b'70 Mercia Asset Management PLC Annual Report & Accounts 2022Independent auditors report continuedto the members of Mercia Asset Management PLCKey audit matterHow the scope of our audit addressed the key audit matterValuation ofThe share price valuation of the GroupFor a sample of loans held at fair value we:Unquotedis driven in part by the value of theAgreed security held to supporting documentationinvestmentsinvestments in the Consolidated BalanceConsidered the assumption that fair value is not significantly (Note 1 andSheet. There is a high level of estimationdifferent to cost by challenging the assumption that there 17 to theuncertainty involved in determining theis no significant movement in the market interest rate since financialvaluation of the unquoted investmentsacquisition and considering the unit of account conceptstatements) in the portfolio. Investments are also the most significant balance contributingFor the Convertible Loan Notes (CLNs) we have challenged to the Net Asset Value (NAV) of themanagement on whether accrued interest should be included in Group, and therefore may be subject tothe valuation of these on the basis of future recoverability.management bias. For a sample of unquoted, we performed the following procedures where relevant:Checked whether the valuation had been prepared by a suitably qualified individualConsidered whether a valid International Private Equity and Venture Capital Valuation (IPEV) methodology had been adoptedVerified whether the valuation used up to date trading informationWe tested a sample of 84% of the unquoted investment portfolio by value of investment holdings.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 2022.Valuations based on indicative offersFor such investments we performed the following procedures for all investments within our sample:Considered whether the valuation methodology is the most appropriate in the circumstances under the IPEV GuidelinesChecked the arithmetic accuracy of the investment valuationsVerified and benchmarked key inputs and estimates, i.e. the indicative offer to independent information.Valuations based on multiplesFor such investments we performed the following procedures for all investments within our 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 multiples.Key observationsBased on the procedures performed we consider the methodology and assumptions used by management to value the investments tobe appropriate.'