Independent auditor's report
To the shareholders of Vodacom Group Limited
Report on the audit of the consolidated financial statements
Our opinion
In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of Vodacom Group Limited (the Company) and its subsidiaries (together the Group) as at 31 March 2018, and its consolidated financial performance and its consolidated cash flows for the year then ended in accordance with International Financial Reporting Standards and the requirements of the Companies Act of South Africa.
What we have audited
Vodacom Group Limited’s consolidated financial statements comprise:
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (ISAs). Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the consolidated financial statements section of our report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Independence
We are independent of the Group in accordance with the Independent Regulatory Board for Auditors Code of Professional Conduct for Registered Auditors (IRBA Code) and other independence requirements applicable to performing audits of financial statements in South Africa. We have fulfilled our other ethical responsibilities in accordance with the IRBA Code and in accordance with other ethical requirements applicable to performing audits in South Africa. The IRBA Code is consistent with the International Ethics Standards Board for Accountants Code of Ethics for Professional Accountants (Parts A and B).
Our audit approach
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Overall group materiality
Overall group materiality: R1 104 000 000, which represents 5% of consolidated profit before tax. |
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Group audit scope
We identified three local operations, which in our view, required an audit of their complete financial information, due to their size and risk characteristics. We have also identified an operation where an audit of their complete financial information was required, based on special purpose financial information, as a result of their contribution to the net profit from associates and joint venture financial statement line item. |
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Key audit matters
- Revenue recognition – accuracy of revenue recorded given the complexity of products and systems and disclosures on the expected impact of the initial application of IFRS 15;
- Provisions and contingent liabilities, focused on legal and taxation related matters;
- Capitalisation of assets and the assessment of useful lives and residual values for property, plant and equipment, and intangible assets; and
- Accuracy of share of results from associates, given the recent acquisition of a stake in Safaricom Public Limited Company.
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As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the consolidated financial statements. In particular, we considered where the directors made subjective judgements; for example, in respect of significant accounting estimates that involved making assumptions and considering future events that are inherently uncertain. As in all of our audits, we also addressed the risk of management override of internal controls, including among other matters, consideration of whether there was evidence of bias that represented a risk of material misstatement due to fraud.
Materiality
The scope of our audit was influenced by our application of materiality. An audit is designed to obtain reasonable assurance whether the financial statements are free from material misstatement. Misstatements may arise due to fraud or error. They are considered material if individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the consolidated financial statements.
Based on our professional judgement, we determined certain quantitative thresholds for materiality, including the overall group materiality for the consolidated financial statements as a whole as set out in the table below. These, together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our audit procedures and to evaluate the effect of misstatements, both individually and in aggregate on the financial statements as a whole.
| Overall group materiality |
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R1 104 000 000 |
| How we determined it |
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5% of consolidated profit before tax. |
| Rationale for the materiality benchmark applied
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We chose consolidated profit before tax as the benchmark because, in our view, it is the benchmark against which the performance of the Group is most commonly measured by users, and it is a generally accepted benchmark. We chose 5% which is consistent with quantitative materiality thresholds used for profit oriented companies in this sector. |
How we tailored our group audit scope
We tailored the scope of our audit in order to perform sufficient work to enable us to provide an opinion on the consolidated financial
statements as a whole, taking into account the geographic structure of the Group, the accounting processes and controls including those
performed at the Group’s shared service centres, and the industry in which the Group operates.
The Group’s main operating subsidiaries are located in five countries across the African continent. In establishing the overall approach
to the Group audit, we determined the type of work that needed to be performed at the local operations by us, as the Group engagement
team, or component auditors from other PwC network firms operating under our instruction. Where the work was performed by the
component auditors, we determined the level of involvement we needed to have in the audit work at those local operations to be able
to conclude whether sufficient appropriate audit evidence has been obtained as a basis for our opinion on the consolidated financial
statements as a whole.
