For the remaining components we performed, among other things, analytical procedures to corroborate our assessment that there were no significant risks of material misstatements within those components.

For the Group Corporate Departments component in Amsterdam, the group engagement team performed the audit work. For the components in Monaco, including ‘Yards and Construction’, and the treasury function shared service center in Marly, Switzerland, we used component auditors who are familiar with the local laws and regulations to perform the audit work.

Where the work was performed by component auditors, we determined the level of involvement we needed to have in their audit work to be able to conclude whether sufficient appropriate audit evidence had been obtained as a basis for our opinion on the consolidated financial statements as a whole.

We issued instructions to the component audit teams in our audit scope. These instructions included, amongst others, our risk analysis, materiality and scope of the work. We explained to the component audit teams the structure of the Group, the main developments that are relevant for the component auditors, the risks identified, the materiality levels to be applied and our global audit approach. We had individual calls with each of the in-scope component audit teams during the year including upon conclusion of their work. During these calls, we discussed the significant accounting and audit issues identified by the component auditors, the reports of the component auditors, the findings of their procedures and other matters, which could be of relevance for the consolidated financial statements.

The group engagement team visits the component teams and local management on a rotational basis. In the current year, the group audit team has visited the Monaco components given the importance of these components to the consolidated financial statements as a whole and the judgements involved in the estimates in construction contracts (refer to the respective key audit matter). For each of these locations and the treasury function shared service center in Marly, Switzerland, we reviewed selected working papers of the component auditors.

In addition to the work on the Group Corporate Departments component, the group engagement team performed the audit work on the group consolidation, financial statement disclosures and a number of complex items at the head office. These included impairment assessments, share based payments, provisions for warranty obligations, taxes including deferred taxes and uncertain tax provisions, directional reporting as part of the segment reporting disclosures, the implementation of IFRS 9, especially the expected credit losses, IFRS 15, IFRS 16 and the Brazil settlements.

By performing the procedures above at component level, combined with additional procedures at group level, we have been able to obtain sufficient and appropriate audit evidence on the Group’s financial information, as a whole, to provide a basis for our opinion on the financial statements.

However, because of the characteristics of fraud, particularly those involving sophisticated and carefully organised schemes to conceal it, such as forgery, deliberate failure to record transactions and collusion, our audit might not detect instances of material fraud.

We obtained an understanding of the entity and its environment, including the entity’s internal control. We made enquiries of management, internal audit and the Supervisory Board. In addition, we considered other external and internal information. As part of our process of identifying fraud risks, we evaluated fraud risk factors with respect to financial reporting fraud, misappropriation of assets and bribery and corruption. Fraud risk factors are events or conditions, which indicate an incentive or pressure, an opportunity, or an attitude or rationalization to commit fraud. We, together with our forensic specialists, evaluated the fraud risk factors to consider whether those factors indicated a risk of material misstatement due to fraud.

As in all of our audits, we addressed the risk of management override of internal controls, including evaluating whether there was evidence of bias by the Management Board that may represent a risk of material misstatement due to fraud.

We evaluated the design and the implementation and, where considered appropriate, tested the operating effectiveness of internal controls that mitigate fraud risks. In addition, we performed procedures, which include journal entry testing and evaluating accounting estimates for bias.

In particular, our procedures consisted of checking the results of whistleblowing and complaints procedures with the entity, data analysis of high-risk journal entries and evaluation of key estimates and judgements (including retrospective reviews of prior year’s estimates). These procedures also included testing of transactions back to source information. We considered the possibility of fraudulent or corrupt payments made through third parties including agents and conducted detailed testing on third party vendors including agents. We conducted specific audit procedures in relation to the risk of bribery and corruption across various countries of operation determined by a risk based process. We also incorporated an element of unpredictability in our audit.

We considered the outcome of our other audit procedures and evaluated whether any findings or misstatements were indicative of fraud. If so, we re-evaluated our assessment of fraud risk and its resulting impact on our audit procedures.

