estimated residual value risk.

Due to the complexity in assessing the transfer of risk and rewards of ownership there is an inherent risk that revenue is recognised in the incorrect period.

As the group offer financing and different kinds of residual value guarantees in connection to the sales, the sales agreements must be assessed with respect to the timing of the revenue recognition.

The company has developed instructions and models for how to recognize revenue for these transactions with customers. We have assessed whether the accounting models are in line with IFRS.

Our audit approach has consisted of controls testing regarding managements process for identifying sales agreements that should be classified as operating leases.

We also tested a sample of the sales agreements and evaluated the classification of the sales. For sales agreements classified as operating leases we have tested that the sale is recognised as an operating lease and revenue is recognized over the time of the contract.

At December 31, 2016 the recorded amount of goodwill and other intangible assets with indefinite useful lives was €15,222 million; the majority of these assets relate to the NAFTA segment.

Goodwill and intangible assets with indefinite useful lives are allocated to operating segments or to Cash Generating Units (CGU) within the operating segments, which represent the lowest level within the Group at which goodwill is monitored for internal management purposes in accordance with IAS 36.

Impairment tests are performed by management annually, or more frequently if impairment indicators are present, by comparing the carrying amount and the recoverable amount of the CGU to which noncurrent assets are allocated. The recoverable amount is the higher of the CGU’s fair value less costs of disposal and its value in use. In assessing the fair value, the post-tax estimated future cash flows are discounted to their present value using a post-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the CGU.

The assumptions used in the impairment test represent management’s best estimate for the period under consideration.

Considering the level of complexity of the assumptions used in estimating the recoverable amount we have determined that this area constitutes a significant risk.

The company disclosed the nature and value of the assumptions used in the impairment analyses in note 9.

We designed our audit procedures to be responsive to this risk. We obtained an understanding of the impairment assessment processes and evaluated the design and tested the effectiveness of controls in this area relevant to our audit.

Our focus included evaluating the work of the management specialists used for the valuation, evaluating and testing key assumptions used in the valuation including projected future income and earnings, performing sensitivity analyses, and testing the allocation of the assets, liabilities, revenues and expenses.

The forecasted cash-flows are an important input for the assessment of the recoverability. We have reconciled these forecasts for the cash generating units to the Group’s 2014- 2018 business plan, which was updated to reflect current expectations regarding economic conditions and market trends as well as to extend the discrete projections beyond 2018 to 2020. We also assessed the forecasting quality by comparing forecasts as included in tests prepared in prior years to the actuals.

Together with the help of our valuation experts, we performed independent calculations to validate the sensitivity analysis as referred to in note 2 of the Consolidated Financial Statements. Finally, we reviewed the adequacy of the disclosures made by the company in this area.

At December 31, 2016, the Group had deferred tax assets on deductible temporary differences of €9,608 million which were recognized and €551 million which were not recognized. At the same date the Group also had deferred tax assets on tax losses carried forward of €1,247 million which were recognized and €3,197 million which were not recognized. The analysis of the recognition and recoverability of the deferred tax assets was significant to our audit because the amounts are material, the assessment process is complex and judgmental and is based on assumptions that are affected by expected future market or economic conditions, especially as it relates to future performance in Latin America and the Eurozone.

The disclosures in relation to income taxes are included in note 7.

We obtained an understanding of the income taxes process, and evaluated the design and tested the effectiveness of controls in this area relevant to our audit. We performed substantive audit procedures on the recognition of deferred tax balances based on different local tax regulations, and on the analysis of the recoverability of the deferred tax assets.

We have evaluated the company’s assumptions and estimates in relation to the likelihood of generating sufficient future taxable income based on most recent budgets and plans, prepared by management by using the same criteria described for testing the impairment of assets and goodwill, principally by performing sensitivity analyses and evaluating and testing the key assumptions used to determine the amounts recognized. We have involved EY tax specialists to support us in these procedures.

Finally, we reviewed the adequacy of the disclosures made by the company in this area.

At December 31, 2016 the provisions for product warranties and recall campaigns amounted to €7,542 million.

The company establishes provisions for product warranty obligations, including the estimated cost of service and recall actions, when the related sale is recognized or, for the recall campaigns not in NAFTA, at the time when they are probable and reasonably estimable, which typically occurs once it is determined a specific recall campaign is needed and announced. The estimated future costs of these actions are principally based on assumptions regarding the lifetime warranty costs of each vehicle line and each model year of that vehicle line, as well as historical claims experience for the vehicles. Estimates of the future costs of these actions are inevitably imprecise due to numerous uncertainties, especially related to the NAFTA region’s warranty and campaign provisions, including the enactment of new laws and regulations, the number of vehicles affected by a service or recall action and the nature of the corrective action that may result in adjustments to the established reserves. Costs associated with these actions are recorded in Cost of Revenues in the Consolidated Income Statements.

Due to the size and the uncertainty and potential volatility of these estimated future costs and other factors, such as new laws and regulations, changes in assumptions used could materially affect the result of the company’s operations.

The disclosures on warranty provisions are included in note 20.

We obtained an understanding of the warranty process, evaluated the design of, and performed tests of controls in this area. Our focus included evaluating the appropriateness of the Group’s methodology, evaluating and testing the basis for the assumptions developed and used in the determination of the warranty provisions, performing sensitivity analyses to evaluate the judgments made by management, and testing the validity of the data used in the calculations.

Finally, we reviewed the adequacy of the disclosures made by the company in this area.