5 Critical accounting estimates and judgments

Estimates and judgments are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. The resulting accounting estimates may differ from the actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.

5.1 Significant estimates

Income taxes (Note 10)

The group is subject to income taxes in numerous jurisdictions. Significant judgment is required in determining the worldwide provision for income taxes.

In particular, the deferred tax assets on unused tax losses require estimates of the amount and dates of future taxable income as well as the future tax planning strategies. If the group expects not to realize the unused tax losses, these are not recognized.

Contingent consideration liabilities related to business acquisitions and the acquisition of customer relationships (Note 4.3, 16 and 19)

Contingent consideration liabilities reflect potential future payments following the acquisition of customer relationships and businesses. The calculation of the future payments is based on different variable input factors. These future cash flows were estimated at initial recognition. These assumptions are reviewed at each reporting date and changes impact profit and loss.

Defined benefit obligations (Note 20)

The present value of the defined benefit obligations depends on actuarial assumptions including the discount rate. Any changes in these assumptions will impact the carrying amount of defined benefit obligations. Additional information is disclosed in Note 20 Defined benefit liabilities.

Contingent liabilities and indemnification assets related to purchase price allocations (Note 13 and 18)

COMPAREX, acquired in 2019, has several ongoing dispute cases which could lead to future cash outflows. Occasional dispute cases also exist for InterGrupo, Intelligence Partner and ITST. In the course of the purchase price allocation, these contingent liabilities were measured at fair value on the acquisition date and presented as provisions. At each reporting date, such contingent liabilities are valued at the higher amount that would result in accordance with IAS 37 or the amount initially recognized less the cumulative amount of liabilities settled, cancelled or expired. Part of the risks are covered through indemnity clauses. The resulting indemnification assets were measured at fair value on the acquisition date on the same basis as the indemnified liability.

5.2 Significant judgments

Revenue recognition – principal versus agent assessment in indirect business (Note 6)

In accounting for revenue for software license agreements, there is considerable scope for discretion in assessing the principal/agent status. When another party is involved in providing goods or services to a customer, the assessment of whether the group acts as a principal or an agent is judgmental and addresses the questions of whether the nature of its promise is a performance obligation to provide the good or service itself (the group is a principal) or to commissioning another party to provide the good or service (the group acts as an agent). Under IFRS 15, an entity can be a principal only if it has control of a promised good or service before it is transferred to a customer. In the indirect software business, SoftwareONE only provides the access to the software license to the end customers, while the primary responsibility to provide the products lies with the third-party software provider. Thus, the group is not primarily responsible for fulfilling the promise to provide the software or cloud solutions and does not control the software license before it is transferred to the end customer. As a consequence, management concluded that SoftwareONE acts as an agent for transactions in the indirect business. As an agent, SoftwareONE recognizes revenue in the net amount that the group is entitled to retain in return for its agency services and end customer invoicing to the software provider, ie, the difference between the consideration received from the customer and cost of software purchased.

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