Financial statements

In this section

Directors’ statement of responsibilities 166

Independent Auditor’s report 168

Financial statements 182

Notes to the ﬁnancial statements 186

Financial statements of GSK plc

prepared under UK GAAP 268

Financial

statements

165

GSK Annual Report 2022

166

The Directors are responsible for preparing the Annual Report,

the Remuneration report and the Group and parent company

ﬁnancial statements in accordance with applicable law and

regulations.

UK company law requires the Directors to prepare ﬁnancial

statements for each ﬁnancial year. The Directors are required

to prepare the Group consolidated ﬁnancial statements in

accordance with International Accounting Standards in

conformity with the requirements of the Companies Act 2006

and the International Financial Reporting Standards (IFRS) as

issued by the International Accounting Standards Board

(IASB). The Directors have elected to prepare the parent

company ﬁnancial statements in accordance with United

Kingdom Accounting Standards and applicable law (United

Kingdom Generally Accepted Accounting Practice) (Financial

Reporting Standard 101 Reduced Disclosure Framework).

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 its

proﬁt or loss for that period. In preparing the ﬁnancial

statements, the Directors are

required to:

– select suitable accounting policies and then apply them

consistently;

– make judgements and accounting estimates that are

reasonable and prudent;

– state that the Group ﬁnancial statements comply with

IFRS, as issued by the IASB and in conformity with the

requirements of the Companies Act 2006;

– state with regard to the parent company ﬁnancial

statements that applicable UK Accounting Standards have

been followed, subject to any material departures disclosed

and explained in the parent company ﬁnancial statements;

and

– prepare the ﬁnancial statements on a going concern basis

unless it is inappropriate to presume that the Group and the

parent company will continue in business.

In preparing the Group ﬁnancial statements, International

Accounting Standard 1 requires that directors properly select

and apply accounting policies; present information, including

accounting policies, in a manner that provides relevant,

reliable, comparable and understandable information; provide

additional disclosures when compliance with the speciﬁc

requirements in IFRS Standards are insufﬁcient to enable users

to understand the impact of particular transactions, other

event and conditions on the entity’s ﬁnancial position and

ﬁnancial performance; and make an assessment of the

company’s ability to continue as a going concern.

The Directors are responsible for keeping adequate

accounting records that are sufﬁcient to show and explain the

company’s transactions and disclose with reasonable accuracy

at any time the ﬁnancial position of the Group and to enable

them to ensure that the Group ﬁnancial statements and the

Remuneration report comply with the Companies Act 2006.

They are also responsible for safeguarding the assets of the

Group and hence for taking reasonable steps for the

prevention and detection of fraud and other irregularities.

The Group ﬁnancial statements for the year ended

31 December 2022, comprising principal statements and

supporting notes, are set out in the ‘Financial statements’

on pages 182 to 267 of this report. The parent company

ﬁnancial statements for the year ended 31 December 2022,

comprising the balance sheet and the statement of changes in

equity for the year ended 31 December 2022 and supporting

notes, are set out on pages 268 to 272.

The responsibilities of the auditor in relation to the ﬁnancial

statements are set out in the Independent Auditor’s report on

pages 168 to 181.

The ﬁnancial statements for the year ended 31 December 2022

are included in the Annual Report, which is published in printed

form and made available on our website. The Directors are

responsible for the maintenance and integrity of the corporate

and ﬁnancial information included on the company’s website.

Legislation in the United Kingdom governing the preparation

and dissemination of ﬁnancial statements may differ from

legislation in other jurisdictions.

Each of the current Directors, whose names and functions are

listed in the Corporate Governance section of the Annual

Report 2022 conﬁrms that, to the best of his or her knowledge:

– the Group ﬁnancial statements, which have been prepared

in accordance with IFRS, as issued by the IASB and in

conformity with the requirements of Companies Act 2006,

give a true and fair view of the assets, liabilities, ﬁnancial

position and proﬁt of the Group;

– the Strategic report and risk sections of the Annual Report,

which represent the management report, include a fair

review of the development and performance of the business

and the position of the company and the Group taken as a

whole, together with a description of the principal risks and

uncertainties that it faces; and

– the annual report and ﬁnancial statement, taken as a whole,

are fair, balanced and understandable and provide the

information necessary for shareholders to assess the

company’s position and performance, business model

and strategy.

Directors’ statement of responsibilities

GSK Annual Report 2022

167

Governance and remunerationStrategic report

Financial statements Investor information

Directors’ statement of responsibilities continued

Disclosure of information to auditor

The Directors in ofﬁce at the date of this Annual Report have

each conﬁrmed that:

– so far as he or she is aware, there is no relevant audit

information of which the company’s auditor is unaware; and

– he or she has taken all the steps that he or she ought to have

taken as a Director to make himself or herself aware of any

relevant audit information and to establish that the

company’s auditor is aware of that information.

This conﬁrmation is given and should be interpreted in

accordance with the provisions of section 418 of the

Companies Act 2006.

Going concern basis

Pages 66 to 95 and pages 55 to 61 contain information on

the performance of the Group, its ﬁnancial position, cash ﬂows,

net debt position, borrowing facilities and climate related

risks. Further information, including Treasury risk management

policies, exposures to market and credit risk and hedging

activities, is given in Note 44 to the ﬁnancial statements,

‘Financial instruments and related disclosures’. Having

assessed the principal risks and other matters considered

in connection with the viability statement, the Directors

considered it appropriate to adopt the going concern basis

of accounting in preparing the ﬁnancial statements.

Internal control

The Board, through the Audit & Risk Committee, has reviewed the

assessment of risks and the internal control framework that

operates in GSK and has considered the effectiveness of the

system of internal control in operation in the Group for the year

covered by this Annual Report and up to the date of its approval

by the Board of Directors. Further detail on the review of internal

controls is set out in the Governance report on page 125.

The 2018 UK Corporate Governance Code

The Board considers that GSK plc applies the principles and

complies with the provisions of the UK Corporate Governance

Code maintained by the Financial Reporting Council, as

described in the Corporate Governance section on pages 97 to

131. The Board further considers that the Annual Report, taken

as a whole, is fair, balanced and understandable, and provides

the information necessary for shareholders to assess the

Group’s position and performance, business model and

strategy.

As required by the Financial Conduct Authority’s Listing Rules,

the auditor has considered the Directors’ statement of

compliance in relation to those points of the UK Corporate

Governance Code which are speciﬁed for their review.

Annual Report

The Annual Report for the year ended 31 December 2022,

comprising the Report of the Directors, the Remuneration

report, the Financial statements and Additional information

for investors, has been approved by the Board of Directors

and signed on its behalf by

Sir Jonathan Symonds

Chair

9 March 2023

GSK Annual Report 2022

168

Independent Auditor’s report to the members of GSK plc

Report on the audit of the ﬁnancial statements

1. Opinion

In our opinion:

– The ﬁnancial statements of GSK plc (the ‘Parent company’)

and its subsidiaries (the ‘Group’) give a true and fair view of

the state of the Group’s and of the Parent company’s affairs

as at 31 December 2022 and of the Group’s proﬁt for the

year then ended;

– The Group ﬁnancial statements have been properly

prepared in accordance with United Kingdom adopted

international accounting standards and International

Financial Reporting Standards (IFRSs) as issued by the

International Accounting Standards Board (IASB);

– The Parent company ﬁnancial statements have been

properly prepared in accordance with United Kingdom

Generally Accepted Accounting Practice including FRS 101

“Reduced Disclosure Framework”; and

– The ﬁnancial statements have been prepared in accordance

with the requirements of the Companies Act 2006.

We have audited the ﬁnancial statements which comprise the:

Group

– Consolidated balance sheet as at 31 December 2022;

– Consolidated income statement for the year then ended;

– Consolidated statement of comprehensive income for

the year then ended;

– Consolidated statement of changes in equity for the year

then ended;

– Consolidated cash ﬂow statement for the year then

ended; and

– Notes 1 to 47 to the ﬁnancial statements, which includes

the accounting principles and policies.

Parent company

– Balance sheet as at 31 December 2022;

– Statement of changes in equity for the year then ended;

and

– Notes A to M to the ﬁnancial statements, which includes

the accounting principles and policies.

The ﬁnancial reporting framework that has been applied in the

preparation of the Group ﬁnancial statements is applicable

law, United Kingdom adopted international accounting

standards and IFRSs as issued by the IASB. 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, including FRS 101

“Reduced Disclosure Framework” (United Kingdom Generally

Accepted Accounting Practice).

2. 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.

We are independent of the Group and the Parent company in

accordance with the ethical requirements that are relevant to

our audit of the ﬁnancial statements in the UK, including the

Financial Reporting Council’s (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 conﬁrm that we have not provided any

non-audit services prohibited by the FRC’s Ethical Standard to

the Group or the Parent company, as noted in the Audit & Risk

Committee report within the Corporate Governance section of

the Annual Report on page 124 and the disclosure provided in

Note 8 regarding fees payable to the Group’s auditor.

We believe that the audit evidence we have obtained is

sufﬁcient and appropriate to provide a basis for our opinion.

3. Audit scope and execution

We structured our approach to the audit to reﬂect how the

Group is organised as well as ensuring our audit was both

effective and risk focused. Our audit approach can be

summarised into the following areas that enabled us to obtain

the evidence required to form an opinion on the Group and

Parent company ﬁnancial statements:

– Risk assessment and audit planning at a Group level. The

central control and common systems throughout most of the

Group enabled us to structure our audit centrally. The use of

data analytic tools allowed for a more detailed

understanding of the ﬂow of transactions, enabling us to

focus our risk assessment and design targeted audit testing

procedures. Our risk assessment procedures considered,

amongst other factors, the impact of the global pandemic

and climate change on the account balances, disclosures

and company practices. We appointed partners from the

Group audit team to lead the global audit of the revised

operating segments (commercial operations, research &

development and consumer healthcare), in addition to

partners responsible for the component and legal entity

audits in each country. These segment partners met

regularly with senior segment management to understand

the strategy, performance and other matters which arose

throughout the year that could have impacted the ﬁnancial

reporting. Our risk assessment and audit planning included

consideration of the separation of the consumer healthcare

business from the Group on 18 July 2022. In addition, we held

regular meetings with members of the Internal Audit, the

internal Legal Counsel and the Global Ethics & Compliance

teams to understand their work and to review their reports to

enhance our risk assessment;

GSK Annual Report 2022

169

Governance and remunerationStrategic report

Financial statements Investor information

Independent Auditor’s report continued

– Audit work performed at global shared service centres.

