INDEPENDENT AUDITOR'S REPORT TO THE MEMBERS OF TRAFALGAR NEW HOMES PLC
Opinion
We have audited the group financial statements of Trafalgar Property Group Plc for the year ended 31 March 2019 which comprise the Group Statement of Comprehensive Income, the Group Statement of Financial Position, the Group Statement of Changes in Equity, the Group Cash Flow Statement and notes to the financial statements, including a summary of significant accounting policies. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union.
In our opinion:
• the financial statements give a true and fair view of the state of the group's affairs as at 31 March 2019 and of the Group's loss for the year then ended;
• the financial statements have been properly prepared in accordance with IFRS as adopted by the European Union; and
• the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the Auditor's responsibilities for the audit of the group financial statements section of our report. We are independent of the group in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the FRC's Ethical Standard as applied to SME listed entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements.
Conclusions relating to going concern
Material uncertainty related to going concern
We draw attention to the going concern section in the notes to the financial statements. The group's ability to generate funds to meet short term operating cash requirements and loan repayments is reliant on the group's ability to sell the properties it holds, or to obtain alternative financing. The timing of these sales is uncertain and as a result the group is currently reliant on long term investor loans being renewed when they come up for repayment.
Notwithstanding the disclosure in the going concern note in the notes to the accounts and the directors' belief that it is appropriate to produce these accounts on a going concern basis, we consider there to be factors that indicate that a material uncertainty exists that may cast doubt on the ability of the company to continue as a going concern. Our opinion is not modified in respect of this matter.
Key audit matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the group financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) we identified, including those which had the greatest effect on: the overall audit strategy, the allocation of resources in the audit; and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the group financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
The key audit matters that we identified for the year ended 31 March 2019 are:
Overview of our audit approach
Materiality
In planning and performing our audit we applied the concept of materiality. An item is considered material if it could reasonably be expected to change the economic decisions of a user of the financial statements. We used the concept of materiality to both focus our testing and to evaluate the impact of misstatements identified.
Based on our professional judgement, we determined overall balance sheet materiality for the Group financial statements to be £125,000 (FY17 £100,000), based on 2% of the total assets, with particular reference to the carrying value of inventory. We have determined that for other account balances not related to inventory a misstatement of less than materiality for the financial statements as a whole could influence the economic decisions of users. As such we have applied an income statement materiality of £30,000 (FY17 £30,000) based on 8-
We use a different level of materiality (‘performance materiality’) to determine the extent of our testing for the audit of the financial statements. Performance materiality is set based on the audit materiality as adjusted for the judgements made as to the entity risk and our evaluation of the specific risk of each audit area having regard to the internal control environment.
Where considered appropriate performance materiality may be reduced to a lower level, such as, for related party transactions and directors’ remuneration.
We agreed with the Directors to report to it all identified errors in excess of £2,000 (FY17: £2,500). Errors below that threshold would also be reported to it if, in our opinion as auditor, disclosure was required on qualitative grounds.
Overview of the scope of our audit
We conducted full scope audit work at the Group’s head offices where the accounting records for the Group and its subsidiaries are maintained. Our work covered the Plc entity and its subsidiaries all of which are incorporated in the UK.
Key Audit Matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) that we identified. These matters included those which had the greatest effect on: the overall audit strategy, the allocation of resources in the audit; and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. This is not a complete list of all risks identified by our audit.
Annual report & consolidated financial statements 2019
Key audit matter
How the scope of our audit addressed the key audit matter
Valuation of inventory
The group develops properties at a number of sites incurring significant costs. These are required to be valued at the lower of cost and net realisable value.
We reviewed the additions to the inventory value during the year ensuring that the amounts recognized were appropriate and accounted for correctly.
In addition we reviewed the assessed realisable value of the developments for indications of potential impairment in the carrying value of the inventory by reference to agents’ valuations and market trends and data.
Revenue recognition
The group recognises revenue at the point of completion.
We reviewed sales during the year to ensure that these were recognised in line with the stated revenue recognition policy.
We reviewed revenue recognised post year end to ensure cut-
Our application of materiality
The materiality that we used for the consolidated financial statements was £92,000 (2018: £125,000). We determine materiality using 2% of the total assets of the Group (2018: 2% of total assets), which we have determined, in our professional judgment, to be one of the principal benchmarks within the financial statements relevant to members of the Company in assessing financial performance.
We report to the director’s all corrected and uncorrected misstatements we identified through our audit with a value in excess of £4,600 (2018: £2,000), in addition to other audit misstatements below that threshold that we believe warranted reporting on qualitative grounds.
An overview of the scope of our audit
An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of whether the accounting policies are appropriate to the Company's circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the directors; and the overall presentation of the financial statements. In addition, we read all the financial and non-
Other information
The directors are responsible for the other information. The other information comprises the information included in the annual report, other than the financial statements and our auditor’s report thereon. Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether there is a material misstatement in the financial statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.
Opinion on other matter prescribed by the Companies Act 2006
In our opinion based on the work undertaken in the course of our audit
- the information given in the strategic report and the directors' report for the financial year for which the financial statements are prepared is consistent with the financial statements; and
- the directors’ report and strategic report have been prepared in accordance with applicable legal requirements.
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Going concern
The financial statements have been prepared the notes to the financial statements.
Historically, the Group has been loss making, and has raised capital and taken out borrowings to fund costs during an extended growth phase. Accumulated losses shown in the Consolidated Balance Sheet totalled £2,610,307 as at 31 March 2019.
We included the going concern assumption as a key audit matter as it relies on existing cash reserves and revenue growth generating sufficient cashflows to cover necessary expenditure.
In assessing the appropriateness of the going concern assumption used in preparing the financial statements, our procedures included, amongst others:
- Assessing the cash flow requirements of the Group over the next 12 months based on budgets and forecasts.
- Understanding what forecast expenditure is committed and what could be considered discretionary.
- Considering the liquidity of existing assets on the balance sheet.
- Considering the terms of the bank loan and trade finance facilities and the amount available for drawdown.
- Considering the continued support of the Directors and Related Party Loans.
