INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF GKN PLC continued
We designed our audit by determining materiality and assessing the risks of material misstatement in the financial statements. In particular, we looked at where the Directors made subjective judgements, for example in respect of significant accounting estimates that involved making assumptions and considering future events that are inherently uncertain. As in all of our audits we also addressed the risk of management override of internal controls, including evaluating whether there was evidence of bias by the Directors that represented a risk of material misstatement due to fraud. The risks of material misstatement that had the greatest effect on our audit, including the allocation of our resources and effort, are identified as ‘areas of focus’ in the table below. We have also set out how we tailored our audit to address these specific areas in order to provide an opinion on the financial statements as a whole, and any comments we make on the results of our procedures should be read in this context. This is not a complete list of all risks identified by our audit.
Area of focus Assessment of the carrying value of the intangible and tangible assets relating to the A350 programme at Western Approach
Refer to pages 40 to 47 (Risk management/Principal risks and uncertainties), pages 70 to 75 (Audit & Risk Committee report), note 1 (Accounting policies and presentation), note 11 (Goodwill and other intangible assets) and note 12 (Property, plant and equipment). We focused on this area because the Directors’ assessment of the recoverability of this programme’s intangible assets of £156 million and tangible assets of £67 million, inclusive of £15 million of capitalised borrowing costs, involve complex and subjective judgements and assumptions about the progress and future results of this programme. The key judgements and assumptions made by the Directors included the discount rate and the key business drivers of the cash flow forecasts, being the number of aircraft sets to be produced and production and assembly hours.
How our audit addressed the area of focus