A signiﬁcant amount of the Group’s operational processes that

cover ﬁnancial reporting is undertaken in shared service

centres. Our Group audit team included senior individuals

responsible for each of the global processes who coordinated

our audit work at the shared service centres in-scope for the

Group audit to enable us to develop a good understanding of

the end-to-end processes that supported material account

balances, classes of transactions and disclosures within the

Group ﬁnancial statements. We then evaluated the

effectiveness of internal controls over ﬁnancial reporting for

these processes and considered the implications for the

remainder of our audit work;

– Audit work executed at component level and individual legal

entities. The following components were subject to audit

procedures as well as the assessment of the effectiveness of

internal controls over ﬁnancial reporting, which include

in-scope entities in the consumer healthcare segment prior to

demerger: Australia; Belgium; Canada; China; France;

Germany; Italy; Japan; Spain; United Kingdom; and the United

States. The Group audit team was in active dialogue

throughout the audit with the component audit teams

responsible for the audit work under the direction and

supervision of the Group audit team. This included determining

whether the work was planned and performed in accordance

with the overall Group audit strategy and the requirements of

our Group audit instructions to the components. We have

planned and performed site visits of components where

overseas travel restrictions allowed. To satisfy ourselves that

our oversight and supervision was appropriate we performed

reviews of audit working papers, increased the frequency and

length of those reviews depending on the signiﬁcance and risk

of the component and continued to attend the planning and

clearance meetings of components;

– Audit procedures undertaken at a Group level and on the

parent company. In addition to the above, we also performed

audit work on the Group and Parent company ﬁnancial

statements, including but not limited to the consolidation of

the Group’s results, the preparation of the ﬁnancial statements,

certain disclosures within the Directors’ Remuneration report,

litigation provisions and exposures in addition to entity level

and oversight controls relevant to ﬁnancial reporting. All

components or legal entities with annual revenue greater than

1.8% (2021-1.8%) of the total Group revenue were included in

our audit scope. The components or legal entities not covered

by our audit scope were subject to analytical procedures to

conﬁrm our conclusion that there were no signiﬁcant risks of

material misstatement in the aggregated ﬁnancial

information; and

– Internal controls testing approach. We tested the

effectiveness of internal controls over ﬁnancial reporting

across all in-scope entities, including in the consumer

healthcare segment pre-demerger, and entity level controls at

the Group level. Common systems allowed for relevant IT

controls to be tested centrally across all components. The

consumer healthcare demerger impacted relevant IT systems

prior to the demerger which was reﬂected in the scope of our

IT testing. We were able to place reliance on controls where

planned and it was more efﬁcient. Notwithstanding the IT

controls deﬁciencies disclosed in the key audit matters section

of this report, mitigating controls existed which allowed us to

continue to take reliance on controls where planned.

Our audit scope addressed 79% (2021: 73%) of the Group’s

revenue, 91% (2021: 76%) of the Group’s proﬁt before tax and

86% (2021: 85%) of the Group’s total assets.

The impact of climate change on our audit

Climate change has the potential to impact the Group in a

number of ways as set out in the strategic report on pages

55 to 62 of the Annual Report and Notes 17, 19 and 20 of the

ﬁnancial statements. The Group has set out their

environmental goals under the Paris Climate Accord to have

a net zero impact on climate and a net positive impact on

nature by 2030.

In the planning of our audit, we have considered the potential

impact of climate change on the Group’s business and its

ﬁnancial statements.

We have sought to understand the Group’s identiﬁcation and

assessment of the potential impacts of climate change, how

these risks inﬂuence the Group’s strategy and their implications

on the ﬁnancial statements.

The Group’s assessment focused on the impacts of more

frequent extreme weather conditions, water scarcity, changes

in the political landscape and media focus which has the

propensity to cause changes in consumer and market

behaviour; volatility in the costs and availability of materials

and resources that could impact future ﬁnancial performance

and asset valuations.

In consultation with our climate change specialists, we:

– Conducted detailed risk assessment procedures across all

in-scope balances and transactions to determine any risks of

material misstatement in the ﬁnancial statements by

applying the expected impact of climate change to our

understanding of the business;

– Challenged the appropriateness of the Group’s assessment

of the potential impact of climate change and the impact of

these on the ﬁnancial statements, including in the area of

intangible assets as described in section 6 to this report; and

– Used our own assessment of the impact of climate change

to challenge the Group’s assessment of going concern,

including considering the potential impact on future

performance and availability of ﬁnancing.

As part of our audit procedures, we are required to read and

consider these disclosures to consider whether they are

materially inconsistent with the ﬁnancial statements or

knowledge obtained in the audit. We did not identify any

material inconsistencies as a result of these procedures.

4. Our application of materiality

We deﬁne materiality as the magnitude of misstatement in the

ﬁnancial statements that makes it probable that the economic

decisions of a reasonably knowledgeable person would be

changed or inﬂuenced. We use materiality both in planning the

scope of our audit work and in evaluating the results of our work.

Report on the audit of the ﬁnancial statements continued

GSK Annual Report 2022

170

Independent Auditor’s report continued

Based on our professional judgement, we determined

materiality for the ﬁnancial statements as a whole as follows:

Group ﬁnancial statements

Parent company

ﬁnancial statements

Materiality £210 million

(2021: £275 million)

£52.5 million

(2021: £68 million)

Basis for

determining

materiality

In determining our benchmark for

materiality, we considered the

metrics used by investors and

other readers of the ﬁnancial

statements. In particular, we

considered: Statutory proﬁt

before tax, Adjusted proﬁt before

tax, Revenue and Net cash ﬂows

from operations.

Using professional judgement, we

have determined materiality to

be £210 million. Materiality

reduced compared to the prior

year predominantly due to the

lower benchmarks resulting from

the Consumer Healthcare

demerger. We have removed the

impact of the Gilead Settlement

of £924 million received in Q1

2022 in determining our proﬁt

before tax benchmark as this is a

nonrecurring item which it is not

reﬂective of the underlying trade

and due to its size would distort

materiality.

The below benchmarks are from

continuing operations only as

these were considered most

relevant to the users of the

ﬁnancial statements.

Metric %

Statutory proﬁt before tax 3.7%

Adjusted proﬁt before

tax*

2.9%

Revenue 0.7%

Net cash inﬂow from

operating activities

3.2%

* A reconciliation between the Statutory

proﬁt before tax and Adjusted proﬁt

before tax is detailed in the Adjusting

Items section of the strategic report.

Materiality was

determined using the

total assets

benchmark capped at

25% of Group

materiality. Our

materiality represents

0.1% of total assets.

Rationale

for the

benchmark

applied

Given the importance of the

above metrics used by investors

and other readers of the ﬁnancial

statements, we concluded

`Statutory proﬁt before tax` to be

the primary benchmark. The

adjusted proﬁt before tax,

Revenue and Net cash inﬂow from

operating activities, have been

used as supporting benchmarks.

The component materiality

allocated to the in-scope

components ranged between £40

million and £125 million.

The range of materiality allocated

across components (not including

the parent company) in the audit

of the prior year’s Group ﬁnancial

statements was between £83

million and £193 million.

The Parent company

holds the Group’s

investments and is not

in itself proﬁt-

oriented. The strength

of the balance sheet

is the key measure of

ﬁnancial health that is

important to

shareholders since the

primary concern for

the Parent company is

the payment of

dividends. Using a

benchmark of total

assets is therefore the

appropriate metric.

We set performance materiality at a level lower than

materiality to reduce the probability that, in aggregate,

uncorrected and undetected misstatements exceed the

materiality for the ﬁnancial statements as a whole. Group and

Parent company performance materiality was set at 70% of

Group and Parent materiality respectively for the 2022 audit

(2021: 70%). In determining performance materiality, we

considered factors including:

– Our risk assessment, including our assessment of the Group’s

overall control environment and that we consider it

appropriate to rely on controls over a number of business

processes; and

– Our past experience of the audit, which has indicated a low

number of corrected and uncorrected misstatements

identiﬁed in prior periods.

We agreed with the Audit & Risk Committee that we would

report to the Committee all audit differences in excess of £10

million (2021: £10 million) as well as any differences below this

threshold, which in our view, warranted reporting on qualitative

grounds. We also report to the Audit & Risk Committee on

disclosure matters that we identiﬁed when assessing the

overall presentation of the ﬁnancial statements.

5. Conclusions relating to going concern

In auditing the ﬁnancial statements, we have concluded that

the directors’ use of the going concern basis of accounting in

the preparation of the ﬁnancial statements is appropriate.

Our evaluation of the directors’ assessment of the Group’s and

Parent company’s ability to continue to adopt the going

concern basis of accounting included:

– Enquiries of the Group directors and management regarding

the assumptions used in the going concern models, including

the potential impact of climate change;

– Evaluating the Group’s existing access to sources of

ﬁnancing, including undrawn committed bank facilities,

including the impact of changes in interest rates on

proﬁtability;

– Reading analyst reports, industry data and other external

information to determine if it provided corroborative or

contradictory evidence in relation to assumptions used;

– Comparing forecasted sales to recent historical ﬁnancial

information;

– Testing the underlying data generated to prepare the

forecast scenarios and determined whether there was

adequate support for the assumptions underlying the

forecast; and

– Evaluating the Group’s disclosures on going concern against

the requirements of IAS 1.

Based on the work we have performed, we have not identiﬁed

any material uncertainties relating to events or conditions that,

individually or collectively, may cast signiﬁcant doubt on the

Group’s and Parent company’s ability to continue as a going

concern for a period of at least twelve months from when the

ﬁnancial statements are authorised for issue.

