20645_Scapa_AR_160504

GROUP ACCOUNTING POLICIES CONTINUED
PROVISIONS
Provisions for environmental restoration, restructuring costs and legal claims are recognised when the Group has a present legal or constructive
obligation as a result of past events, it is more likely than not that an outflow of resources will be required to settle the obligation and the amount
has been reliably estimated.
Where the effect is material, provisions are discounted in line with IAS 37 using a pre-tax nominal discount rate. The discount rate does not reflect
risks for which the estimated future outflows have already been adjusted.
CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS
The Group’s accounting policies have been set by management and approved by the Audit and Risk Committee. The application of these
accounting policies to specific scenarios requires reasonable estimates and assumptions to be made concerning the future. These are
continually evaluated based on historical experience and expectations of future events. The resulting accounting estimates will, by definition,
seldom equal the related actual results.
Under IFRSs estimates or judgements are considered critical where they involve a significant risk of causing a material adjustment to the carrying
amounts of assets and liabilities from period to period. This may be because the estimate or judgement involves matters which are highly
uncertain, or because different estimation methods or assumptions could reasonably have been used.
Critical judgements and estimates have been made in the following areas when preparing the Group’s accounts:
1. Impairment of goodwill, intangible assets and property, plant and equipment (see notes [13 and 15]). The Group tests annually whether
goodwill has suffered any impairment, and tests tangible assets where indication of impairment exists. For goodwill the recoverable amounts
of cash-generating units are determined on a value-in-use basis. Determining this value requires the use of estimates. The main estimates
are around the forecast cash flows, which are based on approved budgets and growth rates of 3%–15% per annum in years 1–5 and no
growth thereafter. The 3% growth rate is used for the majority of cash flows and the higher rate of 15% is used for a specific cash-generating
unit. The assumptions used are considered the best available and reasonable. Any reasonable change in the assumptions would not result
in any impairment.
2. Retirement benefit liabilities – the key assumptions used to calculate the pensions deficit and the sensitivity of those assumptions to change
is contained within note [25]. The assumptions used are considered the best available and reasonable.
3. Taxation (see note [9]). The Group is subject to income taxes in numerous jurisdictions. Significant judgement is required in determining the
worldwide provisions for income taxes and the recognition of deferred tax assets. The recognition of deferred tax is based on the availability
of suitable future taxable profits of a specific business unit in a specific tax jurisdiction and satisfies the relevant recognition criteria. The
assumptions used are considered the best available and reasonable. A significant deterioration in results would need to occur in order to
result in an impairment of the deferred tax recognised.
4. Valuation of acquired assets (see note [12]). The Group acquired First Water Limited on 27 February 2015. The acquisition brought with it a
number of significant benefits to the Group in terms of development, customer relationships and technology know-how as well as patents,
tangible assets and liabilities. The total assets and liabilities acquired have been measured at their fair value for financial reporting purposes.
Where available the Group have used third party qualified valuers to perform the valuations. Where third party valuations have not been used,
the Group have relied on market data, discounted cash flows and management judgement to arrive at the valuations. Information about the
valuation techniques and inputs are disclosed in notes [13 and 14].
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SCAPA GROUP PLC ANNUAL REPORT AND ACCOUNTS 2016
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Annual Report and Accounts 2016 Scapa Group plc