150 ITV plc Annual Report and Accounts 2023 ITV plc Annual Report and Accounts 2023 151 F I INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF ITV PLC NAN CONTINUED C I AL Key audit matters Key audit matter How our audit addressed the key audit matter S T Key audit matters are those matters that, in the auditors’ professional judgement, were of most significance in the audit of the financial A Presentation of exceptional items, including valuation of the Box Clever provision (Group) T statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) E M identified by the auditors, including those which had the greatest effect on: the overall audit strategy; the allocation of resources in the audit; Refer to notes 2.2 and 3.6 in the financial statements. The Group We substantiated a sample of exceptional items to corroborating E N and directing the efforts of the engagement team. These matters, and any comments we make on the results of our procedures thereon, recorded significant exceptional items of £77 million (2022: evidence. We assessed management’s rationale for the designation T 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 £65 million) which were included on the face of the Consolidated of certain items as exceptional against the Group’s policy, S a separate opinion on these matters. Income Statement and disclosed within the Annual Report. considering the nature and impact of these items. We assessed the The presentation of items as exceptional can be judgemental appropriateness and completeness of the disclosures included in This is not a complete list of all risks identified by our audit. and have a significant impact on the readers of the financial the Group financial statements and the levels of equal prominence Recoverability of investments is a new key audit matter this year for the Company. Recoverability of amounts owed by subsidiary statements. Due to the quantum and number of exceptional of GAAP and non-GAAP measures within the Annual Report. undertakings, which was a key audit matter last year, is no longer included because of the increased focus on the impairment assessment items in the year, we focused on the presentation of these Specifically, with respect to the Box Clever provision, we enquired associated with the investment carrying value as a result of the performance in the year. Otherwise, the key audit matters below are items to ensure they were treated consistently with the Group’s of management and their external legal counsel on the latest consistent with last year. accounting policy. The Group had recorded a provision of status of the dispute and their views as to the most likely outcome, £52 million (2022: £52 million) for the liability that might arise including the form and quantum of any potential settlement. Key audit matter How our audit addressed the key audit matter as a result of the Box Clever Financial Support Directions issued by We assessed the basis for management’s estimate of the provision, the Pensions Regulator, which is unchanged since the prior year. and utilised our in-house actuarial experts to evaluate whether the Valuation of gross defined benefit pension scheme obligations (Group) There is continued uncertainty as to the quantum of the amount for which ITV may be liable. assumptions and methodology used in estimating the deficit Refer to note 3.7 in the financial statements. The Group had gross We utilised our in-house actuarial experts to evaluate whether the amounts were reasonable. defined benefit scheme obligations of £2,194 million (2022: £2,292 assumptions and methodology used in calculating the defined million) recognised at 31 December 2023, which are significant in the benefit obligations were reasonable by: We noted that consistent assumptions were used for the ITV context of the overall Consolidated Statement of Financial Position. pension arrangements, all of which were in our acceptable ranges. The valuation of defined benefit pension scheme obligations involves • Assessing whether the mortality rate and other demographic We noted that there remains a significant amount of uncertainty the exercise of judgement and technical expertise in choosing assumptions were reasonable based on the consideration of the related to this matter including the timing, amount and form of appropriate actuarial assumptions such as the discount rate, inflation, specifics of each plan and industry benchmarks settlement. We therefore reviewed the disclosures to ensure they and mortality rates. Management engaged external actuarial experts • Evaluating the appropriateness of the discount and inflation rate provide appropriate details on the developments and the range of to assist in selecting appropriate assumptions and to calculate the assumptions by assessing the methodology used to set them possible outcomes. schemes’ liabilities. and comparing the assumptions against our internal acceptable ranges set based on market data Based on our procedures, we were satisfied that the treatment and • Reviewing the methodology and actuarial models used by external classification of exceptional items is consistent with the Group’s actuaries to assess their appropriateness and testing the policy, and the Annual Report disclosures, including the Box Clever Consolidated Statement of Financial Position liability and matter, are appropriate. movements over the year Recoverability of investments (Company) Based on our procedures, we concluded that the key assumptions utilised lay within acceptable ranges, the methodology used to Refer to Note iii in the Company financial statements. At 31 December We performed the following procedures: calculate the liability was appropriate, and that the liability 2023 the Company held investments in subsidiaries with a carrying • Understood the basis of preparation of the forecasts calculation had not been materially misstated. We assessed the value of £3,224 million (2022: £3,224 million). The fall in market • Ensured the model used is consistent with the forecast and related disclosures included in the Group financial statements capitalisation below the carrying value of the investments at assumptions used elsewhere in the business (including the and consider them to be appropriate. 