REG-BACIT Limited: Annual Financial Report <Origin Href="QuoteRef">BACT.L</Origin> - Part 3
05/07/2016 07:05
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Risk of Fraud in Revenue Recognition As described above, the Group held a single investment during the year in the LP. Net losses arising on the investment in the LP during the year amounted to £6.9m (2015: net gain of £44.3m), as disclosed in note 5. In order to test the performance and management fee rebates recognised in the year, we performed the following procedures: · Assessed the design and implementation of controls in relation to the reconciliation and calculation of rebates performed by the LP’s Administrator; · Analysed the management and performance fee rebates of the underlying funds based on their performance over the year to assess whether those recorded by the LP were in line with our expectations; · Obtained independent confirmation for all underlying investments with whom rebate agreements exist, the amounts paid during the year, and associated balances at year end; · Selected a sample of underlying investments of the LP, for which we inspected signed documentation confirming investment on a fee-free basis; and · Recalculated the rebates paid and accrued in the year for a sample of investment holdings, based on the terms of the investee fund agreements.
Accounting policies in relation to the inputs to this are disclosed in notes 1 and 5. The inputs to this are derived from the Statement of Comprehensive Income of the LP, less distributions paid and accrued between the LP and the Group. We have therefore
considered those items within the financial statements of the LP in evaluating our risk of material misstatement. We have considered the net gains and losses on financial instruments of the LP as part of the above risk around valuation and ownership of
financial assets. Distributions were made between Group companies, and were therefore not considered to be qualitatively material. The only amounts of revenue income received by the LP that were considered material were the rebates and donations of £3.2m
(2015: £3.3m). As further described in note 6, the LP invests on a basis where the Group is reimbursed the amount of management and performance fees in rebates or invests on a fee-free basis, due to its philanthropic nature. Performance fee rebates are
accrued over the year, based on calculations of the performance of the underlying funds. This is then adjusted within the fair value of the financial assets of the LP, until such time as these are crystallised. Management fee rebates in shares are
recognised in the Statement of Comprehensive Income, with the cost of the equity instruments on initial recognition being the value of that rebate. Given the complexity of the accounting treatment around rebates, we considered this to be the area of
greatest risk in relation to this balance. The risk therefore exists that rebates recognised during the year are not complete, or that the value of rebates accrued is not calculated accurately, such that there is a material misstatement.
Last year our report included a risk in relation to adoption of IFRS 10: Investment Entities Exemption. The Group’s accounting change adjustments were completed last year with no findings noted, and as such we no longer consider this to be a significant
area of audit risk. The description of risks above should be read in conjunction with the significant issues considered by the Audit Committee discussed above. 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.
Our application of materiality We define materiality as the magnitude of misstatement in the financial statements that makes it probable that the economic decisions of a reasonably knowledgeable person would be changed or influenced. We use materiality both in planning the scope of our
audit work and in evaluating the results of our work. We determined materiality for the Group to be £9.42 million (2015: £9.58 million), which is 2% (2015: 2%) of equity. The Group’s investment objective is to realise returns through growth in the fair
value of investments in long and alternative investment funds. We therefore considered the value of the Group’s equity to be a key performance indicator for shareholders. We agreed with the Audit Committee that we would report to the Committee all audit
differences in excess of £0.19 million (2015: £0.19 million), as well as differences below that threshold that, in our view, warranted reporting on qualitative grounds. We also report to the Audit Committee on disclosure matters that we identified when
assessing the overall presentation of the financial statements.
An overview of the scope of our audit Our Group audit was scoped by obtaining an understanding of the Group and the LP, as well as the service organisations and their environment, including the internal controls of the Group and the LP, and assessing the risks of material misstatement at the
Group level. Audit work to respond to the risks of material misstatement was performed directly by the audit engagement team. At the parent entity level we also tested the consolidation process and carried out analytical procedures to confirm our
conclusion that there were no significant risks of material misstatement of the aggregated financial information of the components of the Group not subject to audit or audit of specified account balances. As the auditor to the Group’s subsidiary and the
LP, we carried out audit work on both the underlying subsidiary and the LP. This was executed at a level of materiality applicable to that subsidiary. The materiality of the Group’s subsidiary was £0.49m (2015: £0.44m) and the materiality of the LP was
£9.32m (2015: £9.48m).
Matters on which we are required to report by exception
Adequacy of explanations received and accounting records Under the The Companies (Guernsey) Law, 2008 we are required to report to you if, in our opinion: · we have not received all the information and explanations we require for our audit; or · adequate accounting records have
not been kept by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or · the company financial statements are not in agreement with the accounting records and returns. We have
nothing to report in respect of these matters.
Corporate Governance Statement Under the Listing Rules we are also required to review part of the Corporate Governance Statement relating to the company’s compliance with certain provisions of the UK Corporate Governance Code. We have nothing to report arising from our review.
