Page 50 - RFU Annual Report 2018

4 FINANCIAL STATEMENTS

8

INDEPENDENT AUDITOR’S Under this policy, the directors are Materiality is used so we can plan and
REPORT TO THE MEMBERS OF required to recognise deferred tax assets perform our audit to obtain reasonable,
rather than absolute, assurance about
on the balance sheet only to the extent
THE RUGBY FOOTBALL UNION that it is considered probable that the whether the financial statements are
(CONTINUED) assets will be recovered. The directors free from material misstatement. The
exercise judgement in applying this level of materiality we set is based on
The Professional Game Agreement policy, as set out in note 3 - Judgements our assessment of the magnitude of
with Premiership Rugby Limited in applying accounting policies and misstatements that individually or in
(PRL), details of which are set out key sources of estimation uncertainty aggregate, could reasonably be expected
in note 3 - Judgements in applying – Deferred taxation asset on page 63, to have influence on the economic
accounting policies and key sources of relating principally to the determination decisions the users of the financial
estimation uncertainty – Professional of the period over which to project statements may take based on the
Game Agreement on page 62. The recovery of the assets and to the information included in the financial
eight year agreement requires the assumptions underlying the projected statements.
Group to make payments to PRL that recovery. We therefore consider the
are determined on an annual basis recognition and valuation of deferred tax We established materiality based on the
dependent upon the achievement assets to be a key audit matter. Group’s and Parent’s cash generated
of domestic and international rugby for investment in Rugby being one of
related objectives, and on the financial Based on projections extending to 15 the key performance indicators of the
performance of the RFU. years, the Rugby Football Union has Rugby Football Union. We determined
recognised deferred tax assets of £7m materiality for the consolidated financial
Our response: on the Group balance sheet (Parent statements as a whole to be £3.2m and
entity: £6.4m) at the year end, and has materiality for the Parent to be £2.0m,
Through discussion with the unrecognised deferred tax assets of representing approximately 3 per cent of
management team and review of £4.9m (Parent entity: £4.9m). cash generated for investment in Rugby.
the Group risk register, we identified
arrangements that could be considered Our response: Performance materiality is set to
to be complex, the accounting for which reduce to an appropriately low level
could require significant judgement. Our audit procedures over the the probability that the aggregate
recognition and valuation of deferred tax of uncorrected and undetected
For identified complex arrangements assets included, but were not limited to: misstatements in the financial
including those discussed above within statements exceeds materiality for the
the description of the key audit matter, Considering the appropriateness financial statements as a whole. On
we: of the use of a 15 year period over the basis of our overall risk and control
which to project the recovery of the environment assessment, our judgement
obtained & reviewed the contractual deferred tax asset in light of our was that performance materiality is set
documentation; understanding and assessment of the at 75 per cent of our planning materiality,
level of predictability in the ongoing which is £2.4m for the Group and £1.4m
reviewed management accounting business and of the nature and timing for the Parent.
papers documenting the nature of of potential future major capital
the judgement and the conclusions spending decisions; and We agreed with the Audit Committee
reached; that we would report to that committee
assessing the assumptions all identified corrected and uncorrected
assessed the adopted accounting underlying the projection, including audit differences in excess of £0.1m
treatment and financial statement the availability and use of capital (representing 3 per cent of financial
disclosures by reference to accounting allowances and the ongoing capital statement materiality) together with
requirements and stated accounting expenditure, and assessing the differences below that threshold that,
policies. consistency of the projections with the in our view, warranted reporting on
longer term business plans. qualitative grounds.
Our findings:
Our findings: Audit work at component locations
Based on our audit procedures, for the purpose of obtaining audit
the identified complex contractual Based on our audit procedures, we coverage over significant financial
arrangements have been accounted for consider that reasonable judgement has statement accounts is undertaken based
appropriately. been exercised in determining the level on a percentage of total performance
of deferred tax asset recognised as at 30 materiality. The performance materiality
Recognition and valuation of deferred June 2018. set for each component is based on the
tax assets relative scale and risk of the component
Our application of materiality to the Group as a whole and our
Key audit matter assessment of the risk of misstatement
We apply the concept of materiality at component level. In the current
The accounting policy for the both in planning and performing our period, the range of performance
recognition of deferred tax assets is set audit, and in evaluating the effect materiality allocated to components was
out in note 2 (f) on page 59. of misstatements on the financial £0.5m to £1.1m.
statements and our audit.

Annual
Report
2018