Governance Report Independent auditors’ report to the members 4 of S Capital plc continued How we tailored the audit scope We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the financial statements as a whole, taking into account the structure of the Group and the Company, the accounting processes and controls, and the industry in which they operate. As noted above, the Group’s financial statements are a consolidation of 126 legal entities which are included in the Content, DDM or Technology Services segments, of which one entity is split into three reporting branches. PwC identified that each legal entity and the three reporting branches meet the criteria for a component, and based on this methodology, 28 components were identified as in scope. Two of these components were deemed financially significant as their revenue made up more than 10% of the Group revenue. We instructed component teams to perform audits of the complete financial information of a further six entities (bringing the total to eight full scope entities) and 20 were identified as in scope due to having individually large or unusual balances. This includes the entity holding the majority of the Group’s external borrowings which was included in scope due to the individually large balance and its relevance to a significant risk. Our audit scope addressed 74% of Group revenue. Of the 28 components in scope, 18 trading components have been audited by component auditors. The remaining five trading components and five Holding companies (including the debt holding company and the Parent Company) have been audited by the UK Group audit team. Opinions were received from our PwC component teams as envisaged with the exception of four Content components, where modified opinions were received in respect of revenue and cost of sales on open contracts, representing approximately 5% of recognised Group revenue, as a result of control weaknesses in those components. As a result the Group team performed additional work over revenue and cost of sales in order to reach a conclusion – see the Key Audit Matter in respect of ‘Revenue and cost of sales recognition over time on Content contracts (Group)’ above. Our audit work across these components, together with the additional procedures performed at the Group level on the consolidation, share-based payments and acquisitions, gave us the evidence we needed for our opinion on the Group financial statements as a whole. The audit of the Company financial statements consisted of the full scope audit of one component which operates as the ultimate holding Company. Materiality The scope of our audit was influenced by our application of materiality. We set certain quantitative thresholds for materiality. These, together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our audit procedures on the individual financial statement line items and disclosures and in evaluating the effect of misstatements, both individually and in aggregate on the financial statements as a whole. Based on our professional judgment, we determined materiality for the financial statements as a whole as follows: Financial Statements – Group Financial Statements – Company Overall materiality £6.8 million (2020: £3.4 million). £9.0 million (2020: £7.0 million). How we determined it Approximately 1% of revenue. Approximately 1% of total assets. Rationale for Given the emphasis on growth, For the period, we believe that total assets benchmark applied particularly over revenues, we is the primary measure considered by considered total revenues to be the shareowners with respect to the primary measure of the performance Company’s results, and is a generally of the Group for the year ended accepted auditing benchmark. 31 December 2021. For each component in the scope of our Group audit, we allocated a materiality that is less than our overall Group materiality. The range of materiality allocated across components was between £0.5 million and £4.3 million. We use performance materiality to reduce to an appropriately low level the probability that the aggregate of uncorrected and undetected misstatements exceeds overall materiality. Specifically, we use performance materiality in determining the scope of our audit and the nature and extent of our testing of account balances, classes of transactions and disclosures, for example in determining sample sizes. Our performance materiality was 75% (2020: 75%) of overall materiality, amounting to £5.1 million (2020: £2.6 million) for the Group financial statements and £6.8 million (2020: £5.3 million) for the Company financial statements. In determining the performance materiality, we considered a number of factors – the history of misstatements, risk assessment and aggregation risk and the effectiveness of controls – and concluded that an amount at the upper end of our normal range was appropriate. We re-assessed this following the issues encountered within the Content segment as referred to in the Key Audit Matter ‘Revenue and cost of sales recognition over time on Content contracts (Group)’ above and concluded the original performance materiality remained appropriate in light of the additional procedures performed by the Group team over the six components where the control deficiencies were identified. 104 S4Capital Annual Report and Accounts 2021