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IMI plc
INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF IMI PLC
1. Our opinion on the financial statements is unmodified
We have audited the financial statements of IMI plc for the year ended
31 December 2014 set out on pages 84 to 152. 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;
• the financial statements give a true and fair view of the Group profit for
the year ended 31 December 2014;
• the Group financial statements have been properly prepared in accordance
with International Financial Reporting Standards as adopted by the
European Union;
• the Parent Company financial statements have been properly prepared
in accordance with UK 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.
2. What we have audited
We audited the Group financial statements of IMI plc for the year-ended
31 December 2014 which comprise:
Group
Company
The Group income statement
The Company balance sheet;
The Group statement of comprehensive income The related notes C1 to C10.
The Group balance sheet
The Group cash flow statement
The Group statement of changes in equity
The related sections 1 to 5.
The financial reporting framework that has been applied in the preparation of the
Group financial statements is applicable law and International Financial Reporting
Standards (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).
This report is made solely to the Company’s members, as a body, in accordance
with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been
undertaken so that we might state to the Company’s members those matters
we are required to state to them in an auditor’s report and for no other purpose.
To the fullest extent permitted by law, we do not accept or assume responsibility
to anyone other than the Company and the Company’s members as a body,
for our audit work, for this report, or for the opinions we have formed.
3. Overview
Materiality
- Overall Group materiality of £12.4 million which
represents 5% of adjusted profit before tax
Audit scope
- We performed an audit of the complete financial
information of 13 entities and audit procedures on
specific balances for a further 31 entities
- The 44 reporting components where we performed
audit procedures accounted for 65% of the Group’s
revenue, 87% of the Group’s adjusted profit before tax
and 82% of the Group’s total assets
Areas of focus
- Revenue and profit recognition
- Inventory valuation
- Valuation of the overall pension scheme liabilities
- The assessment of the carrying value of goodwill and
acquired intangible assets
4. Our assessment of risks of material misstatement
We identified the following risks to have the greatest effect on the overall audit
strategy; the allocation of audit resources; and on directing the efforts of the
audit engagement team. In addressing these risks we have performed the
detailed procedures below which were designed in the context of the financial
statements as a whole and, consequently, we do not express any opinion on
these individual areas.
Area of focus
Revenue and profit recognition
Refer to page 53 of the Audit Committee report.
The completeness, occurrence and measurement of revenue and recognition of
profit is considered to be a significant risk across the Group. The cyclical nature of
deliveries within the Critical Engineering division’s results in significant shipments
near the December period end which increases the risk of a cut-off error.
How our audit work addressed the area of focus
To address this risk the following audit procedures have been undertaken:
• we carried out testing of controls over revenue recognition with a focus on
those related to the timing of revenue recognition;
• we performed analytical procedures to compare revenue recognised with
expectations from past experience, management’s forecasts and, where
possible, external market data;
• we obtained support for individually unusual and/or material revenue journals;
• we performed tests of detail for a sample of revenue transactions to ensure
the transactions had been appropriately recorded in the income statement.
We verified that the risks and rewards of ownership of the products had been
transferred to the customer by analysing the contract and terms of the sale
to ensure the Group had fulfilled the requirements of the contract, confirming
revenue could be reliably measured by reference to underlying documentation,
ensuring collectability of the revenue was reasonably assured by agreeing to
collection history and ensuring that the costs of the transactions could be
traced and supported to bills of materials and expenses incurred;
• we performed cut-off testing on third party delivery note documentation
and customer acceptance around the period end; and
• in respect of the Critical Engineering division we audited management’s
assessment of forecast costs to complete, corroborating the underlying
assumptions against historic experience and future production plans to
ensure any contract losses are appropriately recognised.
Area of focus
Inventory valuation
Refer to page 53 of the Audit Committee report.
The valuation of inventory across the Group is dependent on establishing
appropriate valuation controls and physical counting procedures. This includes
reliance on manual processes. Management judgement is applied to formulaic
calculations for standard costing and excess and obsolete inventory provisions.
If these judgements are not appropriate then this increases the risk that
inventory is inappropriately stated.
How our audit work addressed the area of focus
To address this risk the following audit procedures have been undertaken:
• we carried out testing on controls over inventory valuation to verify the Group
values inventory appropriately;
• we tested the accumulation of cost within inventory, ensuring the valuation
reflected the physical inventory counts and the products’ stage of completion
including agreement to the physical inventory counts we attended;
• we tested the appropriateness of overhead absorption in the inventory
valuation by analysing the nature of costs being absorbed, verifying the level
of costs to be absorbed based on production data; and
• we audited the adequacy of excess and/or obsolete provisions held against
inventory by verifying future demand data, historical usage, historical accuracy
of provisioning and future plans of management to utilise the inventory.
