132 Vodafone Group Plc Annual Report 2026
Strategic report
Governance
Financials
Other information
Independent auditor’s report to the members of Vodafone Group Plc continued
– evaluating the reasonability of expected future profitability by comparing underlying assumptions to historical performance, commercial rationale, the application of transfer pricing policies and with evidence obtained from other areas of our audit. Key observations communicated to the Audit and Risk Committee We agree with the recognition of the deferred tax assets in Luxembourg and VodafoneThree, and consequently the long recoverability period, on the basis of forecast profits, which are considered probable. In the case of Luxembourg, this reflects the commercial rationale and management’s intention to retain current activities in Luxembourg and the intergroup debt levels, over the longer term and this reflects the track record of historical profitability. In the case of the VodafoneThree, this reflects the commercial rationale for the merger. Both VodafoneThree and Luxembourg have established market structure for telecoms including high barriers to entry for new market entrants, the long-dated funding structure and local tax law. Changes in key assumptions, in particular Luxembourg, including a plausible reduction in the level of intra-group debt levels with Germany could lead to an increase in utilisation period beyond 60 years. The Group does not currently recognise deferred tax assets which are forecast to be used 60 years beyond the balance sheet date and consequently, should the assumptions change, a different conclusion could be reached in respect of the level of deferred tax asset recognised. We consider that the disclosures included within Note 6 to the consolidated financial statements acknowledges both the judgement made in respect of the timing and profile of the utilisation of the losses in the short to medium term and the longer-term uncertainties in relation to the carrying value of the related deferred tax asset. How we scoped our audit to respond to the risk and involvement with component teams Audit procedures on the recognition and recoverability of deferred tax assets on tax losses in Luxembourg were performed by the Group audit team and its tax professionals, with support from Luxembourg tax and transfer pricing specialists for certain procedures. Audit procedures on the recognition and recoverability of deferred tax assets in VodafoneThree were performed by the Group audit team and its tax professionals and with support from UK tax specialists for certain procedures. Risk Revenue recognition As more fully described in Note 2, Note 14 and Note 15 to the consolidated financial statements, the Group reported revenue of €40,461 million (FY25: €37,448 million), contract assets of €2,982 million (FY25: €2,969 million) and contract liabilities of €2,262 million (FY25: €2,228 million) for the year ended or as at 31 March 2026. Management records revenue according to the principles of IFRS 15, Revenue from Contracts with Customers, including following the 5-step model therein. We identified a risk of management override through inappropriate manual topside revenue journal entries, given revenue is a key performance indicator, both in external communication and for management incentives.
We also consider auditing the revenue recorded by the Group to involve greater auditor effort and attention, due to the multiple IT systems and tools utilised in the initiation, processing and recording of transactions, which includes a high volume of individually low monetary value transactions. The involvement of IT professionals was required to determine the audit approach to test and evaluate the relevant data that was captured and aggregated, and to assess the sufficiency of the audit evidence obtained. Our response to the risk Our audit procedures at full scope and specific scope component locations included, among others obtaining an understanding, evaluated the design and tested the operating effectiveness of management’s controls over the Group’s revenue recognition process, which includes management’s determination of the timing of revenue recorded. With the support of our IT professionals, we also evaluated the design and tested the operating effectiveness of management’s controls over the appropriate initiation and flow of transactional data through the IT systems and tools and the reconciliation of the transactional data to the accounting records. Where we were unable to rely on controls within the underlying IT systems, we designed alternative procedures to mitigate the risk. For significant revenue streams, which include service and equipment revenue, at full and specific scope locations, our audit procedures included the following, on a sample basis: – We used data analytic tools to identify revenue related manual journal entries posted to the general ledger and traced these back to underlying source documentation, to evaluate the propriety, completeness and accuracy of the postings. We also performed analytical procedures to consider the completeness of journal entry postings; – Where it was deemed to be most effective, at certain components we extended the use of data analytics. These incremental procedures involved testing full populations of transactions, including performing a correlation analysis between invoiced revenue, receivables and cash. We performed targeted audit procedures over items above our testing threshold that did not correlate as expected; – In order to support our data analytic approach, we performed a completeness test over the underlying data to ensure this data reconciled to the financial statements; – At components where the above procedures were not used, for the significant revenue billing systems, we obtained the billing data to general ledger reconciliation, which included the relevant adjustments to deferred and accrued revenue balances. We reperformed these reconciliations, including assessing the accuracy of the revenue adjustments by vouching billing data inputs to underlying source documentation, including contractual agreements where applicable. In addition, we tested the mathematical accuracy and completeness of the reconciliations and reconciling items above our testing threshold, including significant revenue postings outside of the billing systems; and – We recalculated the revenue recognised to evaluate whether the processing of the revenue recognition by the Group’s IT systems was materially correct. Where relevant, for multi-element arrangements, we used contractual data to apply the Group’s accounting policy to allocate transaction price to the identified performance obligations and recalculate the revenue to be recognised. We also assessed the adequacy of the Group’s disclosures in respect to the accounting policies on revenue recognition.
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