Notes to the Financial Statements continued for the year ended 31 May 2021
1 Accounting policies continued Leases continued
• The Group has the right to direct the use of the asset. The Group has this right when it has the decision-making rights that are most relevant to changing how and for what purpose the asset is used. In rare cases where all the decisions about how and for what purpose the asset is used are predetermined, the Group has the right to direct the use of the asset if either: • The Group has the right to operate the asset • The Group designed the asset in a way that predetermines how and for what purpose it will be used The Group recognises a right-of-use asset and a lease liability at the lease commencement date. The right-of-use asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for any lease payments made at or before the commencement date, and an estimate of costs to dismantle and remove the underlying asset or to restore the underlying asset or the site on which it is located, less any lease incentives received. The right-of-use asset is subsequently depreciated using the straight-line method from the commencement date to the earlier of the end of the useful life of the right-of-use asset or the end of lease term. The estimated useful lives of right-of-use assets are determined on the same basis as those of property, plant and equipment. In addition, the right-of-use asset is periodically reduced by impairment losses, if any, and adjusted for certain remeasurements of the lease liability. The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Group’s incremental borrowing rate. The lease liability is measured at amortised cost using the effective interest method. It is remeasured when there is a change in future lease payments arising from a change in an index or rate, if there is a change in the Group’s estimate of the amount expected to be payable, or if the Group changes its assessment of whether it will exercise a purchase, extension or termination option. When the lease liability is remeasured in this way, a corresponding adjustment is made to the carrying amount of the right-of-use asset, or is recorded in the Income Statement if the carrying amount of the right-of-use asset has been reduced to zero. The Group has elected not to recognise right-of-use assets and lease liabilities for short-term leases that have a lease term of 12 months or less and leases of low value assets, including certain IT equipment. The Group recognises the lease payments associated with these leases as an expense on a straight‑line basis over the lease term. Lease rental costs in respect of short-term leases (less than one year) and low value assets which are exempt from being accounted for under IFRS 16 are charged to the Income Statement on a straight-line basis over the period of the lease. Investments Investments in subsidiaries are carried at cost less impairment. Investments in property and unlisted shares are carried at cost less impairment, which is based on the fair value at acquisition. Inventory Inventory is held at the lower of cost or net realisable value. Revenue recognition Summary The Group provides independent global cyber assurance security and Software Resilience services. The revenue streams in relation to Assurance include: • Global Professional Services (GPS) – global cyber security consultancy services • Global Managed Services (GMS) – operational cyber defence, incident response, scanning, simulation and managed security operations centres (SOCs) • Product sales – sale of own manufactured and/or resale of third party products The revenue streams in relation to Software Resilience include: • Escrow contract services – securely maintain in “escrow” the long-term availability of business critical software and applications • Verification services – verify source code, and provide a fully managed secure service and result validation While the detailed recognition is contract specific, and set out in the table on pages 145 to 148, in most cases: • GPS revenues are recognised on an input method over time • GMS revenues are bifurcated according to the separate performance obligations (see pages 146 and 147) • Product sales are recognised when control passes, usually on delivery • Escrow contract revenues are recognised over time • Verification services are recognised on the completion of the verification service Revenue is presented net of VAT and other sales related taxes. Revenue is measured based on the consideration specified in a contract with a customer. The Group recognises revenue when it transfers control over a good or service to a customer.
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NCC Group plc — Annual report and accounts for the year ended 31 May 2021
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