UNBOUNCE - EXAMPLE PAGE-REPORT-ENTERPRISE DOCUMENT-KINGSPAN - Flipbook - Page 121
INDEPENDENT AUDITOR’S REPORT
to the Members of Kingspan Group plc (continued)
Risk
Our response to the risk
Key observations communicated to the
Audit Committee
Accounting for significant acquisitions
We obtained an understanding of the
Group’s process for accounting for
acquisitions, including a walkthrough
of the design and implementation of
relevant controls.
Our procedures were focused on two
significant acquisitions which together
comprised 59% of total acquisition spend.
Significant acquisitions identified during the
year relate to Logstor Group in Denmark
(consideration of €245 million) and Terasteel
in Romania (consideration of €82 million).
There is a risk of improper accounting for
the treatment of acquired businesses,
due to the level of estimation uncertainty
included in management’s assessments.
Specifically, fair value adjustments to
property, plant and equipment (PP&E) and
the need for complex and judgemental
valuation techniques to be utilised, the
recognition and valuation of fair value
adjustments to provisions recorded in the
opening balance sheet, require significant
estimates and judgements to be made
by management.
Refer to the Audit Committee Report (page
96); the Statement of Accounting Policies
(page 129); and note 22 of the Group
Financial Statements (page 164).
We completed detailed procedures on the
opening balance sheets, purchase price
allocations and fair value adjustments.
We identified the key assumptions and
judgements made by management and
challenged the appropriateness thereof
by reference to external information,
where available.
In respect of the recognition and valuation
of the fair value adjustments to PP&E,
we examined how the Group identified all
material adjustments, obtained related
evidence and examined the key assumptions
and calculations used to ensure they
were recorded in accordance with IFRS 3
Business Combinations.
Our observations included an outline of
the range of audit procedures performed,
and the results of our related testing,
including the fact that the purchase price
allocations for both acquisitions were
preliminary to the extent disclosed in the
related financial statements footnote,
that fair value adjustments made in the
preliminary allocations did not result in
material fair value adjustments and that
we did not identify further adjustments
that were not made, subject to the
necessary finalisation of the purchase
price allocations.
Our planned audit procedures in respect
of significant acquisitions were completed
without exception.
We also performed an evaluation of any
experts engaged by management and
utilised our own specialists where necessary.
Whilst our procedures were principally
focused on recognition and valuation, we
also assessed the completeness of recorded
provisions. The procedures were mainly
performed at a component level.
We also considered the adequacy of the
related disclosures.
Our application of materiality
We apply the concept of materiality
in planning and performing the audit,
in evaluating the effect of identified
misstatements on the audit and in forming
our audit opinion.
Materiality
Materiality is the magnitude of an omission
or misstatement that, individually or
in the aggregate, could reasonably be
expected to influence the economic
decisions of the users of the financial
statements. Materiality provides a basis for
determining the nature and extent of our
audit procedures.
We determined materiality for the
Group to be €34.5 million (2020: €23.0
million), which is approximately 5% of
Group Profit before tax from continuing
operations. Profit before tax is a key
performance indicator for the Group and
is also a key metric used by the Group in
the assessment of the performance of
management. We therefore considered
Profit before tax to be the most
appropriate performance metric on which
to base our materiality calculation as
we consider it to be the most relevant
performance measure to the stakeholders
of the Group.
We determined materiality for the
Company to be €14.1 million (2020: €13.7
million), which is approximately 1% of
total equity.
Performance materiality
Performance materiality is the application
of materiality at the individual account
or balance level. It is set at an amount
to reduce to an appropriately low level
the probability that the aggregate
of uncorrected and undetected
misstatements exceeds materiality.
On the basis of our risk assessments,
together with our assessment of the
Group’s overall control environment,
our judgement was that performance
materiality should be set at 50% (2020:
50%) of our planning materiality, namely
€17.25 million (2020: €11.5 million). We
have set performance materiality at this
percentage based on our assessment of
the risk of misstatements, both corrected
and uncorrected.
During the course of our audit, we
reassessed initial materiality and
considered that no further changes to
materiality were necessary.
Kingspan Group plc Annual Report & Financial Statements 2021
Financial Statements
