b'Annual Report & Accounts 2022 Mercia Asset Management PLC 69OverviewCoverage 1 97% (2021: 97%) of Group profit after tax99% (2021: 96%) of Group revenue99% (2021: 99%) of Group total assetsKey audit matters 2022 2021Valuation of Unquoted Investments 3 3Revenue Recognition 3 3Valuation of Goodwill and Intangible Assets 3 3Materiality The materiality for the Group was set at 5,000,000 based on 2.5% of net assets.An overview of the scope of our auditOur Group audit was scoped by obtaining an understanding of the Group and its environment, including the Groups system of internal control, and assessing the risks of material misstatement in the financial statements. Financial statementsThe scope of our Group audit included those Group entities which were deemed to be significant components as a result of their contribution to the material balances in the consolidated statement of comprehensive income and consolidated statement of financial position of the Group as well as those that are qualitatively significant to the Group. The significant components included Mercia Asset Management PLC (stand-alone); Mercia Fund Management Limited, Enterprise Ventures Limited and EV Business Loans Limited. The financial information of all significant components were subject to full scope audits with Mercia Investments Limited subject to specific audit procedures. All procedures were performed by the Group engagement team.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, including 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.Key audit matterHow the scope of our audit addressed the key audit matterRevenueRevenue is earned through the A sample of fund management fees due from the limited Recognitionfollowing ways: partnerships were recalculated based on the underlying Limited (Note 1 andFund management fees, Partnership Agreements in place between the general partner and 3 to theInitial management fees,the fund.financialPortfolio director fees,In relation to the Enterprise Investment Scheme funds, a sample of statements)Share offer fees,annual management fees, custodian fees and initial management Performance fees,fees from investors, were recalculated using the investment Custodian fees and Business servicesmemorandums and commitments were agreed to custodian fees (other revenue). reports, where applicable.There is a risk that fund managementIn relation to the fund management fees from the VCT funds, a and performance fees are not calculatedrecalculation was performed based on the NAV and applying the or recognised in accordance with thenovation agreement principles. accounting policies and the relevantInitial management fees and portfolio director fees were sampled Limited Partnership Agreements orand agreed to the signed funding agreement to ensure they were investment management agreements. recognised in the correct period.In respect of initial management feesPerformance fees were recalculated based on the underlying and portfolio directors fees there is aagreement and agreed to invoice or subsequent receipt.risk that these are not recorded in theKey observationscorrect periods in accordance with theBased on the procedures performed we consider that revenue has requirements of applicable accountingbeen recognised appropriately.standards.In respect of share offer and custodian fees there is a risk that these are not correctly calculated.Due to the risks attaching to the various revenue streams, we considered revenue recognition to be a key audit matter.'