Independent Auditors Report to the Members of AFH Financial Group plc
Independent auditor’s report to the members of AFH Financial Group Plc
We have audited the financial statements of AFH Financial Group Plc (the ‘parent company’) and its subsidiaries (the ‘group’) for the year ended 31 October 2018 which comprise the Consolidated Statement of Comprehensive Income, the Consolidated and Parent Company Statements of Financial Position, the Consolidated and Parent Company Statements of Changes in Equity, the Consolidated Statement of Cash Flows and notes to the financial statements, including a summary of significant accounting policies. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union and, as regards the parent company financial statements, as applied in accordance with the provisions of the Companies Act 2006.
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 October 2018 and of the group’s profit for the year then ended;
- the group financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union;
- the parent company financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union and as applied in accordance with the provisions of the Companies Act 2006; and
- the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the financial statements section of our report. We are independent of the company in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the FRC’s Ethical Standard, as applied to listed entities and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Conclusions relating to going concern
We have nothing to report in respect of the following matters in relation to which the ISAs (UK) require us to report to you where:
- the directors’ use of the going concern basis of accounting in the preparation of the financial statements is not appropriate; or
- the directors have not disclosed in the financial statements any identified material uncertainties that may cast significant doubt about the group’s or the parent company’s ability to continue to adopt the going concern basis of accounting for a period of at least twelve months from the date when the financial statements are authorised for issue.
Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) we identified, including those which had the greatest effect on: the overall audit strategy, the allocation of resources in the audit; and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
Due to the probable high significance of revenue to any user of the AFH Financial Group Plc financial statements, recognition of revenue and accurate cut off is considered to be a key audit matter.
Our procedures over revenue recognition included, but were not limited to:
- Documentation and critical assessment of revenue recognitions and year-end revenue cut off procedures to ensure that these are appropriate.
- Walking through the key controls pertaining to the recognition of revenue.
- Testing in detail samples from the underlying data including checking that these were consistent with third party evidence.
- Reviewed and reconciling cash receipts, both during the year and post year end, to the reported revenue balance, specifically addressing the cut off risk.
- Reviewing the procedures for setting up new clients and a detailed review of key reconciliations and any accounting adjustments triggered by this exercise.
No material misstatements were identified as a result of the audit procedures performed.
Accounting for acquisitions and impairment assessment
As a highly acquisitive business, accounting for acquisitions (both business combinations and asset acquisitions) made during the current and prior periods is an area that has the potential to have a significant impact on the results for the year.
Management are required to assess whether an acquisition falls to be accounted for as a business combination or as an asset acquisition. Key to this assessment is determining whether what has been acquired forms a business as defined by IFRS 3. For business combinations management are required to assess the fair value of the assets (including intangible assets) and liabilities acquired
Many of the acquisitions have a significant element of deferred contingent consideration. Management are required to assess the fair value of this deferred consideration, including the impact of discounting to allow for the time value of money.
Intangible assets, including goodwill and acquired client portfolios, are is the most significant assets held on the Statement of Financial Position. Impairment must be considered on an annual basis which requires management to exercise judgement in respect of future cashflows and the application of an appropriate discount rate
Our procedures in relation acquisition accounting and impairment assessment included, but were not limited to:
- Assessing managements consideration of the allocation between business combinations and asset purchases.
- Reviewing in detail the assessments made by management in respect of the accounting treatment applied to acquisitions made during the year, with a particular focus on the management judgements applied and the identification of acquired intangible assets.
- Reviewing the level of deferred contingent consideration assessed by management (including any adjustments required to contingent consideration relating to acquisitions from prior periods).
- Reviewing in detail management’s calculations of forecast performance and comparison to historic data
- Assessing the appropriateness of all key assumptions adopted such as the discount rate
- Corroborating supporting calculations and commentary to other evidence.
No material misstatements were identified as a result of the audit procedures performed.
