CSL Ltd Annual Report 2021

A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation 2 We have fulfilled the responsibilities described in the Auditor’s Responsibilities for the Audit of the Financial Repor t section of our report, including in relation to these matters. Accordingly, our audit included the performance of procedures designed to respond to our assessment of the risks of material misstatement of the financial report. The results of our audit procedures, including the procedures performed to address the matters below, provide the basis for our audit opinion on the accompanying financial report. 1. Existence and valuation of inventories Why significant How our audit addressed the key audit matter At 30 June 2021, the Group holds inventories of $3,780.6 million which are recorded at the lower of cost and net realisable value. The Group’s accounting for inventories is complex as the nature of products being produced and the strict quality and efficacy requirements it must comply with leads to a risk that inventories may be valued at greater than their recoverable amount. Provisions can be recognised for all components of inventories, including raw materials, work in progress and finished goods. The Group considers a number of factors when determining the appropriate level of inventory provisioning, including regulatory approvals and future demand for the Group’s products. In addition, the geographic footprint of the Group and the movements and sale of inventory between the Group’s operations means both the existence of inventories and the valuation of inventories is a key audit matter. This includes considering whether any mark up of inventories from sales within the Group is appropriately eliminated in the consolidated financial statements. The Group’s disclosures with respect to inventories is included in Note 4 of the financial report. We have assessed the carrying value of inventories, including costing and provisions for obsolescence and net realisable value at 30 June 2021. The existence of inventories has been tested through our attendance at regular cycle counts conducted throughout the period or through attendance at year-end inventory stocktakes in all locations with significant stock holdings. Through our observation of physical inventories, we validated, on a sample basis, expiry dates of products and remained alert for obsolescence issues. We assessed the appropriateness of the determination of inventory cost by assessing the accuracy of the standard costing used by the Group and assessing the recognition of variances from standard costs. We assessed whether inventory is recognised at the lower of cost or net realisable value at period end by comparing the inventory value measured at cost to audit evidence supporting net realisable value such as the current selling price of the products and achieved margins. We assessed whether the provisions for obsolescence calculated by the Group reflect known quality issues and commercial considerations including product expiration, market demand, and manufacturing plans, as well as their compliance with Australian Accounting Standards, and consistent application from prior periods. We assessed the Group’s financial report consolidation process, the elimination of any unrealised profits on transactions between group entities and resultant tax consequences. We have substantively tested the inputs to the calculation of the intercompany profit in stock, and verified that it eliminated upon consolidation. We have assessed the Group’s disclosures with respect to inventories in Note 4 of the financial report. CSL Limited Annual Report 2020/21 150 Notes to the Financial Statements