41061 Unite AR22 HI-RES WEB-READY - Flipbook - Page 124
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THE UNITE GROUP PLC | Annual Report and Financial Statements 2022
AUDIT & RISK COMMITTEE continued
Property valuations
Joint venture accounting
The Group’s principal assets are investment properties
and investment properties under development that are
either owned on balance sheet or in USAF or LSAV. The
investment properties are carried at fair value based on
an appraisal by the Group’s external valuers who carry
out the valuations in accordance with the RICS Red Book
valuation guide, taking into account transactional evidence
during the year. The valuation of property assets involves
significant judgement and changes in the core assumptions
could have a significant impact on the carrying value of
these assets. The Committee noted that the 31 December
2022 valuations involved an increased level of judgement
considering heightened macroeconomic uncertainty with
higher UK inflation and interest rates.
Two of Unite’s significant assets are its investments in USAF
and LSAV which the Group has historically accounted for as
joint ventures.
Management discusses the underlying performance of
each asset with the external valuers and provides detailed
performance data to them including rents, university
lease agreements, occupancy, property costs and costs
to complete (for development properties). Management
receives detailed reports from the valuers and performs
a detailed review of the valuations to ensure that
management considers the valuations to be appropriate.
The valuation report is reviewed by the Chief Financial
Officer prior to sign-off.
Prior to finalising the 2022 accounts, the Committee met
with members of the Group’s valuer panel and challenged
them on the basis of their valuations and their core
assumptions, including the yield for each property, rental
growth and forecast costs.
The Audit & Risk Committee questioned the external
valuers on market trends and transactional evidence that
supports the valuations. The Audit & Risk Committee
was satisfied that the Group’s valuers were appropriately
qualified and provided an independent assessment of the
Group’s assets. The Audit & Risk Committee was satisfied
that an appropriate valuation process had taken place, the
core assumptions used were reasonable and hence the
carrying value of investment and development properties in
the financial statements was appropriate.
The external auditor explained the audit procedures to test
the valuation of investment and development properties
and the associated disclosures. The Committee met with
a Deloitte real estate specialist who was involved in the
audit. On the basis of the audit work, the external auditor
reported no inconsistencies or misstatements that were
material in the context of the financial statements as a
whole. Further analysis and detail on asset valuations is set
out on pages 35–39.
The Group reports under IFRS 10–12 which provides
guidance on how an investor should account for its
interests in other entities, including a definition of control
and guidance on how to classify and account for jointly
controlled arrangements. During the year, management
undertook a detailed review of its classification for both
USAF and LSAV, and following that analysis concluded that
both USAF and LSAV should continue to be treated as joint
ventures. The Audit & Risk Committee considered this and
agreed there was no material change and accordingly it
was appropriate to continue to account for USAF and LSAV
as joint ventures under IFRS 11, with Unite recording its
28.15% share of the results and net assets of USAF as a joint
venture using equity accounting and likewise 50% for LSAV.
Other issues considered by the Committee
Accounting for the cost of cladding remediation
The Group has provided for the estimated cost of
remediating cladding on properties where there is either a
legal/regulatory requirement to do so or where the Group
has a constructive obligation. The Audit & Risk Committee
reviewed, challenged and agreed the basis on which costs
associated with the remediation of cladding have been
included in the Financial Statements. The Committee
also reviewed, challenged and agreed the extent to which
the Group had any constructive obligations in respect of
cladding remediation that should be provided for. Based on
this, the Committee was comfortable with the process and
controls adopted by management around the disclosures
and estimation of costs and provisions associated with
cladding remediation.
Risk management
The Group’s risk assessment process and the way in which
significant business risks are managed is a key area of focus
for the Audit & Risk Committee.
Our work here was driven primarily by performing an
assessment of the approach to risk taken by the Group’s
Executive Committee and senior leadership team. The
Executive Committee is responsible for the delivery of
the Group’s risk management framework. The Executive
Committee and senior leadership team set the objectives
for the Group and then assess what risks could prevent
the Group from meeting these objectives. This assessment
results in a number of principal and emerging risks that are
brought to the Board for a detailed assessment.
