Group Financial Statements Group Financial Statements 80 Statement of Directors Responsibilities 81 Independent Auditor s UK Report 87 Independent Auditor s US Report 88 Group Financial Statements 88 Group income statement 89 Group statement of comprehensive income 90 Group statement of changes in equity 93 Group statement of financial position 94 Group statement of cash flows 95 Accounting policies 104 Notes to the Group Financial Statements Crowne Plaza London Kings Cross, United Kingdom 78 IHG Annual Report and Form 20-F
True Hospitality is what sets IHG apart, and it s why our brands have something for everyone and are loved the world over. IHG Annual Report and Form 20-F Group Financial Statements 79
Group Financial Statements Statement of Directors Responsibilities Financial Statements and accounting records The Directors are required to prepare financial statements for the Company and the Group at the end of each financial year in accordance with all applicable laws and regulations. Under company law the Directors must not approve the Financial Statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and the profit or loss of the Group for that period. In preparing these Financial Statements, the Directors are required to: Select suitable accounting policies and apply them consistently; Make judgements and accounting estimates that are reasonable; State whether the Consolidated Financial Statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB), for use in the EU and Article 4 of the EU IAS Regulation; State for the Company Financial Statements whether applicable UK accounting standards have been followed; and Prepare the Financial Statements on the going concern basis unless it is inappropriate to presume that the Company and the Group will continue in business. The Directors have responsibility for ensuring that the Group keeps proper accounting records which disclose with reasonable accuracy the financial position of the Group and the Company to enable them to ensure that the Financial Statements comply with the Companies Act 2006 and, as regards the Consolidated Financial Statements, Article 4 of the EU IAS Regulation. The Directors are also responsible for the system of internal control, for safeguarding the assets of the Company and the Group, and taking reasonable steps to prevent and detect fraud and other irregularities. Disclosure Guidance and Transparency Rules The Board confirms that to the best of its knowledge: The Financial Statements have been prepared in accordance with IFRS as issued by the IASB and IFRS as adopted by the EU, give a true and fair view of the assets, liabilities, financial position and profit and loss of the Group taken as a whole; and The Annual Report, including the Strategic Report, includes a fair review of the development and performance of the business and the position of the Group taken as a whole, together with a description of the principal risks and uncertainties that it faces. UK Corporate Governance Code Having taken advice from the Audit Committee, the Board considers that this Annual Report and Form 20-F, taken as a whole is fair, balanced and understandable and that it provides the information necessary for shareholders to assess the Company s performance, business model and strategy. Disclosure of information to Auditor The Directors who held office as at the date of approval of this report confirm that they have taken steps to make themselves aware of relevant audit information (as defined by Section 418(3) of the Companies Act 2006). None of the Directors are aware of any relevant audit information which has not been disclosed to the Company s Auditor. Management s report on internal control over financial reporting Management is responsible for establishing and maintaining adequate internal control over financial reporting for the Group, as defined in Rule 13a 15(f) and 15d 15(f) under the Securities Exchange Act of 1934 as a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with IFRS. The Group s internal control over financial reporting includes policies and procedures that: Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the Group s transactions and dispositions of assets; Are designed to provide reasonable assurance that transactions are recorded as necessary to permit the preparation of the Financial Statements in accordance with IFRS as issued by the IASB and IFRS as adopted by the EU, and that receipts and expenditure are being made only in accordance with authorisation of management and the Directors of the Company; and Provide reasonable assurance regarding prevention or timely detection of unauthorised acquisition, use or disposition of the Group s assets that could have a material effect on the Financial Statements. Any internal control framework has inherent limitations and internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or the degree of compliance with the policies or procedures may deteriorate. Management has undertaken an assessment of the effectiveness of the Group s internal control over financial reporting at 31 December based on criteria established in the Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 Framework) (the COSO criteria). Based on this assessment, management has concluded that as at 31 December the Group s internal control over financial reporting was effective. During the period covered by this document there were no changes in the Group s internal control over financial reporting that have materially affected or are reasonably likely to materially affect the effectiveness of the internal controls over financial reporting. The Group s internal control over financial reporting at 31 December, together with the Group s Consolidated Financial Statements, were audited by Ernst & Young LLP, an independent registered public accounting firm. Their report on internal control over financial reporting can be found on page 87. For and on behalf of the Board Keith Barr Paul Edgecliffe-Johnson Chief Executive Officer Chief Financial Officer 19 February 2018 19 February 2018 80 IHG Annual Report and Form 20-F
