Notes to the Financial Statements A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation Page 2 Existence and valuation of inventories Why significant How our audit addressed the key audit matter At 30 June 2023, the Group holds inventories of $5,466 million which are recorded at the lower of cost and net realisable value. The Group’s accounting for inventories is complex due to the nature of products being manufactured requiring multiple inputs into the determination of cost and the need to ensure the effect of inventory sales within the Group is appropriately considered in the determination of cost. Provisions may be recognised in relation to all components of inventories, including raw materials, work in progress and finished goods in considering whether inventories are carried at the lower of cost and net realisable value. The Group considers a number of factors when determining the appropriate level of inventory provisioning, including expiry dates, current selling prices and achieved margins. Due to the significant value of inventories, global distribution, intra-group transactions and the judgements involved in determining whether inventory is carried at the lower of cost and net realisable value, the existence and valuation of inventories was considered a key audit matter. The Group’s disclosures with respect to inventories are included in Note 5 of the financial report. We have assessed the carrying value of inventories, including the determination of cost and provisions required to ensure inventory is carried at the lower of cost and net realisable value at 30 June 2023. We assessed the appropriateness of the determination of inventory cost by assessing the accuracy of the standard cost approach used by the Group and assessing the recognition of variances from those standard costs. We assessed the elimination of any unrealised profits on sales of inventories between group entities and resultant tax consequences by the Group. We assessed whether inventory is recognised at the lower of cost and net realisable value at period end by comparing the inventory value measured at cost to evidence supporting net realisable value such as the current selling prices and achieved margins. We considered whether the Group’s inventory provisioning policy appropriately identified and considered the obsolescence and expiration of inventory. We assessed the mathematical accuracy of the Group’s provisioning calculations, recalculated inventory provisions in line with Group policy and considered any specific inventory valuation risks identified through our inventory cost, NRV and observation procedures. We assessed the Group’s stock taking procedures which included attendance at periodic cycle counts or through attendance at year-end inventory stocktakes in locations with significant inventory holdings. We remained alert for obsolescence issues during our observation of physical inventories. We have assessed the Group’s disclosures with respect to inventories in Note 5 of the financial report. CSL Vifor Acquisition Why significant How our audit addressed the key audit matter On 9 August 2022, the Group received the final regulatory approval for the acquisition of Vifor Pharma Group (now CSL Vifor) and obtained control effective from that date. The total consideration paid by the Group amounted to $11,665 million as disclosed in Note 2. Accounting for this transaction required the Group to exercise significant judgement to determine the fair value of acquired assets and liabilities assumed, in particular the identification and valuation of intangible assets and inventory. The Group’s disclosures with respect to this acquisition are included in Note 2 of the financial report. We read the underlying transaction agreements to gain an understanding of the key terms and conditions and assessed whether the Group accounting treatment appropriately reflected these transaction conditions and complied with the requirements of Australian Accounting Standards. We assessed the appropriateness of the criteria used for the determination of the acquisition date and the total consideration paid. We considered the values ascribed by the Group to the assets acquired and liabilities assumed at acquisition date. With the assistance of our valuation specialists, we assessed the: • reasonableness of the valuation assumptions used by the internal and external experts in their determination of fair value of the acquired assets and liabilities CSL Limited Annual Report 2022/23 164
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