b'76 Mercia Asset Management PLC Annual Report and Accounts 2021Independent auditors report to the membersof Mercia Asset Management PLC continuedKey audit matter How the scope of our audit addressed the key audit matterValuation of unquoteddetailsinvestments For a sample of loans held at fair value we:(note 1 and 19 to the financialAgreed security held to supporting documentationstatements) Considered the assumption that fair value is not significantly different to cost by challenging The share price valuation of thethe assumption that there is no significant movement in the market interest rate since Group is driven in part by theacquisition and considering the unit of account conceptvalue of the investments in theFor the Convertible Loan Notes (CLNs) we have challenged management on whether accrued Consolidated Balance Sheet.interest should be included in the valuation of these on the basis of future recoverabilityThere is a high level of estimation uncertainty involved inFor a sample of unquoted, we performed the following procedures where relevant: determining the valuation of theChecked whether the valuation had been prepared by a suitably qualified individualunquoted investments in theConsidered whether a valid International Private Equity and Venture Capital Valuation portfolio. Investments are also(IPEV) methodology had been adoptedthe most significant balanceVerified whether the valuation used up to date trading information contributing to the Net Asset Value (NAV) of the group, andWe tested a sample of 85% of the unquoted investment portfolio by value of investment holdings.therefore may be subject to management bias. Valuations based on cost/price of recent investmentFor valuations based on cost or price of recent investment, we checked the recent investment to supporting documentation and, where relevant, reviewed the calibration of fair value using an alternative valuation methodology and considered the Investment Managers determination of whether there were any reasons why the valuation and the valuation methodology was not appropriate at 31 March 2021.Valuations based on indicative offersFor such investments we performed the following procedures for all investments withinour sample:Considered whether the valuation methodology is the most appropriate in the circumstances under the IPEV Guidelines Checked the arithmetic accuracy of the investment valuationsVerified and benchmarked key inputs and estimates, i.e. the indicative offer toindependent informationValuations based on multiplesFor such investments we performed the following procedures for all investments withinour sample:Considered whether the valuation methodology is the most appropriate in the circumstances under the IPEV Guidelines Checked the arithmetic accuracy of the multiples-based investment valuationsVerified and benchmarked key inputs, and estimates, i.e. the multiples, to independent information such as broker supplied multiplesKey observationsBased on the procedures performed we consider the methodology and assumptions used by management to value the investments to be appropriate.'