Independent Auditor s UK Report Independent Auditor s Report to the members of InterContinental Hotels Group PLC Our opinion on the Financial Statements In our opinion: InterContinental Hotels Group PLC s Group Financial Statements and Parent Company Financial Statements (the Financial Statements ) give a true and fair view of the state of the Group s and of the Parent Company s affairs as at 31 December and of the Group s profit for the year then ended. The Group Financial Statements have been properly prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union. The Parent Company Financial Statements have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice including FRS 101 Reduced Disclosure Framework. The Financial Statements have been prepared in accordance with the requirements of the Companies Act 2006, and, as regards the Group Financial Statements, Article 4 of the IAS Regulation. What we have audited InterContinental Hotels Group PLC s (IHG s, the Group s) Financial Statements for the year ended 31 December comprise: Group Group income statement Group statement of comprehensive income Group statement of changes in equity Group statement of financial position Group statement of cash flows Related notes 1 to 33 to the Financial Statements Company Parent Company statement of financial position Parent Company statement of changes in equity Related notes 1 to 10 to the Financial Statements The financial reporting framework that has been applied in the preparation of the Group Financial Statements is applicable law and IFRSs as adopted by the European Union. The financial reporting framework that has been applied in the preparation of the Parent Company Financial Statements is applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice), including FRS 101 Reduced Disclosure Framework. Basis for opinion 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 below. We are independent of the Group and Parent Company 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 listed public interest entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Use of our report This report is made solely to the company s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the Company 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 Company and the Company s members as a body, for our audit work, for this report, or for the opinions we have formed. Conclusions relating to principal risks, going concern and viability statement We have nothing to report in respect of the following information in the annual report, in relation to which the ISAs (UK) require us to report to you whether we have anything material to add or draw attention to: The disclosures in the annual report set out on page 21 that describe the principal risks and explain how they are being managed or mitigated. The directors confirmation set out on page 80 in the annual report that they have carried out a robust assessment of the principal risks facing the entity, including those that would threaten its business model, future performance, solvency or liquidity. The directors statement set out on page 80 in the Financial Statements about whether they considered it appropriate to adopt the going concern basis of accounting in preparing them, and their identification of any material uncertainties to the entity s ability to continue to do so over a period of at least twelve months from the date of approval of the Financial Statements. Whether the directors statement in relation to going concern required under the Listing Rules in accordance with Listing Rule 9.8.6R(3) is materially inconsistent with our knowledge obtained in the audit; or The directors explanation set out on page 163 in the annual report as to how they have assessed the prospects of the entity, over what period they have done so and why they consider that period to be appropriate, and their statement as to whether they have a reasonable expectation that the entity will be able to continue in operation and meet its liabilities as they fall due over the period of their assessment, including any related disclosures drawing attention to any necessary qualifications or assumptions. Overview of our audit approach Key audit matters Audit scope Materiality Accounting for the hotel assessments collected as part of the revenue cycle and the allocation of expenditures related to the marketing, advertising and loyalty programmes (the System Fund). The valuation of the future redemption of IHG Rewards Club points liability. Capitalisation of software assets and carrying value. The carrying value of Property, Plant and Equipment, Intangible assets and Investment in associates and joint ventures. We performed an audit of the complete financial information of 22 components and audit procedures on specific balances for a further 22 components. The components where we performed full or specific audit procedures accounted for 92% of profit before tax adjusted for pre-tax exceptional items and 77% of revenue. Overall Group materiality of $32m was applied, which represents 5% of profit before tax adjusted for pre-tax exceptional items. We considered it appropriate to maintain our planning materiality rather than increasing it to $34m based on the final reported results. IHG Annual Report and Form 20-F Group Financial Statements Independent Auditor s UK Report 81
