Peachtree 2013 Annual Report Download - page 94

Independent auditors’ report to the members of The Sage Group plc continued
92 The Sage Group plc | Annual Report & Accounts 2013
Areas of particular audit focus
In preparing the financial statements, the directors made a number of subjective judgements, for example in respect of significant accounting
estimates that involved making assumptions and considering future events that are inherently uncertain. We primarily focused our work in these
areas by assessing the directors’ judgements against available evidence, forming our own judgements, and evaluating the disclosures in the
financial statements.
In our audit, we tested and examined information, using sampling and other auditing techniques, to the extent we considered necessary to provide
a reasonable basis for us to draw conclusions. We obtained audit evidence through testing the effectiveness of controls, substantive procedures
or a combination of both.
We considered the following areas to be those that required particular focus in the current year. This is not a complete list of all risks or areas
of focus identified by our audit. We discussed these areas of focus with the Audit Committee. Their report on those matters that they considered
to be significant issues in relation to the financial statements is set out on page 65.
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rea of focus How the scope of our audit addressed the area of focus
Impairment assessment We tested the directors’ future cash flow forecasts, including comparing
them to the latest Board approved budgets and comparing the current
year results with the equivalent figures included in the prior year forecast.
We challenged the directors’ key assumptions for discount and long-term
growth rates by comparing rates used to available external data.
We also performed sensitivity analysis around the key drivers of the cash
flow forecasts, being the discount rates, revenue growth rates and
operating margins.
We focused on this area due to the size of the goodwill balance,
and because the directors’ assessment of the carrying value of the
Group’s cash generating units (“CGUs”) involves judgements about
the future results of the business and the discount rate to apply to
the future cash flow forecasts.
Exceptional items
Exceptional items relating to the disposal of non-core products
were considered to be an area of focus due to the magnitude
of the charge in the income statement.
We tested the component parts of the loss on disposal calculation to
source documentation including the proceeds received, the net assets
disposed of and the costs associated with the disposal, including goodwill
allocation. We held detailed discussions with management regarding the
methodology applied to allocate goodwill to the loss on disposal calculation
and tested the supporting calculations, checking compliance with IAS 36
“Impairment of Assets”.
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rcher Capital litigation
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compensation claim against the Group by a third party for a material
sum is currently the subject of legal proceedings. We focused on this
issue as there is uncertainty as to the likely outcome.
We discussed this issue with internal and external legal counsel in order
to understand the latest position of the proceedings and assess the
directors’ views as to the strength of the claim against the Group and
their conclusion that no provision is required.
Revenue recognition We tested the timing of the recognition of revenue, which included
testing the allocation of revenue in sales transactions including both
software and maintenance and support elements and that the
maintenance and support element was appropriately deferred and
recognised over the contractual period.
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dditionally, in response to the presumptive risk of fraud, where revenue
was recorded through journal entries we performed testing to establish
whether a service had been provided or a sale had occurred in the
financial year to support this recognition.
We focused on this area because the timing of revenue recognition
and its presentation in the income statement has inherent complexities.
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hese complexities mainly involve accounting for “bundled” transactions
where software and maintenance and support elements are purchased
together, with a portion of the fee being recognised immediately
and the remainder of the revenue deferred and recognised over the
contractual period.
In addition, ISAs (UK & Ireland) presume there is a risk of fraud in revenue
recognition for every audit conducted under these auditing standards.
Risk of management override of internal controls We assessed the overall control environment of the Group, including
the arrangements for staff to “whistle-blow” inappropriate actions, and
interviewed senior management and the Group’s internal audit function.
We examined the significant accounting estimates and judgments relevant
to the financial statements for evidence of bias by the directors that may
represent a risk of material misstatement due to fraud.
We also tested manual journal entries to determine the rationale for
manual adjustments.
ISAs (UK & Ireland) require that we consider this and hence it is an area
that receives heightened focus on every audit conducted under these
auditing standards.
The Audit Committee’s consideration of the significant issues in the audit is set out on page 65.
92 The Sage Group plc | Annual Report & Accounts 2013