UNBOUNCE - EXAMPLE PAGE-REPORT-ENTERPRISE DOCUMENT-KINGSPAN - Flipbook - Page 120
INDEPENDENT AUDITOR’S REPORT
to the Members of Kingspan Group plc (continued)
Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial
statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud)
that we identified, including those which had the greatest effect on: the overall audit strategy, the allocation of resources in the audit
and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the financial statements
as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
Risk
Our response to the risk
Key observations
communicated to the
Audit Committee
Warranty provisions (2021: €143 million,
2020: €119 million)
We performed audit procedures that included understanding
the Company’s process for recording and monitoring potential
warranty claims incorporating management’s review of
significant assumptions used in the provision calculation and
the recording of the resulting amounts (including walkthroughs
of the design and implementation of relevant controls);
consideration of the nature and basis of the provision; review
and assessment of correspondence in relation to specific
claims; progress on individual significant claims; and relevant
settlement history of claims and utilisation of related provisions.
Our observations
included an outline
of the range of audit
procedures performed,
the key judgements
involved and the results
of our testing.
The Group’s business involves the sale of
products under warranty, some of which
use new technology and applications. Due
to the nature of its product offering, the
Group has significant exposure to warranty
claims which are inherently uncertain
in nature. Management are required to
exercise significant judgement with regard
to warranty provision assumptions. Given
the level of judgement required, there is a
significant risk that warranty provisions may
be over or understated.
Changes in these assumptions, which may
be subject to management override, can
materially affect the levels of provisions
recorded in the financial statements due
to the higher estimation uncertainty
on the Group’s costs of repairing and
replacing, or otherwise making reparations
for the consequences of, product that is
ascertained to be faulty.
Refer to the Audit Committee Report (page
96); the Statement of Accounting Policies
(page 129); and note 20 of the Group
Financial Statements (page 163).
We considered the rollout of new products and challenged
the Group’s assumptions in relation to potential failure
rates, considering past failure rates, the costs estimated for
remediation, examining related settlements where necessary.
We considered whether alternative rates to those employed by
management might be more appropriate.
We also provided our
assessment of the
level of subjectivity
involved in warranty
provision estimates.
We substantively tested material movements in the provisions,
including warranty provisions arising on acquisitions, and
considered the accounting for movements in the provision
balances and the related disclosures for compliance with IAS
37 Provisions, Contingent Liabilities and Contingent Assets.
The above procedures are performed both locally and by the
Group audit team.
Risk
Our response to the risk
Key observations
communicated to the
Audit Committee
Revenue recognition (2021: €6,497
million, 2020: €4,576 million)
We performed procedures on revenue at all relevant in-scope
components, as outlined in further detail in the ‘Tailoring the
scope’ section below. Detailed transactional testing of revenue
recognised throughout the year was performed, commensurate
with the higher audit risk assigned to revenue.
Our observations
included an overview
of the risk, outline of
the audit procedures
performed, the
judgements we
focused on and the
results of our testing.
The Group has a number of revenue streams
with different revenue recognition policies
across its divisions.
There is a significant risk that revenue may
be recognised in an incorrect period as a
result of management accelerating revenue
recognition to achieve revenue targets
or forecasts.
Refer to the Audit Committee Report
(page 96); the Statement of Accounting
Policies (page 129); and note 2 of the Group
Financial Statements (page 138).
Dependent on the nature of the revenue recognised at each
component, we obtained an understanding of each in-scope
component’s revenue recognition policy and how it was applied,
including a walkthrough of the design and implementation
of relevant controls; examined supporting documentation
including customer contracts, statements of works or purchase
orders, sales invoices, customer balance confirmations and cash
receipts. In addition, we performed cut-off procedures, revenue
journal testing and customer balance confirmations. In some
components data analytics procedures were also performed.
We audited key financial statement disclosures for compliance
with IFRS 15 Revenue from Contracts with Customers.
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