102\u00a0\u00a0STV Annual Report and Accounts 2022
Notes to the financial statements
For the year ended 31 December 2022
2.\tSignificant accounting policies continued
\u00a0As part of the going concern review, the Group considers forecasts of the total advertising market, from which the Group generates the majority of its cash inflows, to determine the impact on liquidity. The Group\u2019s forecasts and projections, taking account of reasonably possible changes in trading performance, show that the Group will be able to operate within the level of its current available funding and financial covenants.
\u00a0The Directors performed a full review of principal risks and uncertainties during the year and approved the Group\u2019s updated three-year plan covering the period to 31 December 2025 in December 2022. As part of this process, the Board gave specific consideration and challenge to the first year of this plan and approved it as the budget for FY23. A severe but plausible downside scenario was identified against the base assumptions in that budget that reflected crystallisation of a number of risks, principally in relation to advertising revenues and the number and scale of programme commissions. Even under this scenario, the Group generated sufficient cash to enable it to continue in operation and remain within covenant levels under the Group banking arrangements. Therefore, the Board concluded that the Group\u2019s forecasts and projections, taking account of reasonably possible changes in trading performance, show it will be able to operate within the level of its current available funding and covenant levels.
\u00a0After making enquiries, the Directors have a reasonable expectation that the Group has adequate resources to continue in operation for at least 12 months from the date of this report. Accordingly, the Group continues to adopt the going concern basis in preparing its consolidated financial statements.
\u00a0Revenue recognition
\u00a0Under IFRS 15, the performance obligations promised in contracts with customers are identified and revenue recognition is based on an assessment of when control of the good or service promised in the contract is transferred to the customer. Revenue is recognised when the performance obligation in the contract is satisfied which is either at a \u2018point in time\u2019 or \u2018over time\u2019 depending on when or as control of the good or service is transferred to the customer.
\u00a0Key classes of revenue are recognised on the following bases:
\u00a0i)\tAdvertising and sponsorship revenues
\u00a0Revenues are stated net of advertising agency commissions.
\u00a0Television advertising revenue and online advertising revenue are recognised at the point of transmission of the advertisement. Revenue from sponsorship of the Group\u2019s programmes is recognised on a straight-line basis over the period of the transmission schedule for each sponsorship campaign.
\u00a0ii)\tProgramme production revenues
\u00a0Revenue from third party commissions is recognised on delivery of the finished programme to the commissioning broadcaster as at that point the performance obligations are delivered and control passes to the broadcaster for the period of their licence.
\u00a0Revenues from the licencing of programmes to overseas broadcasters or in the UK secondary market (usually digital channels) is recognised on the licence commencement date. An element of the original cost of production is deferred and recognised against the future revenue stream expected to be generated in the secondary and overseas sales markets. The amount to be deferred varies by programme based on future overseas and secondary sales potential and involves significant estimate (see note 3).
\u00a0iii)\tLottery service revenues
\u00a0Up to the date of disposal in August 2021, revenue was recognised for lottery operating costs recharged to the Scottish Children\u2019s Lottery at the point when the lottery draw to which the service related had taken place.
\u00a0Dividend income
\u00a0Dividend income is recognised when the right to receive payment is established.
\u00a0Government grants
\u00a0Government grants are recognised where there is reasonable assurance that the grant will be received and all attached conditions will be complied with. When the grant relates to an expense item, it is deducted from the related expense. When the grant relates to an asset, it is deducted from the asset\u2019s carrying value.
\u00a0Taxation
\u00a0Taxation expense comprises current and deferred tax. Tax is recognised in the income statement, except to the extent it relates to items recognised in other comprehensive income or directly in equity, in which case the related tax is also recognised in other comprehensive income or directly in equity.
\u00a0Current tax is the amount of tax payable or recoverable in respect of the taxable profit or loss for the year, using tax rates that are in force during the period. Taxable profit differs from net profit as reported in the income statement because it excludes items of income or expense that are taxable or deductible in other financial years and it further excludes items that are never taxable or deductible.
\u00a0Deferred tax is the tax expected to be payable or recoverable on temporary differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit and is accounted for using the balance sheet liability method. Deferred tax is calculated using tax rates that have been enacted or substantively enacted at the balance sheet date and are expected to apply when the related deferred tax asset is realised or the deferred tax liability settled.
\u00a0Deferred tax liabilities are generally recognised for all taxable temporary differences. Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries, except where the reversal of the temporary difference can be controlled by the Group and it is probable that the difference will not reverse in the foreseeable future.