Given the listed status of SBM Offshore N.V., the significant shareholdings of management in SBM Offshore N.V. as a result of share-based payment plans and financial targets for management, the complex nature of the Company’s construction contracts and the significant judgements and estimates, revenue recognition of construction contracts was particularly subject to the risk of a material misstatement due to fraud.

The determination of the turnkey segment result based on over time recognition requires significant judgement and management could use this estimate to manipulate the figures to shift between year(s). Due to this, we deem the risk significant for the cut-off and accuracy assertion for revenue.

Where relevant to our audit, we assessed the design of the internal control measures and the effectiveness of these measures in the processes for recording costs and revenues relating to construction contracts. This includes project forecasting, measurement of the progress towards complete satisfaction of the performance obligation to determine the timing of revenue recognition and the Company’s internal project reviews. We concluded that we, in the context of our audit, could rely on the internal control procedures relevant to this risk.

With respect to the satisfaction of the performance obligations over time and the cut-off and accuracy for individual projects under construction, we examined, discussed, and challenged project documentation on the status, progress, and forecasts with management and legal, finance and technical staff of the Company. We evaluated and substantiated the outcome of these discussions by examining modifications of contracts, where applicable, such as claims and variation orders between the Company, subcontractors and clients and responses thereto.

In addition, we performed substantive procedures such as a detailed evaluation of forecasts and ongoing assessment of management’s judgement on issues, evaluation of budget variances and obtaining corroborating evidence, evaluation of project contingencies and milestones and recalculation of the progress towards complete satisfaction of the performance obligation. Furthermore, we evaluated whether there were indications of possible management bias and were alert for any contradictory information.

We performed audit procedures with respect to significant judgements and accounting estimates. Please refer to section “Key audit matters” for further details.

At the end of the year, we conducted specific substantive audit procedures regarding the cut-off of construction contracts to determine whether there were any shifts in results per individual project and/or between the current and next financial year.

Finally, we performed journal entry testing procedures focussed on unexpected account combinations.

Our audit procedures did not lead to specific indications of fraud or suspicions of fraud with respect to revenue recognition – construction contracts. 

Where relevant to our audit, we assessed the design of the internal control measures and the effectiveness of these measures in the processes for recording costs and revenues relating to the lease and operate contracts. This includes gaining an understanding of the underlying contracts, malus arrangements and key performance indicators like up- and downtime to determine the possible impact on the revenue recognition. We concluded that we, in the context of our audit, could rely on the internal control procedures relevant to this risk.

With respect to the satisfaction of the performance obligations for individual contracts, we examined, discussed, and challenged SBM Offshore N.V. on the recognition of maluses with management and legal, finance, and technical staff of the Company. We evaluated and substantiated the outcome of these discussions by examining the completeness of recognized claims and maluses by the Company and responses thereto, performing substantive procedures such as obtaining corroborating or contradictory evidence, evaluation of vessel reports. In addition, as part of our substantive audit procedures we evaluated whether there were indications of possible management bias.

Finally, we performed journal entry testing procedures focussed on unexpected account combinations.

Our audit procedures did not lead to specific indications of fraud or suspicions of fraud with respect to revenue recognition – lease and operate.

Where relevant to our audit, we assessed the design and effectiveness of the internal control measures with respect to contracts with clients and third party vendors, including agents. We concluded that we, in the context of our audit, could rely on the internal control procedures relevant to this risk.

We held various meetings with management and other SBM Offshore N.V. staff to discuss the risk of bribery and corruption. Amongst others we spoke to the group general counsel, group internal audit director, CFO, COO and CEO. We assessed that no new contracts with agents have been agreed in 2023.

In addition, and amongst others we performed the following procedures:

• Where applicable, we evaluated minutes of meetings held to identify potential transactions with agents and by agents themselves;
• Evaluated internal audit reports and internal reporting’s to the audit committee;
• Reviewed whistle blower notifications and follow up procedures by management.

Finally, we selected journal entries based on specific risk criteria and performed substantive audit procedures.

