We also reviewed the following areas due to their materiality and the application of judgement. However, we considered them to be stable in nature and therefore we did not classify them as significant issues in the context of the 2015 financial statements.
GKN is subject to tax audits globally which are often long and complex processes. Provisions made for uncertain tax positions involve judgement in their valuation, the interpretation of tax laws and the likelihood of challenge to tax positions.
We reviewed management updates and the external auditors’ assessments on certain tax matters including: • the recognition of deferred tax assets acquired with Fokker, taking into consideration the timing and level of future taxable profits • the release of tax provisions on resolution of uncertain tax positions • the recognition of interim receipts resulting from ongoing tax litigation.
Having considered updates from management and the external auditors’ view, particularly in respect of the recognition of interim receipts, the Committee was satisfied with the judgements taken by Deferred tax assets are required to management. be recognised on the Company’s balance sheet where it is probable that there will be sufficient taxable income in the future to absorb past tax losses. Judgement is required in assessing the future financial performance of the Group’s entities when recognising deferred tax assets.
See note 6 to the financial statements
Development costs on large programmes
Development costs for large aerospace and automotive programmes can be significant and assessing the likelihood of future recoverability of costs involves various judgements and assumptions. These relate to factors such as anticipated volumes, forecast cash flows and discount rates.
See note 11 to the financial statements
Impairment reviews of GKN Aerospace’s programme development costs against associated future cash flows are circulated to the Committee every six months. On each occasion we reviewed the valuation and the assumptions made, including programme risk factors, and the most recent external forecasts of aircraft programme demand. Actions and factors which can influence levels of impairment were noted and the view of the external auditors was sought in relation to the appropriateness of the approach and outcome. Particular focus was placed on the A350 programme due to the value of its development costs. We also reviewed the development costs in GKN Driveline. Taking into account the documentation presented and the assessment of the external auditors, we were satisfied with the approach and judgements taken.
Determining the current value of the Group’s future pension obligations requires a number of assumptions. These assumptions relate principally to life expectancy, discount rates applied to future cash flows, rates of inflation and future salary increases.
See note 24 to the financial statements
Key matters reviewed this year included the appropriateness of valuation assumptions such as discount rates, mortality and inflation. The Committee also reviewed the impact of certain pension de-risking activities on the financial statements. In the UK, a bulk annuity ‘buy-in’ was completed. The additional bulk annuity covered £47 million of pensioner liabilities (valued on an IAS 19 accounting basis as at 31 December 2015). Valuation assumptions, prepared by external actuaries and adopted by management, were considered in light of prevailing economic indicators and the view of the external auditors. The approach adopted by management was accepted as appropriate.
GKN plc Annual Report and Accounts 2015