Hybrid Software Group PLC Annual Report 2022 66 67 Hybrid Software Group PLC Annual Report 2022 Hybrid Software Group Strategic report Governance Financial statements Other information 2. Key audit matters: our assessment of risks of material misstatement (Continued) [We continue to perform procedures over [identify key audit matter]. However, following [explain why risk is less significant this year], we have not assessed this as one of the most significant risks in our current year audit and, therefore, it is not separately identified in our report this year.] The risk Our response Capitalisation of development costs in FY22 in the Hybrid Software CGU Included within other intangible assets of €37,746,000 (2021: €38,371,000) Refer to pages 79 and 80 (accounting policy), page 84 (critical accounting judgements and estimates) and pages 91 and 92 (financial disclosures) Subjective judgement Eligible costs in respect of software developers and contractors working to develop new software products are capitalised if the projects to which they relate meet the relevant criteria, which materially affects the Group’s profitability. Within the Hybrid Software CGU there is judgement involved in determining whether projects meet the criteria for capitalisation in the year and in determining the amount of costs that meet the qualifying criteria. The risk has reduced in the current year due to the implementation of processes that are in place to track the time spent on qualifying projects. We performed the detailed tests below rather than seeking to rely on any of the Group’s controls because our knowledge of the design of these controls indicated that we would not be able to obtain the required evidence to support reliance on controls. Our procedures included: • Test of detail: Within the Hybrid Software CGU, we selected a sample of capitalised costs in the year based on the magnitude of development spend capitalised. For the capitalised costs selected: (i) We critically assessed the judgement made as to whether the development constitutes a substantial enhancement to the underlying assets by challenging management on the functionality being developed; (ii) We critically assessed the time spent on these developments by performing inquiries with a sample of individual developers and contractors to independently corroborate the Group’s quantification of time spent, and challenged the job title and role of these individuals to ascertain whether development would be expected from that role; (iii) We created our own independent range of development spend capitalised to critically assess the judgements made by the Group. • Assessing transparency: We assessed the adequacy of the Group’s disclosures in respect of the judgement made in relation to capitalising development costs. Our results — The results of our testing were satisfactoryand we considered the level of development spend capitalised in the year within the Hybrid Software CGU to be acceptable (2021: acceptable). We continue to perform procedures over the recoverability of goodwill in the Global Graphics Software CGU and the recoverability of parent Company’s investment in Global Graphics (UK) Limited. However, following an assessment of the headroom in the models to support the goodwill balance in the Global Graphics Software CGU and the investment in Global Graphics (UK) Limited, we have not assessed these as the most significant risks in our current year audit and, therefore, they are not separately identified in our report this year. The valuation of separately identifiable intangible assets recognised in the Hybrid Software Group SARL acquisition is not a significant risk or a KAM in the current year. The risk in how its valued is an issue on recognition and after the initial year it is no longer a significant risk 91 9 95 5 Group profit before tax Group total assets 95% (2021: 100%) 86 14 93 7 93% (2021: 100%) 98 1 98 2 98%(2021: 99%) Key: Full scope for group audit purposes 2022 Specified risk-focused audit procedures 2022 Full scope for group audit purposes 2021 Specified risk-focused audit procedures 2021 Residual components Group revenue 3. Our application of materiality and an overview of the scope of our audit Materiality for the Group financial statements as a whole was set at €410k (2021: €372k), determined with reference to a benchmark of Group revenue from continuing operations, of which it represents 0.87% (2021: 0.77%). We consider total revenue to be the most appropriate benchmark as it provides a more stable measure year on year than group profit before tax. Materiality for the parent Company financial statements as a whole was set at €369k (2021: €168k), determined with reference to a benchmark of Company total assets, of which it represents 0.8% (2021: 0.17% of Company total assets). In line with our audit methodology, our procedures on individual account balances and disclosures were performed to a lower threshold, performance materiality, so as to reduce to an acceptable level the risk that individually immaterial misstatements in individual account balances add up to a material amount across the financial statements as a whole. Performance materiality was set at 65% (2021: 65%) of materiality for the financial statements as a whole, which equates to €266k (2021: €241.8k) for the Group and €239.9k (2021: €109.2k) for the parent Company. We applied this percentage in our determination of performance materiality based on the level of identified misstatements and control deficiencies during the prior period. We agreed to report to the Audit Committee any corrected or uncorrected identified misstatements exceeding €20.4k (2021: €18.6k), in addition to other identified misstatements that warranted reporting on qualitative grounds. Of the Group’s 10 (2021: 10) reporting components, we subjected 6 (2021: 5) to full scope audits for group purposes and 0 (2021: 1) to specified riskfocused audit procedures over revenue, inventory and cash. The latter were not individually financially significant enough to require a full scope audit for group purposes but did present specific individual risks that needed to be addressed. The components within the scope of our work accounted for the percentages illustrated on this page. The remaining 5% (2021: 0%) of total Group revenue, 7% (2021: 0%) of total profits and losses that made up group profit before tax and 2% (2021: 1%) of total Group assets is represented by 4 (2021: 4) reporting components, none of which individually represented more than 7% (2021: 1%) of any of total Group revenue, total profits and losses that made up group profit before tax or total Group assets. For these components, we performed analysis at an aggregated group level to re-examine our assessment that there were no significant risks of material misstatement within these. Revenue from continuing operations €46.6m (2021: €48.6m) Group materiality €410k (2021: €372k) Reveue from continuing operations Group materiality €410k Whole financial statementsmateriality (2021: €372k) €266k Whole financial statements performance materiality (2021: €241.8k) €307.5k Range of materiality at 6 components (€123k - €307.5k) (2021: €131k - €242k) €20.4k Misstatements reported to the audit committee (2021: €18.6k)
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