CSL Ltd Annual Report 2020

A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation 4 3. Implementation of AASB 16 Leases Why significant How our audit addressed the key audit matter The Group adopted AASB 16 Leases (“AASB 16”) from 1 July 2019, which resulted in the recognition of $926 million of right-of-use assets and $1,004 million lease liabilities at adoption date. The application of this accounting standard is inherently complex due to the volume of operating leases held by the Group and the judgements applied by management, including: ► the determination of the lease term considering the impact of lease extension options; ► the calculation of incremental borrowing rates, particularly in multiple geographic regions Key judgements applied to the Group’s leases are set out in the Significant changes in the current reporting period section of the financial statements. We selected a sample of lease agreements to determine the appropriateness of the judgements and accounting treatments applied in determining the transition adjustment upon adoption of the new standard, including: ► the determination of the lease term; ► the identification of non-lease components; ► the treatment of adjustments to lease payments (both fixed and variable rate adjustments); ► the impact of lease modifications; ► the determination of discount rates used in calculating lease liabilities; and ► the application of practical expedients available under AASB 16 We evaluated the effectiveness of the Group’s processes and controls to capture and measure the right-of-use asset and associated liability including the completeness of the balances. We selected a sample of leases from the Group’s contract management system and assessed whether they have been appropriately recognised under the standard. We selected a sample of lease contracts to determine the appropriateness of the discount rate used by the Group. Where an incremental borrowing rate is applied, we involved our debt advisory specialists to assess the interest rates applied by the Group We assessed the calculation of the adjustment to opening retained earnings calculated by the Group. We have assessed the Group’s disclosures with respect to leases the Significant changes in the current reporting period section of the financial statements. CSL Limited Annual Report 2020 142 Notes to the Financial Statements