Peachtree 2015 Annual Report Download - page 112

The Sage Group plc | Annual Report & Accounts 2015
110
Basis of preparation and critical accounting estimates and judgements
1 Basis of preparation and critical accounting estimates and judgements
Accounting policies applicable across the financial statements are shown below. Accounting policies that are specific to a component
of the financial statements have been incorporated into the relevant note.
Basis of preparation
The consolidated financial statements of The Sage Group plc have been prepared in accordance with International Financial Reporting
Standards (“IFRS“) as adopted by the European Union (“EU“). The consolidated financial statements have been prepared under the historical
cost convention, except where adopted IFRS require an alternative treatment. The principal variations from the historical cost convention
relate to derivative financial instruments which are measured at fair value through profit or loss.
The financial statements of the Group comprise the financial statements of the Company and entities controlled by the Company
(its subsidiaries) prepared at the end of the reporting period. The accounting policies have been consistently applied across the Group.
Control is achieved where the Company has the power to govern the financial and operating policies of an entity so as to benefit from its
activities which is usually from date of acquisition.
Changes in accounting policy
As the Group enters the next phase of growth and implement its new strategy, the definitions of revenue categories have been simplified
to enable stakeholders to clearly and transparently track performance. This has led to a change in the application of the revenue recognition
policy to certain products.
The most significant change is to separately disclose the revenue from our payments and payroll processing businesses, which is driven by
the volume of transactions. In addition a small amount of revenue from software and software related services (“SSRS”) and associated
discounts, has been reclassified to recurring revenue, relating to products which are time-limited and require an on-going active
maintenance contract to function as designed. This has had an impact on the phasing of revenue. Consequently the current year
and comparative revenue split shown in the segmental note have been revised, along with the associated impact on deferred revenue,
and the description of revenue streams in the revenue recognition accounting policy has been updated.
The impact of reclassifying and rephasing of those products moved from SSRS to recurring revenue was to reduce revenue by £3.1m in
current year and increase revenue in 2014 by £1.2m. The balance sheet impact of this change has been to increase deferred revenue in 2015
by £25.4m (2014: £23.5m, 2013: £26.2m) representing the SSRS revenue being deferred with an associated deferred tax asset of £8.2m
(2014: £7.5m, 2013: £7.5m). The foreign exchange retranslation impact of this deferral in 2015 of £1.3m (2014: £1.3m) is taken to other reserves.
During the period, management has also considered the accounting for its arrangements with Business Partners who refer customers
to the Group, such as Independent Sales Organisations (“ISOs”) in the US Payments business, and concluded that payments made to those
business partners are better reflected as costs and not as deductions to revenue. This has had the impact of increasing revenue and costs
by £46.3m (2014: £45.5m).
In addition to this change in the application of the revenue recognition policy, two other changes were made to the presentation of items
on the balance sheet. Firstly, the presentation of provisions has been revised to show them as a separate line item on the face of the balance
sheet having previously been included within trade and other payables. The impact of this change within current liabilities in the current
year is £9.9m (2014: £13.0m, 2013: £13.3m) and between current and non-current liabilities is £10.4m (2014: £8.3m, 2013: £6.3m). Secondly,
the presentation of deferred consideration has been changed to include the balance within trade and other payables having previously
been a separate line item on the balance sheet. The impact of this change in the current year is £1.4m (2014: £3.5m, 2013: £8.2m).
The impact of the change in the application of the revenue recognition policy in the 2014 annual accounts has been disclosed below, along
with the impact of the change in the presentation of provisions and deferred consideration.
For the year ended 30 September 2014 As previously reported Restatement adjustment As restated
Revenue 1,306.8 46.7 1,353.5
Cost of sales (74.5) – (74.5)
Gross profit 1,232.3 46.7 1,279.0
Selling and administrative expenses (933.9) (45.5) (979.4)
Operating profit 298.4 1.2 299.6
Finance cost (net) (20.9) (20.9)
Profit before income tax 277.5 1.2 278.7
Income tax expense (89.8) – (89.8)
Profit for the year 187.7 1.2 188.9
Profit attributable to:
– Owners of the parent 186.8 1.2 188.0
– Non-controlling interest 0.9 – 0.9
187.7 1.2 188.9