Report on the audit of the ﬁnancial statements continued

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171

Governance and remunerationStrategic report

Financial statements Investor information

Independent Auditor’s report continued

Key audit matter description How the scope of our audit responded to the key audit matter

Valuation of the ViiV Healthcare Shionogi contingent

consideration liability

The Group has completed a number of signiﬁcant

transactions which resulted in the recognition of material

contingent consideration liabilities, which are a key source of

estimation uncertainty. The most signiﬁcant of these

liabilities was the ViiV Healthcare Shionogi Contingent

Consideration Liability (ViiV CCL).

The Group completed the acquisition of the remaining 50%

interest in the Shionogi-ViiV Healthcare joint venture in 2012.

Upon completion, the Group recognised a contingent

consideration liability for the fair value of the expected

future payments to be made to Shionogi. As at 31 December

2022 the liability was valued at £5,890 million.

We identiﬁed the ViiV CCL as a key audit matter because of

the signiﬁcant estimates and assumptions relating to the

sales forecasts used in valuing the ViiV CCL and the

sensitivity of the valuation to these inputs. The most

signiﬁcant of these relate to sales forecasts in the United

States (US) on certain products in the treatment portfolio.

Such forecasts are based on an assessment of the expected

launch dates, the ability to shift market practice and

prescriber behaviour towards long-acting injectable

treatments and 2-drug regimens, the impact of healthcare

reform and subsequent sales volumes and pricing. There is

incremental challenge in forecasting sales associated with

recently launched products due to the lack of historical

actual data. The forecasts also required signiﬁcant audit

effort to perform appropriate audit procedures to challenge

and evaluate the reasonableness of those forecasts.

Contingent consideration liabilities, including the ViiV CCL,

are disclosed as a key source of estimation uncertainty in

Note 3 of the Group ﬁnancial statements with further

disclosures provided in Notes 29, 33 and 44. The matter is

also discussed in the Audit & Risk Committee report within

the Corporate Governance section of the Annual Report.

Audit procedures performed

We performed the following audit procedures, amongst others,

related to the sales forecasts:

– Obtained the Group’s assessment of the key inputs and

assumptions used in the forecasts and challenged the

reasonableness of these, including through enquiries of key

individuals from the senior leadership team, commercial

strategy team and key personnel involved in the budgeting and

forecasting process, and inspection of supporting evidence;

– Challenged the US volume assumptions made by the Group to

estimate sales forecasts. This involved benchmarking forecast

market share data against external data, such as total

prescription volumes and new patient prescription volumes, in

order to assess for any sources of contradictory evidence;

– Challenged the reasonableness of US pricing assumptions

by the Group, by comparing the forecasted Returns and

Rebates rate by product against the current rate, and

assessing the forecasted Returns and Rebates against

comparable products considering expected changes in

payer policy and healthcare reform implications;

– Considered the results of clinical studies undertaken in the year

by the Group and key competitors in order to assess whether

these are corroborative or contradictory to assumptions used in

the product portfolio sales forecasts in the US;

– Benchmarked the Group’s sales forecasts against those

included in reports from nine analysts and considered sales

forecasts on both a total ViiV basis and an individual product

basis, assessing against identiﬁed contradictory data; and

– Tested the controls over the key inputs and assumptions used

in the valuation of the contingent consideration liability,

including review controls over the sales forecasts of the

treatment product portfolio used to value the ViiV CCL.

Key observations communicated to the Audit & Risk Committee

The sales forecasts used in the valuation are reasonable and in

line with relevant supporting information. We are satisﬁed that

the sales forecasts appropriately reﬂect trends in the overall

HIV treatment and prevention markets including the impacts of

competition, healthcare reform and a predicted shifts towards

long-acting injectable products.

The approach to valuing the ViiV CCL was consistent with prior

periods and overall we are satisﬁed that the valuation liability is

reasonable and consistent with IFRS.

6. Key audit matters

Key audit matters are those matters that, in our professional judgement, 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.

We have included two additional key audit matters in 2022: the consumer healthcare demerger and the valuation of the contingent

liabilities and signiﬁcant legal proceedings. This reﬂects the additional audit effort required this year in relation to these.

These matters were addressed in the context of our audit of the ﬁnancial statements as a whole, and in forming our opinion on the

ﬁnancial statements as a whole, we do not provide a separate opinion on these matters

Report on the audit of the ﬁnancial statements continued

In relation to the reporting on how the Group has applied the UK

Corporate Governance Code, we have nothing material to add

or draw attention to in relation to the Directors’ statement in the

ﬁnancial statements about whether the Directors considered it

appropriate to adopt the going concern basis of accounting.

Our responsibilities and the responsibilities of the Directors with

respect to going concern are described in the relevant sections

of this report accounting.

GSK Annual Report 2022

172

Report on the audit of the ﬁnancial statements continued

Key audit matter description How the scope of our audit responded to the key audit matter

Valuation of US Returns and Rebates (RAR) accruals

In the US the Group sells to customers under various

commercial and government mandated contracts and

reimbursement arrangements that include rebates,

chargebacks and a right of return for certain pharmaceutical

products. As such, revenue recognition reﬂects gross-to-net

sales adjustments. These adjustments are known as the

Returns and Rebates (RAR) accruals and are a source of

signiﬁcant estimation uncertainty which could have a

material impact on reported revenue.

In US Commercial Operations in 2022 £15,272 million of RAR

deductions were made to gross revenue of £29,814 million,

resulting in net revenue of £14,542 million. The balance sheet

accrual at 31 December 2022 for US Commercial Operations

amounted to £5,855 million.

The four most signiﬁcant payer channels (also referred to as

buying groups) to which the RAR accrual relates are

managed healthcare organisations, Medicaid, Ryan White

and Medicare Part D.

The two main causes of signiﬁcant estimation uncertainty are:

– The utilisation rate, which is the portion of total sales that

will be made into each payer channel, estimated by the

Group in recording the accruals. The utilisation assumption

is the most challenging of the key assumptions used to

derive the accrual given that it is inﬂuenced by market

demand and other factors outside the control of the Group;

and

– The time lag between the point of sale and the point at

which exact rebate amounts are known to the Group upon

receipt of a claim. Those payer channels with the longest

time lag result in a greater accrued period, and therefore,

a greater level of estimation uncertainty in estimating the

period end accrual.

The level of estimation uncertainty is also impacted by

signiﬁcant shifts in channel mix driven by changes in the

competitive landscape, including competitor and generic

product launches and other macroeconomic factors. As such,

we focus on the utilisation assumptions for those products

where we deem the level of estimation uncertainty to be the

most signiﬁcant.

Furthermore, auditing standards presume that a signiﬁcant

fraud risk exists in revenue recognition. In line with this

presumption, we also focus on the period-end adjustments

made to the RAR accruals. These adjustments reﬂected

updates made to the initial assumptions included within the

forecasted RAR rates and, in our view, present the greatest

opportunity for fraud in revenue recognition (notwithstanding

the existence of internal controls).

US Commercial Operations returns and rebates are disclosed

as a key source of estimation uncertainty in Note 3 of the

Group ﬁnancial statements with further disclosures provided

in Note 29. The matter is also discussed in the Audit & Risk

Committee report within the Corporate Governance section

of the Annual Report.

Audit procedures performed

We performed the following audit procedures, amongst others,

related to estimates in the RAR accruals:

– Challenged assumptions for a selection of utilisation rates,

focusing on certain products where we concluded the

accrual is most sensitive to these assumptions. Our challenge

included comparison to historical utilisation rates,

consideration of historical accuracy and drivers of market

changes such as the impact of competition and

macroeconomic trends;

– Supplemented this with substantive analytical procedures by

developing an independent expectation of the accrual

balance for each of the key segments, based on historical

claims received adjusted to reﬂect market changes in the

period including an assessment of the time lag between the

initial point of sale and the claim receipt. We then compared

this independent expectation to those recorded to evaluate

the appropriateness of the year ending accrual position;

– Considered the historical accuracy of estimates and

evaluated whether forecast assumptions had been

appropriately updated in a selection of cases where the

actual rebate claims differed to the amount accrued;

– Evaluated the appropriateness of, and completeness of,

period-end adjustments to the liability made as part of the

ongoing review of the estimated accrual; and

– Tested the key controls over the estimation of RAR accruals

including the controls associated with the forecasting of

utilisation rates process and the month-end accrual review

controls.

Key observations communicated to the Audit & Risk Committee

We are satisﬁed that the estimated liability of the RAR accruals

at the year-end is appropriate. We observed a level of

prudence in the estimate when assessing against our own

independent expectations, in accordance with the

requirements of IFRS 15 Revenue from contracts with customers

to limit the risk of a signiﬁcant reversal of revenue.

Independent Auditor’s report continued

GSK Annual Report 2022

173

Governance and remunerationStrategic report

Financial statements Investor information

Report on the audit of the ﬁnancial statements continued

Key audit matter description How the scope of our audit responded to the key audit matter

Valuation of other intangible assets

As at 31 December 2022, the Group held £13,663 million of

other intangible assets (including licenses, patents,

trademarks, and trade names, but excluding goodwill and

computer software). This includes £2,964 million of

intangible assets acquired as part of business combinations

with Sierra Oncology Inc and Afﬁnivax Inc during the year.

During 2022, impairment charges of £330 million were

recorded.

An individual intangible asset, or an intangible asset which

forms part of a cash-generating unit, is impaired when its

carrying amount exceeds its recoverable amount. The

recoverable amount of these other intangible assets relies

on certain assumptions and estimates of future trading

performance which create estimation uncertainty.

Future trading performance of intangible assets includes

key assumptions such as sales pricing, volume, growth rates

and probability of technical and regulatory success of

ongoing clinical trials. This includes assumptions on timing

of cash ﬂows determined by anticipated launch year, peak

year sales, subsequent sales erosion due to generic product

competition and proﬁt margin levels. In addition, due to the

impact of uncertainty driven by ongoing global

macroeconomic volatility, the valuation of intangible assets

will also be affected by discount rate assumptions made by

the Group.

