Holiday Inn 2014 Annual Report Download - page 98

The scope of our audit
Following our assessment of the risk of material misstatement to
the Group Financial Statements, we selected 32 components which
represent the principal business units within the Group. 21 of these
components were subject to a full audit and 11 were subject to a
specific scope audit where the extent of audit work was based on
our assessment of the risks of material misstatement and the
materiality of the component’s business operations relative to the
Group. The audit scope of these components may not have included
testing of all significant accounts of the location but will have
contributed to the coverage of significant accounts tested for the
Group. The four Group audit significant risks in relation to System
Fund, IHG Rewards Club points liability, capitalisation and carrying
value of capitalised software assets, and deferred tax asset
recognition were subject to full scope audit procedures.
For the remaining components not subject to full or specific
scope audits, we performed other procedures to test or assess
that there were no significant risks of material misstatement in
these components in relation to the Group Financial Statements.
The components subject to full audit or specific audit procedures
account for 77% of Group revenue and 86% of the Group’s profit
before tax before pre-tax exceptional items.
Audit work at the individual components is undertaken based on a
percentage of our total performance materiality. The performance
materiality set for each component is based on the relative size of
the component and our view of the risk of misstatement at that
component. In the current year the range of performance
materiality allocated to components was $1m to $21m. The upper
end of the range was allocated to those components which
reflected 100% of a single line item within the Group statement
of financial position or the related notes.
The Group audit team directs the component teams at all stages
of the audit. The audit engagement partner, or her designate,
visited with the key locations in the Americas and IHG’s global
accounting centre in India during planning, interim and at year end.
In addition, the audit engagement partner visited Greater China,
including the Group’s owned hotel in Hong Kong.
These visits involved discussing the audit strategy and any issues
arising from our work, reviewing key workpapers, as well as
meeting local management.
This, together with additional procedures performed at the Group
level, gave us the evidence we needed for our opinion on the
Financial Statements as a whole.
Our assessment of risk of material misstatement
We identified the following risks of material misstatement which
had the greatest effect on the audit strategy; the allocation of
resources in the audit; and directing the efforts of the engagement
team, including the more senior members of the team. This is not
a complete list of all the risks identified in our audit.
Area of focus How our audit addressed the area of focus References
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 49, the System
Fund (the Fund) is a key part
of the Group’s business model.
For the year ended 31 December
2014, and as detailed in Note 32,
the Fund has assessment fees
and contributions of $1,271m
and expenses of $1,485m. These
amounts are not included in
IHG’s income statement.
We focus on this area because
there is a risk that the hotel
assessments could be included
in IHG’s reported revenue, which
would overstate IHG’s revenues;
or that Group costs are
incorrectly charged to the Fund,
improperly reducing IHG’s
expenses and leading to a
misstatement of IHG’s income
statement.
We have tested internal financial controls over the calculation of hotel
assessments, charges to the Fund, allocation of expenses (in addition to those
over the Group’s procurement process), related IT systems, and exclusion from
IHG’s ledgers.
For a sample of hotel assessments and expenses recorded in the Fund, we
agreed that they are supported by appropriate documentation and, based on
our inspection of that supporting documentation, we have made an independent
assessment of whether the hotel assessments and contributions and expenses
relate to the Fund.
Given the accounting treatment adopted for the Fund is a key judgement; we have
considered the appropriateness of the related disclosures provided in the Group
Financial Statements.
Refer to page 49
(Strategic Report),
page 67 (Audit
Committee Report),
page 112 (Critical
accounting policies
and the use of
estimates and
judgements), and
page 152 (notes).
IHG Annual Report and Form 20-F 2014
96
continuedIndependent Auditor’s UK Report