Independent Auditors’ report continued
Key audit matter
How our audit addressed the key audit matter
Recognition of investment management fees (group) Investment management fees are generated by Brooks Macdonald Asset Management Limited (“BMAM”) and set out in note 6 to the financial statements. Investment management fees of £66.2 million represent approximately 59% of the group’s £111.6 million total revenue. Recognition of investment management fees is a key audit matter due to its size and the significant audit effort involved in testing this revenue stream. Investment management fees are calculated by applying each client’s fee rate to their funds under management (“FUM”). The calculation is largely automated, however there are a number of inherent risks including the manual input of fee rates from client contracts and the existence and valuation of funds under management, which could result in errors.
We performed the following procedures in relation to investment management fees: • We understood and evaluated the design and implementation of key controls, including relevant Information Technology controls, in place around the investment management fee process; • For quarter ends, we reperformed the reconciliations of client cash and stockholding positions to external custody and bank confirmations and obtained evidence for any differences on a sample basis; • We agreed, on a sample basis, fee rates to client contracts; • We tested the valuation for a sample of investment positions by agreeing the prices used to calculate FUM to independent market prices; and • We evaluated the accuracy of investment management fees through independent reperformance of the fee calculations. Based on the audit procedures performed and evidence obtained, our testing did not identify any evidence of material misstatement. We assessed whether the classifications as business combinations and the treatment of the various aspects of the transactions were in accordance with IFRS 3 - Business Combinations. Consideration for the acquisitions included initial cash consideration, initial share consideration, cash consideration for excess net assets and deferred contingent consideration. We performed the following procedures over the acquisitions: • The total consideration values have been reviewed against the purchase agreements; • We vouched the cash payments to the bank statements, agreed equity consideration inputs to market data and assessed the assumptions within the contingent consideration model for reasonableness; • We have also reviewed the acquisition accounting papers prepared by management for each acquisition as well as their working files for the accounting treatment and challenged management on key calculations and assumptions regarding the growth rates, client attrition and implied borrowing rates; • We tested other journals related to the acquisitions, including agreeing net assets acquired to the completion accounts where we tested material balances per the completion accounts with no issues noted; • We recalculated and reconciled the client relationship intangibles at acquisition, agreeing assumptions to supporting documentation. One of the key assumptions was the discount rate used, which was assessed by our auditor’s experts. They concluded that the discount rate used is appropriate and falls within their range. The goodwill was recalculated as a balancing figure after deducting deferred tax liabilities, which were also recalculated; and • We have assessed the disclosures within the Annual Report and Accounts for completeness and accuracy against the accounting standard requirements. We are satisfied that based on the work performed, the acquisition has been accounted for appropriately with adequate disclosures made in the Annual Report and Accounts.
Acquisition accounting regarding the acquisitions of CST, Lucas Fettes and LIFT (group) In the current year the group acquired three financial planning businesses which are material to the financial statements. These acquisitions are disclosed in note 14 of the financial statements. Given the magnitude of the acquisitions, the heightened judgement
in the acquisition accounting and the significant audit effort involved, we have determined the acquisition accounting to be a key audit matter. Management have assessed that the acquisitions should be treated as business combinations under IFRS 3 – Business Combinations with the overriding factor being the ability of the acquired entity to operate as a business. The acquisition of CST Wealth was completed on 29 October 2024, Lucas Fettes on 29 November 2024 and LIFT on 31 January 2025.
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Brooks Macdonald Group plc Annual Report and Accounts 2025
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