Financial Statements
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2. Principal accounting policies continued d. Critical accounting estimates and material accounting policy information The preparation of financial information requires the use of assumptions, estimates and judgements about future conditions. Use of currently available information and application of judgement are inherent in the formation of estimates. Actual results in the future may differ from those reported. In this regard, the Directors believe that the accounting policies, where important estimations are used, relate to the measurement of intangible assets and the estimation of the fair value of share-based payments. Management also needs to exercise judgement in applying the Group’s accounting policies. The preparation of the Group’s Consolidated financial statements includes the use of estimates, assumptions and significant judgements. The significant accounting estimates, being those with a significant risk of a material change to the carrying value of assets and liabilities within the next year in terms of IAS 1, ‘Presentation of Financial Statements’, are the useful economic life estimates for acquired client-relationship contracts. The Consolidated financial statements include other areas of judgement and accounting estimates. Whilst these areas do not meet the definition under IAS 1 of significant accounting estimates or critical accounting judgements, the recognition and measurement of certain material assets and liabilities are based on assumptions and/or are subject to longer-term uncertainties. The other areas of judgement and accounting estimates are the pre-tax discount rate and perpetuity growth rate used within the International, Braemar, Cornelian, Adroit and Integrity CGU goodwill impairment reviews. See Note 13 for further details on the discount rate and the perpetuity growth for the various CGUs. Additionally, the inputs into the Black-Scholes model used to value the Group’s equity-settled share-based payments (Note 30). The underlying assumptions and estimates are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the year in which the estimate is revised only if the revision affects both current and future periods.
Of the client relationship intangible assets held by the Group at 30 June 2024, the expected amortisation charge for the year ending 30 June 2025 is £5,326,000. If the useful economic lives were to reduce by one year, the estimated charge would increase by £3,547,000. Goodwill recognised as part of a business combination is not amortised but instead reviewed annually for impairment, or when a change in circumstances indicates that it might be impaired. The recoverable amounts of CGUs are determined by value-in-use calculations, which require the use of estimates to derive the projected future cash flows attributable to each unit. Details of the more significant assumptions and sensitivity analysis are given in Note 13. In assessing the value of client relationships and the associated investment management and financial advice contracts and goodwill or gain on bargain purchase arising as part of a business combination, the Group prepares forecasts for the cash flows acquired and discounts to a net present value. The Group uses a pre-tax discount rate, adjusting from a post-tax discount rate calculated by the Group’s weighted average cost of capital (“WACC”), adjusted for any specific risks for the relevant CGU. The Group uses the capital asset pricing model (“CAPM”) to estimate the WACC, which is calculated at the point of acquisition for a business combination, or the relevant reporting period date. The key inputs are the risk-free rate, market risk premium, the Group’s adjusted beta with reference to beta data from peer-listed companies, small company premium and any risk-adjusted premium for the relevant CGU. See Note 13 for further details on the discount rate for the various CGUs. Share-based payments The Group operates various share-based payment schemes in respect of services received from certain employees. Estimating the fair value of these share-based payments requires the Group to apply an appropriate valuation model and determine the inputs to that model (Note 30). The charge to the Consolidated statement of comprehensive income in respect of share- based payments is calculated using assumptions about the number of eligible employees that will leave the Group and the number of employees that will satisfy the relevant performance conditions. These estimates are reviewed regularly. A decrease of 10% in the total options would decrease the estimated share-based payment charge and the associated national insurance charge in the Consolidated statement of comprehensive income for the year by £381,000 and £87,000, respectively, hence these assumptions do not constitute a critical estimate. The key inputs into the fair value calculations for the options granted during the year are disclosed in Note 30. Income tax The Directors have to estimate at each year end a provision for income taxes that takes into account the utilisation of existing deferred tax assets when available and, therefore, the level of the future taxable profits of the Company that support the recoverability of these deferred tax assets. The key inputs are management approved forecasts, determining if there will be sufficient future taxable profits to recognised deferred tax assets.
Further information about key assumptions and sources of estimation uncertainty are set out below.
Intangible assets The Group has acquired client relationships and the associated investment management and financial advice contracts as part of business combinations, through separate purchase or with newly employed teams of fund managers, as described in Note 13. In assessing the fair value of these assets, the Group has estimated their finite life based on information about the typical length of existing client relationships. Acquired client relationship contracts are amortised on a straight-line basis over their estimated useful lives, ranging from 6 to 20 years.
Brooks Macdonald Group plc Annual Report and Accounts 2024
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