The Group’s operations vary in size. Three operations were identified as in full scope for Group audit reporting purposes
(Vodacom (Pty) Limited, Vodacom Tanzania Public Limited Company and Vodacom Congo (RDC) SA). We identified these three operations
as those that, in our view, required an audit of their complete financial information, due to their size and risk characteristics. In addition,
Safaricom Public Limited Company has been included as in our scope for full scope special purpose financial information reporting,
given the significant contribution made to the net profit from associate and joint venture financial statement line item.
Additional audit procedures over certain balances and transactions relating to other operations for Group audit reporting were performed
to give appropriate coverage of all material balances at both geographical division and Group levels.
Further specified audit procedures over central functions and areas of significant judgement, including taxation, goodwill, treasury,
material provisions, consolidation entries and contingent liabilities, were performed at the Group’s Head Office in Midrand, South Africa.
In addition, audits for local statutory purposes are performed for the subsidiaries not in scope for Group audit reporting. Where possible,
the timing of local statutory audits was accelerated to align to the Group audit timetable, and where relevant, significant findings were
reported to the Group engagement team.
The Group engagement team visited one of the operations in scope for group reporting during the audit cycle and the lead audit partner
or senior member of the team also attended the year-end audit clearance meetings with the in scope audit teams.
Key audit matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements of the current period. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
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How our audit addressed the key audit matter
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The accuracy of amounts recorded as revenue is an inherent industry risk due to the complexity of billing systems, accounting for new products and plans – including multiple element arrangements – and the combination of products sold and tariff structure changes during the year.
The application of revenue recognition accounting standards in the telecommunications industry is complex and involves a number of judgements and estimates. Refer to Critical accounting judgements including those involving estimations and Revenue recognition. In view of the complexity of the revenue billing systems and the judgements and estimates involved the recognition of revenue was a matter of most significance to our audit.
In addition, disclosure is required of the expected impact of the new standard on revenue recognition, IFRS 15, which will be adopted from 1 April 2018. On adoption, the Group will apply the cumulative retrospective method to recognise the cumulative effect of the transition directly in equity as of 1 April 2018. It expects the initial recognition will lead to an increase in retained earnings under equity of approximately R3.1 billion to R3.6 billion (inclusive of deferred taxes) as of 1 April 2018. In view of the estimated material impact and the complexity of the Group’s implementation of the new standard, the presentation of the expected impact was a matter of most significance to our audit.
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We have understood and tested management’s controls over the transfer
of revenue information between the multiple systems involved in recording
revenue. We specifically tested the controls in place over the authorisation
of rates, the introduction of new products and the input of this information
to the billing systems.
We utilised our Information Technology (IT) specialists to test the IT general
controls of the relevant billing environments, as well as assessing the
relevant revenue reports utilised for audit purposes.
We examined and assessed the accounting policies applied in the
recognition of revenue for compliance with IFRS and industry guidance.
To assess the appropriate application of the agent versus principal
accounting treatment for different post-paid revenue transactions, we
examined legal documents and business rules between the Group and its
business partners and did not identify any contradictions from those applied
by management.
Our substantive procedures included, amongst others, the following:
- agreeing the end-to-end reconciliation from billing systems to the
manual journals captured in the general ledger to assess the
completeness, occurrence and accuracy of revenue recorded. Our
procedures also included testing samples of prepaid, contract and hybrid
data tariffs to authorised price lists;
- comparing contract revenue from the billing system to the customer
contracts and cash receipts;
- agreeing vouchers generated to cash receipts; and
- testing of the allocation of the revenue to the various elements in the
multiple element arrangements in order to test the accuracy of the
deferred revenue and deferred commission calculation.
No material differences were identified in performing these substantive tests.
