Staatsolie Annual Report 2017

Annual Report 2017 29
Report on the Audit of the Consolidated Financial Statements
(Continued)
Key audit matters
(Continued)
Key audit matter
How our audit addressed the key audit matter
Risk of Impairment of the group’s assets
The significant decline in oil and gas prices has
the potential for a material impact on the carrying
value of the group’s assets as presented in the
consolidated statement of financial position.
The recoverability of the carrying amount of
Upstream and Downstream assets is dependent
upon the future cash flows of the business.
Bearing in mind the generally long-lived nature
of its assets, the most critical assumption in the
impairment analysis is management’s view on
the long-term oil and gas price outlook, beyond
the next three to five years.
With reference to IAS 36: Impairment of assets,
we first considered the appropriateness of
management’s defined cash-generating units
(CGUs) within the Upstream and Downstream
business. We assessed management’s macroeconomic
assumptions, which include both
short-term and long-term views on commodity
prices, inflation rates and discount rates.
IAS 36, requires impairment reviews to be
performed only for those CGU’s where indicators
of impairment exist. For those CGU’s where
impairment indicators were identified our audit
procedures were designed to evaluate whether
the impairment test model used by the Group
met the requirements of IAS 36. For those assets
expected to be retained in the portfolio, we :
• assessed the reasonableness of the key
assumptions relating to the ongoing
operation of the asset, including price, cost
and reserves data;
• engaged the services of the EY Transactions
Advisory Services (TAS) team to assist
in our assessment and audit of the key
assumptions and the impairment model;
and
• confirmed the mathematical accuracy
of the value-in-use model prepared by
management, and agreed the reserves
incorporated into the model to the
estimates prepared by the engineers