Our duty to read other information in the Annual Report Under International Standards on Auditing (UK and Ireland), we are required to report to you if, in our opinion, information in the annual report is: · materially inconsistent with the information in the audited financial statements; or
· apparently materially incorrect based on, or materially inconsistent with, our knowledge of the Group acquired in the course of performing our audit; or · otherwise misleading. In particular, we are required to consider
whether we have identified any inconsistencies between our knowledge acquired during the audit and the directors’ statement that they consider the annual report is fair, balanced and understandable and whether the annual report appropriately discloses
those matters that we communicated to the audit committee which we consider should have been disclosed. We confirm that we have not identified any such inconsistencies or misleading statements.
Respective responsibilities of directors and auditor As explained more fully in the Statement of Directors’ Responsibilities, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and
express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). We also comply with International Standard on Quality Control 1 (UK and Ireland). Our audit methodology and tools aim
to ensure that our quality control procedures are effective, understood and applied. Our quality controls and systems include our dedicated professional standards review team and independent partner reviews. This report is made solely to the company’s
members, as a body, in accordance with Section 262 of The Companies (Guernsey) Law, 2008. Our audit work has been undertaken so that we might state to the company’s members those matters we are required to state to them in an auditor’s report and for
no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company’s members as a body, for our audit work, for this report, or for the opinions we have formed.
Scope of the audit of the financial statements 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 Group’s and the parent 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-financial information in the annual report to identify material inconsistencies with the audited financial statements and to identify any
information that is apparently materially incorrect based on, or materially inconsistent with, the knowledge acquired by us in the course of performing the audit. If we become aware of any apparent material misstatements or inconsistencies we consider
the implications for our report.
David Becker (Senior statutory auditor)
for and on behalf of Deloitte LLP
Chartered Accountants and Recognised Auditor
St Peter Port, Guernsey
4 July 2016
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the year ended 31 March 2016
01.04.15 to
31.03.16
Notes Revenue Capital Total
£'000 £'000 £'000
Investment income
Other income 4 11,880 - 11,880
Total investment income 11,880 - 11,880
Net losses on financial assets at fair value through profit or loss 5 - (6,857) (6,857)
Total gains - (6,857) (6,857)
Expenses
Charitable donation 7 4,752 - 4,752
Administration fee 8 165 - 165
Management expense contribution 9 226 - 226
Directors' fees 15 88 - 88
Other expenses 10 792 - 792
Total expenses 6,023 - 6,023
Profit/(loss) for the year 5,857 (6,857) (1,000)
Earnings/(loss) per Ordinary Share 14 1.53p (1.79)p (0.26)p
The total column of this statement represents the Group’s Consolidated
Statement of Comprehensive Income, prepared in accordance with IFRS. The
supplementary revenue and capital columns are both prepared under guidance
published by the Association of Investment Companies.
The profit/(loss) for the year is equivalent to the “total comprehensive
income” as defined by IAS 1 Presentation of Financial Statements (‘IAS
1’). There is no other comprehensive income as defined by IFRS.
All the items in the above statement derive from continuing operations.
The notes form an integral part of these financial statements.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the year ended 31 March 2015
01.04.14 to
31.03.15
Notes Revenue Capital Total
£'000 £'000 £'000
Investment income
Other income 4 10,972 - 10,972
Total investment income 10,972 - 10,972
Net gains on financial assets at fair value through profit or loss 5 - 44,328 44,328
Total gains - 44,328 44,328
Expenses
Charitable donation 7 4,719 - 4,719
Administration fee 8 162 - 162
Directors' fees 15 100 - 100
Other expenses 10 641 - 641
Total expenses 5,622 - 5,622
Profit for the year 5,350 44,328 49,678
Earnings per Ordinary Share 14 1.40p 11.60p 13.00p
The total column of this statement represents the Group’s consolidated
statement of comprehensive income, prepared in accordance with IFRS. The
supplementary revenue and capital columns are both prepared under guidance
published by the Association of Investment Companies.
The Profit for the year is the “total comprehensive income” as defined by
IAS 1. There is no other comprehensive income as defined by IFRS.
All the items in the above statement derive from continuing operations.
The notes form an integral part of these financial statements.
CONSOLIDATED STATEMENT OF CHANGES IN NET ASSETS ATTRIBUTABLE TO HOLDERS OF
ORDINARY SHARES
For the year ended 31 March 2016
Share
Capital Capital Revenue
Account Reserves Reserves Total
Notes £'000 £'000 £'000 £'000
Balance at the beginning of the year 403,987 75,077 - 479,064
Total Comprehensive (loss)/income
for the year - (6,857) 5,857 (1,000)
Transactions with Shareholders:
Distributions 3 - (2,183) (5,857) (8,040)
Issuance of shares 14 2,221 - - 2,221
Balance at the end of the year 406,208 66,037 - 472,245
For the year ended 31 March 2015
Share
Capital Capital Revenue
Account Reserves Reserves Total
Notes £'000 £'000 £'000 £'000
Balance at the beginning of the year 401,831 33,019 - 434,850
Total Comprehensive income
for the year - 44,328 5,350 49,678
Transactions with Shareholders:
Distributions 3 - (2,270) (5,350) (7,620)
Issuance of shares 14 2,156 - - 2,156
Balance at the end of the year 403,987 75,077 - 479,064
The notes form an integral part of these financial statements.