With regard to the estimated impact of the initial adoption of IFRS 15, we assessed the Group’s process for estimating the impact of the new standard as follows:
- We used our accounting specialists in assessing management’s impact
analysis and the accounting estimates and judgements made in
respect of the business models of the Group by comparing the
analysis to the IFRS 15 standard and guidance;
- We assessed the appropriateness of the methods used by
management to determine the estimated impact of the initial
application of IFRS 15 by agreeing the various types of adjustments to
the financial statement line items to the accounting memoranda
prepared by management;
- We assessed the calculations performed by management in order to
determine the possible range of impact of the initial application of
IFRS 15 by agreeing the information used in the calculations to the
underlying audited accounting records; and
- We considered whether the processes and calculations established by
management and the estimates and assumptions made in respect of the
disclosure of the estimated impact are sufficiently documented and
substantiated.
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There are a number of pending and actual legal and regulatory cases against the Group. Accordingly, management exercises a high level of judgement in estimating the level of provisioning required. The evaluation of management’s judgements, including those that involve estimations in assessing the likelihood that a pending claim will succeed, or a liability will arise, and the quantification of the ranges of potential financial settlement is a matter of most significance to our audit.
Furthermore, the Group has operations across a number of jurisdictions and is subject to periodic challenges by local tax authorities. Evaluation of the outcome of the taxation related matters, and whether the risk of loss is remote, possible or
probable, requires significant judgement by management given the complexities involved.
Refer to Critical accounting judgements including those involving estimations, – Provisions,
– Contingent liabilities and legal proceedings and – Taxation.
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Our procedures included:
- testing management’s relevant controls surrounding litigation and regulatory compliance;
- obtaining confirmation, where appropriate, from relevant third party legal representatives. The results of the circularisation were found to be consistent with the representations made
by management relating to legal, regulatory compliance matters;
- reading Group legal reports, discussing open legal matters with the Group general counsel and regulatory teams – and where relevant – reading external legal opinions obtained by management. The outcomes of these procedures were found to be consistent with the representations obtained from management; and
- involving our tax specialists to assess management’s application and interpretation of tax legislation affecting the Group, and to consider the quantification of exposures and settlements arising from disputes with tax authorities in the various tax jurisdictions.
Based on the evidence obtained, while noting the inherent uncertainty with such legal, regulatory and tax matters, we accepted the level of provisioning at 31 March 2018. |
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Property, plant and equipment and intangible assets represents a significant proportion of the Group’s asset base. The estimates and assumptions made to determine the carrying amounts, including whether and when to capitalise or expense certain costs, and the determination of depreciation and amortisation charges are material to the Group’s financial position and performance. The charges in respect of periodic depreciation and amortisation are derived after estimating an asset’s expected useful life and the expected residual value. Changes to assets’ carrying amounts, expected useful lives or residual values could result in a material impact on the financial statements and is a matter of most significance to our audit
Refer to Significant accounting policies for property, plant and equipment, intangible assets, critical accounting judgements including those involving estimations, estimation of useful lives and residual values as well as – Property, plant and equipment and – Intangible assets. |
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We obtained an understanding of, and tested the relevant management controls relating to the capitalisation of property, plant and equipment and intangible assets, and the controls relevant to management’s review of useful lives and residual
values.
We evaluated the capitalisation policies and assessed the timeliness of the transfer of assets under construction by
agreeing the date that depreciation commenced to the date that
the asset is ready for use. We found no exceptions from the sample of items tested.
Our detailed substantive testing of the determination of estimated asset useful lives and residual values identified no exceptions. In performing these procedures we considered management’s judgments, including the appropriateness of existing and revised asset lives and residual values applied in the calculation of depreciation and amortisation to determine
whether these judgments reflected technological developments
within the telecommunications industry and changes in the anticipated duration of use by management. We further tested whether approved asset life revisions were appropriately applied
to the fixed asset register. |
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With the acquisition of an effective investment of 39.93%
in Safaricom Public Limited Company (Safaricom) during the year, through the acquisition of an investment of 87.5% in Vodafone Kenya Limited (Vodafone Kenya), the net profit from associate and joint venture has increased substantially from prior years. The estimates and assumptions made by management in relation to the transaction related to whether the Group has control or significant influence over Safaricom. Management also applied various judgements to determine the fair value of all identifiable assets and liabilities in relation to the investment made in Safaricom, with the assistance of external experts in valuation. Various changes were also required to existing systems to accommodate the equity accounting of the Safaricom results on consolidation. For these reasons this was considered a matter of most significance to our audit.
