b'Strategic report Governance Financial statementsIndependent auditors report to the membersof Mercia Asset Management PLCReport on the audit of the financial statements1. OpinionIn our opinion:the financial statements of Mercia Asset Management PLC (the parent Company) and its subsidiaries (the Group) give a true and fair view of the state of the Groups and of the parent Companys affairs as at 31 March 2020 and of the Groups loss for the year then ended;the Group financial statements have been properly prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union;the parent Company financial statements have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice, including Financial Reporting Standard 101 Reduced Disclosure Framework; andthe financial statements have been prepared in accordance with the requirements of the Companies Act 2006.We have audited the financial statements which comprise:the consolidated statement of comprehensive income;the consolidated and parent Company balance sheets;the consolidated and parent Company statements of changes in equity;the consolidated cash flow statement; andthe related notes 1 to 49.The financial reporting framework that has been applied in the preparation of the Group financial statements is applicable law and IFRSs as adopted by the European Union. The financial reporting framework that has been applied in the preparation of the parent Company financial statements is applicable law and United Kingdom Accounting Standards, including FRS 101 Reduced Disclosure Framework (United Kingdom Generally Accepted Accounting Practice).2. Basis for opinionWe conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the auditors responsibilities for the audit of the financial statements section of our report.We are independent of the Group and the parent Company in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the Financial Reporting Councils (the FRCs) Ethical Standard as applied to listed entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.3. Summary of our audit approachKey audit matters The key audit matters that we identified in the current year were:Valuation of investments Acquisition of VCT fund management contracts Within this report, key audit matters are identified as follows:Newly identifiedIncreased level of riskSimilar level of riskDecreased level of riskMateriality The materiality that we used for the Group financial statements was 2.7million which was determined on the basis of 2.5% of the Groups net assets less cash and cash equivalents and short-term liquidity investments.Scoping 99% of the Group revenue and loss after taxation and 99% of net assets was audited to full scope audit. Significant changes in ourOther than the new key audit matter identified in relation to the business combination which took place in the approach period, there were no significant changes to the prior year audit approach. However, we have considered the impact of COVID-19 within our key audit matter in respect of the fair value of investments and in our going concernassessment. Mercia Asset Management PLC 69Annual Report and Accounts 2020'