Group Financial Statements Independent Auditor s UK Report continued Key audit matters Key audit matters are those matters that, in our professional judgment, 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. These matters included 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 Group Financial Statements as a whole, and in our opinion thereon, and we do not provide a separate opinion on these matters. Risk Risk direction Our response to the risk Key observations communicated to the Audit Committee Accounting for the hotel assessments collected as part of the revenue cycle and the allocation of expenditures related to the marketing, advertising and loyalty programmes (the System Fund) Refer to the Strategic Report (page 41); the Audit Committee Report (page 58); Critical accounting policies and use of judgements, estimates and assumptions (page 100): and note 32 of the Group Financial Statements (page 140). As outlined in the Strategic Report on page 12, the System Fund (the Fund) is a key part of the Group s business model. For the year ended 31 December, and as detailed in note 32, the Fund has assessment fees and contributions of $1,562m, and a surplus as of year-end of $158m. The Fund income and expenditure are not included in IHG s income statement. We focus on this area because there is a risk that the hotel assessments could be included in IHG s reported revenue, which would overstate IHG s revenues; or that Group costs are incorrectly charged to the Fund, improperly reducing IHG s expenses and leading to a misstatement of IHG s income statement. We understood the principal streams of income and expenditure in the Fund. For a sample of hotel assessments and expenses recorded in the Fund, we agreed that they are in accordance with the principles as agreed with the IHG Owners Association; supported by appropriate documentation and, based on our inspection of that supporting documentation, have made an independent assessment of whether the hotel assessments and contributions and expenses relate to the Fund. We have tested the controls over the calculation of hotel assessments, allocation of expenses, related IT systems and eliminations from IHG s ledgers. Given the accounting treatment adopted for the Fund is a key judgement; we verified the appropriateness of the related disclosures provided in critical accounting policies and the use of judgements, estimates and assumptions (page 101) and note 32 of the Group Financial Statements. In addressing this area of focus, audit procedures were performed by the component team in the United States under our supervision. We are satisfied that System Fund hotel related assessment fees, contributions and expenses have been appropriately identified in accordance with the principles agreed with the IHG Owners Association and excluded from IHG s Group income statement. The valuation of the future redemption of IHG Rewards Club points liability Refer to the Audit Committee Report (page 58); Critical accounting policies and the use of judgements, estimates and assumptions (page 101); and note 32 of the Group Financial Statements (page 140). We focused on this area due to the size of the liability ($760m at 31 December ), and its sensitivity, in particular, to the breakage estimate (as defined on page 101). Changes in the valuation of the liability are charged to the System Fund surplus/deficit and not to IHG s income statement. We tested internal financial controls, including IT controls, over the liability valuation process, including controls over validation of the completeness and accuracy of data provided to IHG s external actuarial adviser and management s internal review process of the inputs and the overall estimate of the points liability. For the three key inputs into the liability valuation we undertook the following audit procedures: (1) Outstanding loyalty points at 31 December We tested controls over the complete and accurate recording of point data and tested the roll forward of the points balance from the prior year to 31 December, and verified to underlying records. We tested the controls over the awards/redemption process and we performed detailed tests of transactions on earned, redeemed and expired points throughout the year. (2) The outstanding points redemption ratio (breakage) We engaged our own actuarial specialists to assist us in challenging and evaluating the appropriateness of the methodology, data and assumptions applied by management in determining the redemption ratio/breakage for members outstanding loyalty points at the balance sheet date, in particular regarding the impact from the expiration policy. In addition to testing the integrity of the company s model, we developed our own model to form an independent view on an acceptable range for the redemption ratios to assess the reasonableness of key assumptions applied by management in valuing the liability. (3) Redeemed point cost (RPC) We have assessed the assumptions made in the determination of the RPC, by corroborating with historical data and contractual commitments with hotels and other third party providers. In addition, we have assessed the reasonableness of the split of the expected redemption of points between hotel and other awards. In addressing this area of focus, audit procedures were performed by the component team in the United States under our supervision. We concluded that the valuation of the future redemption of the IHG Rewards Club points liability at 31 December is within an acceptable range. 82 IHG Annual Report and Form 20-F
