# Surface Transforms provides FY23 audit update

- Link: https://www.directorstalkinterviews.com/surface-transforms-provides-fy23-audit-update/4121160620
- Published: 2024-06-18T07:07:49+01:00
- Author: Amilia Stone

**[Surface Transforms](https://www.directorstalkinterviews.com/company/surface-transforms-plc/sce.l)
plc **(AIM:SCE), manufacturers of carbon fibre reinforced ceramic automotive brake
discs, has announced that the audit of its statutory accounts for the year ended
31 December 2023 is ongoing and the Board of the Company currently anticipate its
FY23 final results will be published in late June 2024.

There are two particular areas that have and are contributing to the extended audit
timeline:

(1)         Impairments to the carrying value of certain intangible and tangible
assets; and

(2)         Revenue recognition, namely relating to revenue generated from engineering,
testing and tooling services provided to OEM customers during the development phase
of the contract.

It is important to note that none of these matters impact cash, but taking each 
in turn:

**1.            Impairments**

_Intangible assets:_

The Company has applied a significantly higher discount rate in its assessment of
its intangible assets and whether there is any indication of impairment.  This assessment
was performed in order to address the combined challenges of cash flow forecasting
risk and the potential gap between implied market value and carrying value and resulted
in a recoverable amount lower than the carrying value. Whilst not yet agreed, the
Board estimate that £6.2 million of non-cash impairments to intangible assets, specifically,
capitalised R&D, software and right of use assets, will be recognised in FY23.

The Board note however that these assets continue to generate revenue, underpin 
its £390m order book and the accounting decision has no impact on daily operational
performance.

_Tangible assets:_

Surface Transforms’ impairment assessment of its tangible assets has identified 
that a particular furnace was not performing to contracted specification. Furthermore,
despite considerable engineering review with the supplier, the Board does not now
believe a cost-effective solution to improve the performance of this one particular
furnace, can be made. Consequently, and whilst not yet agreed, the Board estimate
that £3.0 million of non-cash impairment to tangible assets will be recognised in
FY23.

The poor performance of this furnace is not impacting current output due to better
than planned output from a complementary furnace together with some outsourcing.

**2.            Revenue recognition**

Following discussions with the Company’s auditors, the Board has re-assessed its
revenue recognition policy relating to revenue generated from engineering, testing
and tooling services performed, together “development revenues”. This will now result
in development revenues being recognised upon completion of system integration by
the OEM or when control is passed over for the contracted services as opposed to
in line with work performed and percentage completed under the current policy. This
change will not impact cash, and whilst not yet agreed  is expected to transfer 
approximately £2.0m in total from FY23 and prior periods into future years.

 Further updates will be made as appropriate.

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