National Grid 2016 Annual Report Download - page 88

Materiality
Materiality is the magnitude of misstatement in the financial statements that makes it probable that the economic decisions ofreasonably
knowledgeable members 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.
Based on our professional judgement, we determined materiality forthe financial statements as a whole as follows:
Area Commentary
Overall Group materiality
£157m
£157m (2015: £132m) is 5% of profit before tax, exceptional items and remeasurements
(‘adjusted profit before tax’). Whilst the benchmark has not changed, this ishigher than the
level we set for last year reflecting the increased profitability of the Group during the period.
Rationale for benchmark applied
5% of adjusted prot before tax,
exceptionalitems and remeasurements
We have chosen adjusted profit before tax because it is disclosed onthe face of the
consolidated income statement as the consistent yearon year measure of performance and
excludes the non-recurring disproportionate impact of exceptional items and remeasurements.
We also considered this measure to be suitable having compared to other benchmarks: our
materiality is 5.2% of statutory profit before tax,0.3% of total assets and 1.2% of net assets.
Performance materiality
£117m
We set a lower level of performance materiality for planning our auditto reduce the probability
that the aggregate of uncorrected andundetected misstatements exceeds materiality for the
financial statements as a whole to an appropriately low level.
Our judgement was that performance materiality for the Group shouldbe 75% (2015: 75%)
of overall materiality, being £117m (2015:£105m).
In planning our audit we allocate a specific performance materiality toeach of our component
audit teams. This is used to determine the extent of our audit procedures at a component level
for the purposes of reporting on the National Grid Group financial statements. These are
summarised below.
Component performance materiality
2016
£m
2015
£m
US Regulated (full scope audit) 65 60
UK Electricity Transmission (full scope audit) 38 32
UK Gas Transmission (full scope audit) 30 19
UK Gas Distribution (full scope audit) 39 29
Corporate activities
UK treasury and UK tax
UK pensions
68
83
65
65
UK Property (environmental provisions only) andInsurance
(accounts payable and financialinvestments only) 88
Reporting level
£7m
We agreed with the Audit Committee that we would report to them misstatements identified
during our audit above £7m (2015: £6m) being 5% of our overall materiality. We also report
misstatements below that amount that, in our view, warrant reporting for qualitativereasons.
Scope of our audit procedures
We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the financial statementsas
awhole, taking into account the geographic structure ofthe Group, the accounting processes and controls, and the industry inwhich the
Group operates.
The UK Electricity Transmission, UK Gas Transmission, UK Gas Distribution and US Regulated business required an audit of their complete
financial information due to their size.
In addition due to the size and location of certain balances, specifiedprocedures were performed on environmental provisions (by theUK
Property audit team) and on amounts payable and financial investments (by the PwC Insurance audit team in the IsleofMan).
The Group has a number of separate operations in the US and UK and each of these operations maintain their own accounting records and
report to Group through an integrated consolidation system. Forthis reason we used component auditors within PwC UK and PwC US who
are familiar with the local laws and regulations to perform thisaudit work.
We ensured our involvement in the work of our component auditors was sufficient to allow us to conclude on our opinion on the Group financial
statements as a whole. Given both the developing control environment discussed below and the potential UK Gas Distribution transaction,
the Group team visited both components on a number ofoccasions for meetings with our team and local National Grid management.
The Group consolidation, financial statement disclosures and corporate activities including tax, treasury related activities and UKpensions
were audited by the Group team using specialists whereappropriate. The charts on the following page illustrate the coverage obtained
fromthe territories andfunctions where we performed ouraudit work.
86 National Grid Annual Report and Accounts 2015/16 Financial Statements
Independent auditors’ report
to the Members of National Grid plc continued