Independent auditor's report
To: the General Meeting of Shareholders and the Supervisory Board of Accell Group N.V.
Report on the audit of the financial statements 2019 included in the annual report
In our opinion:
- the accompanying consolidated financial statements give a true and fair view of the financial position of Accell Group N.V. as at 31 December 2019 and of its result and its cash flows for the year then ended, in accordance with International Financial Reporting Standards as adopted by the European Union (EU-IFRS) and with Part 9 of Book 2 of the Dutch Civil Code.
- the accompanying company financial statements give a true and fair view of the financial position of Accell Group N.V. as at 31 December 2019 and of its result for the year then ended in accordance with Part 9 of Book 2 of the Dutch Civil Code.
What we have audited
We have audited the financial statements 2019 of Accell Group N.V. (the company or Accell) based in Heerenveen. The financial statements include the consolidated financial statements and the company financial statements.
The consolidated financial statements comprise:
- the consolidated balance sheet as at 31 December 2019;
- the following consolidated statements for 2019: the income statement, the statements of comprehensive income, changes in equity and cash flows; and
- the notes comprising a summary of the significant accounting policies and other explanatory information.
The company financial statements comprise:
- the company balance sheet as 31 December 2019;
- the company income statement for 2019; and
- the notes comprising a summary of the accounting policies and other explanatory information.
Basis for our opinion
We conducted our audit in accordance with Dutch law, including the Dutch Standards on Auditing. Our responsibilities under those standards are further described in the ‘Our responsibilities for the audit of the financial statements’ section of our report.
We are independent of Accell Group N.V. in accordance with the ‘Verordening inzake de onafhankelijkheid van accountants bij assurance-opdrachten’ (ViO, Code of Ethics for Professional Accountants, a regulation with respect to independence) and other relevant independence regulations in the Netherlands. Furthermore, we have complied with the ‘Verordening gedrags- en beroepsregels accountants’ (VGBA, Dutch Code of Ethics).
We believe the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Based on our professional judgement we determined the materiality for the financial statements as a whole at EUR 2.75 million (2018: EUR 2.0 million). The materiality is determined with reference to profit before tax from continuing operations (5.4%). We consider profit before tax from continuing operations as the most appropriate benchmark because the main stakeholders are primarily focused on profit before tax from continuing operations. We have also taken into account misstatements and/or possible misstatements that in our opinion are material for the users of the financial statements for qualitative reasons.
We agreed with the Board of Management and the Supervisory Board that misstatements that impact the income statement in excess of EUR 137,500, which are identified during the audit, would be reported to them, as well as smaller misstatements that in our view must be reported on qualitative grounds.
Scope of the group audit
Accell Group N.V. is at the head of a group of components. The financial information of this group is included in the financial statements of Accell Group N.V..
Our group audit mainly focused on significant components. Based on the size and/or risk profile of the group components or activities, we have performed full scope audit procedures on the financial information for the key group components in the Netherlands, Germany, France, the UK, Turkey and Hungary. We performed specified audit procedures related to inventory in Spain, Sweden, Denmark, Belgium and Finland. In addition, we have performed specific audit procedures at group level aimed at amongst others the discontinued operations, deferred taxes, goodwill and other intangible assets and derivatives. Overall, this has resulted in a coverage of 85% of the total revenue and 92% of the balance sheet total. The remaining 15% of the total revenue and 8% of the balance sheet total concern a number of reporting components, each accounting for less than 5% of the total revenue or balance sheet total. For these remaining components, we have performed a number of procedures, including analytical reviews, to substantiate our judgement that there are no relevant risks of material misstatement.
The group audit team provided detailed instructions to all component auditors who were part of the group audit, covering the significant audit areas, including the relevant risks of material misstatement and set out the information required to be reported back to the group audit team. The group audit team has made site visits to Turkey and the United Kingdom and has audited the Dutch group component. Regardless of whether group components were visited, there have been telephone conferences with the local auditors for most group components and, where considered necessary, with local management. During the site visits, the planning of our audit, our risk assessment, our audit approach and the key audit findings and objectives were discussed. In Turkey and the United Kingdom file reviews were performed.
