b'Independent auditors report to the membersof Mercia Asset Management PLC continued4. Conclusions relating to going concernWe are required by ISAs (UK) to report in respect of the following matters where: We have nothing to report in respect of the Directors use of the going concern basis of accounting in preparation of the financial statementsthese matters.is not appropriate; or the Directors have not disclosed in the financial statements any identified material uncertainties that may cast significant doubt about the Groups or the parent Companys ability to continue to adopt the going concern basis of accounting for a period of at least 12 months from the date when the financial statements are authorised for issue.5. Key audit mattersKey audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) that we identified. These matters included those which had the greatest effect on: the overall audit strategy, the allocation of resources in the audit; and directing the efforts of the engagement team.These matters 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 a separate opinion on these matters.5.1 Valuation of investmentsKey audit matter description As disclosed by the Directors as a critical accounting judgement in note 2 on page 85 of the Annual Report, the judgement required to determine the appropriate valuation methodology of investments is significant. As detailed in note 2, there is increased estimation uncertainty determining the valuation of investments at 31 March 2020 due to the unprecedented impact of COVID-19. The Directors have assessed the impact on the markets in which each of the direct investments operate, as well as assessing the trading performance of each investment and their respective liquidity needs in determining the fair value of investments. The uncertainty of the duration of restrictions on operational activity, and the pace and extent of recovery gives rise to this increased estimation uncertainty. As disclosed in note 18, the Group has investments with a net carrying value of 87.5million (2019: 87.7million). The majority of these investments have no quoted market price available. Based on the nature of the Groups investments in early-stage companies, there are often no current or short-term future earnings or positive cash flows. Therefore, it can be difficult to evaluate the probability of success or failure of commercial development or research activities that support the business models.As a result, each non-listed investment is initially carried at cost, with adjustments subsequently made to reflect changes in fair value, typically with reference to the price at which third-party transactions in the equity of that portfolio company have taken place and the Directors review of the fair value of each investment.If there is no readily available value following the price of recent investment methodology, the Group considers alternative methodologies requiring the Directors to make assumptions over the timing and nature of future revenues when calculating fair value for these investments.There is a risk with the ongoing valuation of investments since this is a highly complex area for the business and requires judgement. The movement in the fair value of the investments has a direct impact on the results reported by the Group.How the scope of our auditWe assessed the appropriateness of the Directors valuations of the investment portfolio by assessing the Directors responded to the key key judgements and assumptions, as follows:audit matter we reviewed the Directors processes for valuing investments, which includes a detailed review by the Executive Directors and the Board as a whole, and evaluated whether the valuation methodologies applied are appropriate and where applicable, appropriate alternative valuation methodologies have been considered; we reviewed the valuation methodology used by the Directors to assess whether it is compliant with IFRS 13 and the 2018 IPEVC valuation guidelines;we obtained the Directors assessment of the impact of COVID-19 on each investment in the portfolio, and obtained updated business plans for each investee to corroborate the impact of this assessment on the year end valuation; we engaged our valuation experts to assess the approach adopted by the Directors and evaluated the valuation methodology applied in reference to the Groups own valuation policies. We also considered the effects of potential uncertainties of the impact of COVID-19 on the viability of the investments, and the additional funding requirements required due to operational impacts of measures introduced by the UK and overseas governments in response to the pandemic; we investigated any changes in the fair value of investments and corroborated any such fair value uplifts or write-downs; we performed an independent assessment to identify any corroborative or contradictory evidence on the performance of the investee companies which may impact the year end valuation assessment; andwe reviewed the Directors process for valuation of each investment against the Directors own formalised valuation process and investigated any exceptions.70 Mercia Asset Management PLCAnnual Report and Accounts 2020'