Page 249 - Annual Report 2020

Assessment of the carrying value of long-lived assets
• Property, plant and equipment: US$72.4 billion (2019: US$68.0 billion)
• Intangible assets: US$0.6 billion (2019: US$0.7 billion) Strategic Report
• Investments accounted for using the equity method: US$2.6 billion (2019: US$2.6 billion)
• Impairment of property, plant and equipment: US$0.5 billion (2019: US$0.3 billion)
Why significant How our audit addressed the key audit matter
Refer to Note 11 ‘Property, plant and equipment’, Note 12 The primary audit procedures we performed, amongst others, included
‘Intangible assets’ and Note 30 ‘Investments accounted for the following:
using the equity method’. • We evaluated the design of and tested the operating effectiveness of the
Accounting standards require an assessment of indicators internal controls over the Group’s processes of assessment for indicators
of impairment and impairment reversal annually or more of impairment, and the assessment of the recoverable amount of the CGU’s
frequently if indicators of impairment exist, for each cash for which an indicator of impairment was identified.
generating unit (CGU). • We performed an independent analysis for indicators of impairment, which Governance at BHP
The Group’s assessment of impairment indicators included included considering the performance of the assets and also external
market conditions. Our procedures involved assessing the key inputs such
an evaluation of the impact of the COVID-19 pandemic and as forecast commodity prices, discount rates and reserve estimation.
the related macro-economic disruptions. The Group • We considered the impact of COVID-19 and the related macro-economic
concluded that COVID-19, in isolation, did not result in the disruptions through evaluation of operating performance of the CGU’s,
identification of an indicator of impairment. and benchmarked forecast commodity prices to comparable market data.
At 30 June 2020, the Group determined that indicators • We considered the significant petroleum price volatility to date in CY2020
of impairment existed for the Cerro Colorado and Cerrejón and the potential impact of climate change on the long-term petroleum
CGUs, requiring an impairment test to determine the prices. We considered a range of long-term price assumptions, including
recoverable amount of these CGU’s. oil prices at US$55 a barrel (Brent) to identify potential impairment in the
The Group assessed the recoverable amount of the Cerro Petroleum CGU’s. To address the price assumptions, we compared future
Colorado and Cerrejón CGU’s, using the Value in Use (VIU) short and long-term commodity prices to consensus analysts’ forecasts Remuneration Report
methodology for Cerro Colorado and a Fair Value Less and those adopted by other companies.
Cost to Dispose methodology (FVLCD) for Cerrejón; as • We involved our valuation specialists to assist in evaluating, amongst
disclosed in Note 11 to the financial statements. other things, the discount rates applied and forecast commodity prices.
An impairment charge of US$492 million (including Our procedures to address the recoverable amounts of the Cerrejón
related tax impacts) was recorded for the Cerro Colorado and Cerro Colorado CGU’s included:
CGU primarily in relation to the updated life of mine plan. • Evaluation of whether the methodology applied complied with the
No impairment charge was required following the requirements of the relevant accounting standards;
assessment of the recoverable amount for Cerrejón. • Assessment of the future commodity prices adopted with reference to
The assessment of the recoverable amount of these CGUs broker and analyst data and publicly available peer companies information;
was considered to be a key audit matter as it involves • Assessment of the discount rate adopted, with reference to external Directors’ Report
significant judgement. Auditing the recoverable amount market data including government bond rates and other relevant
of CGU’s is complex and subjective due to the use of companies data;
forward-looking estimates, which are inherently difficult • Determining whether the cash flow projections agreed to approved plans,
to determine with precision. There is also a level of capital allocations, budgets and forecasts and assessment of the
judgement applied by the Group in determining the key reasonableness of the forecast cashflows against the past performance
inputs into these forward-looking estimates. of the CGUs;
The key estimates in management’s determination of • Performance of sensitivity analysis to evaluate the impact of reasonably
the recoverable amount, which drives whether or not possible changes in key assumptions such as commodity price, discount 5
an impairment charge or reversal is recognised, were rates, production, operating costs and capital expenditure;
as follows: • Evaluation of the historical accuracy of prior year’s forecasted cashflows
• Commodity prices: BHP’s commodity price assumptions by comparing to current year’s actual cash flows; and
have a significant impact on CGU impairment assessments, • Testing the mathematical accuracy of the impairment models.
and these are inherently uncertain. There is a risk that Financial Statements
management’s commodity price assumptions are not The Group uses internal and external experts to provide geological,
reasonable and may not appropriately reflect changes metallurgical, mine planning, future commodity price and technological
in supply and demand, including due to climate change information to support key assumptions in the impairment models. With
and energy transition, leading to a material misstatement. assistance from our mining and oil and gas reserves experts, we have
• Reserves: auditing the estimation of reserves is complex examined the information provided by the Group’s experts, including
assessment of the reserve estimation methodology against the relevant
as there is significant estimation uncertainty in assessing industry and regulatory guidance. We also assessed the qualifications,
the quantities of reserves, and the amount that will be competence and the objectivity of the internal and external experts.
recovered based on future production estimates.
• Discount rates: given the long life of BHP’s assets, With the assistance of our climate change and valuation specialists we Additional information
recoverable amounts are sensitive to the discount rate have also evaluated how the Group’s response to climate change had been
applied. Determining the appropriate discount rate to reflected in assessment of asset carrying values, such as commodity price
apply to a CGU is judgemental. forecasts and carbon prices.
The Group’s assessment of the potential financial impacts Our procedures were performed by the Group engagement team.
of climate change and transition to a lower carbon
economy are disclosed in Note 11 to the financial statements.
Key observations communicated to the Risk and Audit Committee
• We reported that the impairment charge recorded for Cerro Colorado was appropriately recorded in the financial year ending
30 June 2020.
• We concluded that the recoverable amount of Cerrejón was appropriately supported, and consequently no impairment was required. Shareholder information
• We reported that we had considered the impact of the decline in global oil prices and that our benchmarking of forecast prices against
comparable market data provided third party evidence to support the reasonableness of the Group’s assessment of long-term price
assumptions. This included our consideration of oil prices at US$55 a barrel. We reported that we considered management’s conclusion
that there is no impairment charge to be appropriate.
• We are satisfied with how management has reflected the impact of climate change in their assessment of the carrying value
of long-lived assets.

BHP Annual Report 2020 247