National Grid 2014 Annual Report Download - page 81

Strategic Report Corporate Governance Financial Statements Additional Information
Going concern
Under the Listing Rules we are required to review the directors’
statement, set out on page 52, in relation to going concern. We
have nothing to report having performed our review.
As noted in the directors’ statement, the directors have concluded
that it is appropriate to prepare the Group’s and Company’s
financial statements using the going concern basis of accounting.
The going concern basis presumes that the Group and Company
have adequate resources to remain in operation, and that the
directors intend them to do so, for at least one year from the
datethe financial statements were signed. As part of our audit we
have concluded that the directors’ use of the going concern basis
is appropriate.
However, because not all future events or conditions can be
predicted, these statements are not a guarantee as to the Group’s
and the Company’s ability to continue as a going concern.
Opinions on other matters prescribed by the
Companies Act 2006
In our opinion:
• 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;
• the part of the Directors’ Remuneration Report to be audited
has been properly prepared in accordance with the Companies
Act 2006; and
• the information given in the Strategic Report set out on pages
22 to 25 in the Annual Report with respect to internal control
and risk management systems and about share capital
structures on pages 174 and 175 are consistent with the
financial statements.
Other matters on which we are required to
report by exception
Adequacy of accounting records and information
and explanations received
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
Company, or returns adequate for our audit have not been
received from branches not visited by us; or
• the Company financial statements and the part of the Directors’
Remuneration Report to be audited are not in agreement with
the accounting records and returns.
We have no exceptions to report arising from this responsibility.
Area of focus:
Impact of the US enterprise resource system stabilisation
onnancial close process
The continued implementation programme associated with
thenew US enterprise resource system in National Grid US
hasresulted in ongoing changes to key business processes
andcontrols. These changes and the introduction of a number
oftemporary manual controls mean the financial information of
National Grid US is subject toa higher risk of error, in particular
inrelation to potential issues with user access controls, the
qualityof account reconciliations and the capitalisation of labour
and contractor costs into property, plant and equipment (PPE).
How the scope of our audit addressed the area of focus:
We tested the design and operating effectiveness of key IT
controls relating to segregation of duties and user access,
including monitoring controls, to confirm appropriate use of
system access.
We identified the critical reconciliations in place to support the
Group financial statements and tested that these reconciliations
were performed and reviewed, and that reconciling items were
appropriately supported.
We tested the design and operating effectiveness of key controls
in relation to the capitalisation of internal labour costs within PPE.
We also tested costs incurred and the treatment of these costs
ascapitalised or expensed.
Area of focus:
LIPA contract accounting
National Grid US’s 15 year PSA with LIPA was renewed in May
2013. Thisis a complex agreement and required significant
judgement by the directors in respect of its accounting treatment
under leasing accounting standards.
During the year National Grid US transitioned the operation of
another significant contract, the LIPA Management Services
Agreement (MSA), to a new contractor. This process was complex
and involved the transition of a significant number of employees,
and related accounting judgements. LIPA MSA transition costs
have been treated by thedirectors as exceptional as setout on
page 99, which was considered as part of the presentation of
exceptional items and quality of earnings area of focus.
How the scope of our audit addressed the area of focus:
For both the PSA and MSA contracts we considered the
implications of the specific terms and conditions on the
recognition and measurement of liabilities. In relation to the
PSAwe considered management’s judgements concerning
thedetermination as to whether it should be recognised as
anoperating or finance lease based on the specific contractual
terms and the requirements of IAS 17 ‘Leases’.
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