We identiﬁed the valuation of other intangible assets as a

key audit matter due to the inherent judgements involved in

estimating future cash ﬂows. Auditing such assumptions and

estimates required extensive audit effort to challenge and

evaluate the reasonableness of forecasts and judgements.

The disclosures relating to other intangible assets, including

those acquired as part of business combinations, are

included in Note 20 and 41 of the Group ﬁnancial

statements. The matter is also discussed in the Audit & Risk

Committee report within the Corporate Governance section

of the Annual Report.

Audit procedures performed

We performed the following audit procedures, amongst others,

related to the future sales pricing, volume, growth rates and

probability of technical and regulatory success, proﬁt margin

levels, and discount rates used in the assessment in the

valuation of other intangible assets:

– Inquired with the key individuals from the corporate

development team, commercial forecasting leads, and key

personnel involved in the assets research and development

process to discuss and evaluate the Group’s evidence to

support the future pricing, volume, sales growth rates and

probability of regulatory and technical success;

– Evaluated the key inputs and assumptions applied in estimating

sales and proﬁt margin forecasts, including benchmarking of

forecasts against external market data. This included

independent market research of therapeutic area price points,

price growth rates, and anticipated competitor market

landscape, currently and at the time of forecast regulatory

approval, plus assessment of any sources of contradictory

evidence;

– Inspected independent research and literature to consider

corroborative and contradictory evidence to assess

assumptions on probability of technical and regulatory success;

– Compared the forecast sales and proﬁt margin levels to the

Plan data (asset by asset internal forecasts) approved by the

GSK Leadership Team and the Board of Directors, where the

in-development intangible asset is forecast to launch within the

next 3-year period;

– Assessed the historical accuracy of sales forecasts by

performing retrospective reviews across marketed assets within

the business;

– Considered whether events or transactions that occurred after

the balance sheet date but before the reporting date affect the

conclusions reached on the carrying values of the assets and

associated disclosures;

– Engaged Internal Fair Valuation Specialists (IFVS) to assess the

reasonableness of discount rates and valuation methodology

applied; and

– Tested review controls over the key inputs and assumptions

used in the valuation of other intangible assets. The controls

encompass review of the valuation models, which contain a

number of assumptions such as the probability of technical and

regulatory success, launch dates plus other revenue and cost

assumptions number of assumptions such as the revenue

growth rates and proﬁt margins.

Key observations communicated to the Audit & Risk Committee

For those intangible assets which were acquired during the

period as part of the Sierra Oncology Inc and Afﬁnivax Inc

business acquisition, although we identiﬁed some control

deﬁciencies we concluded that the complex assumptions

underpinning the fair value of intangible assets reﬂected in

the purchase price allocations were reasonable and in

accordance with IFRS.

For those intangible assets in-development and subject to

impairment reviews we concluded that the judgements made

by the directors were reasonable and in accordance with IFRS.

We are satisﬁed that the controls over intangible assets are

designed and operating effectively or control deﬁciencies

identiﬁed were mitigated by compensating controls.

Independent Auditor’s report continued

GSK Annual Report 2022

174

Report on the audit of the ﬁnancial statements continued

Key audit matter description How the scope of our audit responded to the key audit matter

Valuation of uncertain tax positions, including transfer pricing

The Group operates in numerous jurisdictions and there are

open tax and transfer pricing matters and exposures with

UK, US and overseas tax authorities that give rise to

uncertain tax positions. There is a wide range of possible

outcomes for provisions and contingencies. Certain

judgements in respect of estimates of tax exposures and

contingencies are required in order to assess the adequacy

of tax provisions, which are sometimes complex as a result

of the considerations required over multiple tax laws and

regulations.

At 31 December 2022, the Group has recorded provisions of

£551 million in respect of uncertain tax positions.

Valuation of uncertain tax positions is disclosed as a key

source of estimation uncertainty in Note 3 of the Group

ﬁnancial statements with further disclosures included in

Note 14. The matter is also discussed in the Audit & Risk

Committee report within the Corporate Governance section

of the Annual Report.

Audit procedures performed

With the support of tax specialists, we assessed the

appropriateness of the uncertain tax provisions by performing

the following audit procedures amongst others:

– Assessed and challenged provisions for uncertain tax

positions through the evaluation of possible outcomes. Our

procedures were focused on those jurisdictions where the

Group has the greatest potential exposure and where the

highest level of judgement is required;

– Assessed the assumptions and judgements that are required

to determine the range of possible outcomes for recognition

and measurement of uncertain tax positions in compliance

with the requirements of IFRIC 23;

– Involved our transfer pricing specialists to evaluate the

transfer pricing methodology of the Group and associated

approach to provision recognition and measurement;

– Considered evidence such as the actual results from the

recent tax authority audits and enquiries, third-party tax

advice obtained by the Group and our tax specialists’ own

knowledge of market practice in relevant jurisdictions; and

– Tested key controls over preparation, review and reporting of

judgmental tax balances and transactions, which include

provisions for uncertain tax provisions.

Key observations communicated to the Audit & Risk Committee

We are satisﬁed that the estimates in relation to uncertain tax

positions and the related disclosures are in accordance with

IFRS. From our work we concluded that a consistent approach

has been applied to estimating uncertain tax provisions which,

whilst continuing to be prudent as required by IFRIC 23, are

appropriate and supportable

Independent Auditor’s report continued

GSK Annual Report 2022

175

Governance and remunerationStrategic report

Financial statements Investor information

Key audit matter description How the scope of our audit responded to the key audit matter

Consumer Healthcare Demerger

As set out in Note 41, on 18 July 2022, GSK plc separated its

Consumer Healthcare business from the GSK Group to form

Haleon, an independent listed company. The separation

was effected by way of a demerger of 80.1% of GSK’s 68%

holding in the Consumer Healthcare business to GSK

shareholders. GSK retained 13.5% of Haleon (7.5% are held

by Scottish Limited Partnership structures (SLPs)) which are

recognised as an equity investment as set out in Note 22.

The Group derecognised net assets and liabilities of £12.9

billion and recognised a gain on demerger of £10.1 billion.

The Consumer Healthcare trading results to the demerger

date have been presented as a part of discontinued

operations and the comparative results have been restated

on a consistent basis. At the demerger date the assets and

liabilities of the Consumer business have been

derecognised from the balance sheet, with the difference

between the value of the net assets and the fair value of

the demerged business recognised in the consolidated

income statement as a gain on demerger. The cumulative

exchange differences arising on translation of those

Consumer Healthcare foreign currency net assets,

previously included in other comprehensive income, have

also been recognised in the consolidated income

statement.

We identiﬁed the demerger of Consumer Healthcare as a

key audit matter because of the signiﬁcant estimates

related to calculating the gain on demerger and

remeasuring the retained stake upon demerger, assessing

the perimeters of the demerged business, validating the

cumulative exchange differences arising on translation of

the foreign currency net assets of the divested businesses,

evaluating the Group’s tax treatment of the demerger and

assessing the impact on relevant IT systems prior to the

demerger. This required a high degree of auditor judgment

and an increased extent of effort, including the need to

involve our technical accounting, tax, and IT specialists,

when performing audit procedures.

The matter is also discussed in the Audit & Risk Committee

report within the Corporate Governance section of the

Annual Report.

Audit procedures performed

We performed the following audit procedures, amongst others,

related to the Consumer Healthcare demerger:

– Consulted with technical accounting specialists to evaluate

the entity’s accounting conclusions in respect of the relevant

accounting standards for the demerger steps including:

– the presentation of Consumer Healthcare results as a part

of discontinued operations;

– the calculation of the gain on demerger; and

– the retained stake upon demerger.

– Recalculated the gain on demerger and the fair value of the

Consumer Healthcare business at the demerger date;

– Tested the accuracy and completeness of the perimeters of

the demerged business by inspecting legal agreements and

recalculating the cumulative exchange differences arising on

translation of the foreign currency net assets;

– Engaged tax specialists to assess the impact of the

demerger on the Group tax balances;

– Engaged IT specialists to assess the impact on the relevant

IT systems prior to the demerger of Consumer Healthcare;

and

– Tested key controls over IT and the reporting of the

Consumer Healthcare Demerger including the review and

approval of the accounting considerations, accuracy and

completeness of transactions to the demerger date, the

cumulative exchange reserve and the adjustments required

in relation to the classiﬁcation between continued and

discontinued operations.

Key observations communicated to the Audit & Risk Committee

WearesatisfiedthattheGroup’saccountingconclusions

calculationofthegainfromdemergerandpresentation

ofdiscontinuedoperationsinrespectofthedemergerof

theConsumerHealthcarebusinessareappropriateandin

accordancewithIFRS

Independent Auditor’s report continued

Report on the audit of the ﬁnancial statements continued

GSK Annual Report 2022

176

Key audit matter description How the scope of our audit responded to the key audit matter

IT systems that impact ﬁnancial reporting

The IT systems within the Group form a critical component

of the Group’s ﬁnancial reporting activities and impact all

account balances.

We identiﬁed the IT systems that impact ﬁnancial reporting

as a key audit matter because of the:

– Pervasive reliance on complex technology that is integral

to the operation of key business processes and ﬁnancial

reporting;

– Reliance on technology which continues to increase in

line with the business strategy, such as the increase in the

use of automation across the Group;

– Importance of the IT controls in maintaining an effective

control environment. A key interdependency exists

between the ability to rely on IT controls and the ability to

rely on ﬁnancial data, system conﬁgured automated

controls and system reports;

– Continued remediation of IT controls supporting the

application systems relevant to the Group’s ﬁnancial

reporting activities; and

– Separation activities undertaken across the Technology

environment as part of the GSK Consumer Healthcare

separation programme.

IT systems which impact ﬁnancial reporting are discussed

in the Audit & Risk Committee report within the Corporate

Governance section of the Annual Report.

Audit procedures performed

Our IT audit scope is driven by the level of reliance placed on

technology to obtain sufﬁcient audit evidence within a business

process. The technology deemed relevant to the audit is based

on the ﬁnancial data, system conﬁgured automated controls

and/or key ﬁnancial reports that reside within it. We used IT

specialists to support our evaluation of the risks associated

with technology and with the testing of the design and

operation of IT controls.

