Page 57 - Paragon Annual Report 2

Independent auditor’s report (continued) to the members of Paragon Group Limited
Key audit matters
Key audit matters are those matters that, in our professional judgment, 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) that we identified. These matters included 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 our opinion thereon, and we do not provide a separate opinion on these matters.
Improper revenue recognition
IAS 18 Revenue states that revenue from the sale of goods shall be recognised when there has been a transfer to the buyer of the significant risks and rewards of ownership of the goods.
The timing of when revenue is recognised is relevant to the Group performance. There are a variety of customer arrangements in place at 30 June 2017, which have different points when the risks and rewards of ownership are transferred to the customer.
There is opportunity through management override or error to recognise revenue ahead of transfer of risks and rewards of the goods to the customer and/or misstate allocation of revenue between periods. The timing of revenue recognition, including around year end, is a significant focus for the audit.
• Consolidated group revenue €442.187m (2016: €400.439m)
At each of the full and specific scope audit locations with significant revenue streams:
– We performed a walkthrough of the revenue transactions and assessed the design and implementation effectiveness of key controls.
– We gained an understanding of trading terms and conditions with key customers. We tested the application of these terms through our sample testing.
– We performed analytical procedures on significant income accounts, by comparing revenue balances for the year against expectation, and corroborated significant variances. In addition we compared revenue by customer to activity in the prior year to understand revenue trends and movements.
– We tested the completeness and accuracy of revenue by performing sample testing from sales orders to sales invoice to ensure revenue recognition is appropriate.
– To address the risk of management override in revenue, we examined a sample of manual journal entries that were posted to revenue accounts. Those manual adjustments which impact revenue, including the credit note provisions, were substantively tested.
– We tested a sample of significant trade receivable balances to cash receipts to confirm recoverability post year end.
– We performed tests on sales transaction posted near to the year end to ensure that cut off is correctly applied.
Based on the procedures performed, we did not identify any evidence of material misstatement in the revenue recognised in the year ending 30 June 2017.
We conclude that revenue has been recognised in accordance with the requirements of IAS 18 Revenue and there are no cut-off errors or indicators of fraudulent reporting.
| 53
Risk
Our response to the risk
Key observations communicated to the Board of Directors
Paragon Group Limited – 05258175