PGHH_AR_2020

Annual Report 2019-20 70 Procter & Gamble Hygiene and Health Care Limited Sr. Key Audit Matter Auditor’s Response Accumulated experience is used to estimate the provision for discounts and rebates considering the terms of the underlying schemes and arrangements with customers. There is also a risk that revenue may be overstated due to fraud including through manipulation of the discounts and incentives recognised resulting from the pressure local management may feel to achieve performance targets. (d) Performing substantive testing (including year-end cut-off testing) by selecting samples of revenue transactions recorded during the year (and before and after the financial year end) by verifying the underlying documents, which included sales invoices/contracts and shipping documents. (e) We compared the historical discounts, rebates/ schemes and allowances to current payment trends. We also considered the historical accuracy of the Company’s estimates in previous years. (f) Performing substantive testing by checking samples of rebate/schemes transactions to supporting documentation. (g) We assessed manual journals posted to revenue to identify unusual items (h) Considering the adequacy of the Company’s disclosures in respect of reven ue. 2. Uncertain Tax Positions (note no. 26 and 35 to the financial statements) The Company is subject to a range of tax risks. There is inherent judgement involved in determining provisions for uncertain tax positions. The Company is subject to periodic challenges by local tax authorities on a range of tax matters during the normal course of business, including direct taxes, transfer pricing and indirect taxes. Applicable tax laws and regulations are subject to differing interpretations and the resolution of a final tax position can take several years to complete. Where the amount of tax payable is uncertain, the Company establishes provisions based on Management’s judgement of the likelihood of settlement being required. Given the number of judgements involved in estimating the provisions relating to uncertain tax positions and the complexities of dealing with tax rules, this was considered as a key audit matter. Our audit procedures included: (a) We evaluated the design and tested the operating effectiveness of controls over the assessment of uncertain tax positions and completeness of disclosures. (b) We discussed the status and potential exposures in respect of significant tax litigations with the Company’s tax team including their views on the likely outcome of each assessment / litigation and magnitude of potential exposure. (c) We focused on the judgements made by Management in assessing the likelihood of potentially material exposures and the estimates used to determine such provisions where required. In particular, we focused on the impact of changes in local tax regulations and ongoing inspections by local tax authorities, which could materially impact the amounts recorded in the financial statements. (d) We involved our in-house tax experts to evaluate and challenge the appropriateness of Management’s assessment and judgements to estimate the provisions held in respect of uncertain tax positions. To do this, we assessed the provisions recognized in the financial statements using the outcome of prior and ongoing tax assessments conducted on the Company, correspondences between the Company and relevant tax authorities, judgemental positions taken in tax returns and current year estimates, our own experience in these areas and assessing whether the approach applied by the Company is supported by the practice in the industry. (e) We have also assessed the adequacy of the Company’s disclosures in respect of tax and uncertain tax positions.