Independent Auditors’ report
Key audit matter
How our audit addressed the key audit matter
Recognition of investment management fees (group)
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 (“IT”) 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 tested the accuracy of investment management fees using data techniques, by reperforming the calculation ourselves. Based on the audit procedures performed and evidence obtained, our testing did not identify any evidence of material misstatement. We performed the following procedures in assessing the applicability of IFRS 5: • Evaluated management’s year-end assessment of the IFRS 5 criteria, including analysis of the accuracy of management’s judgement regarding their compliance with each criterion; • Examined relevant documentation to assess the progress made on the potential outcomes of the strategic review as at 30 June 2024; • Obtained relevant third-party evidence in connection with management’s judgement; • Reviewed board meeting minutes; • Reviewed the engagement terms and the advice provided by management’s strategic review adviser; • Conducted discussions with management regarding the progress of the strategic review as of 30 June 2024. Based on our procedures performed and the evidence obtained, we consider management’s judgement to be reasonable. We performed the following procedures in relation to the impairment of investment in subsidiaries: • Obtained and reviewed management’s impairment assessment; • Analysed the forecast cash flows generated by the company’s subsidiaries; and • Assessed the appropriateness of the discount rates and long-term growth rate assumptions applied. • We verified that the methodology used by management in arriving at the carrying value of the investments in subsidiaries was in line with IAS 36. • We have considered the appropriateness of the classification and measurement of the investment in BMI within the parent financial statements in light of the International strategic review. Based on the audit procedures performed and evidence obtained, our testing did not identify any evidence of material misstatement.
Investment management fees are generated by Brooks Macdonald Asset Management Limited (“BMAM”) and Brooks Macdonald Asset Management (International) Limited (“BMI”) and are set out in Note 4 to the financial statements. Investment management fees of £79m represent approximately 62% of the group’s £128m 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.
Strategic review - IFRS 5 considerations of the international business (group)
In connection with the strategic review of the international business, which includes Brooks MacDonald Asset Management (International) Limited and Brooks MacDonald International Fund Managers Limited, management has been evaluating potential outcomes, including the possible disposal of the international business. If such a disposal were to have been considered highly probable as at 30 June 2024, the requirements of IFRS 5 ‘Non-current Assets Held for Sale and Discontinued Operations’ would necessitate classifying the international business as a held for sale disposal group. This classification would impact the financial statements by requiring separate presentation, valuation of the disposal group using a different measurement basis, and detailed disclosures. Significant judgement is required to interpret the criteria within IFRS 5 around whether or not the highly probable criteria were met as at 30 June 2024, management’s judgement is detailed in Note 2. Given the judgement involved, the audit effort needed to assess management’s view and the magnitude of the potential reclassification disclosures we have concluded that this is a Key audit matter. Impairment of Investment in Subsidiaries (parent) The Parent company holds investment in subsidiaries of £102.4m which is set out in Note 42 of the company financial statements. The impairment assessment of the investment in subsidiaries balance is a Key audit matter due to the magnitude of the balance in the context of the net assets of the company. Management performed an impairment assessment where judgment is required to be applied in considering whether an impairment trigger has occurred utilising a number of assumptions, such as forecast cash flows, discount rates and long-term growth rates. Further during the current year, the strategic review warrants consideration towards the classification and measurement of investment in subsidiaries.
104 Brooks Macdonald Group plc Annual Report and Accounts 2024
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