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Annual Report & Accounts 2015 - INDEPENDENT AUDITOR'S REPORT
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audit risk How we responded to the risk post balance sheet date reporting audit risk How we responded to the risk revenue recognition We have performed the following procedures on the key areas of judgement: • compared management's assessment of the accounting treatment of the business combination and in particular the identification of the acquirer in accordance with the requirements of ifrs 3 and ifrs 10; • examined signed sales and purchase agreements and associated contractual documents to understand the terms and conditions of the transaction; • assessed the models prepared by management to value the intangible assets identified in the acquired business, using our internal specialists to challenge the assumptions and methodology used by management; • assessed whether the disclosures presented in note 26 to the financial statements are in accordance with the requirements of ifrs 3 and ifrs 10. the Group completed an agreement to acquire the entire issued and to be issued ordinary share capital of bwin.party digital entertainment plc ("bwin") on 2 february 2016. the impact on the Group's financial statements for the year ended 31 december 2015 relate primarily to the post balance sheet disclosures included in note 26. there are a number of items related to this disclosure note which require the application of judgements and estimates by management - most notably: • identification of the acquirer, taking into account the requirements of ifrs 3 "Business Combinations" and ifrs 10 "Consolidated Financial Statements"; and • identification and valuation of intangible assets and goodwill on acquisition, and any fair value adjustments to net assets acquired. Given these judgements and the fact that the transaction significantly increases the size of the business we have identified post balance sheet date reporting as a significant risk requiring special audit consideration. our audit work included, but was not limited to: • evaluating whether the Group's revenue recognition policies are in line with accounting standards; • evaluating the design effectiveness and implementation of controls around the relevant it systems including the Group's gaming platform, mm1; • reconciling data both from mm1 to the general ledger and in reverse; • where the it system is outsourced, obtaining and reviewing a sample of the provider's monthly reports and the reconciliations to the Group's trial balances; • testing a sample of bets placed during the year to verify that the event relating to the bet occurred in the year, and that in the case of winning bets, the pay-out was correctly calculated and recorded in the customer's account;. the Group's accounting policy on the recognition of income is shown in note 1.11 and the components of that income are included in note 2. the Group enters in to high volumes of net Gaming revenue ("nGr") generating transactions each day, recorded across inhouse and third party it systems. auditing standards prescribe a presumed risk of fraud in revenue recognition in that revenue may be misstated through improper recognition. We have therefore identified revenue recognition as a significant risk requiring special audit consideration. 42 GVC HOLDINGS PLC ANNUAL REPORT 2015 independent auditor's report to tHe memBers of GVc HoldinGs plc continued