Risk Capitalisation of software assets and carrying value Refer to the Strategic Report (page 17); the Audit Committee Report (page 58); Critical accounting policies and the use of judgements, estimates and assumptions (page 101); and note 13 of the Group Financial Statements (page 118). Given the Group s continued development of its technology environment and the size of the capitalised software balance ($464m as at 31 December ), of which $168m has been capitalised in the year, we continue to focus on this area. Software projects can have complex development cycles, often over many phases, spanning two to three years, or more. New technology also brings a risk of impairment of legacy systems. Risk direction Our response to the risk We tested internal financial controls, including IT controls, over the approval, acquisition, development of new software and management s assessment of impairment. We obtained a listing of new projects initiated in the year, and agreed a sample to underlying documentation to test that they had been reviewed and approved in line with the Group s delegation of authority. For both existing and new projects, we assessed the costs capitalised as compared to the requirements of IAS 38 Intangible Assets. We performed tests of details by vouching specific expenditures to supporting documentation to validate a sample of software additions in the year. We inspected management s impairment review and considered the appropriateness of the conclusions reached through inspection of the underlying supporting work papers, inquiries of management, independent validation that no carrying value was attributed to systems no longer in use, and the inspection of a full asset listing. In addressing this area of focus, audit procedures were performed by the component team in the United States under our supervision. Key observations communicated to the Audit Committee We concluded that the carrying value of software assets at 31 December is appropriate. Carrying value of Property, Plant and Equipment, Intangible assets and Investment in associates and joint ventures Refer to the Audit Committee Report (page 58), Critical accounting policies and the use of judgements, estimates and assumptions (page 101); and notes 12, 13 and 14 of the Group Financial Statements (pages 116 120). Impairment of Property, Plant and Equipment, Intangible assets and Investment in associates and joint ventures remains a subjective area. At 31 December the carrying value of non-current assets, excluding software assets, was $1,303m. Given the impairment charges recorded by the Group in, we have re assessed the risk of material misstatement with regards to the carrying value of these non-current assets. The risk of impairment of software assets is addressed in the Capitalisation of software assets and carrying value section above. The Group recognised impairment charges in respect of the investment in InterContinental New York Barclay during the year of $18m. We tested internal financial controls over management s assessment and measurement of impairment. These included controls over the underlying projections prepared through the forecasting process, the assumptions applied and the completeness and accuracy of the data provided to IHG s external specialist. We tested the integrity of the impairment models and the appropriateness of the methodology used including comparability to prior periods. We performed our own sensitivities on the key assumptions used by management and determined whether adequate headroom remained. We performed detailed testing to assess the key inputs to the model including: Assessing the historical accuracy of management s budgets and forecasts through comparison with actual performance. Corroborating management s assumptions with reference to historical data and, where applicable, external benchmarks to assess if the assumptions used are within an acceptable range. The main assumptions include discount rates, fee margins, average daily room rates, comparable room key sales data and occupancy. We considered the appropriateness of the disclosures provided in the Group Financial Statements. In particular, we considered the completeness of the disclosures regarding material non-current assets where a reasonably possible change in assumptions could lead to impairment. In addressing this area of focus, audit procedures were performed mainly by the Primary Team, with the exception of certain specific inputs to management s models for which we engaged our business valuation specialists. We concluded that the carrying value of non-current assets is supported at 31 December, and appropriate disclosures have been provided. The impairment charges recognised at 31 December have been calculated on a reasonable basis. In addition to the risks identified as part of our audit planning, the following area affected the allocation of resources and the direction of our audit efforts and for which our audit response was as follows: Risk Risk direction Our response to the risk Key observations communicated to the Audit Committee Impact of the US tax reform Refer to the Audit Committee Report (page 56) and note 7 of the Group Financial Statements (pages 111 114). On 22 December, the US government enacted widespread changes to the US tax system. The changes have resulted in a tax benefit of $108m recognised in exceptional items in the Group Income Statement. We focused on this area due to the complexity of the changes in the tax