Key audit matter How our audit addressed the key audit matter Inventory represents a significant asset on the Group’s We examined inventory write-offs in the financial period to ensure balance sheet and is carried at the lower of cost and they are consistent with the key assumptions used in the inventory net realisablevalue (“NRV”). The Group’s accounting provision model at the year end. policy is to determine a provision based upon: the We tested the inputs to the provision calculation, including the historic negative margin of the type of inventory, by classification of inventory and sales data for each of the ageing ageing category, which is calculated by analysing the categories from the Buying department, which is segregated from historic sales price compared to the cost of inventory, the Finance department, and found them to be consistent. l in a ercentage provision to each line of inventory; and a further provision for ‘at risk’ lines where We tested the average cost of inventory by agreeing the inputs to the calculated provision was not considered to be source documentation and testing freight and duty costs. sufficient. We tested the integrity of the provision model to ensure that it was using the underlying data correctly and calculating provision amounts accurately. We challenged management’s assumptions on what they deemed the ‘at risk’ inventory lines were, and corroborated that these lines were at risk with the Merchandising team. We also independently challenged the completeness of the ‘at risk’ lines based on our understanding of the nature of the Group’s inventory lines. We found that the NRV provision against inventory was consistent with the evidence obtained. Covid-19 pandemic impact (Group and Parent Company) Refer to the Audit and Risk Committee Report and the In respect of goi gcocern we: Accounting Policies. • Evaluated the liquidity and covenant headroom in each of During the financial year, the Covid-19 pandemic has management’s base case, severe but plausible and reverse stress had a significant impact on the Group. Lockdown test scenarios, challenging key assumptions including the forecast measures resulted in retail stores closing for a period of cash flows. time between October and April which had a significant • sensitised management’s forecasts to understand the impact of impact on the revenue and profit results of the Group for more prudent assumptions over growth in revenue and whether the period. this would impact the conclusions drawn by management. • checked the integrity of management’s model, as well as agreeing As at the year end date and the date of signing the underlying data to source documents. financial statements, there continues to be uncertainty • assessed whether management’s mitigating actions are reasonably over the future impact o Covid-19. Management havef achievable based on our understanding of the business, including considered implications for the Group’s and Parent the nature of its cost base. Company’s going concern assessment and the potential impairmentof certain store assets. • obtained evidence to support disclosures within the financial statements and checked that the disclosures within the Annual The results of these assessments did not indicate a Report are consistent with the financial statements and knowledge material uncertainty over going concern and only gained on the audit. identified an impairment trigger over certain store Our conclusion in respect of going concern is included in the assets. “Conclusions relating to going concern” section below. In respect of impairment, our audit procedures were focused on the following areas: • confirmed the cash generating units (“CGUs”) identified in management’s model are appropriate. • assessed management’s aproach to identifying CGUs whp ere there was an impairment trigger and developed our own independent expectation of CGUs with an impairment trigger. • For CGUs with an impairment trigger we: —ensured that assets were approriately allocated to these CGUs;p — tested the integrity of management’s model, as well as agreeing underlying data to source documents; and — assessed the forecast cast flows and assumptions, albeit noting that these were not materially sensitive to reasonable changes. We found that the accounting for impairment of store assets is consistent with the evidence obtained. DUNELM GROUP PLC ANNUAL REPORT & ACCOUNTS 2021 181 FINANCIAL STATEMENTSSTRATEGIC REPORTGOVERNANCE OTHER INFORMATION