Refer to the Significant accounting policies for
Investments in associates and joint ventures,
Critical accounting judgements including those involving estimations as well as – Investment
in associate. |
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In order to assess whether the Group had control or significant influence
over the investment, we made use of our accounting technical expertise,
and obtained an understanding of, and assessed various internal
accounting memoranda prepared by management, supported by
contractual arrangements, to assess the conclusions reached by
management and the judgement applied as part of this process.
We also assessed the appropriateness of the policies applied by
management in the preparation of the consolidated financial statements,
and based on the results of our work performed, we accepted the
accounting treatment applied.
We made use of our valuation expertise to assess the work performed by
management’s expert, in order to independently verify the valuation
methodologies applied. We corroborated the estimates and judgements
applied by management’s expert, against industry data points on similar
transactions and to determine whether the valuations performed fall within
a reasonable range. Based on the evidence obtained, we accepted the
values that management determined.
We assessed the consolidation process followed by management to
recognise the equity accounted earnings of Safaricom, including testing of
certain consolidation and elimination journals processed. We found no
exceptions during this assessment. |
Other information
The directors are responsible for the other information. The other information comprises the information included in the Vodacom Group Limited Registration number 1993/005461/06 Consolidated annual financial statements for the year ended 31 March 2018, the Vodacom Group Limited Registration number 1993/005461/06 Annual financial statements for the year ended 31 March 2018 and the Vodacom Integrated report for the year ended 31 March 2018, which includes the Directors’ report, the Report of the Audit, Risk and Compliance Committee and the Certificate by the Company Secretary as required by the Companies Act of South Africa. Other information does not include the consolidated and separate financial statements and our auditor’s report thereon.
Our opinion on the consolidated financial statements does not cover the other information and we do not express an audit opinion or any form of assurance conclusion thereon.
In connection with our audit of the consolidated financial statements, our responsibility is to read the other information identified above and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated.
If, based on the work we have performed we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.
Responsibilities of the directors for the consolidated financial statements
The directors are responsible for the preparation and fair presentation of the consolidated financial statements in accordance with International Financial Reporting Standards and the requirements of the Companies Act of South Africa, and for such internal control as the directors determine is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the consolidated financial statements, the directors are responsible for assessing the Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so.
Auditor’s responsibilities for the audit of the consolidated financial statements
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level
of assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it
exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably
be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements.
As part of an audit in accordance with ISAs, we exercise professional judgement and maintain professional scepticism throughout the audit.
We also:
- Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design
and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis
for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as
fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
- Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in
the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control.
- Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures
made by the directors.
- Conclude on the appropriateness of the directors’ use of the going concern basis of accounting and, based on the audit evidence
obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to
continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report
to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our
conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may
cause the Group to cease to continue as a going concern.
- Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and
whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair
presentation.
- Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group
to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of
the Group audit. We remain solely responsible for our audit opinion.
We communicate with the directors regarding, among other matters, the planned scope and timing of the audit and significant audit
findings, including any significant deficiencies in internal control that we identify during our audit.
We also provide the directors with a statement that we have complied with relevant ethical requirements regarding independence, and
to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and
where applicable, related safeguards.
From the matters communicated to the directors, we determine those matters that were of most significance in the audit of the
consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s
report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that
a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected
to outweigh the public interest benefits of such communication.
Report on other legal and regulatory requirements
In terms of the IRBA Rule published in Government Gazette Number 39475 dated 4 December 2015, we report that
PricewaterhouseCoopers Inc. has been the auditor of Vodacom Group Limited for four years.
PricewaterhouseCoopers Inc.
Director: D.B. von Hoesslin
Registered Auditor
Johannesburg
1 June 2018