law, the proximity of the announcement to the year end and the materiality to the group. We tested internal financial controls over management s assessment and measurement of the Federal and State Tax implications of tax reform, including the accuracy of the underlying information on which the calculation is based. We assessed whether the methodology used to calculate the estimated liability was based on an acceptable interpretation of the legislation, considering both Federal and State tax laws. We verified that the existing deferred tax liabilities have been remeasured through the income statement, other comprehensive income or equity, according to where they gave rise to tax in the first place. We tested the accuracy and completeness of the inputs to the calculation, and the mathematical accuracy of the calculation itself. We have considered the appropriateness of the related disclosures provided in the Group Financial Statements. In addressing this area of focus, audit procedures were principally performed by the component team in the United States under our supervision. We concluded that the impact of US tax reform is calculated on a reasonable basis and is appropriately recorded in the Group Financial Statements at 31 December. We consider the accounting and related disclosures in the Group Financial Statements to be in line with the relevant reporting requirements. Data security incidents was included as an area of audit focus last year in view of the time spent by senior members of the audit team following the data breaches. This year, in the absence of material breach, our procedures on data security have been more routine in nature. IHG Annual Report and Form 20-F Group Financial Statements Independent Auditor s UK Report 83
Group Financial Statements Independent Auditor s UK Report continued The scope of our audit Tailoring the scope Our assessment of audit risk, our evaluation of materiality and our allocation of performance materiality determine our audit scope for each entity within the Group. Taken together, this enables us to form an opinion on the Group Financial Statements. We take into account size, risk profile, the organisation of the Group, including IHG s global accounting centre in India, and effectiveness of group-wide controls, changes in the business environment and other factors such as Global Internal Audit review findings when assessing the level of work to be performed at each entity. In assessing the risk of material misstatement to the Group Financial Statements, and to ensure we had adequate quantitative coverage of significant accounts in the Group Financial Statements, we selected 44 components within IHG s global accounting centre in India, the United States, the United Kingdom and China, which represent the principal business units within the Group. Of the 44 components selected, we performed an audit of the complete financial information of 22 components ( full scope components ) which were selected based on their size or risk characteristics. For the remaining 22 components ( specific scope components ), we performed audit procedures on specific accounts within that component that we considered had the potential for the greatest impact on the significant accounts in the Group Financial Statements either because of the size of these accounts or their risk profile. The table below illustrates the coverage obtained from the work performed by our audit teams. Number % profit before tax adjusted for pre-tax exceptional items % revenue See note Number % profit before tax adjusted for pre-tax exceptional items Full scope 22 81 69 1 21 72 67 Specific scope 22 11 8 2 24 17 10 Full and specific scope coverage 44 92 77 45 89 77 Remaining components 8 23 3 11 23 Total 100 100 100 100 % revenue Notes 1 The Group audit risks included in the tables on pages 82 to 83 were subject to full audit procedures. 2 The audit scope of these components may not have included testing of all significant accounts of the component but will have contributed to the coverage of significant accounts tested for the Group. 3 Of the remaining components that together represent 8% of the Group s profit before tax adjusted for pre-tax exceptional items; none are individually greater than 5% of the Group s profit before tax adjusted for pre-tax exceptional items. We performed specified procedures over System Fund revenue for two components. For three (: three) components, we performed review scope procedures. For the remaining components; none of which are individually greater than 2% of the Group s profit before tax adjusted for pre-tax exceptional items, we performed other procedures, including analytical review at both regional levels and at owned hotels, inquiry of management, and testing of journals across the Group to respond to any potential risks of material misstatement to the Group Financial Statements. Involvement with component teams In establishing our overall approach to the Group audit, we determined the type of work that needed to be undertaken at each of the components by us, as the Primary Team, or by component auditors from other EY global network firms operating under our instruction. Of the 22 full scope components, audit procedures were performed on three of these directly by the Primary Team and 19 by the component audit teams. For the 22 specific scope components, audit procedures were performed on these by component audit teams. We determined the appropriate level of involvement to enable us to determine that sufficient audit evidence had been obtained as a basis for our opinion on the Group as a whole. The Primary