In the ‘Key audit matters’ section of this report, and specifically the key audit matter ’Estimates in construction contracts’, we included the risk of fraud as a risk element because of the level of judgement and significant estimates involved relating to the accounting for revenue arising from construction contracts of the turnkey segment.

Revenue arising from construction contracts represents 42% of the Group’s total revenue. The engineering and construction of FPSOs and Turrets is complex, involving significant management estimates, for instance, relating to the cost to complete and the measurement of progress towards complete satisfaction of the performance obligation, including the assessment of the remaining risks and contingencies that a project is or could be facing.

Significant management judgement is applied in identifying the performance obligations and determining whether they are distinct, the method of revenue recognition as either point in time or over time, contract modifications and variable consideration. Given the unique nature of each separate project and contract, management performed a contract analysis on a case-by-case basis to determine the applicable accounting for revenues from construction contracts under IFRS 15.

As construction contracts are complex and these involve significant judgement and estimates, we considered this area to be a key audit matter.

Our audit procedures on construction contracts included obtaining an understanding and evaluation of the significant estimates made by management, such as those regarding the cost to complete, the measuring of progress towards complete satisfaction of the performance obligations, contract modifications and variable consideration. We determined, based on reading the contracts with the customers, that the most critical and judgemental inputs to determine satisfaction of performance obligations over time are the cost incurred on construction contracts including the hours spent on construction projects and the estimate of the cost to complete.

We performed look-back procedures in respect of our risk assessment procedures by comparing the estimates included in the current projects with past projects of similar nature as this provides insight in the ability of management to provide reliable estimates. We found no material deviations.

We gained an understanding, evaluated and tested the controls the company designed and implemented over its process to record costs and revenues relating to 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 observed a quarterly operations review meeting of senior management for one of the components located in Monaco. We found the controls to be effectively designed and implemented and operating effectively for the purpose of our audit.

We examined project documentation and challenged the status, progress and forecasts of projects under construction with management, finance and technical staff of the company. We substantiated the outcome of these discussions by performing 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.

We also performed test of details such as vouching of invoices and hours incurred to assess the status of the project. In addition, we discussed the status of legal proceedings in respect of construction contracts, examined modifications of contracts such as various claims and variation orders between the company, subcontractors and clients and responses thereto, and obtained lawyers’ letters. Furthermore, we have assessed the adequacy of the related (IFRS 15) disclosures in the financial statements.

Our audit procedures did not indicate material findings with respect to the estimates in construction contracts and disclosures thereto.

On 26 July 2018, the Company signed a leniency agreement with the Brazilian Ministry of Transparency and the Comptroller’s General Office (’CGU’), the General Counsel for the Republic (’AGU’) and Petrobras.

In addition, the Company has signed an agreement with the Brazilian Federal Prosecutor's Office (’MPF’). The Agreements mean that the Company has reached a final settlement with the MPF over alleged improper sales practices before 2012, in addition to that with the other Brazilian Authorities and Petrobras. Following the approval of the Fifth Chamber on 18 December 2018, the MPF has made a court filing to terminate the improbity lawsuit filed by the MPF in 2017. The agreement provides for the payment of an additional fine by SBM Offshore of BRL 200 million (USD 48 million as at 31 December 2018), to be paid in instalments.

Considering the significance of the settlements and the appropriate disclosure of rights and obligations in the financial statements regarding the settlements, we considered this a key audit matter.

We have discussed the settlements between the Company, the Brazilian authorities and Petrobras with the Management Board. We have examined the settlement agreements, vouched payments to bank statements, have obtained lawyers’ letters and held discussions with the Company’s Brazilian and Dutch external lawyers. We assessed whether the fines and compensation for damages as set out in the settlement agreements are appropriately recognised in the financial statements.

We have assessed the adequacy of the related disclosures in note 4.3.1, 4.3.26 and 4.3.28. Our audit procedures did not indicate material findings with respect to the settlements, as recorded, and the contingent liability relating to the closure of the improbity lawsuit, as disclosed in the financial statements.