Testing over the technology deemed relevant to the audit

included the following areas:

– General IT controls, including user access and change

management controls;

– Key ﬁnancial reports and system conﬁgured automated

controls;

– Controls to provide assurance over the completeness and

accuracy of relevant data migrations, including GSK

Consumer Healthcare separation activities; and

– Testing of remediation of previously identiﬁed deﬁciencies.

Our risk assessment procedures included an assessment of the

impact of all unremediated IT control deﬁciencies to determine

the impact on our audit plan. Where relevant, the audit plan

was adjusted to include the testing of additional manual

business process controls to mitigate the unaddressed IT risk.

Key observations communicated to the Audit & Risk Committee

We are satisﬁed that IT controls impacting the Group’s ﬁnancial

reporting activities are designed and operating effectively or

control deﬁciencies identiﬁed were remediated by year end or

mitigated by compensating controls.

Signiﬁcant progress was made in remediating control deﬁciencies

relating to user access and change management. The Group has

many layers of business process controls to mitigate the risk

associated with the remaining IT control deﬁciencies.

Independent Auditor’s report continued

Report on the audit of the ﬁnancial statements continued

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Governance and remunerationStrategic report

Financial statements Investor information

Key audit matter description How the scope of our audit responded to the key audit matter

Valuation of the contingent liabilities and signiﬁcant legal

proceedings

The Group operates in an environment where it is subject to

signiﬁcant legal and administrative proceedings, including

product liability, intellectual property, tax, anti-trust,

consumer fraud and governmental regulations.

The Group is currently exposed to a number of regulatory

and litigation matters. In the current year, the Group

classiﬁed the Zantac litigation as a signiﬁcant legal matter

due to the increase in cases. The Group’s provision for these

matters is £218 million at 31 December 2022. Other matters

are disclosed as contingent liabilities where the criteria for

recognising a provision under IAS 37 Provisions, Contingent

Liabilities and Contingent Assets are not met.

We identiﬁed contingent liabilities and signiﬁcant legal

proceedings as a key audit matter because of the

signiﬁcant judgement required by the Group in determining

whether, under IAS 37, in particular in relation to the Zantac

matter, as to:

– Whether the outcome will result in a probable outﬂow,

particularly where the outcome of litigation is uncertain

and subject to additional court proceedings;

– The determination of a reliable estimate can be made of

the amounts of the obligation; and

– The nature and extent of any contingent liabilities and

underlying signiﬁcant estimation uncertainties disclosed.

Contingent liabilities and Signiﬁcant legal proceedings are

disclosed in Notes 35 and 47, respectively. The key audit

matter is discussed within the Corporate Governance

section of the Annual Report.

Audit procedures performed

We performed the following audit procedures:

– Tested the Group’s controls over the completeness of

provisions, the robustness of the provision against the

requirements of IAS 37, the appropriateness of judgements

used to determine a ‘best estimate’ and completeness and

accuracy of data used in the process;

– Evaluated the assessment of the provisions, associated

probabilities, and potential outcomes in accordance with IAS

37;

– Evaluated the methodology, data and signiﬁcant

judgements and assumptions used in the valuation of the

provisions are appropriate in the context of the applicable

ﬁnancial reporting framework;

– Inquired with and inspected correspondence from the

Group’s internal and external counsel to assess the litigation

matter and evaluate the Group’s signiﬁcant judgements and

assumptions;

– Where no provision was made, we critically evaluated the

Group’s conclusion supportive and contradictory evidence

and the requirements of IAS 37, particularly with respect to

the Zantac matter;

– In respect of the Zantac matter, we inspected the evidence

presented in relevant scientiﬁc studies and the outcomes of

other product liability litigation in the same jurisdictions

alongside the entity’s assessment of possible outcomes of

each ongoing and future trials; and

– Evaluated whether the disclosures made in the ﬁnancial

statements appropriately reﬂect the facts and critical

accounting judgements.

Key observations communicated to the Audit & Risk Committee

We are satisﬁed that the estimation of the provisions and

contingent liability disclosures are consistent with the requirements

of IAS 37.

Independent Auditor’s report continued

Report on the audit of the ﬁnancial statements continued

GSK Annual Report 2022

178

Report on the audit of the ﬁnancial statements continued

7. Other information

The other information comprises the information included in the Annual Report, other than the ﬁnancial statements and our

auditor’s report thereon. The Directors are responsible for the other information contained within the Annual Report. Our opinion

on the ﬁnancial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report,

we do not express any form of assurance conclusion thereon.

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 course of 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 this gives

rise to a material misstatement in the ﬁnancial statements themselves. 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 summarise below our work in relation to areas of the other information including those areas upon which we are speciﬁcally

required to report:

Matters we are speciﬁcally required to report

Our responsibility Our reporting

Principal risks and viability statement

Review the conﬁrmation and description in the light of the knowledge

gathered during the audit, such as through considering the directors’

processes to support the statements made, challenging key judgements

and estimates, consideration of historical forecasting accuracy and

evaluating macro-economic assumptions.

Consider if the statements are aligned with the relevant provisions of the

Code.

As set out in the “Corporate governance statement”

section, we have nothing material to report, add or

draw attention to in respect of these matters.

Directors’ Remuneration report

Report whether the part of the Directors’ Remuneration report to be audited

is properly prepared and the disclosures speciﬁed by the Companies Act

have been made.

As set out in the ‘Opinions on other matters prescribed

by the Companies Act 2006’ section, in our opinion,

the part of the directors’ remuneration report to be

audited has been prepared in accordance with the

Companies Act 2006.

Strategic report and directors’ report

Report whether they are consistent with the audited ﬁnancial statements

and are prepared in accordance with applicable legal requirements.

Report if we have identiﬁed any material misstatements in either report in

the light of the knowledge and understanding of the Group and of the

Parent company and their environment obtained in the course of the

audit.

As set out in the “Opinions on other matters

prescribed by the Companies Act 2006” section, in our

opinion, based on the work undertaken in the course

of the audit, the information in these reports is

consistent with the audited ﬁnancial statements and

has been prepared in accordance with applicable

legal requirements.

As referenced on page 62, we have provided limited

assurance in accordance with International Standards

for Assurance Engagements 3000 (ISAE 3000) and

Assurance Engagements on Greenhouse Gas

Emissions 3410 (ISAE 3410) issued by the International

Auditing and Assurance Standards Board (IAASB)

over selected metrics.

Independent Auditor’s report continued

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179

Governance and remunerationStrategic report

Financial statements Investor information

Other reporting on other information

Our responsibility Our reporting

Alternative performance measures (APMs)

APMs are measures that are not deﬁned by generally accepted

accounting practice (GAAP) and therefore are not typically included in

the ﬁnancial statement part of the Annual Report. The Group use APMs,

such as adjusted proﬁt, free cash ﬂow and constant currency growth

rates in its reporting of ﬁnancial performance.

We have reviewed and assessed the calculation and reporting of these

metrics to assess consistency with the Group’s published deﬁnitions and

policies for these items.

We have also considered and assessed whether the use of APMs in the

Group’s reporting results is consistent with the guidelines produced by

regulators such as the European Securities and Markets Authority

(ESMA) guidelines on the use of APMs and the FRC Alternative

Performance Measures Thematic Review published in October 2021.

We also considered whether there was an appropriate balance between

the use of statutory metrics and APMs, in addition to whether clear

deﬁnitions and reconciliation for APMs used in ﬁnancial reporting have

been provided.

In our opinion:

– the use, calculation and disclosure of APMs is

consistent with the Group’s published deﬁnitions

and policies;

– the use of APMs in the Group’s reporting results is

consistent with the guidelines produced by ESMA

and FRC; and

– there is an appropriate balance between the use of

statutory metrics and APMs, together with clear

deﬁnitions and reconciliation for APMs used in

ﬁnancial reporting.

Dividends and distribution policy

Consider whether the dividends policy is transparent, and the dividends

paid are consistent with the policy, as outlined in the strategic report on

page 80.

In our opinion the dividends policy is appropriately

disclosed, and dividends paid are consistent with the

policy.

Report on the audit of the ﬁnancial statements continued

8. Responsibilities of directors

As explained more fully in the directors’ responsibilities

statement, 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.

In preparing the ﬁnancial statements, the directors are

responsible for assessing the Group’s and the 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.

9. 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.

A further description of our responsibilities for the audit of the

ﬁnancial statements is located on the FRC’s website at: www.

frc.org.uk/auditorsresponsibilities. This description forms part of

our auditor’s report.

Independent Auditor’s report continued

GSK Annual Report 2022

180

10. Extent to which the audit was considered

capable of detecting irregularities, including fraud

Irregularities, including fraud, are instances of non-compliance

with laws and regulations. We design procedures in line with

our responsibilities, outlined above, to detect material

misstatements in respect of irregularities, including fraud. The

extent to which our procedures are capable of detecting

irregularities, including fraud is detailed below.

Identifying and assessing potential risks related to

irregularities

In identifying and assessing the risks of material misstatement

in respect of irregularities, including fraud and non-compliance

with laws and regulations, we considered the following:

– the nature of the industry and sector, control environment

and business performance including the design of the

Group’s remuneration policies, key drivers for directors’

remuneration, bonus levels and performance targets;

– results of our enquiries of the senior leadership team, internal

audit and the Audit & Risk Committee, including obtaining

and reviewing supporting documentation, concerning the

Group’s policies and procedures relating to:

– identifying, evaluating and complying with laws and

regulations and whether they were aware of any instances

of non-compliance;

– detecting and responding to the risks of fraud and whether

they have knowledge of any actual, suspected or alleged

fraud; and

– the internal controls established to mitigate risks related to

fraud or non-compliance with laws and regulations; and

– the matters discussed among the engagement team

including signiﬁcant component audit teams and involving

relevant internal specialists, including tax, valuations,

pensions, IT and industry specialists regarding how and

where fraud might occur in the ﬁnancial statements and any

potential indicators of fraud.

