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Escher Group Holdings plc
Annual report 2011
26
for the year ended 31 December 2011
Accounting policies and estimation techniques
The significant accounting policies adopted by the company are as follows:
(i) Basis of preparation
These financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) and
International Financial Reporting Interpretations Committee (IFRIC) interpretations endorsed by the European Union (EU)
and with those parts of the Companies Act 1963 to 2009 applicable to companies reporting under IFRS. The financial statements
have been prepared under the historical cost convention, as modified by the measurement of the fair value of share options
and financial assets and financial liabilities (including derivatives) at fair value through profit on loss. A summary of the more
important Group accounting policies is set out below.
The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also
requires management to exercise its judgement in the process of applying the Group’s accounting policies. The areas involving
a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the consolidated
financial statements, are disclosed in note 4.
(ii) Consolidation
The consolidated financial statements include the accounts of Escher Group Holdings plc and its wholly owned subsidiaries.
All intercompany accounts and transactions have been eliminated.
Subsidiaries are all entities (including special purpose entities) over which the Group has the power to govern the financial
and operating policies generally accompanying a shareholding of more than one half of the voting rights. The existence and
effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group
controls another entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They
are de-consolidated from the date that control ceases.
The Group has availed of the exemption under IFRS 1 in relation to business combinations and has not applied IFRS 3
retrospectively to business combinations prior to the date of transition to IFRS (1 January 2008).
The purchase method of accounting is used to account for the acquisition of subsidiaries by the Group. The cost of an acquisition
is measured as the fair value of the assets transferred, equity instruments issued and liabilities incurred or assumed at the date
of exchange. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured
initially at their fair values at the acquisition date, irrespective of the extent of any non-controlling interest. The excess of the
cost of acquisition over the fair value of the Group’s share of the identifiable net assets acquired is recorded as goodwill. If cost
of acquisition is less than the fair value of the net assets of the subsidiary acquired, the difference is recognised directly in the
income statement.
Inter-company transactions, balances and unrealised gains on transactions between Group companies are eliminated.
Unrealised losses are also eliminated. Accounting policies of subsidiaries have been changed where necessary to ensure
consistency with the policies adopted by the Group.
(iii) Goodwill
Goodwill represents the excess of the cost of an acquisition over the fair value of the Group’s share of the net identifiable
assets of the acquired subsidiary at the date of acquisition. Goodwill on acquisitions of subsidiaries is included in “intangible
assets”. Goodwill is tested annually for impairment and whenever there is an indicator of impairment by comparing the carrying
value to the recoverable amount and is carried at cost less accumulated impairment losses. Impairment losses on goodwill are
not reversed. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold.
Goodwill is allocated to cash-generating units (CGUs) for the purpose of impairment testing. The allocation is made to those
CGUs or groups of CGUs that are expected to benefit from the business combination in which the goodwill arose identified
according to operating segment. The Group has two main operating entities. The combination of the two CGUs represent
the lowest level at which goodwill is monitored by the Group and the lowest level at which management captures information
for internal management reporting purposes about the benefits of the goodwill. The combined CGUs are not larger than an
operating segment.
(iv) Revenue recognition
The Group’s revenue consists primarily of revenues from the sale of technology products and services. Revenue comprises
the fair value of the consideration received or receivable for the sale of products and services in the ordinary course of
the Group’s activities. Revenue is shown net of value-added tax and discounts and after eliminating sales within the Group.
The Group recognises revenue when the amount of revenue can be reliably measured, it is probable that future economic
benefits will flow to the entity and when specific criteria have been met for each of the Group’s activities as described below.
Revenue from professional services contracts and time and material training is recognised as the services are provided. The Group
charges a service fee to customise software. If the service is on a contracted time and material basis, then the revenue is recognised
as and when the services are performed. If it is a fixed fee, then the services revenue is recognised under the percentage of
completion contract accounting method. The Group measures percentage of completion based on labour hours incurred to date
as a proportion of total hours allocated to the contract. If circumstances arise that may change the original estimates of revenues,
costs or extent of progress toward completion, estimates are revised. These revisions may result in increases or decreases in
estimated revenues or costs and are reflected in the period in which the circumstances that give rise to the revision become
known by management. Unbilled revenues are recognised as revenue during the month the service is provided.
Maintenance revenue is recognised over the contractual periods. Related support services are recognised as the services
are performed.