Holiday Inn 2013 Annual Report Download - page 104

The principal ways in which we responded to the risks identified
above included:
The measurement of the future redemption liability of
the Group’s loyalty programme
We tested the effectiveness of internal financial controls over the
liability valuation process. We undertook substantive procedures and
analytical procedures to validate the movement in outstanding loyalty
points in the year and the balance at the year end. We used actuarial
specialists to challenge the appropriateness of the methodology,
data and assumptions applied by management in determining key
redemption ratio assumptions for members’ outstanding loyalty
points at the balance sheet date. In addition totesting the integrity
and accuracy of the Group’s model, we developed our own model to
form an independent view on an acceptable range for the redemption
ratios and assess the reasonableness of key assumptions applied by
management in valuing the liability. We undertook substantive and
analytical procedures to validate the redeemed point cost to be
applied in the liability calculation.
Accounting for the hotel assessments collected as part
of the revenue cycle and the allocation of expenditures
related to the marketing, advertising and loyalty point
programmes (the System Fund)
As outlined in the Strategic Report on page 16, the System Fund is a
key part of the Group’s business model. In auditing the accounting
for the System Fund cash flows, we carried out controls testing and
undertook substantive and analytical procedures to test that the
assessment fees and designated System Fund expenditures were
properly excluded from the Group’s income statement. We reviewed
contractual agreements to validate the appropriateness of costs
allocated to the System Fund.
The assessment of the carrying value of deferred tax
assets for trading losses
We evaluated the integrity of the forecast models and considered
the appropriateness of management’s assumptions and estimates
in relation to the likelihood of generating suitable future taxable
profits to support the recognition of deferred tax assets.
We evaluated the historical accuracy of forecasting and the
integrity of the forecast models and as a result of these
procedures, we formed our own view on the Group’s capacity
to get effective relief for tax losses over the forecast period.
In addition to the risk identified as part of our audit planning, the
Group undertook a number of material non-routine transactions in
the year which affected the allocation of resources and the direction
of our audit effort and for which our audit response was as follows:
The accounting for the purchase of a qualifying
insurance policy by the UK defined benefit pension plan
We evaluated the terms of the insurance policy purchased by the
UK defined benefit pension plan to ensure it met the criteria to
be classified as a qualifying insurance policy. We challenged the
assumptions used by management in the IAS 19 pension liability
valuation as at the date of the buy-in transaction and we used
Ernst& Young LLP pension actuaries to assist us with this
procedure. We tested the valuation of retirement benefit assets
transferred to the insurance company as consideration for the
insurance policy and tested the calculation of the resultant
$147m accounting loss recognised as a result of this transaction.
We considered the appropriateness of classifying the loss as
an exceptional item in accordance with the Group’s disclosed
accounting policy for exceptional items.
The accounting for the disposal of the InterContinental
London Park Lane hotel
We reviewed the sale and purchase agreement and the hotel
management agreement to ensure that the de-recognition of
the hotel, at the date of signing the sale and purchase agreement,
wasappropriate. We challenged the key assumptions applied in the
valuation of the hotel management agreement recognised as part
of the deemed fair value of consideration on disposal. We validated
the calculation of the accounting gain recognised on disposal and
classified as an exceptional item, including the amounts recycled
from the currency translation reserve. We ensured that the
financial statement disclosures, as set out in note 11 were in
accordance with accounting standards.
Opinion on other matter prescribed by the Companies
Act 2006
In our opinion the information given in the Strategic Report and
theDirectors’ Report for the financial year for which the Group
Financial Statements are prepared is consistent with the Group
Financial Statements.
Matters on which we are required to report by exception
We have nothing to report in respect of the following:
Under the ISAs (UK and Ireland), we are required to report to you if,
in our opinion, information in the Annual Report is:
• materially inconsistent with the information in the audited
Financial Statements; or
• apparently materially incorrect based on, or materially
inconsistent with, our knowledge of the Group acquired
in the course of performing our audit; or
• is otherwise misleading.
In particular, we are required to consider whether we have identified
any inconsistencies between our knowledge acquired during the audit
and the Directors’ statement that they consider the Annual Report is
fair, balanced and understandable and whether the Annual Report
appropriately discloses those matters that we communicated to the
Audit Committee which we consider should have been disclosed.
Under the Companies Act 2006 we are required to report to you if,
inour opinion:
• certain disclosures of Directors’ remuneration specified by law
are not made; or
• we have not received all the information and explanations we
require for our audit.
Under the Listing Rules we are required to review:
• the Directors’ statement, on page 100, in relation to going
concern;and
• the part of the Corporate Governance Statement relating to
the Company’s compliance with the nine provisions of the UK
Corporate Governance Code specified for our review.
Other matter
We have reported separately on the Parent Company Financial
Statements of InterContinental Hotels Group PLC for the year
ended 31 December 2013 and on the information in the Directors’
Remuneration Report that is described as having been audited.
Alison Duncan (Senior statutory auditor)
for and on behalf of Ernst & Young LLP, Statutory Auditor London
17 February 2014
Pages 101 and 102 do not form part of IHG’s Annual Report on Form 20-F as filed
with the SEC.
102 IHG Annual Report and Form 20-F 2013
Independent Auditor’s UK Report continued