Carphone Warehouse 2014 Annual Report Download - page 59

Carphone Warehouse Group plc
Annual Report 2014 57
FINANCIAL STATEMENTS
Independent auditors’ report
OPINION ON FINANCIAL STATEMENTS OF CARPHONE
WAREHOUSE GROUP PLC
In our opinion:
— the financial statements give a true and fair view of the state
ofthe Group’s and of the Company’s affairs as at  March 
and of the Group’s profit for the year then ended;
— the Group financial statements have been properly prepared
inaccordance with IFRS;
— the Company financial statements have been properly prepared
in accordance with UK GAAP; and
— the financial statements have been prepared in accordance with
the requirements of the Companies Act  and, as regards the
Group financial statements, Article  of the IAS Regulation.
The financial statements comprise the consolidated income statement,
the consolidated statement of comprehensive income, the consolidated
statement of changes in equity, the consolidated balance sheet,
theconsolidated cash flow statement, and the related notes  to 
and the Company balance sheet and the related notes  to .
The financial reporting framework that has been applied in the
preparation of the Group financial statements is applicable law
andIFRS. The financial reporting framework that has been applied
inthe preparation of the Company financial statements is applicable
law and UK GAAP.
GOING CONCERN
As required by the Listing Rules we have reviewed the directors’
statement contained on page  of the Strategic Report that the
Group is a going concern. We confirm that:
— we have concluded that the directors’ use of the going concern
basis of accounting in the preparation of the financial statements
is appropriate; and
— we have not identified material uncertainties related to events or
conditions that may cast significant doubt on the Group’s ability
to continue as a going concern.
However, because not all future events or conditions can be predicted,
this statement is not a guarantee as to the Group’s ability to continue
as a going concern.
OUR ASSESSMENT OF RISKS OF MATERIAL MISSTATEMENT
The assessed risks of material misstatement described below are those that had the greatest effect on our audit strategy, the allocation
ofresources in the audit and directing the efforts of the engagement team:
Risk How the scope of our audit responded to the risk
Revenue recognition
Commission receivable for certain transactions is dependent on
customer behaviour beyond the point of sale. Management is therefore
required to exercise judgement in respect of the level of customer
default within the contract period, expected levels of customer
spend and customer behaviour beyond the initial contract period.
The key judgements and estimates involved are described in more
detail on page 69.
We evaluated the design and implementation of both the manual
and automated controls over the revenue recognition process
inrespect of commissions receivable. In addition we tested that
these controls were operating effectively throughout the year.
Wehave tested the valuation of revenue recognised through review
of the Group’s contractual arrangements, substantive testing of
management assumptions to third party network data and testing
of subsequent cash receipts. We have also assessed the validity
ofthose judgements made in prior years against actual outcomes.
Acquisition accounting
The identification and the determination of the fair value of intangible
assets arising from the CPW Europe Acquisition and the recognition
of fair value adjustments through the associated purchase price
allocation process involves complex accounting considerations.
The intangible asset identification process requires management
judgement in respect of estimates of future cash flows and associated
discount rates in addition to economic lives. Management engaged
external valuation experts in relation to this process. Fair value
adjustments, in particular those arising from property, plant and
equipment, pre-existing intangible assets and property operating
leases, require significant judgement in relation to fair value at the
date of acquisition, for which management also engaged external
valuation experts.
We tested the design and implementation of the controls around
management’s process for both the identification of intangible
assets and fair value adjustments. We used our internal valuation
specialists to consider the appropriateness of methodology applied
and to test the inputs to the valuation models used to determine the
value of the intangible assets, including the discount rates, growth
rates and useful economic lives, through comparing these against
industry benchmarks on similar assets and our understanding of the
future prospects of the business. We also challenged and tested the
appropriateness of the cash flow projections used in the valuations.
For the other significant fair value adjustments, we used our internal
valuation specialists to benchmark the assumptions against relevant
industry data to assess the appropriateness of the adjustments.
Impairment of acquisition-related intangible assets
The Group’s assessment of impairment of acquisition-related
intangible assets, including goodwill, primarily arising from the
CPW Europe Acquisition, is a judgemental process which requires
estimates concerning the future cash flows and associated discount
rates and growth rates based on management’s view of future
business prospects.
We assessed the assumptions used by management in the
impairment model for goodwill and acquisition-related intangible
assets, including the allocation to cash generating units, described
in note 10 to the Group financial statements, and more specifically
the cash flow projections, discount rates and long-term growth
rates used against our understanding of the future prospects of the
business and the prevailing Group cost of capital at the year end.