31 December 2023 is considered to be an impairment indicator and, goodwill impairment assessment and going concern) as a result, management performed an impairment assessment. • Supported by PwC valuations experts, we reviewed and challenged Valuation of complex pension scheme assets (Group) Management prepared a Value in Use (‘VIU’) model which includes judgements regarding the future cash flows of the Group. management’s independent discount rate and terminal growth Refer to note 3.7 in the financial statements. The Group had gross We obtained independent confirmations from the investment The model is based on the first three years of the Board approved rate for appropriateness defined benefit scheme assets of £2,355 million (2022: £2,437 million) managers to confirm the valuation of the scheme assets at the five year plan and incorporates a terminal growth rate into • Completed mathematical accuracy checks over the model recognised at 31 December 2023, which are significant in the Consolidated Statement of Financial Position date. perpetuity. Through this assessment, management identified that • Based on our procedures we are satisfied that the carrying value context of the overall Consolidated Statement of Financial Position. We understood management’s processes and controls for the VIU of the trading entities exceeded the carrying value of the of the investments is supportable The valuations of complex pension scheme assets such as Pooled monitoring and review of complex asset valuations. We specifically Company’s investments, therefore concluding that no impairment We also evaluated the disclosures in Note iii Investments in Investment Vehicles (‘PIVs’), property investments and longevity instructed our in-house valuations experts to consider whether the was required. subsidiary undertakings, which we consider to be appropriate. swaps are inherently subjective. As such, there is judgement in assumptions and methodology used in valuing the assets were determining the fair value of the assets including the selection reasonable in relation to the longevity swap contract. of appropriate valuation methodologies and other assumptions. How we tailored the audit scope Given the judgement and the quantum of these assets, this is a For complex PIVs, we also requested and reviewed third party 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 heightened area of audit risk. investment manager controls reports, details of any transactions whole, taking into account the structure of the Group and the Company, the accounting processes and controls, and the industry in which close to the year end, and details of the latest audited financial they operate. statements, to determine whether there were any inconsistencies with the year end values being attributed. The Group is organised and managed across three divisions: Media & Entertainment (M&E), ITV Studios and Central Services. Within the M&E and Studios divisions, given the shared systems and controls environment in the UK, we identified each individual UK business as Based on the procedures performed, we noted no material issues a component. Outside of this, we identified each component at an individual entity level. arising from our work. Based on our risk and materiality assessments, we determined which components required an audit of their complete financial information having consideration to the relative significance of each component to the Group, and the overall coverage obtained over each material line item in the consolidated financial statements. Due to their high concentration of the Group’s overall profit before tax and operating exceptional items, we identified two financially significant components, M&E and UK Studios, which, in our view, required an audit of their complete financial information. We identified an additional six components (inclusive of the Company) as requiring a complete audit in order to achieve the required coverage in respect of each material line item in the financial statements. To further supplement this coverage, an audit over specific line items was performed over six large balances across four components, due to their overall size and in order to achieve the required coverage over these specific financial statement line items. Audit work over the UK components and the large balances were performed by the UK Group engagement team in addition to central procedures over tax, treasury, legal claims, defined benefit pension schemes, pension assets, impairment assessments, going concern and consolidation adjustments. Audit procedures over three components were performed by other PwC network firms in the Netherlands and the USA.