Red Bubble Annual Report 2022

Independent Auditor’s Report continued A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation Revenue recognition Why significant How our audit addressed the key audit matter As disclosed in Note 3 to the consolidated financial statements, revenue is recognised when the goods are transferred to the customer, which is deemed to be when the product is delivered. Due to the volume of online transactions processed on a daily basis, and the arrangement in place with fulfillers whereby fulfillers dispatch goods directly to the Group’s customers, the judgement involved in the timing of when revenue is recognised is considered to be a Key Audit Matter. Our audit procedures included the following:  a combined testing approach, including testing the operating effectiveness of controls and performing substantive procedures over the capture, timing of revenue recognition and measurement of revenue transactions;  for a sample of revenue transactions, testing whether the revenue was recorded in the appropriate period and whether management’s estimate of sale transactions not delivered to the customer at 30 June 2022 were appropriately included as unearned revenue and Goods in Transit for items shipped but not yet delivered, as at that date;  testing the assumptions used in management’s estimate based on the average delivery days between payment, shipment and delivery;  assessing whether the revenue recognition policy applied to the terms and conditions of sale was in accordance with Australian Accounting Standards; and  considered the adequacy of the revenue recognition policy disclosure contained in Note 3. Capitalised development Why significant How our audit addressed the key audit matter As disclosed in Note 13 to the consolidated financial statements, the Group capitalises cost related to the development and engineering activities of website and mobile applications as intangible assets. The carrying value of capitalised development as at 30 June 2022 totalled $12.2m. The accounting for capitalised development involves judgment, including: considering technical and commercial feasibility, the Group’s intention and ability to complete the intangible asset, future economic benefits to be generated by the asset, the ability of the Group to measure the costs reliably, determining when the asset is ready for use, the useful lives for capitalised development costs and the amortisation recognised. In addition, determining whether there is any indication of impairment of the carrying value of assets requires judgment in making assumptions which are affected by future market or economic developments. This was considered a key audit matter given the judgement required in accounting for internal capitalised development costs, the value of development cost assets relative to total assets, the rapid technological and economic change in the industry, and the specific Australian Accounting Standards criteria that have to be met to enable costs incurred to be capitalised. Our audit procedures included the following:  assessing the eligibility of the development costs for capitalisation as an intangible asset in accordance with Australian Accounting Standards;  selecting a sample of capitalised development costs by project and assessing whether the nature of projects and costs incurred were supported by underlying evidence such as employee time sheets, employee contracts and supplier invoices;  checked the clerical accuracy of the capitalised development cost rollforward;  assessing whether the amortisation rates used are appropriate;  testing for a sample of projects, the feasibility and benefits expected from each based on the current status, forecast performance and related assumptions. This included discussions with project managers and developers and reviewing project plan approvals and reporting;  considering whether there were any indicators of impairment; and  evaluation of the disclosures in Note 13 of the consolidated financial statements. A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation Information other than the financial report and auditor’s report thereon The directors are responsible for the other information. The other information comprises the information included in the Company’s 2022 annual report, but does not include the financial report and our auditor’s report thereon. Our opinion on the financial report does not cover the other information and accordingly we do not express any form of assurance conclusion thereon, with the exception of the Remuneration Report and our related assurance opinion. In connection with our audit of the financial report, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial report or our knowledge obtained in the audit or otherwise appears to be materially misstated. 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. Responsibilities of the directors for the financial report The directors of the Company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error. In preparing the financial report, the directors are responsible for assessing the Group’s ability to continue as a going concern, disclosing, as applicable, matters relating to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so. Auditor’s responsibilities for the audit of the financial report Our objectives are to obtain reasonable assurance about whether the financial report as a whole is 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 the Australian Auditing Standards 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 this financial report. As part of an audit in accordance with the Australian Auditing Standards, we exercise professional judgment and maintain professional scepticism throughout the audit. We also: ► Identify and assess the risks of material misstatement of the financial report, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. 93 Redbubble – Annual Report 2022 92 Redbubble – Annual Report 2022