b'72 Mercia Asset Management PLC Annual Report & Accounts 2022Independent auditors report continuedto the members of Mercia Asset Management PLCOur application of materialityWe apply the concept of materiality both in planning and performing our audit, and in evaluating the effect of misstatements. We consider materiality to be the magnitude by which misstatements, including omissions, could influence the economic decisions of reasonable users that are taken on the basis of the financial statements.In order to reduce to an appropriately low level the probability that any misstatements exceed materiality, we use a lower materiality level, performance materiality, to determine the extent of testing needed. Importantly, misstatements below these levels will not necessarily be evaluated as immaterial as we also take account of the nature of identified misstatements, and the particular circumstances of their occurrence, when evaluating their effect on the financial statements as a whole.Based on our professional judgement, we determined materiality for the financial statements as a whole and performance materiality as follows:Group financialParent Company financialGroup financialParent Company financial statements statements statements statements 2022 2021Materiality 5,000,000 3,800,000 4,300,000 3,800,000Basis for determining2.5% of net assets 2.5% of net assets 2.5% of net assets 2.5% of net assetsmaterialityRationale for the In setting materiality, we have focused on the needs of the users of the financial statements and benchmark applied their interests which are likely to be more in the statement of financial position as the purpose of the Group is long-term shareholder value. Therefore, net assets was considered to be the most appropriate benchmark as this is the ultimate value of the Group that shareholders would receive.Performance materiality 3,500,000 2,600,000 3,000,000 2,600,000Basis for determining70% of materialityperformance materiality The level of performance materiality applied was set after having considered a number of factors including the level of transactions in the year and significant areas subject to estimation together with our assessment of the Groups overall control environment, the expected total value of known and likely misstatements and the level of transactions in the year.Component materialityThe audit of the Group and significant components were executed at levels of materiality applicable to each individual entity, which were lower than Group materiality and ranged from 38,000 to 3,800,000 (2021: 34,000 to 3,800,000). In the audit of each component, we further applied performance materiality levels of 70% of the component materiality to our testing to ensure that the risk of errors exceeding component materiality was appropriately mitigated.Reporting thresholdWe agreed with the Audit Committee that we would report to them all individual audit differences in excess of 230,000. We also agreed to report differences below this threshold that, in our view, warranted reporting on qualitative grounds.Other informationThe Directors are responsible for the other information. The other information comprises the information included in the annual report and accounts other than the financial statements and our auditors report thereon. Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon. Our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the course of the audit, or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether this gives rise to a material misstatement in the financial statements themselves. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact.We have nothing to report in this regard.'