Adcock Ingram Integrated Report 2018

61 ADCOCK INGRAM  Integrated Report 2018 Independent auditor’s report TO THE SHAREHOLDERS OF ADCOCK INGRAM HOLDINGS LIMITED REPORT ON THE AUDIT OF THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS OPINION We have audited the consolidated and separate annual financial statements of Adcock Ingram Holdings Limited (the Group) set out on pages 69 to 143 which comprise the statements of financial position as at 30 June 2018, the statements of comprehensive income, the statement of changes in equity and the statements of cash flows for the year then ended, and the notes to the consolidated and separate annual financial statements, including a summary of significant accounting policies and other explanatory information. In our opinion, the consolidated and separate financial statements present fairly, in all material respects, the consolidated and separate financial position of the Group and Company as at 30 June 2018, and its consolidated and separate financial performance and consolidated and separate cash flows for the year then ended in accordance with International Financial Reporting Standards and the requirements of the Companies Act of South Africa. BASIS FOR OPINION We conducted our audit in accordancewith International Standards on Auditing (ISAs). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Consolidated and Separate Financial Statements section of our report. We are independent of the Group in accordance with the Independent Regulatory Board for Auditors Code of Professional Conduct for Registered Auditors (IRBA Code), the International Ethics Standards Board for Accountants Code of Ethics for Professional Accountants (IESBA code) and other independence requirements applicable to performing audits of the Group. We have fulfilled our other ethical responsibilities in accordance with the IRBA Code, IESBA Code, and in accordance with other ethical requirements applicable to performing the audit of the Group. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. KEY AUDIT MATTERS Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the consolidated and separate financial statements of the current year. These matters were addressed in the context of our audit of the consolidated and separate financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. For the matter below, our description of how our audit addressed the matter is provided in that context. We have fulfilled the responsibilities described in the “Auditor’s responsibilities for the Audit of the Consolidated and Separate Financial Statements” section of our report, including in relation to these matters. Accordingly, our audit included the performance of procedures designed to respond to our assessment of the risks of material misstatement of the financial statements. The results of our audit procedures, including the procedures performed to address the matters below, provide the basis for our audit opinion on the accompanying financial statements. KEY AUDIT MATTERS IDENTIFIED Key audit matter How our audit addressed the key matter Valuation of intangible asset acquired through business combination (Consolidated financial statements only) During the current year, Adcock Ingram purchased 100% of Genop Holdings Proprietary Limited (‘Genop’) for an amount of R336.7 million. As part of the acquisition accounting, International Financial Reporting Standards require the purchase price to be allocated between the acquired assets and liabilities, resulting in the recognition of tangible and intangible assets and goodwill. The principal area of judgement in management’s purchase price allocation exercise related to the valuation of the Epi-Max intangible asset. The valuation of the above intangible asset is inherently complex and judgemental due to the level of estimation uncertainty associated with forecasting future cash flows and is accordingly considered to be a key audit matter. As there is no history with regards to this intangible, a greater audit emphasis was placed on the below key judgements that affected the purchase price allocation: • Revenue cash flows during the budget period. • Market share during the budget period. • The royalty rate applied. • The discount rate applied. Refer to note 1.1 – Acquisition of Businesses To assess the valuation of the intangible, we involved an EY internal valuation specialist and our procedures included amongst others: • We evaluated the underlying valuation methodology (relief from royalty method by comparing it to industry trends for similar valuations). • We evaluated the cash flows used in the valuation by reference to existing contractual terms. • We considered the royalty rate applied by comparing it to relevant industry and market data. • We evaluated the discount rate used by assessing the cost of capital for Genop and any country risk adjustments. • We assessed the deferred tax liability raised. • We assessed the completeness and accuracy of the disclosures relating to business combinations and intangibles to assess compliance with disclosure requirements included in International Financial Reporting Standards.