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Escher Group Holdings plc
Annual report 2011
35
Financial statements
Corporate governance
Business review
Overview
4. Critical accounting estimates and judgements
The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition,
seldom equal the related actual results. Estimates and judgements are continually evaluated and are based on historical
experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.
The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets
and liabilities within the next financial year are addressed below.
(a) Estimated impairment of goodwill and intangible assets
The Group tests annually whether goodwill has suffered any impairment. Factors which the Group consider could trigger
an impairment include, but are not limited to significant negative industry or economic trends or changes in key assumptions
underpinning the value in use calculation. No impairment charge arose in the course of the year. The Group has conducted
a sensitivity analysis on the impairment test of the carrying value, the results of which can be found in note 12 to these
financial statements.
The estimated useful lives currently range up to five years and are reviewed at each statement of financial position date.
Intangibles are tested for impairment if impairment indicators are identified. In 2011, the amortisation charge was US$358,000
(2010: US$34,000). If the amortisation period was shortened by one year for all categories of intangible, other than goodwill,
in 2011 it would have resulted in an additional amortisation charge of US$90,000. The recoverable amount of the cash‑generating
units has been determined based on value-in-use calculations. These calculations require the use of estimates. Please see note 12
for further details of these estimates.
(b) Capitalisation of development costs
Costs incurred on development projects are recognised as intangible assets when it is probable that the project will be a success
considering its commercial and technical feasibility and its costs can be measured reliably. These calculations require the use
of estimates, primarily around the level of directly attributable developer time and an appropriate portion of relevant overheads.
Capitalisation ceases and amortisation commences once a product is available for deployment.
(c) IPO cost allocation
Costs incurred in issuing our own equity instruments include registration and other regulatory fees, amounts paid to legal,
accounting and other professional advisers, printing costs and stamp duties. The transaction costs of an equity transaction
are accounted for as a deduction from equity (net of any related income tax benefit) to the extent they are incremental
costs directly attributable to the equity transaction that otherwise would have been avoided. Such costs incurred fell into
three categories:
(i) costs clearly attributable to issuing new shares;
(ii) costs attributable to listing; and
(iii) shared costs which apply to (i) and (ii) together.
The shared costs in (iii) above have been allocated on a systematic basis between the share issue and the listing and then
recorded in part as an equity deduction and in part as an expense.
(d) Revenue recognition
The Group uses the percentage-of-completion method in accounting for its fixed-price contracts to deliver customisation
services. Use of the percentage-of-completion method requires the Group to estimate the services performed to date
as a proportion of the total services to be performed. Were the proportion of services performed to total services to be
performed to differ by 10% from management’s estimates, the amount of revenue recognised in the year would increase
by US$0.4 million if the proportion performed were increased or would decrease by US$0.4 million if the proportion
performed were decreased.
(e) Income tax
The Group is subject to income taxes in various jurisdictions. Significant judgement is required in determining the worldwide
provision for income taxes. There are many transactions and calculations for which the ultimate tax determination is uncertain
during the ordinary course of business. The Group recognises liabilities for anticipated tax audit issues based on estimates
of whether additional taxes will be due. Where the final tax outcome of these matters is different from the amounts that
were initially recorded, such differences will impact the income tax and deferred tax provisions in the period in which such
determination is made.
(f) Determination of functional currency
The Group is headquartered in Ireland and has significant operations in both the US and the UK and accordingly principally
operates in three main currencies. Reflecting its economic operating environment, the Group has determined that the US Dollar
is the company’s functional currency.
(g) Trade receivables
Provision is made against trade receivables when there is objective evidence that the Group will not be able to collect all
amounts due to it in accordance with the original terms of those receivables. This is a matter of management judgement,
based on its best estimate of the likelihood of recovery on a specific, customer-by-customer basis.