Team continued to follow a programme of planned visits that has been designed to ensure that the Senior Statutory Auditor, or her delegate, visits each of the key locations at both the interim and year-end stages of the audit process. During the current year s audit cycle, visits were undertaken, at least twice, by the Primary Team to the component teams at key locations in the United States and IHG s global accounting centre in India and once to the regional head office in China. These visits involved discussing the audit approach with the component team and any issues arising from their work, meeting with local management, and reviewing key audit working papers on the Group risk areas. The Primary Team interacted regularly with the component teams, where appropriate, during various stages of the audit, reviewed key working papers and were responsible for the scope and direction of the audit process. This, together with the additional procedures performed at Group level, gave us appropriate evidence for our opinion on the Group Financial Statements. Our application of materiality We apply the concept of materiality in planning and performing the audit, in evaluating the effect of identified misstatements on the audit and in forming our audit opinion. Materiality The magnitude of an omission or misstatement that, individually or in the aggregate, could reasonably be expected to influence the economic decisions of the users of the Group Financial Statements. Materiality provides a basis for determining the nature and extent of our audit procedures. We determined materiality for the Group to be $32m (: $31m), which is 5% (: 5%) of profit before tax adjusted for pre-tax exceptional items. We believe that profit before tax adjusted for pre-tax exceptional items provides us with a consistent year-on-year basis for determining materiality and is the most relevant performance measure to the stakeholders of the entity. Detailed audit procedures are performed on material exceptional items. Starting basis Adjustments Materiality Profit before tax of $678m Adjust for pre-tax exceptional items of $4m to determine adjusted profit before tax Totals $674m (materiality basis) Materiality maintained at planning level at $32m (versus $34m based on 5% of final reported results) 84 IHG Annual Report and Form 20-F
During the course of our audit, we reassessed initial materiality and the actual profit before tax adjusted for pre-tax exceptional items was 5% higher than the Group s initial estimates used in planning. However, due to the status of our procedures we did not change our materiality assessment to reflect this. We determined materiality for the Parent Company to be 11m (: 11m), which is 1% (: 1%) of equity. Performance materiality The application of materiality at the individual account or balance level. It is set at an amount to reduce to an appropriately low level the probability that the aggregate of uncorrected and undetected misstatements exceeds materiality. On the basis of our risk assessments, together with our assessment of the Group s overall control environment, our judgement was that performance materiality was 75% (: 75%) of our planning materiality, namely $24m (: $23m). We have set performance materiality at this percentage to ensure that the total uncorrected and undetected audit differences in all accounts did not exceed our materiality. Audit work at component locations for the purpose of obtaining audit coverage over significant financial statement accounts is undertaken based on a percentage of total performance materiality. The performance materiality set for each component is based on the relative scale and risk of the component to the Group as a whole and our assessment of the risk of misstatement at that component. In the current year, the range of performance materiality allocated to components was $1m to $24m (: $1m to $23m). Reporting threshold An amount below which identified misstatements are considered as being clearly trivial. We agreed with the Audit Committee that we would report to them all uncorrected audit differences in excess of $1.6m (: $1.6m), which is set at 5% of planning materiality, as well as differences below that threshold that, in our view, warranted reporting on qualitative grounds. We evaluate any uncorrected misstatements against both the quantitative measures of materiality discussed above and in light of other relevant qualitative considerations in forming our opinion. Other information The other information comprises the information included in the annual report and accounts set out on pages 2 80 and pages 154 188, other than the Financial Statements and our auditor s report thereon. The Directors are responsible for the other information. Our opinion on the Financial Statements does not cover the other information and, except to the extent otherwise explicitly stated in this report, we do not express any form of assurance conclusion thereon. In connection with our audit of the Financial Statements, our responsibility is to read the other information 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 the other information, we are required to report that fact. We have nothing to report in this regard. In this context, we also have nothing to report in regard to our responsibility to specifically address the following items in the other information and to report as uncorrected material misstatements of the other information where we conclude that those items meet the following conditions: Fair, balanced and understandable set out on page 80 the statement given by the Directors that they consider the