IMF Bentham Limited Annual Report 2018

A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation RK:DA:IMF:046 Impairment assessment of intangible assets Why significant How our audit addressed the key audit matter Litigation contracts in progress are recognised as intangible assets and assessed for impairment by the Group using cash flow forecasts. The carrying value of litigation contracts are contingent on future cash flows and there is a risk that if these cash flows do not meet the Group’s expectations, or if significant judgments such as the discount rates change, the assets will be impaired. This was a key audit matter because it requires a high level of judgment and changes in these assumptions might lead to a significant change in the carrying values of the related assets. Refer to Note 9 of the financial report for the amounts recognised by the Group as at 30 June 2018 and related disclosures. We evaluated the Group’s assessment of the carrying value of intangible assets. Our audit procedures included the following:  Assessed the effectiveness of the Group’s controls in relation to the review of carrying values for intangible assets, including controls over the valuation model and assumptions applied.  Examined the Group’s impairment assessment model and tested the reasonableness of key assumptions including cash flow forecasts, estimated completion dates and discount rates, with the involvement of our valuation specialists.  Conducted sensitivity analyses to ascertain the impact of reasonably possible changes to key assumptions on the available headroom.  Discussed significant case matters with the Chief Executives of Australia and the USA and respective Case Investment Managers, with the involvement of our legal specialists, in order to assess related judgements made by the Group that impacted the impairment model.  Considered the Group’s intention and ability to continue to fund the relevant matters. Income recognition Why significant How our audit addressed the key audit matter During the year ended 30 June 2018, a number of cases were successfully resolved in the Group’s favour and a net gain on de-recognition of intangible assets of $17.3 million was recorded in the consolidated statement of comprehensive income. The Group’s accounting policies set out a number of strict guidelines as to the manner in which income can be recognised following outcomes on litigation matters funded by the Group. Given the magnitude and judgment involved in the timing of income recognition, income recognition was a key audit matter. Refer to Note 2 of the financial report for the amounts recognised by the Group as at 30 June 2018 and related disclosure. We evaluated the Group’s assessment of case outcomes and income recognised for the year. Our audit procedures included the following:  Assessed the timing of income recognition based on settlement terms agreed with the counterparties including liquidators where applicable, court rulings and inquiries with legal representatives.  Examined a sample of settlement agreements to determine whether criteria for recognition had been satisfied.  Agreed a sample of income recognised to payments received. Independent Auditor’s Report continued 104