By performing the procedures mentioned above at group and local entities, together with additional procedures at group level, we have been able to obtain sufficient and appropriate audit evidence about the group’s financial information to provide an opinion about the financial statements.
The audit coverage as stated in the section summary can be further specified as follows:
Audit scope in relation to fraud
In accordance with the Dutch Standards on Auditing we are responsible for obtaining a high (but not absolute) level of assurance that the financial statements taken as a whole are free from material misstatement, whether caused by fraud or error.
As part of our risk assessment process we have evaluated events or conditions that indicate an incentive or pressure to commit fraud or provide an opportunity to commit fraud (‘fraud risk factors’) to determine whether fraud risks are relevant to our audit. During this risk assessment we made use of our own forensic specialist.
In accordance with the auditing standard we evaluated the fraud risks that are relevant to our audit:
- fraud risk in relation to the overstatement of revenue, specifically on fraudulent (non-routine) journal entries (a presumed risk)
- fraud risk in relation to management override of controls (a presumed risk)
We communicated identified fraud risks throughout our team and remained alert to any indications of fraud throughout the audit. This included communication from the group to component audit teams of relevant fraud risks identified at group level.
Our audit procedures included an evaluation of the design and implementation of internal controls relevant to mitigate these fraud risks and supplementary substantive audit procedures.
This included inquiries of management, detailed testing of high risk journal entries and an evaluation of key estimates and judgement by management.
In determining the audit procedures we made use of the Company’s evaluation in relation to fraud risk management (prevention, detections and response), including the set-up of ethical standards to create a culture of honesty.
As part of our evaluation of instances of fraud, we inquired the Company’s Code of Conduct Committee members regarding reported incidents and/or speak-up reports and, if applicable, follow up by management.
We communicated our risk assessment and audit response to management and the Audit Committee of the Supervisory Board. Our audit procedures differ from a specific forensic fraud investigation, which investigation often has a more in-depth character. Our procedures to address fraud risk related to revenue recognition did not result in the identification of a key audit matter.
We do note that our audit is based on the procedures described in line with applicable auditing standards and are not primarily designed to detect fraud.
Audit scope in relation to non-compliance with laws and regulations
We have evaluated facts and circumstances in order to assess laws and regulation relevant to the company. In this evaluation we made use of our own forensic specialist.
We identified laws and regulations that could reasonably be expected to have a material effect on the financial statements based on our general understanding and sector experience, through discussion with relevant management and those charged with governance, and evaluating the policies and procedures regarding compliance with laws and regulations.
We communicated identified laws and regulations throughout our team and remained alert to any indications of non-compliance throughout the audit. This included communication from the group to component audit teams of relevant laws and regulations identified at group level. The potential effect of these laws and regulations on the financial statements varies considerably:
- Accell is subject to laws and regulations that directly affect the financial statements including taxation and financial reporting standards (including related company legislation). We assessed the extent of compliance with these laws and regulations as part of our procedures on the related financial statement items; and
- Accell is subject to many other laws and regulations where the consequences of non-compliance could have an indirect material effect on amounts recognized or disclosures provided in the financial statements, or both, for instance through the imposition of fines or litigation.
Based on the Company’s nature of operations and their geographical spread, the area’s that we identified as those most likely having such an indirect effect include laws and regulations regarding competition, employment, health and safety and environmental.
Auditing standards limit the required audit procedures to identify non-compliance with laws and regulations that have an indirect effect to inquiring of relevant management and inspection of board minutes and regulatory and legal correspondence, if any. Through these procedures, we did not identify any actual or suspected non-compliance. We considered the effect of actual or suspected non-compliance as part of our procedures on provisions and disclosures of contingent liabilities.