Annual Report and Financial Statements taken as a whole is fair, balanced and understandable and provides the information necessary for shareholders to assess the Group s performance, business model and strategy, is materially inconsistent with our knowledge obtained in the audit; or Audit committee reporting set out on pages 56 to 59 the section describing the work of the Audit Committee does not appropriately address matters communicated by us to the Audit Committee; or Directors statement of compliance with the UK Corporate Governance Code set out on page 62-63 the parts of the Directors Statement required under the Listing Rules relating to the Company s compliance with the UK Corporate Governance Code containing provisions specified for review by the auditor in accordance with Listing Rule 9.8.10R (2) do not properly disclose a departure from a relevant provision of the UK Corporate Governance Code. Opinions on other matters prescribed by the Companies Act 2006 In our opinion, the part of the Directors Remuneration Report to be audited has been properly prepared in accordance with the Companies Act 2006. In our opinion, based on the work undertaken in the course of the audit: The information given in the Strategic Report and the Directors Report for the financial year for which the Financial Statements are prepared is consistent with the Financial Statements; and The Strategic Report and the Directors Report have been prepared in accordance with applicable legal requirements. Matters on which we are required to report by exception In the light of the knowledge and understanding of the Group and the Parent Company and its environment obtained in the course of the audit, we have not identified material misstatements in the Strategic Report or the Directors Report. We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us to report to you if, in our opinion: Adequate accounting records have not been kept by the Parent Company, or returns adequate for our audit have not been received from branches not visited by us; or The Parent Company Financial Statements and the part of the Directors Remuneration Report to be audited are not in agreement with the accounting records and returns; or Certain disclosures of directors remuneration specified by law are not made; or We have not received all the information and explanations we require for our audit. Responsibilities of directors As explained more fully in the Directors Responsibilities Statement set out on page 80, the Directors are 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 Directors determine is necessary to enable the preparation of Financial Statements that are free from material misstatement, whether due to fraud or error. IHG Annual Report and Form 20-F Group Financial Statements Independent Auditor s UK Report 85
Group Financial Statements Independent Auditor s UK Report continued In preparing the Financial Statements, the Directors are responsible for assessing the Group and Parent Company 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 directors either intend to liquidate the Group or the Parent Company or to cease operations, or have no realistic alternative but to do so. Auditor s responsibilities for the audit of the Financial Statements 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. Explanation as to what extent the audit was considered capable of detecting irregularities, including fraud The objectives of our audit, in respect to fraud, are; to identify and assess the risks of material misstatement of the Financial Statements due to fraud; to obtain sufficient appropriate audit evidence regarding the assessed risks of material misstatement due to fraud, through designing and implementing appropriate responses; and to respond appropriately to fraud or suspected fraud identified during the audit. However, the primary responsibility for the prevention and detection of fraud rests with both those charged with governance of the entity and management. Our approach was as follows: We obtained an understanding of the legal and regulatory frameworks that are applicable to the Group and determined that the most significant frameworks which are directly relevant to specific assertions in the Financial Statements are those that relate to the reporting framework (IFRS, FRS 101, the Companies Act 2006 and UK Corporate Governance Code) and the relevant tax compliance regulations in the jurisdictions in which the Group operates. In addition, we concluded that there are certain significant laws and regulations which may have an effect on the determination of the amounts and disclosures in the Financial Statements being the Listing Rules of the UK Listing Authority, and those laws and regulations relating to health and safety and employee matters. We understood how the Group is complying with those frameworks by making enquiries of management, internal audit, those responsible for legal and compliance procedures and the Company Secretary. We corroborated our enquiries through our review of Board minutes, papers provided to the Audit Committee and correspondence received from regulatory bodies. We assessed the susceptibility of the Group s Financial Statements to material misstatement, including how fraud might occur, by meeting with management from various parts of the business to understand where it considered there was susceptibility to fraud. We also considered performance targets and their influence on efforts made by management to manage earnings or influence the perceptions of analysts. We considered the programs and controls that the Group has established to address