Barclays 2014 Annual Report Download - page 251

barclays.com/annualreport Barclays PLC Annual Report 2014 I 249
Area of focus How our audit addressed the area of focus and what we found
Impairment of the
carrying value of loans
and advances to banks
and to customers held at
amortised cost
We focused on this area because the Directors
make complex and subjective judgements over
both timing of recognition of impairment and the
estimation of the size of any such impairment.
In the Investment Bank and for Corporate Banking
the material portion of impairment is individually
calculated. For Personal Banking and Barclaycard
the material portion of the impairment is
calculated on a modelled basis for portfolios of
loans and advances.
In particular we focused on:
Q The principal assumptions underlying the
calculation of impairment for portfolios of loans
and advances, the operation of the models to
make those calculations and the application of
adjustments to the results produced by those
models;
Q How impairment events that have not yet
resulted in a payment default are identified and
measured; and
Q The possible effects of the fall in global oil prices
on the creditworthiness of relevant
counterparties.
See Notes 7 and 20 to the financial statements on
pages 268 and 297 respectively and the relevant
parts of the Risk review to which they are
cross-referred.
We assessed and tested the design and operating
effectiveness of the controls over impairment data and
calculations. These controls included those over the
identification of which loans and advances were impaired and
the calculation of the impairment provisions. We determined
that we could rely on these controls for the purposes of our
audit.
In addition, we examined a sample of loans and advances
which had not been identified by management as potentially
impaired and formed our own judgement as to whether that
was appropriate including using external evidence in respect
of the relevant counterparties. We found no material
exceptions in these tests.
Where impairment was individually calculated, we tested a
sample of loans and advances to ascertain whether the loss
event (that is the point at which impairment is recognised)
had been identified in a timely manner including, where
relevant, how forbearance had been considered. Where
impairment had been identified, we examined the forecasts of
future cash flows prepared by management to support the
calculation of the impairment, challenging the assumptions
and comparing estimates to external evidence where
available. We found no material exceptions in these tests.
Where impairment was calculated on a modelled basis, we
tested the basis and operation of those models and the data
and assumptions used. Our work included the following:
Q We compared the principal assumptions made with our
own knowledge of other practices and actual experience;
Q We tested the operation of the models used to calculate the
impairment including, in some cases, rebuilding those
models or building our own models independently and
comparing the results;
Q We considered the potential for impairment to be affected
by events which were not captured by management’s
models and evaluated how management had responded
to these by making further adjustments where
appropriate; and
Q We increased the extent of our sample of loans to
counterparties whose business was sensitive to movements
in the oil price.
In the case of some impairment provisions, we formed a
different view from that of management, but in our view the
differences were within a reasonable range of outcomes in
the context of the overall loans and advances and the
uncertainties disclosed in the financial statements.
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