Holiday Inn 2014 Annual Report Download - page 97

Our application of materiality
For the purposes of determining whether the accounts are free
from material error, we define materiality as the magnitude of
an omission or misstatement that, individually or in the aggregate,
in light of the surrounding circumstances, could reasonably be
expected to influence the economic decisions of the users of the
financial statements. In assessing whether errors are material,
either individually or in aggregate, we consider qualitative as well
as quantitative factors.
Based on our professional judgement, we determined materiality
for the financial statements as a whole to be $28m (2013 $27m).
How we determined materiality:
Independent Auditor Report to the members
of InterContinental Hotels Group PLC
Opinion on financial statements
In our opinion:
• 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 2014 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 Generally
Accepted Accounting Practice; 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
We have audited the Financial Statements of InterContinental
Hotels Group PLC (the Group and IHG) for the year ended
31 December 2014 which comprise the:
Group Company
Group income statement Parent company balance
sheet
Group statement of
comprehensive income related notes 1 to 10
Group statement of changes in equity
Group statement of financial position
Group statement of cash flows
related notes 1 to 34
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).
Overview of our audit approach
Materiality • Overall Group materiality of $28m which represents
5% of profit before tax adjusted for pre-tax
exceptional items.
Audit scope • We performed an audit of the complete financial
information of 21 components and audit procedures
on specific balances for a further 11 components.
• The reporting components where we performed full
or specific audit procedures accounted for 77% of
revenue and 86% of profit before tax adjusted for
pre-tax exceptional items.
Areas
of focus
• 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).
• The valuation of the future redemption of IHG
Rewards Club points liability.
• Recognition of deferred tax assets relating to losses.
• Capitalisation of software assets and carrying value
of legacy systems.
• Disposal of the 80% interest in the InterContinental
New York Barclay hotel.
Rationale for basis
We believe that profit before tax adjusted for pre-tax exceptional
items provides us with a consistent year on year basis for
determining materiality and is the most relevant performance
measure to the stakeholders of the entity. Detailed audit
procedures are performed on material exceptional items.
On the basis of our risk assessment, together with our assessment
of the Group’s overall control environment, our judgement was
that overall performance materiality (i.e., our tolerance for
misstatement in an individual account or balance) for the Group
should be 75% (2013 75%) of planning materiality, namely $21m
(2013 $20m). Our objective in adopting this approach was to ensure
that total uncorrected and undetected audit differences
in all accounts did not exceed our materiality level.
We agreed with the Audit Committee that we would report to the
Committee all audit differences in excess of $1.4m (2013 $1.4m),
as well as differences below that threshold that, in our view,
warranted reporting on qualitative grounds.
Scope of the audit of the financial statements
An audit involves obtaining evidence about the amounts
and disclosures in the financial statements sufficient to give
reasonable assurance that the financial statements are free
from material misstatement, whether caused by fraud or error.
This includes an assessment of: whether the accounting policies
are appropriate to the Group’s and the parent company’s
circumstances and have been consistently applied and adequately
disclosed; the reasonableness of significant accounting estimates
made by the Directors; and the overall presentation of the financial
statements. In addition, we read all the financial and non-financial
information in the Annual Report and Form 20-F 2014 to identify
material inconsistencies with the audited Financial Statements
and to identify any information that is apparently materially
incorrect based on, or materially inconsistent with, the knowledge
acquired by us in the course of performing the audit. If we become
aware of any apparent material misstatements or inconsistencies
we consider the implications for our report.
Adjust for pre-tax exceptional income of $29m
to determine adjusted profit before tax
Adjustment
Take 5% of the adjusted profit before tax
Materiality
Profit before tax $600m
Starting
basis
STRATEGIC REPORT GOVERNANCE
GROUP FINANCIAL STATEMENTS
PARENT COMPANY FINANCIAL STATEMENTS
ADDITIONAL INFORMATION
95
Independent Auditor’s UK Report