Our procedures to address compliance with laws and regulations did not result in the identification of a key audit matter.
Our audit is not primarily designed to detect non-compliance with laws and regulations and that management is responsible for such internal control as management determines is necessary to enable the preparation of the financial statements that are free from material misstatement, whether due to fraud or error, including compliance with laws and regulations.
The more non-compliance with indirect laws and regulations (irregularities) is distant from the events and transactions reflected in the financial statements, the less likely the inherently limited procedures required by auditing standards would identify such instances.
Our key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements. We have communicated the key audit matters to the Board of Management and the Supervisory Board. The key audit matters are not a comprehensive reflection of all matters discussed.
These matters were addressed in the context of our audit of the financial statements as a whole and in forming our opinion thereon, and we do not provide a separate opinion on these matters. In comparison to prior year’s audit the valuation of goodwill and brands is not considered a key matter anymore. The disposal of the US businesses and the valuation of the deferred tax asset related to the liquidation losses of Accell North America are new key audit matters.
The sale of the US businesses is considered a significant unusual transaction, which requires management judgement and has significant impact on the 2019 financial statements, including the accounting for the disposal of US businesses as discontinued operations.
- Test of design and implementation of controls related to the accounting for the disposal of the US businesses
- Inspection of agreements and assessment if management’s accounting treatment for the disposal of the US businesses is appropriate and the net transaction result on the sale of the discontinued operations is accurate.
- Perform tests of detail on the calculation of the components of the result after tax from discontinued operations, including performing statistical sampling procedures on net turnover and expenses included in the operational result and inspection of a sample of documents to verify the accuracy of the transaction, closing and restructuring costs.
- Evaluation of the appropriateness of management’s assumptions and judgements, including the allocation of results between discontinued and continuing operations, and the determination of the transactions results including contingent assets and liabilities.
- Evaluation of the related disclosure (note 6.16) in relation to the requirements of EU-IFRS.
The results of our procedures were satisfactory and we determined that the related disclosure meets the requirements of EU-IFRS.
For the deferred tax asset of EUR 21.4 million that relates to the liquidation losses of Accell North America Inc., the risk exists that it does not meet the requirements of the Dutch liquidation loss facility and that future fiscal profits will not be sufficient to fully recover the deferred tax asset recognized.
Recognition of deferred tax assets relies on the exercise of significant judgement by management in respect of assessing whether the requirement of the Dutch liquidation loss facility will be met, and the assessment of the sufficiency of future taxable profits and the probability of such future taxable profit being generated.
We identified the recognition of deferred tax assets as a key audit matter because of its significance to the consolidated financial statements and because of the significant management judgement and estimation required.
- Involvement of tax specialist to assess that the tax treatment is in accordance with Dutch tax regulations.
- Test of design and implementation of controls on the accounting for the deferred tax asset related to the liquidation losses of Accell North America.
- Evaluation of management’s judgements and estimates in relation to the deferred tax asset including management’s assumption that the qualification for the requirements of the Dutch liquidation loss facility and the availability of sufficient future taxable profits against which the deferred assets will be realized is probable.
- Verification that the projections agree to the strategic plan, evaluation of the historical accuracy of forecasts by backtesting and analyzing the sensitivities in the projections.
- Evaluation of the related disclosure (note 6.15) in relation to the requirements of EU-IFRS.
Based on our procedures performed we consider management’s judgements and estimates to be within a reasonable range. We determined that the related disclosure meets the requirements of EU-IFRS.
Report on the other information included in the annual report
In addition to the financial statements and our auditor’s report thereon, the annual report contains other information.
Based on the following procedures performed, we conclude that the other information:
- is consistent with the financial statements and does not contain material misstatements; and
- contains the information as required by Part 9 of Book 2 of the Dutch Civil Code.
