Strategic Report


Corporate Governance


Financial Statements


Finsbury Food Group Annual Report and Accounts 2020 Independent Auditors’ Report to the Members of Finsbury Food Group Plc/Continued


59


Key audit matter


Impact of the outbreak of Covid-19 on the Financial Statements (Group and Company)


In March 2020 the global pandemic from the outbreak of Covid-19 became significant and is causing widespread disruption to financial markets and normal patterns of business activity across the world, including the UK.


Covid-19 has had a large impact on Finsbury Food Group Plc both operationally and further in relation to the forecasted future demand for product and consequential impact on funding and cash flow management. It has impacted the results of the Group and Company for the 2021 financial year to date and is expected to continue to impact the Group and Company for the remainder of 2020/21, albeit the severity of the impact is expected to reduce over time.


Disclosure of the risk to the Group and Company of Covid-19 and management’s conclusions on going concern and have been included within the relevant sections of the Annual Report.


How our audit addressed the key audit matter


We critically assessed management’s assessment of the impact of Covid-19. We considered:


• The timing of the development of the outbreak across the world and in the UK; and


• How the Financial Statements and business operations of the Group and Company might be impacted by the disruption.


In forming our conclusions over going concern, we evaluated whether management’s going concern assessment considered impacts arising from Covid-19. Our procedures in respect of going concern included:


• We made enquiries of management to understand the potential impact of Covid-19 on the Company’s financial performance, business operations and financial position;


• We reviewed management’s going concern assessment, based upon the bottom-up full year 2021 budget and strategic forecast to June 2023, to ensure the impacts of Covid-19 have been appropriately reflected; and


• We have challenged the key assumptions in this assessment, including the availability of sufficient cash resources and compliance with future banking covenants.


Based on the work performed, we are satisfied that the matter has been appropriately evaluated and reflected in the Financial Statements and concur with management’s assessment that the impact of Covid-19 has not had a significant impact on the going concern assessment.


We also assessed the adequacy of disclosures related to Covid-19 included in the Financial Statements and assessed these to be appropriate.


How we Tailored the Audit Scope We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the Financial Statements as a whole, taking into account the structure of the Group and the Company, the accounting processes and controls, and the industry in which they operate.


The Group has six main manufacturing sites across the UK, together with a distribution centre in France, operations in Poland, and a head office location based in the UK. Each manufacturing site has its own accounting team and the financial reporting for Finsbury Food Group Plc is undertaken by a team based at the head office.


Of the Group’s 8 reporting components, 5 are considered to be financially significant components of the Group, given the significant revenue generated at these locations. All of these components were based in the UK and full scope audit procedures were led by the Group engagement team. The Group engagement team also audited the Parent Company, which was scoped in accordance with the Company materiality and focused on the investment carrying value and the revolving credit facility held by the Company.


Our audit addressed components making up 90% of the Group’s revenues for the period.


Materiality The scope of our audit was influenced by our application of materiality. We set certain quantitative thresholds for materiality. These, together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our audit procedures on the individual financial statement line items and disclosures and in evaluating the effect of misstatements, both individually and in aggregate on the Financial Statements as a whole.


Based on our professional judgement, we determined materiality for the Financial Statements as a whole as follows: Group Financial Statements


Overall materiality How we determined it


Rationale for benchmark applied


£1.5 million (2019: £1.6 million). 0.5% of total revenues.


Revenue is a key metric used by management and investors and given the relative volatility of profit before tax in recent years, this was considered to be a more consistent metric in line with prior year.


Company Financial Statements £1.5 million (2019: £1.2 million).


1% of total assets (restricted by Group materiality).


We determined our materiality based on total assets, which is more applicable than a performance-related measure as the Company is primarily an investment holding Company for the Group. However, as this materiality was greater than overall Group materiality, we have restricted the entity materiality.


For each component in the scope of our Group audit, we allocated a materiality that is less than our overall Group materiality. The range of materiality allocated across components was between £0.2 million and £1.5 million.


We agreed with the Audit Committee that we would report to them misstatements identified during our audit above £72,000 (Group audit) (2019: £79,000) and £72,000 (Company audit) (2019: £58,000) as well as misstatements below those amounts that, in our view, warranted reporting for qualitative reasons.


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