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.
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 realise the unused tax losses, these are not recognised.
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, ITST and Predica. During the purchase price allocation, these contingent liabilities were measured at fair value on the acquisition date and presented as provisions. On each reporting date, such contingent liabilities are valued at the higher amount that would result in accordance with IAS 37 or the amount initially recognised 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.