We obtained an understanding of the legal and regulatory

frameworks that the Group operates in, focusing on provisions

of those laws and regulations that had a direct effect on the

determination of material amounts and disclosures in the

ﬁnancial statements. The key laws and regulations we

considered in this context included the provisions of the UK

Companies Act, pensions legislation and tax legislation. We

have also considered key laws and regulations that had a

fundamental effect on the operations of the Group, including

the Good Clinical Practice, the FDA regulations, General Data

Protection requirements, Anti-bribery and corruption policy

and the Foreign Corrupt Practices Act.

Report on the audit of the ﬁnancial statements continued

Audit response to risks identiﬁed

As a result of performing the above, we identiﬁed the Valuation

of US Returns and Rebates accruals as a key audit matter

related to the potential risk of fraud. The key audit matters

section of our report explains the matter in more detail and

also describes the speciﬁc procedures in response to that key

audit matter. In common with all audits under ISAs (UK), we are

also required to perform speciﬁc procedures to respond to the

risk of management override.

In addition to the above, our procedures to respond to risks

identiﬁed included the following:

– reviewing the ﬁnancial statement disclosures and testing to

supporting documentation to assess compliance with

provisions of relevant laws and regulations described as

having a direct effect on the ﬁnancial statements;

– enquiring of the senior leadership team, the Audit & Risk

Committee and in-house and external legal counsel

concerning actual and potential litigation and claims;

– performing analytical procedures to identify any unusual or

unexpected relationships that may indicate risks of material

misstatement due to fraud;

– reading minutes of meetings of those charged with

governance, reviewing internal audit reports and

correspondence with regulators; and

– in addressing the risk of fraud through management override

of controls, testing the appropriateness of journal entries and

other adjustments; assessing whether the judgements made

in making accounting estimates are indicative of a potential

bias; and evaluating the business rationale of any signiﬁcant

transactions that are unusual or outside the normal course of

business.

We also communicated relevant identiﬁed laws and

regulations and potential fraud risks to all engagement team

members and signiﬁcant component audit teams and

remained alert to any indications of fraud or non-compliance

with laws and regulations throughout the audit.

Report on other legal and regulatory requirements

11. 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.

Independent Auditor’s report continued

GSK Annual Report 2022

181

Governance and remunerationStrategic report

Financial statements Investor information

Report on the audit of the ﬁnancial statements continued

In the light of the knowledge and understanding of the Group

and of the Parent company and their environment obtained in

the course of the audit, we have not identiﬁed any material

misstatements in the strategic report or the directors’ report.

12. Corporate governance statement

The Listing Rules require us to review the directors’ statement in

relation to going concern, longer-term viability and that part of

the corporate governance statement relating to the Group’s

compliance with the provisions of the UK Corporate

Governance Code speciﬁed for our review.

Based on the work undertaken as part of our audit, we have

concluded that each of the following elements of the

Corporate Governance Statement is materially consistent with

the ﬁnancial statements and our knowledge obtained during

the audit:

– the directors’ statement with regards to the appropriateness

of adopting the going concern basis of accounting and any

material uncertainties identiﬁed set out on page 167;

– the directors’ explanation as to its assessment of the Group’s

prospects, the period this assessment covers and why the

period is appropriate is set out on page 64;

– the directors’ statement on fair, balanced and

understandable Annual Report set out on page 129;

– the board’s conﬁrmation that it has carried out a robust

assessment of the emerging and principal risks set out on

pages 51 to 54;

– the section of the Annual Report that describes the review

of effectiveness of risk management and internal control

systems set out on pages 125 to 126; and

– the section describing the work of the audit and risk

committee set out on page 124 to 129.

13. Matters on which we are required to report by

exception

Adequacy of explanations received and accounting records

Under the Companies Act 2006 we are required to report to

you if, in our opinion:

– we have not received all the information and explanations

we require for our audit; or

– 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 are not in

agreement with the accounting records and returns.

We have nothing to report in respect of these matters.

Directors’ remuneration

Under the Companies Act 2006 we are also required to report

if in our opinion certain disclosures of directors’ remuneration

have not been made or the part of the directors’ remuneration

report to be audited is not in agreement with the accounting

records and returns.

We have nothing to report in respect of these matters.

14. Other matters which we are required to address

Auditor tenure

Following the recommendation of the Audit & Risk Committee,

with effect from 1 January 2018 we were appointed by the

Board of Directors to audit the ﬁnancial statements for the

year ended 31 December 2018 and subsequent ﬁnancial

periods. The period of total uninterrupted engagement of the

ﬁrm is ﬁve years.

Consistency of the audit report with the additional report to

the Audit & Risk Committee

Our audit opinion is consistent with the additional report to the

Audit & Risk Committee we are required to provide in

accordance with ISAs (UK).

15. Use of our report

This report is made solely to the Parent 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 Parent 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 Parent company and the Parent company’s members as a

body, for our audit work, for this report, or for the opinions we

have formed.

In due course, as required by the Financial Conduct Authority

(FCA) Disclosure Guidance and Transparency Rule (DTR)

4.1.14R, these ﬁnancial statements will form part of the

European Single Electronic Format (ESEF)-prepared Annual

Financial Report ﬁled on the National Storage Mechanism of

the UK FCA in accordance with the ESEF Regulatory Technical

Standard (ESEF RTS). This auditor’s report provides no

assurance over whether the annual ﬁnancial report has been

prepared using the single electronic format speciﬁed in the

ESEF RTS.

The Parent company has passed a resolution in accordance

with section 506 of the Companies Act 2006 that the senior

statutory auditor’s name should not be stated.

Deloitte LLP

Statutory Auditor

London, United Kingdom

9 March 2023

Independent Auditor’s report continued

GSK Annual Report 2022

182

Consolidated income statement

for the year ended 31 December 2022

Notes

2022

£m

2021

(1)

£m

2020

(1)

£m

Turnover

29,324 24,696 24,354

Cost of sales (9, 55 4) (8,163) ( 7,929)

Gross proﬁt 19,770 16,533 16,425

Selling, general and administration (8,372) ( 7,070) (7,437 )

Research and development (5,488) (5,019) (4,7 93)

Royalty income 758 417 321

Other operating (expense)/income

(235) (504) 1,463

Operating proﬁt

6,433 4,357 5,979

Finance income

76 14 32

Finance expense

(879) (769) (874)

Loss on disposal of interest in associates

– (36) –

Share of after tax (loss)/proﬁts of associates and joint ventures (2) 33 33

Proﬁt before taxation 5,628 3,599 5,170

Taxation 14 (707) (83) (67 )

Proﬁt after taxation from continuing operations 4,921 3,516 5,103

Proﬁt after taxation from discontinued operations and other gains/(losses) from the demerger 3,049 1,580 1,285

Re-measurement of discontinued operations distributed to shareholders on demerger 7,6 5 1 – –

Proﬁt after taxation from discontinued operations 10,700 1,580 1,285

Total proﬁt after taxation for the year 15,621 5,096 6,388

Proﬁt attributable to non-controlling interests from continuing operations 460 200 230

Proﬁt attributable to shareholders from continuing operations 4,461 3,316 4,873

Proﬁt attributable to non-controlling interests from discontinued operations 205 511 409

Proﬁt attributable to shareholders from discontinued operations 10,495 1,069 876

15,621 5,096 6,388

Total proﬁt attributable to non-controlling interests 665 711 639

Total proﬁt attributable to shareholders 14,95 6 4,385 5,749

15,621 5,096 6,388

Basic earnings per share (pence) from continuing operations

110.8p 82.9p 122.4p

Basic earnings per share (pence) from discontinued operations 260.6p 26.7p 22.0p

Total Basic earnings per share (pence) 371.4p 109.6p 144.4p

Diluted earnings per share (pence) from continued operations

10 9.2p 81.8p 12 0.9p

Diluted earnings per share (pence) from discontinued operations 257.0p 26.4p 21.7p

Total diluted earnings per share (pence) 366.2p 108.2p 142.6p

Consolidated statement of comprehensive income

for the year ended 31 December 2022

Notes

2022

£m

2021

(a)

£m

2020

(a)

£m

Total proﬁt for the year 15,621 5,096 6,388

Other comprehensive income/(expense) for the year

Items that may be subsequently reclassiﬁed to continuing operations income statement:

Exchange movements on overseas net assets and net investment hedges

113 (339) (416)

Reclassiﬁcation of exchange movements on liquidation or disposal of overseas subsidiaries and associates

2 (25) 36

Fair value movements on cash ﬂow hedges (18) 5 (19)

Reclassiﬁcation of cash ﬂow hedges to income statement 14 12 54

Deferred tax on fair value movements on cash ﬂow hedges 9 (8) (18)

120 (355) (363)

Items that will not be reclassiﬁed to continuing operations income statement:

Exchange movements on overseas net assets of non-controlling interests

(28) (20) (10)

Fair value movements on equity investments (754) (911) 1,346

Tax on fair value movements on equity investments 56 131 (220)

Remeasurement (losses)/gains on deﬁned beneﬁt plans (786) 940 (164)

Tax on remeasurement losses/(gains) on deﬁned beneﬁt plans 211 (223) 55

Fair value movements on cash ﬂow hedges (6) – –

(1,307) (83) 1,007

Other comprehensive expense for the year from continuing operations

(1,187) (438) 644

Other comprehensive income for the year from discontinued operations 356 101 326

Total comprehensive income for the year 14,790 4,759 7,358

Total comprehensive income for the year attributable to:

Shareholders 14,153 4,068 6,753

Non-controlling interests 637 691 605

Total comprehensive income for the year 14,790 4,759 7,358

(1) The 2021 and 2020 comparatives have been restated on a consistent basis from those previously published to reﬂect the demerger of the Consumer Healthcare business

(see Note 41) and/or the impact of Share Consolidation (see Note 37).

