STRATEGIC REPORT
GOVERNANCE
financial statements
Key audit matter
How our audit addressed the key audit matter
Recoverability of the Company’s investments in Group undertakings (Company) Refer to Group Audit Committee Report, Company accounting policy 1.4 Investments in Group undertakings and note 2 to the Company’s financial statements – Investments in Group undertakings. The carrying amount of the Company’s investments in subsidiaries is
Management calculated a ViU which exceeds the carrying amount of the investment at year end, indicating no impairment is required. We performed the following audit procedures related to the recoverability of the Company’s investments in Group undertakings: • Assessed the reasonableness and appropriateness of the assumptions used in the cash flows based on our knowledge of the Group and the markets in which the subsidiaries operate; • Assessed the reasonableness of the budgets by considering the historical accuracy of the previous forecasts; • Evaluated the current level of trading, including identifying any indications of a downturn in activity, by considering our knowledge of the Group and the market; • Reviewed the methodology used in determining the discount rate applied, including engaging our valuation experts to assess the
significant and in excess of the market capitalisation of the Group. This gives rise to an indicator of impairment. The estimated recoverable amount of these balances is subjective due to the inherent uncertainty in forecasting trading conditions and discounting future cash flows. The effect of these matters is that, as part of our risk assessment, we determined that the recoverable amount of investment in subsidiaries has a high degree of estimation uncertainty, with a potential range of reasonable outcomes greater than our materiality for the financial statements as a whole. Under IAS 36 the recoverable amount is the higher of value in use (“ViU”) and fair value less costs of disposal (“FVLCD”) and calculating both the ViU and the FVLCD is not necessary if either of these amounts exceeds the asset’s carrying amount.
appropriateness of the inputs into the discount rate; and • Assessed the adequacy of the Company’s disclosures.
Based on the work performed and the evidence obtained, we consider the carrying amount of the Company’s investments in Group undertakings to be appropriate.
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