Our application of materiality
The scope of our audit was influenced by our application of materiality. We set certain quantitative thresholds for materiality. These, together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our audit procedures on the individual financial statement line items and disclosures and in evaluating the effect of misstatements, both individually and on the financial statements as a whole.
Based on our professional judgement the level of overall materiality we set for the financial statements of the group is £700,000. Materiality has been determined with reference to a benchmark of Profit before tax, of which it represents 9%.
We used Profit before tax to calculate our materiality as, in our view, this is the most relevant measure of the underlying financial performance of the company.
We agreed with the Audit Committee that we would report to the Committee all audit differences in excess of £9,400 as well as differences below that threshold that, in our review, warranted reporting on qualitative grounds. We also report to the Audit Committee on disclosure matters that we identified during the course of assessing the overall presentation of the financial statements.
For the company we assessed materiality based on total assets, with a level of £350,000.
An overview of the scope of our audit
As part of designing our audit, we determined materiality and assessed the risk of material misstatement in the financial statements. In particular, we looked at where the directors made subjective judgements such as making assumptions on significant accounting estimates.
We gained an understanding of the legal and regulatory framework applicable to the group and company, the structure of the group and the parent company and the industry in which it operates. We considered the risk of acts by the company which were contrary to the applicable laws and regulations including fraud. We designed our audit procedures to respond to those identified risks, including non-compliance with laws and regulations (irregularities) that are material to the financial statements.
We focused on laws and regulations that could give rise to a material misstatement in the financial statements, including, but not limited to, the Companies Act 2006.
We tailored the scope of our group audit to ensure that we performed sufficient work to be able to give an opinion on the financial statements as a whole. We used the outputs of a risk assessment, our understanding of the parent company and group’s, accounting processes and controls and its environment and considered qualitative factors in order to ensure that we obtained sufficient coverage across all financial statement line items.
Our tests included, but were not limited to, obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by irregularities including fraud or error, review of minutes of directors’ meetings in the year and enquiries of management. As a result of our procedures, we did not identify any Key Audit Matters relating to irregularities, including fraud.
The risks of material misstatement that had the greatest effect on our audit, including the allocation of our resources and effort, are discussed under “Key audit matters” within this report.
Our group audit scope included an audit of the group and parent financial statements of AFH Financial Group Plc. Based on our risk assessment, the following entities within the group were subject to full scope audit and was performed by the group audit team:
- AFH Financial Group Plc
- AFH Protection Group Limited
- Eunisure Limited
- AFH Home & Protect Limited
- AFH Group Limited
- AFH Independent Financial Services Limited
- AFH Private Wealth Management Limited
At the parent level we also tested the consolidation process and carried out analytical procedures to confirm our conclusion that there were no significant risks of material misstatement of the aggregated financial information.
The directors are responsible for the other information. The other information comprises the information included in the annual report, other than the financial statements and our auditor’s report thereon. Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether there is a material misstatement in the financial statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact.
We have nothing to report in this regard.
Opinions on other matters prescribed by the Companies Act 2006
In our opinion, based on the work undertaken in the course of the audit:
- 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 Strategic Report and the Directors’ Report have been prepared in accordance with applicable legal requirements.
Matters on which we are required to report by exception
In light of the knowledge and understanding of the group and the parent company and its environment obtained in the course of the audit, we have not identified material misstatements in the Strategic Report or the Directors’ Report.
We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us 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 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.
Responsibilities of Directors
As explained more fully in the directors’ responsibilities statement set out on page 21, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are responsible for assessing the group’s and the parent company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the group or the parent company or to cease operations, or have no realistic alternative but to do so.
Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.
A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council’s website at www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.
Use of the audit report
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.
Stephen Eames (Senior Statutory Auditor)
for and on behalf of Mazars LLP
Chartered Accountants and Statutory Auditor
45 Church Street,
18 January 2019
Please click below to download the full annual report as a PDF file.