GSK Annual Report 2022

183

Governance and remunerationStrategic report

Financial statements Investor information

Consolidated balance sheet

as at 31 December 2022

Notes

2022

£m

2021

£m

Non-current assets

Property, plant and equipment

8,933 9,932

Right of use assets

687 740

Goodwill

7,04 6 10,552

Other intangible assets

14,318 30,079

Investments in associates and joint ventures

74 88

Other investments

1,467 2,126

Deferred tax assets

5,658 5,218

Derivative ﬁnancial instruments

– 18

Other non-current assets

1,194 1,676

Total non-current assets 3 9,3 7 7 60,429

Current assets

Inventories

5,146 5,783

Current tax recoverable

405 486

Trade and other receivables

7,053 7,860

Derivative ﬁnancial instruments

190 188

Current equity investments

4,087 –

Liquid investments

67 61

Cash and cash equivalents

3,723 4,274

Assets held for sale

98 22

Total current assets 20,769 18,674

Total assets 60,146 7 9,103

Current liabilities

Short-term borrowings

(3,952) (3,601)

Contingent consideration liabilities

(1,289) (958)

Trade and other payables

(16,263) ( 17,55 4)

Derivative ﬁnancial instruments

(183) (227)

Current tax payable

(47 1) (489)

Short-term provisions

(652) (841)

Total current liabilities (22,810) (23,670)

Non-current liabilities

Long-term borrowings

( 17,03 5) (20,572)

Corporation tax payable

(127) (180)

Deferred tax liabilities

(289) (3,5 56)

Pensions and other post-employment beneﬁts

(2,579) (3,113)

Other provisions

(532) (630)

Derivative ﬁnancial instruments

– (1)

Contingent consideration liabilities

(5,779) (5,118)

Other non-current liabilities

(899) (921)

Total non-current liabilities (27,240) (34,091)

Total liabilities (50,050) (57,761)

Net assets 10,096 21,342

Equity

Share capital

1,347 1,347

Share premium account

3,440 3,301

Retained earnings

4,363 7,944

Other reserves

1,448 2,463

Shareholders’ equity 10,598 15,055

Non-controlling interests (502) 6,287

Total equity 10,096 21,342

The ﬁnancial statements on pages 182 to 267 were approved by the Board on 9 March 2023 and signed on its behalf by

Sir Jonathan Symonds

Chair

GSK Annual Report 2022

184

Consolidated statement of changes in equity

for the year ended 31 December 2022

Shareholders’ equity

capital

£m

premium

£m

Retained

earnings

£m

Other

reserves*

£m

To ta l

£m

Non-controlling

interests

£m

Total

equity

£m

At 31 December 2019 1,346 3,174 4,530 2,355 11,405 6,952 18,357

Proﬁt for the year – – 5,749 – 5,749 639 6,388

Other comprehensive (expense)/income for the year – – (133) 1,137 1,004 (34) 970

Total comprehensive income for the year – – 5,616 1,137 6,753 605 7,358

Distributions to non-controlling interests – – – – – (1,208) (1,208)

Contributions from non-controlling interests – – – – – 3 3

Changes in non-controlling interests – – – – – (131) (131)

Dividends to shareholders – – (3,97 7 ) – (3,97 7 ) – ( 3,9 7 7 )

Realised proﬁts after taxation on disposal of equity

investments

–

163

(163)

–

Share of associates and joint ventures realised proﬁts

on disposal of equity investments

–

(44)

–

Shares issued – 29 – – 29 – 29

Shares acquired by ESOP Trusts – 78 531 (609) – – –

Write-down of shares held by ESOP Trusts – – (529) 529 – – –

Share-based incentive plans – – 381 – 381 – 381

Tax on share-based incentive plans – – (4) – (4) – (4)

At 31 December 2020 1,346 3,281 6,755 3,205 14,587 6,221 20,808

Proﬁt for the year – – 4,385 – 4,385 711 5,096

Other comprehensive (expense)/income for the year – – 454 (771) (317) (20) (337)

Total comprehensive income for the year – – 4,839 (771) 4,068 691 4,759

Distributions to non-controlling interests – – – – – (6 42) (642)

Contributions from non-controlling interests – – – – – 7 7

Dividends to shareholders – – (3,999) – (3,999) – (3,999)

Shares issued 1 20 – – 21 – 21

Realised after tax proﬁts on disposal of equity

investments

–

132

(132)

–

Share of associates and joint ventures realised proﬁts

on disposal of equity investments

–

(7)

–

Write-down of shares held by ESOP Trusts – – (168) 168 – – –

Share-based incentive plans – – 367 – 367 – 367

Transaction with non-controlling interests – – – – – 10 10

Tax on share-based incentive plans – – 11 – 11 – 11

At 31 December 2021 1,347 3,301 7,94 4 2,463 15,055 6,287 21,342

Proﬁt for the year – – 14,956 – 14,956 665 15,621

Other comprehensive (expense)/income for the year – – (89) (714) (803) (28) (831)

Total comprehensive income for the year – – 14,867 (714) 14,153 637 14,790

Distributions to non-controlling interests – – – – – (1,409) (1,409)

Non-cash distribution to non-controlling interests – – – – – (2,960) (2,960)

Contributions from non-controlling interests – – – – – 8 8

Changes to non-controlling interests – – – – – (20) (20)

Deconsolidation of former subsidiaries – – – – – (3,045) (3,045)

Dividends to shareholders – – (3,467) – (3,467) – (3,467 )

Non-cash dividend to shareholders – – ( 15,526) – ( 15,526) – (15,526)

Realised after tax losses on disposal or liquidation of

equity investments

–

(14)

–

Share of associates and joint ventures realised proﬁts

on disposal of equity investments

–

(7)

–

Shares issued – 25 – – 25 – 25

Write-down of shares held by ESOP Trusts – (911) 911 – – –

Shares acquired by ESOP Trusts – 114 1,086 (1,200) – – –

Share-based incentive plans – – 357 – 357 – 357

Tax on share-based incentive plans – – (8) – (8) – (8)

Hedging gain after taxation transferred to

non-ﬁnancial assets

–

At 31 December 2022 1,347 3,440 4,363 1,448 10,598 (502) 10,096

* an analysis of Other reserves is presented as part of Note 38, ‘Movements in equity’.

GSK Annual Report 2022

185

Governance and remunerationStrategic report

Financial statements Investor information

Consolidated cash ﬂow statement

for the year ended 31 December 2022

Notes

2022

£m

2021

(1)

£m

2020

(1)

£m

Cash ﬂow from operating activities

Proﬁt after taxation from continuing operations for the year

4,921 3,516 5,103

Adjustments reconciling proﬁt after tax to operating cash ﬂows

3,023 3733 2,571

Cash generated from operations attributable to continuing operations

7,94 4 7,249 7,674

Taxation paid

(1,310) (972) ( 1,086)

Net cash inﬂow from continuing operating activities 6,634 6,277 6,588

Cash generated from operations attributable to discontinued operations 932 1,994 2,422

Taxation paid from discontinued operations (163) (319) (569)

Net operating cash ﬂows attributable to discontinued operations 769 1,675 1,853

Total net cash inﬂows from operating activities 7,4 03 7,952 8,441

Cash ﬂow from investing activities

Purchase of property, plant and equipment

(1,143) (950) (989)

Proceeds from sale of property, plant and equipment 146 132 49

Purchase of intangible assets

(1,115) (1,704) (956)

Proceeds from sale of intangible assets

196 641 343

Purchase of equity investments (143) (162) (411)

Purchase of businesses, net of cash acquired

(3,108) – –

Proceeds from sale of equity investments 238 202 3,269

Contingent consideration paid (79) (114) (120)

Disposal of businesses

(43) (17) 117

Investments in associates and joint ventures

(1) (1) (4)

Proceeds from disposal of associates and joint ventures – 277 –

Interest received 64 14 27

Decrease/(increase) in liquid investments 1 18 (1)

Dividends from associates and joint ventures 6 9 31

Net cash outﬂow from continuing investing activities (4,981) (1,655) 1,355

Net cash investing cash ﬂows attributable to discontinued operations (3,791) (122) 806

Total net cash (outﬂow)/inﬂow from investing activities (8,772) (1,777) 2,161

Cash ﬂow from ﬁnancing activities

Issue of share capital

25 21 29

Repayment of long-term loans (1,594) – –

Issue of long-term notes 1,025 _ 3,298

Repayment of short-term loans (5,074) (2,304) (3,738)

Increase in/(repayment of) other short-term loans 1,021 301 (3,594)

Repayment of lease liabilities (202) (181) (182)

Interest paid (848) (772) (851)

Dividends paid to shareholders (3,467 ) (3,999) (3,97 7 )

Distributions to non-controlling interests (521) (239) (4 42)

Contributions from non-controlling interests 8 7 3

Other ﬁnancing items 376 40 (89)

Net cash outﬂow from continuing ﬁnancing activities (9,251) ( 7,126) (9,543)

Net ﬁnancing cash ﬂows attributable to discontinued operations 10,074 (463) (589)

Total net cash inﬂow/(outﬂow) from ﬁnancing activities 823 ( 7,58 9) ( 10,132)

(Increase)/decrease in cash and bank overdrafts

(5 46) (1,414) 470

Cash and bank overdrafts at the beginning of year 3,819 5,262 4,831

Exchange adjustments 152 (29) (39)

Increase/(Decrease) in cash and bank overdrafts in the year (5 46) (1,414) 470

Cash and bank overdrafts at the end of year 3,425 3,819 5,262

Cash and bank overdrafts at end of year comprise:

Cash and cash equivalents 3,723 4,274 6,292

Overdrafts (298) (455) (1,030)

3,425 3,819 5,262

(1) The 2021 and 2020 comparative results have been restated on a consistent basis from those previously published to reﬂect the demerger of the Consumer Healthcare business

(see Note 41).

GSK Annual Report 2022

186

Notes to the ﬁnancial statements

1. Presentation of the ﬁnancial statements

Description of business

GSK is a global biopharma group which makes innovative

vaccines and specialty medicines to prevent and treat disease.

GSK’s R&D focuses on the science of the immune system,

human genetics and advanced technologies primarily in the

following four therapeutic areas: infectious diseases, HIV,

oncology and immunology/respiratory.

