BT 2015 Annual Report Download - page 142
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Please find page 142 of the 2015 BT annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.140 BT Group plc
Annual Report 2015
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Refer to page 102 udit is oittee eport pae 150 ote
2 – Critical accounting estimates and key judgements) and page 171
ote 1 rovisions
The group has provisions of £564m relating to restructuring, property
and other coprisin litiation reulator riss and insurance clais.
Provisions are based on judgements and estimates made by the
directors. In particular, the current telecoms regulatory environment
has seen an increased frequency and magnitude of matters brought to
Ofcom and the Competition Appeal Tribunal in the UK in recent years.
For regulatory provisions, we read correspondence and
pronouncements from Ofcom and the Competition Appeal Tribunal.
We held discussions with management to understand the risk
associated with historical transactions where there is not yet a formal
dispute but there is a known risk of dispute.
or propert provisions we assessed the e assuptions priaril the
discount rate and the underlin cash ows applied b the directors.
For legal provisions, we held discussions with the group’s general
counsel and head of litigation, read the summary of litigation
matters provided by management and discussed each of the material
cases noted in the report to determine the group’s assessment of
the likelihood and magnitude of any liability that may arise. Where
appropriate and relevant, we examined correspondence connected
with the cases, including external legal advice.
For all provisions we tested the calculation of the provisions, assessed
the assumptions including with third party data where available), and
assessed the judgements against historical trends. From the evidence
obtained, we considered the directors’ judgements on the level of
provisioning to be appropriate in the context of materiality.
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Refer to page 102 udit is oittee eport pae 150 ote
2 – Critical accounting estimates and key judgements) and page 168
ote 1 ropert plant and equipment)
Capitalisation of costs and the useful lives assigned to assets are areas
of sinificant udeent b the directors.
There are two main risks that we addressed in our audit:
the risk that amounts being capitalised do not meet capitalisation
criteria; and
the risk that the useful economic lives assigned to assets are
inappropriate.
Our work also focused on the capitalisation of costs for broadband
deployment under the BDUK programme and the recognition of the
associated capital grants.
e evaluated the desin and tested the operatin eectiveness
of controls around the property, plant and equipment cycle and
software intangible assets cycle, including the controls over whether
enineerin labour activit is capital or operatin in nature.
e deterined that the eective operation of the controls provided
us with audit evidence in respect of the capitalisation practices.
We assessed the nature of costs incurred in capital projects through
testing of amounts recorded and assessing whether the description
of the expenditure met capitalisation criteria. We found no material
misstatements from our testing.
We tested the controls over the annual review of asset lives.
In addition, we tested whether the directors’ decisions on asset lives
are appropriate by considering our knowledge of the business and
practice in the wider telecoms industry. We also tested whether
approved asset life changes were appropriately applied prospectively
to the fied asset reister. e found that the asset lives were
consistent with those commonly used in the industry and appropriately
reected technoloical developents.
e assessed the e assuptions priaril the forecast level of end
users) applied by the directors to calculate the level of capital grants
attributable to superfast broadband deployment in rural areas and we
tested the calculation of the accrual based on these assumptions and
the current level of capital investment. From the evidence obtained,
we considered the level of grant recognition, to be appropriate in the
context of materiality.
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assets
Refer to page 102 udit is oittee eport pae 150 ote
2 – Critical accounting estimates and key judgements) and page 162
ote 9 aation
We focused on this area due to the judgements required in determining
the groups eective ta rate specificall in relation to the reconition
of tax exposures and potential deferred tax assets.
We assessed and evaluated management’s rationale in relation to the
level of tax provisions. We considered the status of recent and current
tax audits and enquiries, the results of previous claims and changes
to the tax environments. We utilised our specialist tax knowledge and
experience of similar situations elsewhere to examine tax planning
arrangements and assess management’s judgements.
In the calculation of deferred tax assets, we evaluated the amount of
ta losses reconised in liht of future proected profitabilit of the
relevant subsidiary companies.
From the evidence obtained, we considered the level of provisioning
and the deferred tax recognition to be appropriate in the context
ofmateriality.