Independent auditor’s report to the shareholders of Depa PLC (continued)

Key audit matter

Revenue recognition from long -term contracts

The Group enters into contracts, many of which are complex and long-term, spanning several reporting periods. The recognition of revenue and profit on these contracts in accordance with “IFRS 15 – Revenue from Contracts with Customers” is over time, based on progress of the pr ojects, which is measured through the cost to complete method. Revenue recognition is assessed by reference to the progress of work performed as a proportion of contract costs incurred for the work performed at the balance sheet date relative to the estimated total contracts costs.

Revenue recognition on contracts is a key audit matter because of the judgement involved in preparing suitable estimates of the costs to complete each contract and associated revenues. Contract cost forecast is subjective and any material variation in these estimates could result in a consequential impact on the revenue and profit or loss recognised.

These judgements include the expected recovery of costs arising from: variations to the original contract terms and claims made against the contractor for delays or other additional costs deemed recoverable from the customer.

Please refer to Note 2.25, Note 3 and Note 26 to the consolidated financial statements for further disclosures.

How our audit addressed the key audit matter

We focused our work on those contracts that we deemed to have significant estimation uncertainty over the final contract values or contract cost to complete and therefore revenue and profit.

We challenged the judgements applied in management’s contract cost forecast, in particular the key assumptions which included the expected recovery from variations, claims or other additional costs deemed recoverable from the customer. We also met with commercial teams responsible for the individual contracts we selected and we obtained certifications and other relevant third party cor respondence to corroborate the explanations provided to us. We tested a sample of costs incurred to date by agreeing them to supporting documentation.

We inspected correspondence with customers concerning variations, claims and other additional costs deemed recoverable where applicable, to assess whether this information was consistent with the estimates made.

We also assessed the appropriateness of the accounting policies and disclosures made in the consolidated financial statements.