BT 2015 Annual Report Download - page 141

139
Overview
The Strategic Report
Purpose and strategy Delivering our strategy Group performance Governance Financial statements Additional information
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2 – Critical accounting estimates and key judgements) and page 151
ote   inificant accountin policies
e focused on this area as it involves sinificant udeents in respect
of:
 the deterination and tiin of reconition of contract profits and
the assuptions underpinnin the lifetie profitabilit forecasts for
the contracts;
 completeness and adequacy of provisions against contracts
projected to be loss making; and
 the recoverabilit of contract-specific assets includin deferred
costs and property, plant and equipment.
Our work focused on the contracts in BT Global Services and BT
Wholesale.
We tested a sample of major contracts through the year, focusing
our work on those which are material by size or which we otherwise
regarded as higher risk because of the nature of the contract or
its stage of delivery. In performing this testing we assessed the
appropriateness of the assumptions and judgements underpinning the
accounting for these major contracts as follows:
 e evaluated the desin and tested the operatin eectiveness of
controls in respect of the accounting for major contracts.
 We obtained and read the relevant sections of the contracts agreed
between BT and the customer, tested a sample of revenue and cost
transactions to supporting evidence of delivery and acceptance and
assessed the revenue recognised in the period by comparing it with
the contractual terms and actual pattern of delivery of services.
 We compared the forecast results of each contract to the actual
results to assess the performance of the contract and the historical
accuracy of forecasting.
e assessed the reasonableness of lifetie profitabilit forecasts b
analysing historical contract performance relative to overall contractual
commitments. We challenged directors’ assumptions on the future
costs including any forecast savings by assessing the actions required
to achieve these forecasts. In determining whether the provisions for
loss making contracts are adequate, we considered the results of the
above procedures.
e challened the recoverabilit of contract-specific assets dedicated
to the sampled contracts by examining contractual cover or assessing
recoverabilit aainst the forecast profitabilit of the relevant contract.
We considered the accounting adopted to be in line with the group’s
accounting policies.
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155 ote   eent inforation
The accuracy of revenue amounts recorded is an inherent industry risk.
This is because telecoms billing systems are complex and process large
volues of data with a cobination of dierent products sold and
price chanes in the ear throuh a nuber of dierent sstes.
We evaluated the relevant IT systems and the design of controls, and
tested the operatin eectiveness of controls over the
 capture and recording of revenue transactions;
 authorisation of rate changes and the input of this information
to the billing systems; and
 calculation of amounts billed to customers.
We also tested a sample of customer bills and checked these to cash
received from customers. Our testing included customer bills for
consumers, corporate and wholesale customers.
e found no sinificant eceptions in our controls testin and no
material misstatements in our substantive testing.
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2 – Critical accounting estimates and key judgements) and page 172
ote 19  etireent benefit plans
We focused on this area because the valuation of the BT Pension
chee obliations 0.bn and unuoted investents 1.6bn)
reuire the use of estiates and sinificant udeent and a sall
chane in the assuptions can have a aterial ipact on the financial
statements.
e evaluated the desin and tested the operatin eectiveness of controls
in respect of the determination of the pension scheme obligations.
We assessed and challenged the reasonableness of actuarial
assumptions used in valuing the pension scheme obligations.
he assuptions used as set out in note 19 are consistent with
our internally developed benchmarks. We tested underlying inputs
used in determining the obligations.
he pension assets include sinificant unuoted pension asset
investments. We tested the existence of the unquoted investments
and we tested the valuation of these investments on a sample basis.
pecificall
 For property assets, we tested internal controls at the property fund
manager and obtained valuation reports prepared by third party
specialist valuers. We assessed the methods and assumptions used
by the valuers.
 For direct investments, the valuations of the investments are derived
fro discounted cash ow odels. e assessed the assuptions
used in the valuations by checking that the assumptions used were
consistent with our internally developed range of discount rates, by
coparin the cash ows to historical results and considering the
impact of other external information. We tested the accuracy of the
calculations and assessed whether the assumptions used were in line
with other aret participants and reected the particular status of
the investment shareholding.
 or other unuoted investents we obtained confirations fro
the custodians and the investment managers.
or all testin perfored we also areed that the values were reected
in the financial stateents.