Key audit matter How our audit addressed the key audit matter realisable value of inventory to fall below its cost price. Considered the design and effective operation of a This will occur where inventory becomes aged, damaged sample of relevant key inventory controls. or obsolete and will be sold below its cost price in order to Attended inventory counts at a distribution centre and clear. Inventory provisioning is also required where inventory no longer exists due to theft and processing retail stores. errors. Assessed the Group’s inventory provisioning policy by We considered this a key audit matter because the Group considering the levels of aged inventory and the Group’s applies judgements and assumptions in: inventory clearance strategy. Forecasting sell through rates of inventory on hand Considered the historical accuracy of the Group’s inventory provisioning by comparing the prior period at period end to estimate the value of inventory inventory provision to inventory sold below cost or likely to sell below cost in the future. written off in the current period. Estimating inventory shrinkage based on actual We considered the disclosures made in note B2, in light of losses realised as a result of cycle inventory counts. the requirements of Australian Accounting Standards. Supplier rebates (Refer to note B2) As described in note B2 to the financial statements, the Our procedures over supplier rebate income included: Group recognises amounts receivable from suppliers Agreeing a sample of supplier rebates recorded to the (primarily comprising supplier promotional rebates) as a reduction in the cost of inventory purchased and a relevant supplier agreements. reduction in the cost of goods sold. Comparing a sample of rebate terms used in the Group’s The majority of supplier rebates tend to be small in unit supplier rebate calculations to relevant supplier value but high in volume and span relatively short arrangements and the Group’s inventory purchase periods of time, although promotional rebates and sell volume data. through of related inventory can run across the financial Interviewing a range of theGroup’s buyers to develop an period end. understanding of: We considered this to be a key audit matter because: - the nature of the rebates negotiated with suppliers. Supplier arrangements are complex in nature and - their awareness of Group buying policies. highly variable between suppliers. Comparing a sample of rebates to relevant supplier Judgement is needed by the Group to determine the arrangements to assess whether they amount of supplier rebates that should be were appropriately allocated to the income recognised in the income statement and the statement or capitalised into inventory. amounts that should be deferred to inventory. This requires a detailed understanding of contractual We evaluated the recoverability of the rebates receivable at arrangements with suppliers and accurate purchaseperiod end by assessing the ageing of amounts outstanding and sell through information. at 28 July 2018. We considered the disclosures made in note B2, in light of the requirements of Australian Accounting Standards. Refinancing and debt covenants (Refer to note D3 and H6) There are external borrowings on the balance sheet at 28 We obtained confirmations directly from the Group’s banks July 2018 of $149m. to confirm the borrowings’ balance, tenure and conditions at Given the financial significance of the borrowings 28 July 2018. Myer Annual Report 2018 91