Independent Auditor's Report to the Members of Abri Group

In our opinion, the financial statements:

• give a true and fair view of the state of the Group’s and of the Society’s affairs as at 31 March 2021 and of the Group’s and the Society’s deficit for the year then ended;
• have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and
• have been properly prepared in accordance with the Co-operative and Community Benefit Societies Act 2014, the Co-operative and Community Benefit Societies (Group Accounts) Regulations 1969, the Housing and Regeneration Act 2008 and the Accounting Direction for Private Registered Providers of Social Housing 2019.

We have audited the financial statements of Abri Group Limited (“the Society”) and its subsidiaries (“the Group”) for the year ended 31 March 2021 which comprise the consolidated and Society statement of comprehensive income, the consolidated and Society statement of financial position, the consolidated and Society statement of changes in equity, the consolidated cash flow statement and notes to the financial statements, including a summary of significant accounting policies. The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom Accounting Standards, including Financial Reporting Standard 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland (United Kingdom Generally Accepted Accounting Practice).

We conducted our audit in accordance with International Standards on Auditing (UK) (“ISAs (UK)”) and applicable law. Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the financial statements section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Our audit opinion is consistent with the additional report to the audit committee.

Independence

Following the recommendation of the audit committee, we were appointed by the Board to audit the financial statements for the year ending 31 March 2021 and subsequent financial periods. The period of total uninterrupted engagement including retenders and reappointments is 5 years, covering the years ending 31 March 2017 to 31 March 2021.

We remain independent of the Group and the Parent Society in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the FRC’s Ethical Standard as applied to public interest entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. The non-audit services prohibited by that standard were not provided to the Group or the Parent Society.

In auditing the financial statements, we have concluded that the Board’s use of the going concern basis of accounting in the preparation of the financial statements is appropriate. Our evaluation of the Board’s assessment of the Group and the Parent Society’s ability to continue to adopt the going concern basis of accounting included:

• obtaining management’s assessment that supports the Director’s conclusions with respect to the disclosure provided around going concern;
• considering the appropriateness of management’s forecasts;
• obtaining an understanding of the Group’s financing facilities from the finance agreements, including the nature of the facilities, covenants and attached conditions;
• assessing the Group facility and covenant headroom calculations, and re-performing sensitivities on management’s base case and stressed case scenarios; and
• reviewing the wording of the going concern disclosures, and assessing its consistency with management’s forecasts.

Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually or collectively, may cast significant doubt on the group’s ability to continue as a going concern for a period of at least twelve months from when the financial statements are authorised for issue.

Our responsibilities and the responsibilities of the Board with respect to going concern are described in the relevant sections of this report.

Our Group audit was scoped by obtaining an understanding of the Group and its environment, including the Group’s system of internal control, and assessing the risks of material misstatement in the financial statements. We also addressed the risk of management override of internal controls, including assessing whether there was evidence of bias by the Board that may have represented a risk of material misstatement.

As group auditors we reviewed the scope of our audit and identified which entities in the group constitute significant components.

We determined the level of involvement needed in order to be able to conclude whether sufficient appropriate audit evidence has been obtained as a basis for our opinion on the Group financial statements as a whole. As statutory auditor of each individual entity in the group we performed full scope procedures on each component for reporting in to the group audit and did not need to use separate component auditors.

Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) that we identified, including those which had the greatest effect on: the overall audit strategy, the allocation of resources in the audit, and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

Profit recognition on property sales

The development of mixed-tenure schemes continues to be a growing focus of the Group’s activities. As a consequence, the allocation of development costs between tenures and units is a significant estimate and included within Critical Judgments, Estimates, and Uncertainty on page 94 under Capitalisation of Property Development Costs. This is because the extent that such costs are considered to relate to properties for resale, including shared ownership, will impact the operating surplus recognised on property sale transactions.

Due to the degree of estimation involved in allocating development costs across tenures and units and the impact of this on the reported operating surplus, we consider this to be a significant risk of material misstatement and a key audit matter.

How the scope of our audit addressed the key audit matter

In respect of the allocation of costs to the sample of property sale transactions, we have tested the allocation of costs to tenure types and individual plots within development on a sample basis. The testing involved procedures including tracing costs to supporting documentation such as surveyor valuations and agreeing floor space by tenure type used in the calculation to third party appraisal plans. We have then checked through re-performing the calculation that, based on the costs allocated to units as driven by relative floor space in accordance with third party appraisal plans, appropriate costs have been expensed in cost of sales.

