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IMI plc
INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF IMI PLC
Continued
On the basis of our risk assessments, together with our assessment of the
Group’s overall control environment, our judgment was that overall performance
materiality (i.e. our tolerance for misstatement in an individual account or
balance) for the Group should be 50% (2013: 50%) of planning materiality,
namely £6.2 million (2013: £8 million). Our objective in adopting this approach
was to ensure that undetected audit differences in all accounts did not exceed
our planning materiality level.
Audit work at individual entities is undertaken based on a percentage of
our total performance materiality. The performance materiality set for each
component is based on the relative size of the entity and our view of the risk
of misstatement at that entity. In the current year the range of performance
materiality allocated to entities was £0.7 million to £1.8 million.
We agreed with the Audit Committee that we would report to the Committee
all audit differences in excess of £0.6 million (2013: £0.8 million), as well as
differences below that threshold that, in our view warranted reporting on
qualitative grounds.
We evaluate any uncorrected misstatements against both the quantitative
measures of materiality discussed above and in the light of other relevant
qualitative considerations.
8. An overview of the scope of our audit
Following our assessment of the risk of material misstatement to the Group
financial statements, we selected 44 (2013: 45*) entities which represent
the principal business units within the Group’s three reportable segments.
13 of these entities (2013: 16*) were subject to a full audit and 31 entities
(2013: 29*) were subject to a partial scope audit where the extent of audit work
was based on our assessment of the risks of material misstatement outlined
above and the materiality of the entities’ business operations relative to the
Group. Partial scope entity testing of significant risks is primarily focused on
revenue recognition and inventory valuation as the assessment of the carrying
value of goodwill and acquired intangible assets and pension scheme liabilities
are audited centrally.
In total the audit of these entities provides coverage of 65% (2013: 68%) of the
Group’s revenue, 87% (2013: 78%) of the Group’s profit before tax and 82%
(2013: 71%) of the Group’s assets. Full scope entity audits provides coverage
of 38% (2013: 48%) of the Group’s revenue, 25% (2013: 40%) of the Group’s
profit before tax and 56% (2013: 49%) of the Group’s assets. Partial scope
entity audits provide coverage of 27% (2013: 20%) of the Group’s revenue,
62% (2013: 39%) of the Group’s profit before tax and 26% (2013: 22%) of the
Group’s assets, although for entities where a partial scope audit was performed,
not all balances that comprise these coverage percentages have been audited.
The audit work at the 44 locations was executed at levels of materiality
applicable to each individual entity which was lower than Group audit materiality.
The Group’s remaining 96 trading locations have an average revenue of £6
million and average profit before tax of £0.3 million. In addition, these locations
do not have common systems and controls. As a consequence, we consider
the likelihood of any systematic error arising within this population to be low.
Notwithstanding this, for the remaining 96 locations we undertook analytical
and enquiry procedures to address the residual risk of material misstatement.
The Group audit team focused its involvement in higher risk areas through
regular conference calls with entity teams (including discussion of the work
performed in relation to the significant risks) and review of key working papers.
In addition, the Group team follows a programme of site visits to higher risk
locations. During 2014 the Group team visited 17 of the full and specific
scope entities within the Group.
9. Opinion on other matter prescribed by the Companies Act 2006
In our opinion:
• the part of the Directors’ Remuneration Report to be audited has been
properly prepared in accordance with the Companies Act 2006;
• the information given in the Strategic Report and the Directors’ Report
for the financial year for which the financial statements are prepared is
consistent with the financial statements; and
• the information given in the Corporate Governance Statement set out on
pages 42 to 51 of the Annual Report with respect to internal control and risk
management systems in relation to financial reporting processes and about
share capital structures is consistent with the financial statements.
10. Matters on which we are required to report by exception
We have nothing to report in respect of the following:
Under the ISAs (UK and Ireland), we are required to report to you if, in our
opinion, information in the Annual Report is:
• materially inconsistent with the information in the audited financial statements;
or
• apparently materially incorrect based on, or materially inconsistent with, our
knowledge of the Group acquired in the course of performing our audit; or
• is otherwise misleading.
In particular, we are required to consider whether we have identified any
inconsistencies between our knowledge acquired during the audit and the
directors’ statement that they consider the Annual Report and Accounts is fair,
balanced and understandable and whether the Annual Report and Accounts
appropriately discloses those matters that we communicated to the Audit
Committee which we consider should have been disclosed.
Under the Companies Act 2006 we are required to report to you if,
in our opinion:
• adequate accounting records have not been kept by the Parent Company,
or returns adequate for our audit have not been received from branches not
visited by us; or
• the Parent Company financial statements and the part of the Directors’
Remuneration Report to be audited are not in agreement with the accounting
records and returns; or
• certain disclosures of directors’ remuneration specified by law are not made;
or
• we have not received all the information and explanations we require for our
audit; or
• a Corporate Governance Statement has not been prepared by the Company.
Under the Listing Rules we are required to review:
• the directors’ statement, set out on page 145, in relation to going concern; and
• the part of the Corporate Governance Statement relating to the Company’s
compliance with the nine provisions of the UK Corporate Governance Code
specified for our review.
Andrew Walton (Senior statutory auditor)
for and on behalf of Ernst & Young LLP, Statutory Auditor
Birmingham
26 February 2015
1. The maintenance and integrity of the IMI plc web site is the responsibility
of the directors; the work carried out by the auditors does not involve
consideration of these matters and, accordingly, the auditors accept no
responsibility for any changes that may have occurred to the financial
statements since they were initially presented on the web site.
2. Legislation in the United Kingdom governing the preparation and
dissemination of financial statements may differ from legislation in
other jurisdictions.
* Comparative amounts exclude entities audited in 2013 that were part of
the Retail Dispense businesses which the Group sold on 1 January 2014.