Compliance with applicable law and IFRS

The ﬁnancial statements have been prepared in accordance

with international accounting standards in conformity with the

requirements of the Companies Act 2006 and the International

Financial Reporting Standards as issued by the IASB.

Composition of ﬁnancial statements

The consolidated ﬁnancial statements are drawn up in Sterling,

the functional currency of GSK plc, and in accordance with

IFRS accounting presentation. The ﬁnancial statements

comprise:

– Consolidated income statement

– Consolidated statement of comprehensive income

– Consolidated balance sheet

– Consolidated statement of changes in equity

– Consolidated cash ﬂow statement

– Notes to the ﬁnancial statements.

Composition of the Group

A list of the subsidiaries and associates which, in the opinion

of the Directors, principally affected the amount of proﬁt or net

assets of the Group is given in Note 46, ‘Principal Group

companies’.

Financial period

These ﬁnancial statements cover the ﬁnancial year from

1 January to 31 December 2022, with comparative ﬁgures for

the ﬁnancial years from 1 January to 31 December 2021 and,

where appropriate, from 1 January to 31 December 2020.

Income statement and cash ﬂow comparatives have been

restated on a consistent basis from those previously published

to reﬂect the classiﬁcation of the Consumer Healthcare

business as a discontinued operation (see Note 41).

Accounting principles and policies

The ﬁnancial statements have been prepared using the

historical cost convention modiﬁed by the revaluation of

certain items, as stated in the accounting policies, and on a

going concern basis.

The ﬁnancial statements have been prepared in accordance

with the Group’s accounting policies approved by the Board

and described in Note 2, ‘Accounting principles and policies’.

Information on the application of these accounting policies,

including areas of estimation and judgement is given in Note 3,

‘Critical accounting judgements and key sources of estimation

uncertainty’.

The preparation of the ﬁnancial statements in conformity with

generally accepted accounting principles requires management

to make estimates and assumptions that affect the reported

amounts of assets and liabilities and disclosure of contingent

assets and liabilities at the date of the ﬁnancial statements and

the reported amounts of revenues and expenses during the

reporting period. Actual results could differ from those estimates.

Parent company ﬁnancial statements

The ﬁnancial statements of the parent company, GSK plc, have

been prepared in accordance with UK GAAP and with UK

accounting presentation. The company balance sheet is

presented on page 268 and the accounting policies are given

on pages 269 to 272.

2. Accounting principles and policies

Consolidation

The consolidated ﬁnancial statements include:

– the assets and liabilities, and the results and cash ﬂows, of

the company and its subsidiaries, including ESOP Trusts

– the Group’s share of the results and net assets of associates

and joint ventures

– the Group’s share of assets, liabilities, revenue and expenses

of joint operations.

The ﬁnancial statements of entities consolidated are made up

to 31 December each year.

Entities over which the Group has the power to direct the

relevant activities so as to affect the returns to the Group,

generally through control over the ﬁnancial and operating

policies, are accounted for as subsidiaries.

Where the Group has the ability to exercise joint control over,

and rights to, the net assets of entities, the entities are

accounted for as joint ventures. Where the Group has the

ability to exercise joint control over an arrangement, but has

rights to speciﬁed assets and obligations for speciﬁed liabilities

of the arrangement, the arrangement is accounted for as a

joint operation. Where the Group has the ability to exercise

signiﬁcant inﬂuence over entities, they are accounted for as

associates. The results and assets and liabilities of associates

and joint ventures are incorporated into the consolidated

ﬁnancial statements using the equity method of accounting.

The assets, liabilities, revenue and expenses of joint operations

are included in the consolidated ﬁnancial statements in

accordance with the Group’s rights and obligations.

Interests acquired in entities are consolidated from the date

the Group acquires control and interests sold are de-

consolidated from the date control ceases.

GSK Annual Report 2022

Notes to the ﬁnancial statements continued

187

Governance and remunerationStrategic report

Financial statements Investor information

Transactions and balances between subsidiaries are eliminated

and no proﬁt before tax is taken on sales between subsidiaries

until the products are sold to customers outside the Group. The

relevant proportion of proﬁts on transactions with joint ventures,

joint operations and associates is also deferred until the

products are sold to third parties. Transactions with non-

controlling interests are recorded directly in equity. Deferred tax

relief on unrealised intra-Group proﬁt is accounted for only to

the extent that it is considered recoverable.

Business combinations

Business combinations are accounted for using the acquisition

accounting method. Identiﬁable assets, liabilities and contingent

liabilities acquired are measured at fair value at acquisition date.

The consideration transferred is measured at fair value and

includes the fair value of any contingent consideration.

The fair value of contingent consideration liabilities is

reassessed at each balance sheet date with changes

recognised in the income statement. Payments of contingent

consideration reduce the balance sheet liability and as a result

are not recorded in the income statement.

The part of each payment relating to the original estimate of the

fair value of the contingent consideration on acquisition is reported

within investing activities in the cash ﬂow statement and the part of

each payment relating to the increase in the liability since the

acquisition date is reported within operating cash ﬂows.

Where the consideration transferred, together with the non-

controlling interest, exceeds the fair value of the net assets,

liabilities and contingent liabilities acquired, the excess is

recorded as goodwill. The costs of effecting an acquisition

are charged to the income statement in the period in which

they are incurred.

Goodwill is capitalised as a separate item in the case of

subsidiaries and as part of the cost of investment in the case

of joint ventures and associates. Goodwill is denominated in

the currency of the operation acquired.

Where the cost of acquisition is below the Group’s interest in

the net assets acquired, the difference is recognised directly in

the income statement.

Where not all of the equity of a subsidiary is acquired the non-

controlling interest is recognised either at fair value or at the

non-controlling interest’s share of the net assets of the subsidiary,

on a case-by-case basis. Changes in the Group’s ownership

percentage of subsidiaries are accounted for within equity.

Foreign currency translation

Foreign currency transactions are booked in the functional

currency of the Group company at the exchange rate ruling

on the date of transaction. Foreign currency monetary assets

and liabilities are retranslated into the functional currency at

rates of exchange ruling at the balance sheet date. Exchange

differences are included in the income statement.

On consolidation, assets and liabilities, including related

goodwill, of overseas subsidiaries, associates and joint ventures,

are translated into Sterling at rates of exchange

ruling at the balance sheet date. The results and cash ﬂows

of overseas subsidiaries, associates and joint ventures are

translated into Sterling using average rates of exchange.

Exchange adjustments arising when the opening net assets

and the proﬁts for the year retained by overseas subsidiaries,

associates and joint ventures are translated into Sterling, less

exchange differences arising on related foreign currency

borrowings which hedge the Group’s net investment in these

operations, are taken to a separate component of equity within

Retained Earnings.

When translating into Sterling the assets, liabilities, results

and cash ﬂows of overseas subsidiaries, associates and joint

ventures which are reported in currencies of hyper-inﬂationary

economies, adjustments are made where material to reﬂect

current price levels. Any loss on net monetary assets is charged

to the consolidated income statement.

Revenue

Turnover

The Group receives revenue for supply of goods to external

customers against orders received. The majority of contracts

that GSK enters into relate to sales orders containing single

performance obligations for the delivery of pharmaceutical,

vaccine and (prior to the demerger of the Consumer Healthcare

business) consumer healthcare products. The average duration of

a sales order is less than 12 months.

Product revenue is recognised when control of the goods is

passed to the customer. The point at which control passes is

determined by each customer arrangement, but generally occurs

on delivery to the customer.

Product revenue represents net invoice value including ﬁxed and

variable consideration. Variable consideration arises on the sale of

goods as a result of discounts and allowances given and accruals

for estimated future returns and rebates. Revenue is not recognised

in full until it is highly probable that a signiﬁcant reversal in the

amount of cumulative revenue recognised will not occur.

The methodology and assumptions used to estimate rebates

and returns are monitored and adjusted regularly in the light of

contractual and legal obligations, historical trends, past experience

and projected market conditions. Estimates associated with returns

and rebates are revisited at each reporting date or when

they are resolved and revenue is adjusted accordingly. Please refer

to Note 3 for the details on rebates, discounts and allowances.

The Group has entered into collaborative agreements, typically with

other pharmaceutical or biotechnology companies to develop,

produce and market drug candidates and vaccines that do not

qualify as joint arrangements. When GSK has control over the

commercialisation activities, the Group recognises turnover and cost

of sales on a gross basis. Proﬁt sharing amounts and royalties due to

the counterparty are recorded within cost of sales. Cost of sales

includes proﬁt sharing costs and royalties due to the counterparty of

£1,635 million (2021: £640 million; 2020: £4 million). When the

counterparty controls the commercialisation activities and records

the sale, the Group is not deemed principal in the customer contract

and instead records its share of gross proﬁt as co-promotion

income, on a net basis, within turnover. The nature of co-promotion

activities is such that the Group records no costs of sales.

Commercial Operations turnover includes co-promotion revenue of

£3 million (2021: £7 million; 2020: £12 million). Reimbursements to

and from the counterparty under collaboration agreements for

‘selling, general and administration’ and ‘research and development’

costs are recorded net in the respective lines in the Consolidated

income statement.

2. Accounting principles and policies continued

GSK Annual Report 2022

Notes to the ﬁnancial statements continued

188

Other operating income and royalty income

GSK enters into development and marketing collaborations

and out-licences of the Group’s compounds or products to

other parties. These contracts give rise to ﬁxed and variable

consideration from upfront payments, development milestones,

sales-based milestones and royalties.

Income dependent on the achievement of a development

milestone is recognised when it is highly probable that a signiﬁcant

reversal in the amount of cumulative revenue recognised will not

occur, which is usually when the related event occurs. Sales-based

milestone income is recognised when it is highly probable that the

sales threshold will be reached.

Sales-based royalties on a licence of intellectual property are

not recognised until the relevant product sale occurs.

For all revenue, if the time between the recognition of revenue

and payment from the customer is expected to be more than

one year and the impact is material, the amount of

consideration is discounted using appropriate discount rates.

Value added tax and other sales taxes are excluded from revenue.

Expenditure

Expenditure is recognised in respect of goods and services