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INDEPENDENT JOINT AUDITORS’ REPORT TO THE SHAREHOLDERS OF DANGOTE CEMENT PLC Key Audit Matter Financial Derivatives – FX Forwards(Company) In a bid to hedge against the effects of the volatility of the Nigerian Naira against the US dollar, the company entered into forex forward contracts with a local bank with the aim of obtaining foreign currency at a more stable and predictable rate in the future. The forward contracts involve making payments via the local bank, for US dollars at an agreed rate, on a future date, thus creating some predictability regarding the rates at which US dollars are obtained and its availability to transact the company’s business. As disclosed in note 4.1.2 to the financial statements, the company has assessed its capacity to obtain economic benefits arising from the forward contracts and determined it may not be able to realise the benefits of the forward contracts due to the scarcity of foreign currency in the market and has not recorded an asset with respect to the foreign currency forward contracts, hence, this is a key audit matter. Our audit procedures incorporated a combination of tests of the company’s controls relating to the recognition of the derivative asset and resultant income; and substantive procedures in respect of valuation of the payments made on the forward contracts. Our substantive procedures included the following: • Reviewing the forward contracts entered into with the local bank to obtain an understanding of the terms and conditions. • Reviewing company’s valuation of the contracts and the various parameters used in the valuation. • Challenging the assumptions in the valuation of the derivatives through engagement of experts. • Challenging the assumptions and inputs used by the company in carrying out the valuation of the forward contracts. • Verifying the accuracy of the asset and resultant income, based on the results of the valuation. We assessed the company’s decision not to recognise the asset (at fair value) related to forward contracts due to its inability to obtain economic benefits therefrom. We also assessed the adequacy of the company’s disclosures in relation to the judgement applied to these balances. We found the operation of the controls relating to the valuation of the forward contracts to be operating effectively. We found the disclosures made in the financial statements to be adequate and we consider reasonable, the company’s decision not to recognise the asset resulting from the foreign currency forward contracts, owing to the scarcity of foreign currency in the market. How the matter was addressed in the audit 138 Annual Report 2016

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