Georgia Healthcare Group PLC Annual Report 2018 Financial Statements Independent Auditor’s Report to the Members of Georgia Healthcare Group plc Risk Our response to the risk Key observations communicated to the Audit Committee Goodwill impairment Audit procedures on goodwill impairment were We concluded that for each CGU, (Goodwill, GEL 115m, 2017: GEL 115m) performed by the integrated primary team, including the recoverable amount of goodwill EY valuation specialists. exceeds its carrying amount. Of the Refer to the Audit Committee Report (page 76); • We understood the methodology applied by Group’s goodwill, the portion relating to Accounting policies (page 131); and Note 12 of the management in performing its impairment test the healthcare business remains very Consolidated Financial Statements (page 154). for each of the CGUs and walked through the sensitive to reasonably possible changes controls over the process; in key assumptions. The group has a significant amount of goodwill allocated • We assessed the appropriateness of the to the pharma (GEL 78m), healthcare (GEL 34m) and valuation methodology applied by management We consider that: medical insurance (GEL 3m) businesses, which is in determining the value in use (‘VIU’) by •oodwill to CGUthe allocation ofg tested for impairment annually. comparing with the requirements of IAS 36 is appropriate and in line with the Impairment of assets; requirements of IAS 36; There is a risk that these cash generating units • We checked the integrity of the discounted cash • the forecasts used are a reaonabs le (‘CGUs’) may not achieve the anticipated business flow models prepared by management, and basis upon which to perform the performance to support their carrying value, tested key assumptions: impairment assessment; and leading to an impairment charge that has not – validated that the cash flows underpinning • the assumptions for the pre-tax been recognised by management. the calculation were consistent with the discount rate and long-term growth three year strategic plan approved by applied by management are within an Significant judgement is required in forecasting the the Board; acceptable range, and are consistent future cash flows of each CGU, together with the rate – challenged the short and long term with independent economic forecasts. at which they are discounted. growth forecasts, having regard to • the related disclosures provided in the historical performance and external market financial statements are appropriate. The risk has remained consistent with the prior year. data to support the robustness of the forecast process; – engaged our internal valuations specialists to assist with our consideration of the discount rates; and – assessed the adequacy of sensitivity analysis performed by management, stressing each of the above assumptions individually and in combination to reflect what we considered to be reasonably foreseeable changes in the key assumptions. • We validated the appropriateness of the related disclosures in note 4 and note 12 of the financial statements. Owing to the increase in audit scope, we have expanded the definition of the significant risk around revenue recognition to include revenue from medical insurance. There have been no other changes to our assessment of the risks of material misstatement. An overview of the scope of our audit Tailoring the scope Our assessment of audit risk, our evaluation of materiality and our allocation of performance materiality determine our audit scope for each entity within the Group. Taken together, this enables us to form an opinion on the consolidated financial statements. We take into account size, risk profile and changes in the business environment when assessing the level of work to be performed at each entity. In scoping the audit, we reflect the group’s structure (holding company, healthcare services, pharmacy and distribution and medical insurance). In assessing the risk of material misstatement to the Group financial statements, and to ensure we had adequate quantitative coverage of significant accounts in the financial statements, we performed full or specific scope audit procedures over 4 components covering entities within the United Kingdom and Georgia, which represent the principal business units within the Group. Of the 4 components selected, we performed an audit of the complete financial information of 3 components (“full scope components”) which were selected based on their size or risk characteristics. For another one component (“specific scope component”), we performed audit procedures on specific accounts within the component that we considered had the potential for the greatest impact on the significant accounts in the financial statements either because of the size of these accounts or their risk profile. In 2018 the remaining components not subject to full or specific group scoping represent certain entities within the healthcare services segment which are not significant individually or in the aggregate. The size of remaining components ranges from -1.6% to 3.9% of the Group’s profit before tax and non-recurring items. 116