Key observations: During our work, nothing came to our attention to suggest any material misstatement in the recognition of profit on property sales.

Group Reorganisation

On 31 March 2021, a transfer of Engagement of the trade and assets of Portal Housing Association Ltd and Drum Housing Association Ltd to Yarlington Housing Group took place.

These transactions are outside of the normal course of business and therefore introduced complexity, including the value at which the assets and liabilities are transferred and the impact on year end covenants.

In addition the transaction pre year end triggered a refinancing of the loans in place in these entities. This has introduced judgement in the extent to which the costs associated with this transaction can be carried forward on the balance sheet as opposed to being recognised in the statement of comprehensive income. The break costs incurred in exiting the previous arrangements, of £27m, have been recognised as a finance charge in the Statement of Comprehensive Income.

How the scope of our audit addressed the key audit matter

We have obtained and assessed managements paper in respect of accounting for this transaction and reviewed the proposed treatment in accordance with the relevant accounting standards.

We obtained documentation such as the transfer agreements and refinancing documents in order to corroborate the accounting entries and consider the completeness of the identified impact, including the impact on covenants.

In relation to the refinancing of the loans in place in these entities, we obtained management’s assessment, as informed by their treasury of advisors, that this transaction represented a substantial modification. We assessed the competence and independence of the treasury advisors; corroborated the key terms that were referred to in the assessment back to the executed loan agreement; and considered whether the position reached was reasonable based on guidance from the accounting standard and professional judgement. We also corroborated the break cost with reference to the refinancing agreement with the lender and checked that this was a payment associated with extinguishing the existing liability that should be recognised in the Statement of Comprehensive Income.

Key observations: Based on our audit work performed, we consider the treatment of the group reorganisation to be appropriate and in accordance with the relevant accounting standards.

We apply the concept of materiality both in planning and performing our audit, and in evaluating the effect of misstatements. We consider materiality to be the magnitude by which misstatements, including omissions, could influence the economic decisions of reasonable users that are taken on the basis of the financial statements.

In order to reduce to an appropriately low level the probability that any misstatements exceed materiality, we use a lower materiality level, performance materiality, to determine the extent of testing needed. Importantly, misstatements below these levels will not necessarily be evaluated as immaterial as we also take account of the nature of identified misstatements, and the particular circumstances of their occurrence, when evaluating their effect on the financial statements as a whole.

Based on our professional judgement, we determined materiality for the financial statements as a whole and performance materiality as follows:

Rationale for the materiality benchmark applied – Group

Operating surplus is adjusted to remove the impact of depreciation, Social Housing Grant amortisation and impairment. This is to arrive at an adjusted position that is inline with the strictest loan covenant definition. We have used this benchmark as we considered it to be the area of the financial statements with the greatest interest to the principle users and the area with the greatest impact on investor and lender decisions.

Rationale for the materiality benchmark applied – Society

We have used this benchmark as we considered it to be the area of the financial statements with the greatest interest to the principle users and the area with the greatest impact on investor and lender decisions.

Specific materiality

We also determined that for 2020, a misstatement of less than materiality for the financial statements as a whole, specific materiality, could influence the economic decisions of users. As a result, we determined materiality for these items based on 6% of adjusted operating surplus. We further applied a performance materiality level of 75% of specific materiality to ensure that the risk of errors exceeding specific materiality was appropriately mitigated.

Component materiality

We set materiality for each component of the Group based on a percentage of between 0.2% and 96% of Group materiality dependent on the size and our assessment of the risk of material misstatement of that component. Component materiality ranged from £10,000 to £4,400,000. In the audit of each component, we further applied performance materiality levels of 75% of the component materiality to our testing to ensure that the risk of errors exceeding component materiality was appropriately mitigated.

Reporting threshold

We agreed with the audit committee that we would report to them all individual audit differences in excess of £92,000 (2020: £576,000). We also agreed to report differences below this threshold that, in our view, warranted reporting on qualitative grounds.

