124 Vodafone Group Plc Annual Report 2025
Strategic report
Governance
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Independent auditor’s report to the members of Vodafone Group Plc continued
For the remaining 23% of revenue, we performed risk assessment, analytical and controls testing procedures to ensure the risk of material misstatement was sufficiently low. We also performed targeted journal entry testing procedures to mitigate residual risk of material misstatement. We held regular discussions with component teams throughout the audit, including in person on site visits at all locations. We participated in the development of their planned audit strategy for revenue recognition, reviewed all component deliverables and additional key and supporting workpapers prepared by the component teams to address the risk identified. Our application of materiality We apply the concept of materiality in planning and performing the audit, in evaluating the effect of identified misstatements on the audit and in forming our audit opinion. Materiality The magnitude of an omission or misstatement that, individually or in the aggregate, could reasonably be expected to influence the economic decisions of the users of the financial statements. Materiality provides a basis for determining the nature and extent of our audit procedures. We determined our materiality for the Group to be €215 million (2024: €220 million), which is approximately 2% (2024: 2%) of Adjusted EBITDAaL. We believe that Adjusted EBITDAaL provides us with the most relevant performance measure for the continuing business on which to determine materiality, given the prominence of this metric throughout the Annual Report and consolidated financial statements, investor presentations, profit metrics focused on by analysts and its alignment to the management remuneration metric of adjusted EBIT. We determined materiality for the Parent company to be €421 million (2024: €450 million), which is approximately 1% (2024: 1%) of the Parent company’s equity. However, since the Parent company was a full scope component, for accounts that were relevant for the consolidated financial statements, a performance materiality of €32 million was applied. Performance materiality The application of materiality at the individual account or balance level. It is set at an amount to reduce to an appropriately low level the probability that the aggregate of uncorrected and undetected misstatements exceeds materiality. On the basis of our risk assessments, together with our assessment of the effectiveness of the Group’s overall control environment to prevent or timely detect and correct material errors, our judgement was that performance materiality was 75% (2024: 75%) of our planning materiality, namely €160m (2024: €165m). Audit work was undertaken at component locations for the purpose of responding to the assessed risk of material misstatement of the consolidated financial statements. The performance materiality set for each component is based on the relative scale and risk of the component to the Group as a whole and our assessment of the risk of misstatement at that component. In the current year, the range of performance materiality allocated to components was €32m to €160m (2024: €33m to €165m).
Our response to the risk Our audit procedures at full scope and specific scope component locations included, among others obtaining an understanding of, evaluating the design and testing the operating effectiveness of 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 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. 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 journals 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 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. 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. Key observations communicated to the Audit and Risk Committee Based on the procedures performed, including those in respect of manual adjustments to revenue, we concluded that revenue has been appropriately recognised in accordance with IFRS 15, in the year ended 31 March 2025. How we scoped our audit to respond to the risk and involvement with component teams Our component audit teams performed audit procedures over this risk area in 5 full scope, 2 specific scope and 1 specified procedure component, which covered 75% of the Group’s revenue. The Group audit team also performed centralised audit procedures over certain revenue streams which covered 2% of the Group’s revenue.
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