Our audit procedures did not lead to specific indications of fraud or suspicions of fraud with respect to the risk of bribery and corruption.

The SBM Offshore group is within the scope of the OECD Pillar Two model rules. As part of various business developments, including the effects of Pillar Two, the Company initiated a business re-alignment under the existing Swiss tax regime, applicable to Swiss companies. The re-alignment resulted in the recognition of a deferred tax asset for a gross amount of US$ 2.2 billion in relation to a tax goodwill in Switzerland (see note 4.3.17 Deferred Tax Assets and Liabilities). This notably has a positive impact on the Company in respect of Pillar Two based on the implementing measures as they currently stand (see Note 4.3.10 Income tax expense).

Given the complexity and nature of the agreement with Swiss tax authorities in relation to the business re-alignment, management performed an extensive assessment, involved management’s experts and developed a model regarding the impact on the existing tax strategy. Amongst others, management applied significant judgement in determining the forecasted taxable profits.

The Company determined that an amount of approximately US$ 2.0 billion of the deferred tax asset could possibly be unrecoverable which is driven by two main factors. One is the assessment of profitability and commercial uncertainties (i.e. future awards) impacting future profits. The other factor is the uncertainty of recovering this tax asset in future years in light of applicable enacted Swiss tax regulations. The Company determined the expected value of the uncertainty based on a range of possible outcomes. As a result, the Company as of December 31, 2023, recognized a deferred tax asset related to the tax goodwill in Switzerland net of US$ 141 million in accordance with IAS 12 and IFRIC 23.

Pillar Two legislation was enacted in the Netherlands, the jurisdiction in which the Company is incorporated and will come into effect from 1 January 2024. The OECD Pillar Two model rules are complex and the implementation in several jurisdictions is still uncertain.

Since the Pillar Two legislation was not effective at the reporting date, there is no current tax impact in 2023. The Company included the expected impact of the Pillar Two legislation in the Note 4.3.10 Income tax expense.

Based on the magnitude of the amounts involved, complexity, nature, and tax consequences including on Pillar Two, the re-alignment of the agreement with Swiss tax authorities, the significant judgements and estimates, these areas were particularly subject to the significant risk of material misstatement. Based on the above considerations we considered this area to be a key audit matter.

Management provided us with an extensive impact assessment consisting of multiple memos prepared by experts on the anticipated impact of the OECD Pillar Two rules and the business re-alignment under the existing Swiss tax regime, applicable to Swiss companies, resulting in a deferred tax asset relating to tax goodwill. 

We obtained all relevant legal and tax documents, such as the agreement with Swiss tax authorities, and assessed these as a basis for the business re-alignment.

We involved our tax specialists in the Netherlands and Switzerland to evaluate and test management's overall assessment. This involved the evaluation of the positions taken by management and management’s experts on corporate tax, the underlying calculations, the agreement with Swiss tax authorities and related disclosures. We challenged management on their assumptions used and estimates included in their assessment.

In respect to the management’s experts, we performed the following work:

• Evaluated the competence, capabilities and objectivity of those experts;
• Obtained an understanding of the work performed by management’s experts;
• Evaluated the appropriateness of the work of management’s experts.

We examined the modelling used by management to determine the deferred tax asset by jurisdiction and assessed the recoverability through agreeing the forecasted taxable profits with approved business plans per Swiss company. We assessed whether the underlying trends and assumptions in the forecasts used were consistent with those used in the approved budgets and found no inconsistencies. We have challenged the underlying assumptions and forecasted revenues, ascertained inclusion of all required elements in the forecast and reconciled the taxable profits based on the applicable tax rules in Switzerland.

We challenged management and the audit committee about the impact of the tax re-alignment on the implementation, and, how this relates to the spirit of the Pillar Two reform.

With the procedures performed above, we determined that the methodologies and assumptions used by the group to assess recoverability of the deferred tax asset related to tax goodwill as at 31 December 2023 were within a reasonable range of outcomes. In addition, we considered the disclosures in respect of Pillar Two legislation, the deferred tax asset on goodwill and the expected implications to the Company, as sufficient.