Aviva 2014 Annual Report Download - page 116

Aviva plc Annual report and accounts 2014
Independent auditors’ report to the members of Aviva plc
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Report on the financial statements
Our opinion
In our opinion, Aviva plc’s Consolidated financial statements and parent company financial statements (the ‘financial statements’):
• Give a true and fair view of the state of the Group’s and of the parent company’s affairs as at 31 December 2014 and of the
Group’s and the parent company’s profit and cash flows for the year then ended;
• Have been properly prepared in accordance with International Financial Reporting Standards (‘IFRSs’) as adopted by the European
Union; and
• Have been prepared in accordance with the requirements of the Companies Act 2006 and, as regards the Group financial
statements, Article 4 of the IAS Regulation.
What we have audited
Aviva plc’s financial statements comprise:
• The Consolidated and the Company statements of financial position as at 31 December 2014;
• The Consolidated and the Company income statements and statements of comprehensive income for the year then ended;
• The Reconciliation of the Group operating profit to profit for the year then ended;
• The Consolidated and the Company statements of changes in equity and statements of cash flows for the year then ended; and
• The Accounting policies and notes to the financial statements, which include a summary of significant accounting policies and
other explanatory information.
Certain required disclosures have been presented elsewhere in the Annual Report and Accounts (the ‘Annual Report’), rather than
in the notes to the financial statements. These are cross-referenced from the financial statements and are identified as audited.
The financial reporting framework that has been applied in the preparation of the financial statements is applicable law and
IFRSs as adopted by the European Union.
Separate opinion in relation to IFRSs and as issued by the IASB
As explained in the Accounting policies to the financial statements, the Group, in addition to applying IFRSs as adopted by the
European Union, has also applied IFRSs as issued by the International Accounting Standards Board (IASB). In our opinion the
financial statements comply with IFRSs as issued by the IASB.
Our audit approach
Overview
• Overall Group materiality has been set at £102 million which represents 5% of the operating profit before tax attributable to
shareholders’ profit adjusted for integration and restructuring costs.
• Specific audit procedures were performed within the UK Life, UK General Insurance, Canada, France and Spain markets to
address the areas of focus identified below.
• We identified a further five markets where account balances are considered to be significant in size in relation to the Group, and
scoped our audit to include detailed testing of those account balances.
• Further audit procedures were performed by the Group engagement team, including over the head office operations and the
consolidation process, to ensure that sufficient coverage was obtained.
• Our risk assessment analysis identified the following as areas of focus:
– Valuation of life insurance contract liabilities.
– Methodology and assumptions used to value the non-life contract liabilities for the UK General Insurance and Canada markets.
– Valuation of hard to value investments.
– Valuation of goodwill in Spain.
The scope of our audit and our areas of focus
We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) (‘ISAs (UK & Ireland)’).
We designed our audit by determining materiality and assessing the risks of material misstatement in the financial statements.
In particular, we looked at where the Directors made subjective judgements, for example in respect of significant accounting
estimates that involved making assumptions and considering future events that are inherently uncertain. As in all of our audits, we
also addressed the risk of management override of internal controls, including evaluating whether there was evidence of bias by
the Directors that represented a risk of material misstatement due to fraud.
The risks of material misstatement that had the greatest effect on our audit, including the allocation of our resources and
effort, are identified as ‘areas of focus’ in the table below. We have also set out how we tailored our audit to address these specific
areas in order to provide an opinion on the financial statements as a whole, and any comments we make on the results of our
procedures should be read in this context. This is not a complete list of all risks identified by our audit.
Area of focus How our audit addressed the area of focus
Valuation of life insurance contract liabilities
Refer to page 78 (Audit Committee Report), page 122 (Accounting policies) and page 188 (notes)
The Directors’ valuation of the provisions for the settlement of future
claims involves complex and subjective judgements about future events,
both internal and external to the business, for which small changes in
assumptions can result in material impacts to the valuation of these
liabilities.
The work to address the valuation of the UK Life insurance contract
liabilities included the following procedures:
• Testing the underlying company data to source documentation.
• By applying our industry knowledge and experience we compared the
methodology, models and assumptions used against recognised
actuarial practices.
• We used the results of an independent PwC annual benchmarking
survey of assumptions which allowed us to further challenge the
assumption setting process by comparing certain assumptions used
relative to the Group’s industry peers.
112 | Aviva plc Annual report and accounts 2014