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at 31 March 2016
31.03.16 31.03.15
Notes £'000 £'000
ASSETS
Non-current assets
Financial assets at fair value through profit or loss 11 472,294 479,151
Current assets
Bank and cash deposits 41 23
Trade and other receivables 12 4,795 4,438
Total assets 477,130 483,612
LIABILITIES AND EQUITY
Current liabilities
Trade and other payables 13 4,885 4,548
Total liabilities 4,885 4,548
EQUITY
Share capital account 14 406,208 403,987
Distributable Reserves 66,037 75,077
Total equity 472,245 479,064
Total liabilities and equity 477,130 483,612
Total net assets attributable to holders of Ordinary Shares
472,245 479,064
Number of Ordinary Shares in Issue 14 384,665,158 382,867,127
Net assets attributable to holders of
Ordinary Shares (per share) £1.23 £1.25
The audited Consolidated Financial Statements were approved on 4 July 2016
and signed on behalf of the Board of Directors by:
Nicholas Moss Peter Hames
The notes form an integral part of these financial statements.
CONSOLIDATED STATEMENT OF CASH FLOWS
For the year ended 31 March 2016
01.04.15 to 01.04.14 to
31.03.16 31.03.15
Notes £'000 £'000
Cash flows from operating activities
(Loss)/profit for the year (1,000) 49,678
Adjusted for:
Losses/(gains) on financial assets at fair value through profit or loss 6,857 (44,328)
Operating cash flows before movements in working capital 5,857 5,350
Increase in other receivables (357) (1,227)
Increase in other payables 337 1,288
Net cash generated from operating activities 5,837 5,411
Cash flows from investing activities
Purchase of financial assets at fair value through profit or loss 11 - -
Net cash used in investing activities - -
Cash flows from financing activities
Distributions 3 (5,819) (5,464)
Net cash used in financing activities (5,819) (5,464)
Net increase/(decrease) in cash and cash equivalents 18 (53)
Cash and cash equivalents at beginning of year 23 76
Cash and cash equivalents at end of year 41 23
The notes form an integral part of these financial statements.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 March 2016
1. ACCOUNTING POLICIES
The following accounting policies have been applied consistently in dealing
with items which are considered to be material in relation to the Group’s
financial statements:
Statement of compliance
The Consolidated Financial Statements give a true and fair view, are prepared
in accordance with International Financial Reporting Standards (“IFRS”)
adopted for use in the European Union, which comprise standards and
interpretations approved by the International Accounting Standards Board
(“IASB”) and are in compliance with The Companies (Guernsey) Law, 2008.
Basis of preparation
The Consolidated Financial Statements have been prepared under the historical
cost basis, except for investments and derivatives held at fair value through
profit or loss, which have been measured at fair value.
Basis of consolidation
BACIT GP Limited (the “General Partner” or “Subsidiary”) is
consolidated in full from the date of acquisition, being the date on which the
Company obtained control and will continue to do so until such control ceases.
Control is achieved where the Company has the power to govern the financial
and operating policies of an investee entity so as to obtain benefits from its
activities.
The results of the Subsidiary during the year are included in the
Consolidated Statement of Comprehensive Income from the effective date of
incorporation. The financial statements of the Subsidiary are prepared in
accordance with United Kingdom Accounting Standards. Where necessary,
adjustments are made to the financial statements of the Subsidiary to bring
the accounting policies used into line with those used by the Group. During
the year, no such adjustments have been made.
All intra-group transactions, balances and expenses are eliminated on
consolidation. Entities that meet the definition of an Investment Entity under
IFRS 10 Consolidated Financial Statements are held at fair value through
profit or loss in accordance with IAS 39 Financial Instruments: Recognition
and Measurement.
Financial Instruments
Financial assets and derivatives are recognised in the Group’s Consolidated
Statement of Financial Position when the Group becomes a party to the
contractual provisions of the instrument.
Financial assets are classified into the following categories: financial
assets at fair value through profit or loss, held-to-maturity investments,
available for sale financial assets and loans and receivables. The
classification depends on the nature and purpose of the financial assets and
is determined at the time of initial recognition. All regular way purchases or
sales of financial assets are recognised and derecognised on a trade date
basis. Regular way purchases or sales are purchases or sales of financial
assets that
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