We have read the other information. Based on our knowledge and understanding obtained through our audit of the financial statements or otherwise, we have considered whether the other information contains material misstatements.
By performing these procedures, we comply with the requirements of Part 9 of Book 2 of the Dutch Civil Code and the Dutch Standard 720. The scope of the procedures performed is less than the scope of those performed in our audit of the financial statements.
The Board of Management is responsible for the preparation of the other information, including the information as required by Part 9 of Book 2 of the Dutch Civil Code.
Report on other legal and regulatory requirements
We were engaged by the Annual General Meeting of Shareholders as auditor of Accell Group N.V. on 26 April 2016, as of the audit for the year 2016 and have operated as statutory auditor ever since that financial year.
No prohibited non-audit services
We have not provided prohibited non-audit services as referred to in Article 5(1) of the EU Regulation on specific requirements regarding statutory audits of public-interest entities.
Description of responsibilities regarding the financial statements
Responsibilities of the Board of Management and the Supervisory Board for the financial statements
The Board of Management is responsible for the preparation and fair presentation of the financial statements in accordance with EU-IFRS and Part 9 of Book 2 of the Dutch Civil Code. Furthermore, the Board of Management is responsible for such internal control as management determines is necessary to enable the preparation of the financial statements that are free from material misstatement, whether due to fraud or error.
As part of the preparation of the financial statements, the Board of Management is responsible for assessing the company’s ability to continue as a going concern. Based on the financial reporting frameworks mentioned, the Board of Management should prepare the financial statements using the going concern basis of accounting unless the Board of Management either intends to liquidate the company or to cease operations, or has no realistic alternative but to do so. The Board of Management should disclose events and circumstances that may cast significant doubt on the company’s ability to continue as a going concern in the financial statements.
The Supervisory Board is responsible for overseeing the company’s financial reporting process.
Our responsibilities for the audit of the financial statements
Our objective is to plan and perform the audit engagement in a manner that allows us to obtain sufficient and appropriate audit evidence for our opinion.
Our audit has been performed with a high, but not absolute, level of assurance, which means we may not detect all material errors and fraud during our audit.
Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. The materiality affects the nature, timing and extent of our audit procedures and the evaluation of the effect of identified misstatements on our opinion.
A further description of our responsibilities for the audit of the financial statements is included in the appendix of this auditor's report. This description forms part of our auditor’s report.
Amstelveen, March 5, 2020
KPMG Accountants N.V.
T. van der Heijden RA
Description of our responsibilities for the audit of the financial statements
Description of our responsibilities for the audit of the financial statements
We have exercised professional judgement and have maintained professional scepticism throughout the audit, in accordance with Dutch Standards on Auditing, ethical requirements and independence requirements. Our audit included among others:
- identifying and assessing the risks of material misstatement of the financial statements, whether due to fraud or error, designing and performing audit procedures responsive to those risks, and obtaining audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud or non-compliance is higher than the risk resulting from error, as fraud or non-compliance may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control;
- obtaining an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s internal control;
- evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the Board of Management;
- concluding on the appropriateness of the Board of Management’ use of the going concern basis of accounting, and based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause a company to cease to continue as a going concern;
- evaluating the overall presentation, structure and content of the financial statements, including the disclosures; and
- evaluating whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation.
We are solely responsible for the opinion and therefore responsible to obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the group to express an opinion on the financial statements. In this respect we are also responsible for directing, supervising and performing the group audit.
We communicate with the Supervisory Board regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant findings in internal control that we identify during our audit. In this respect we also submit an additional report to the audit committee in accordance with Article 11 of the EU Regulation on specific requirements regarding statutory audits of public-interest entities. The information included in this additional report is consistent with our audit opinion in this auditor’s report.
We provide the Supervisory Board with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.
From the matters communicated with the Supervisory Board, we determine the key audit matters: those matters that were of most significance in the audit of the financial statements. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, not communicating the matter is in the public interest.