risks identified, or that otherwise prevent, deter and detect fraud; and how senior management monitors those programs and controls. Where the risk was considered to be higher, we performed audit procedures to address each identified fraud risk. These procedures included testing manual journals and were designed to provide reasonable assurance that the Financial Statements were free from fraud or error. Based on this understanding we designed our audit procedures to identify non-compliance with such laws and regulations identified in the paragraphs above. Our procedures involved: journal entry testing, with a focus on manual consolidation journals and journals indicating large or unusual transactions based on our understanding of the business; enquiries of legal counsel, Group management, internal audit, divisional management and all full and specific scope management; and focused testing, as referred to in the key audit matters section above. 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. Other matters we are required to address We were appointed by the Company on 31 May to audit the Financial Statements for the year ending 31 December and subsequent financial periods. We have served as auditors since IHG s listing in April 2003 and the period of total uninterrupted engagement, including previous renewals and reappointments with the Group s predecessor businesses, is at least 30 years since 1988. The non-audit services prohibited by the FRC s Ethical Standard were not provided to the Group or the Parent Company and we remain independent of the Group and the Parent Company in conducting the audit. The audit opinion is consistent with the additional report to the Audit Committee. Sarah Kokot (Senior Statutory Auditor) for and on behalf of Ernst & Young LLP, Statutory Auditor, London 19 February 2018 Notes 1 The maintenance and integrity of the InterContinental Hotels Group Plc web site is the responsibility of the directors; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the financial statements since they were initially presented on the web site. 2 Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. 86 IHG Annual Report and Form 20-F
Independent Auditor s US Report Report of independent registered public accounting firm To the Board of Directors and Shareholders of InterContinental Hotels Group PLC. Opinion on Internal Control over Financial Reporting We have audited InterContinental Hotels Group PLC s internal control over financial reporting as of 31 December, based on criteria established in Internal Control Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), (the COSO criteria). In our opinion, InterContinental Hotels Group PLC (the Company) maintained, in all material respects, effective internal control over financial reporting as of 31 December, based on the COSO criteria. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the accompanying Consolidated Financial Statements of InterContinental Hotels Group PLC, and our report dated 19 February 2018 expressed an unqualified opinion thereon. Basis for opinion The Company s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management s report on internal control over financial reporting. Our responsibility is to express an opinion on the Company s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control over Financial Reporting A company s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorisations of management and Directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorised acquisition, use, or disposition of the company s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Report of independent registered public accounting firm To the Board of Directors and Shareholders of InterContinental Hotels Group PLC. Opinion on the Financial Statements We have audited the accompanying Group statement of financial position of InterContinental Hotels Group PLC (the Company) as of 31 December and, and the related Group statements of income, comprehensive income, changes in equity and cash flows for each of the three years in the period ended 31 December, and the related notes (collectively referred to as the Financial Statements ). In our opinion, the financial statements present fairly, in all material respects, the consolidated financial position of InterContinental Hotels Group PLC at 31 December and, and the consolidated results of its operations and its cash flows for each of the three years in the period ended 31 December, in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company s internal control over financial reporting as of 31 December, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated 19 February 2018 expressed an unqualified opinion thereon. Basis for Opinion These Financial Statements are the responsibility of the Company s management. Our responsibility is to express an opinion on the Company s Financial Statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the Financial Statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. ERNST & YOUNG LLP We have served as auditors since IHG s listing in April 2003 and of the Group s predecessor businesses since 1988. London, England 19 February 2018 Notes 1 The maintenance and integrity of the InterContinental Hotels Group Plc web site is the responsibility of the directors; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the financial statements since they were initially presented on the web site. 2 Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. ERNST & YOUNG LLP London, England 19 February 2018 IHG Annual Report and Form 20-F Group Financial Statements Group Financial Statements 87