Holiday Inn 2015 Annual Report Download - page 83

Independent Auditor’s UK Report
Independent Auditor’s Report to the
members of InterContinental Hotels
Group PLC
Our opinion on the Financial Statements
In our opinion:
• InterContinental Hotels Group PLC’s Group
Financial Statements and Parent Company
Financial Statements (the Financial
Statements) give a true and fair view
of the state of the Group’s and of the Parent
Company’s affairs as at 31 December
2015 and of the Group’s profit for the
year then ended;
• the Group Financial Statements have
been properly prepared in accordance
with International Financial Reporting
Standards (IFRSs) as adopted by
the European Union;
• the Parent Company Financial Statements
have been properly prepared in accordance
with United Kingdom Accounting Standards
(United Kingdom Generally Accepted
Accounting Practice), including Financial
Reporting Standard 101 ‘Reduced Disclosure
Framework’; and
• the Financial Statements have been
prepared in accordance with the
requirements of the Companies Act 2006,
and, as regards the Group Financial
Statements, Article 4 of the IAS Regulation.
What we have audited
InterContinental Hotels Group PLC’s (IHG’s, the Group’s) Financial Statements for the year
ended 31 December 2015 comprise:
Group Company
Group income statement Parent company statement of financial position
Group statement of comprehensive income Parent company statement of changes in equity
Group statement of changes in equity Related notes 1 to 10 to the Financial Statements
Group statement of financial position
Group statement of cash flows
Related notes 1 to 33 to the Financial Statements
The financial reporting framework that has been applied in the preparation of the Group
Financial Statements is applicable law and IFRSs as adopted by the European Union. The
financial reporting framework that has been applied in the preparation of the Parent Company
Financial Statements is applicable law and United Kingdom Accounting Standards (United
Kingdom Generally Accepted Accounting Practice), including Financial Reporting Standard
101 ‘Reduced Disclosure Framework’.
Overview of our audit approach
Risks of material
misstatement
• Accounting for the hotel assessments collected as part of the revenue cycle and the allocation
of expenditures related to the marketing, advertising and loyalty programmes (the System Fund)
• The valuation of the future redemption of IHG Rewards Club points liability.
• Capitalisation of software assets and carrying value of legacy systems.
• Kimpton acquisition – purchase price accounting.
Audit scope • We performed an audit of the complete financial information of 19 components and audit
procedures on specific balances for a further 20 components.
• The components where we performed full or specific audit procedures accounted for 88%
of profit before tax adjusted for pre-tax exceptional items and 79% of revenue.
Materiality • Overall Group materiality of $30m which represents 5% of profit before tax adjusted for pre-tax
exceptional items.
Risk Our response to the risk
What we concluded
to the Audit Committee
Accounting for the hotel assessments
collected as part of the revenue cycle and
the allocation of expenditures related to
the marketing, advertising and loyalty
programmes (the System Fund)
Refer to the Strategic Report (page 47), the
Audit Committee Report (page 63); Critical
accounting policies and the use of judgements,
estimates and assumptions (page 98); and
note 32 of the Group Financial Statements.
As outlined in the Strategic Report on page 47,
the System Fund (the Fund) is a key part of the
Group’s business model.
For the year ended 31 December 2015, and as
detailed in note 32, the Fund has assessment
fees and contributions of $1,351m and expenses
of $1,455m. 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.
The magnitude of the risk (ie, the likelihood
of occurrence and the size of an error should
it occur) is consistent with the prior year.
We have tested the controls over the calculation of hotel assessments,
allocation of expenses, related IT systems and eliminations from
IHG’s ledgers.
For a sample of hotel assessments and expenses recorded in the Fund,
we agreed that they are in accordance with the principles as agreed with
the IHG Owners Association; supported by appropriate documentation
and, based on our inspection of that supporting documentation, 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 considered the appropriateness of the classification of the System
Fund surplus between short-term and long-term, and the related
disclosures provided in critical accounting policies and the use of
judgements, estimates and assumptions (page 98) and note 32 of the
Group Financial Statements.
In accordance
with the principles
agreed with the IHG
Owners Association
we are satisfied that
System Fund hotel
related assessment
fees, contributions
and expenses, have
been appropriately
identified and have
been excluded from
IHG’s Group income
statement.
Our assessment of risk of material misstatement
We identified the risks of material misstatement described below as those that had the greatest effect on our overall audit strategy, the allocation of
resources in the audit and the direction of the efforts of the audit team. In addressing these risks, we have performed the procedures below which
were designed in the context of the Financial Statements as a whole and, consequently, we do not express any opinion on these individual areas.
STRATEGIC REPORT GOVERNANCE GROUP FINANCIAL STATEMENTS ADDITIONAL INFORMATIONPARENT COMPANY FINANCIAL STATEMENTS
81IHG Annual Report and Form 20-F 2015