12 Goodwill and intangible assets continued Development costs are capitalised in accordance with IAS 38 development criteria. For this reason, these are not regarded as realised losses. Application of IFRIC agenda decisions During the year, the Group has reviewed its accounting policy to align with IFRIC guidance issued in April 2021 in relation to Software-as-a-Service (SaaS) costs previously capitalised; following this review of costs previously capitalised for the year ended 31 May 2020 of £7.9m relating to cloud-based arrangements have now been expensed and amortisation of £1.4m charged on those assets has been reversed. Consequentially, the net impact on operating profit for the year ended 31 May 2020 is £6.5m. In addition, costs of £0.2m have been reclassified to prepayments. For the year ended 31 May 2019, the Group identified £3.6m of costs previously capitalised under cloud computing arrangements that should be expensed and £0.1m of amortisation was charged, which is to be reversed. See Note 34 for further details on this prior year restatement. Cash generating units (CGUs) Goodwill and intangible assets are allocated to CGUs in order to be assessed for potential impairment. CGUs are defined by accounting standards as the lowest level of asset groupings that generate separately identifiable cash inflows that are not dependent on other CGUs. The Directors have reviewed the continuing applicability of the judgements made in the prior year in determining the CGUs within the Group and in allocating goodwill to these CGUs. The assessment of CGUs is a key accounting judgement as set out in Note 2 of the consolidated Financial Statements. During the year, the Group revised its CGUs as follows: • On 1 June 2020, Virtual Security Research LLC (VSR) was merged into NCC Group Security Services Incorporated, which forms part of the North America Assurance CGU, and following this merger VSR no longer exists as a standalone entity. VSR continues to be included within the North America segment. From this date, the VSR business no longer generates independent cash flows since its resources are now pooled with the remainder of the US Assurance technical delivery teams and its support functions are delivered by the shared US Assurance functions. Furthermore, VSR is no longer reported separately from the rest of the US business. On the basis of the above, management has concluded that the VSR business is no longer a standalone CGU and has been subsumed into the North America Assurance CGU • During the year, the Group ceased measuring and forecasting the performance of the Payment Software Company Inc. business (PSC), which now forms part of the North America Assurance segment. On the basis of the above, management has concluded that the PSC business is no longer a standalone CGU as it is not capable of generating independent cash flows and has been subsumed into the North America Assurance CGU • During FY21, the Group has rearranged its operations so that there is now a European-wide Assurance operation, combining the Fort business unit previously included within the UK Assurance CGU and the Fox-IT business unit under a single management and reporting structure, known as Europe Assurance. As part of the integration measuring and forecasting of performance is done at the Europe Assurance level and operations such as the sales and delivery teams and support functions have been integrated such that independent cash flows are no longer identifiable below the Europe Assurance level. On this basis, management has concluded that the cash flows
associated with Fox-IT and Fort should now be combined to form a single CGU The CGUs and the allocation of goodwill to those CGUs are shown below:
Goodwill 2021 £m
Goodwill * 2020 £m
Cash generating units
22.9
UK Software Resilience
22.9
7.5 7.2
North America Software Resilience
8.7 7.5
Europe Software Resilience
Total Software Resilience
37.6
39.1
44.2 36.4 64.7
UK and APAC Assurance North America Assurance
47.3 42.4 64.3
Europe Assurance
Total Assurance
145.3
154.0
Total Group
182.9
193.1
* The prior year comparative figures have been re-presented to reflect the change in CGUs in the year described above. Impairment review
Goodwill is tested for impairment annually at the level of the CGU to which it is allocated. In each of the tests carried out as at 31 May 2021, the recoverable amount of the CGUs concerned was measured on a value in use basis (VIU). VIU represents the present value of the future cash flows that are expected to be generated by the CGU to which the goodwill is allocated. Capitalised development and software costs are included in the CGU asset bases when performing the impairment review. Capitalised development projects and software intangible assets are also considered, on an asset-by-asset basis, for impairment where there are indicators of impairment. During the year, management carried out a detailed review of the capitalised product portfolio and, based on cash flow projections for the respective projects, concluded that no impairment was required. VIU calculations are an area of material management estimation as set out in Note 2 to the consolidated Financial Statements. These calculations require the use of estimates, specifically: pre-tax cash flow projections; long-term growth rates; and a pre-tax discount rate. Further detail in relation to these key assumptions used in the Group’s goodwill annual impairment review is as follows:
NCC Group plc — Annual report and accounts for the year ended 31 May 2021
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