The board are responsible for the other information. The other information comprises the information included in the annual report, other than the financial statements and our auditor’s report thereon. Our opinion on the financial statements does not cover the other information we do not express any form of assurance conclusion thereon. Our responsibility is to read the other information including the Strategic Report, Statement of the Board’s responsibilities, Statement of Corporate Governance and Internal Controls and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether there is a material misstatement in the financial statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement of this other information we are required to report that fact.

We have nothing to report in this regard.

As the Group has voluntarily adopted the UK Corporate Governance Code 2018 we are required to review the Directors’ statement in relation to going concern, longer-term viability and that part of the Corporate Governance Statement relating to the Parent’s compliance with the provisions of the UK Corporate Governance Statement specified for our review.

Based on the work undertaken as part of our audit, we have concluded that each of the following elements of the Corporate Governance Statement is materially consistent with the financial statements or our knowledge obtained during the audit.

Going concern and longer-term viability

• the Directors' statement with regards the appropriateness of adopting the going concern basis of accounting and any material uncertainties identified (set out on page 64); and
• the Directors’ explanation as to its assessment of the entity’s prospects, the period this assessment covers and why the period is appropriate (set out on page 64).

Other Code provisions

• Directors' statement on fair, balanced and understandable set out on page 72;
• Board’s confirmation that it has carried out a robust assessment of the emerging and principal risks (set out on page 25);
• The section of the Annual Report that describes the review of effectiveness of risk management and internal control systems (set out on page 25); and
• The section describing the work of the Audit and Risk Committee (set out on page 51).

As explained more fully in the board members’ responsibilities statement set out on page 66, the board is responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the board members determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, the board are responsible for assessing the Group and the Society’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the board either intend to liquidate the Group or the Society or to cease operations, or have no realistic alternative but to do so.

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

Extent to which the audit was capable of detecting irregularities, including fraud

Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. The extent to which our procedures are capable of detecting irregularities, including fraud is detailed below:

Based on our understanding of the Group and the sector in which it operates, we identified that the principal risks of non-compliance with laws and regulations related to their registration with the Regulator of Social Housing, and we considered the extent to which non-compliance might have a material effect on the Group Financial Statements or their continued operation. We also considered those laws and regulations that have a direct impact on the financial statements such as compliance with the Accounting Direction for Private Registered Providers of Social Housing and tax legislation.

The responsible individual assessed whether the engagement team collectively had the appropriate competence and capabilities to identify or recognise non-compliance with laws and regulations and the engagement team queried any matters of potential non-compliance with applicable laws and regulations. We gained an understanding of the entity’s current activities and the effectiveness of the control environment in place.

Auditing standards limit the required audit procedures to identify non-compliance with these laws and regulations to enquiry of the Directors and other management and inspection of regulatory and legal correspondence if any.

We evaluated managements incentives and opportunities for fraudulent manipulation of the financial statements and determined that the principal risks were related to the management override of controls by posting inappropriate journal entries to manipulate the financial results and management bias in accounting estimates and judgements leading to material misstatement.

The audit procedures to address the risks identified included:

• challenging assumptions made by management in their significant accounting estimates and judgements in relation to the net realisable value of properties, defined benefit pension scheme, management judgement relating to income recognition;
• Identifying and testing journal entries, in particular any journal entries posted from staff members with privilege access rights, journals posted by key management, journals posted and journals posted after the year end; and
• reading minutes of meetings of those charged with governance, reviewing internal audit reports and reviewing correspondence with HMRC and the Regulator of Social Housing

As group auditors, and statutory auditors of each component we ensured the above procedures were carried out at the component level as well as group.

Our audit procedures were designed to respond to risks of material misstatement in the financial statements, recognising that the risk of not detecting a material misstatement due to fraud is higher than the risk of not detecting one resulting from error, as fraud may involve deliberate concealment by, for example, forgery, misrepresentations or through collusion. There are inherent limitations in the audit procedures performed and the further removed non-compliance with laws and regulations is from the events and transactions reflected in the financial statements, the less likely we are to become aware of it.

A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council’s website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.

This report is made solely to the members of the Society, as a body, in accordance with the Housing and Regeneration Act 2008 and the Co-operative and Community Benefit Societies Act 2014. Our audit work has been undertaken so that we might state to the Society’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Society and the members as a body, for our audit work, for this report, or for the opinions we have formed.

Philip Cliftlands (Senior Statutory Auditor)

For and on behalf of BDO LLP, Statutory Auditor
Gatwick, United Kingdom

BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127).