BT 2016 Annual Report Download - page 145

Overview The Strategic Report Governance Financial statements Additional information
151
The Chief Executive and Group Finance Director concluded that BT’s
disclosure controls and procedures are also eective to ensure that
the information the company is required to disclose in reports that
it files under the Securities Exchange Act of 1934 (Exchange Act)
is recorded, processed, summarised and reported within the time
periods specified in the SEC’s rules and forms.
The Chief Executive and Group Finance Director have also provided
the certifications required by the Sarbanes‑Oxley Act.
Internal control over nancial reporting
BT’s management is responsible for establishing and maintaining
adequate internal control over financial reporting for the group.
Internal control over financial reporting is designed to provide
reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external reporting
purposes in accordance with IFRS. Management conducted an
assessment of the eectiveness of internal control over financial
reporting based on the framework for internal control evaluation
contained in the FRC Guidance on internal control (Turnbull), which
is now reected in the FRC Guidance on risk management, internal
control and related financial and business reporting.
The scope of management’s assessment of the eectiveness of
our internal control over financial reporting included all relevant
operations, except for the operation of the subsidiary EE Limited,
which we acquired in January 2016. This exclusion is in accordance
with the SEC’s general guidance that an assessment of a recently
acquired business may be omitted from our scope in the year of
acquisition. EE Limited constituted 37% of total assets and 5%
of the external revenue of the consolidated financial statements of
the group for the year ended 31 March 2016.
Management has concluded that at 31 March 2016, BT’s internal
control over financial reporting was eective.
There were no other changes in BT’s internal control over financial
reporting that occurred during 2015/16 that have materially
aected, or are reasonably likely to have materially aected, the
group’s internal control over financial reporting. Any significant
deficiency, as defined by the US Public Company Accounting
Oversight Board (PCAOB), in internal control over financial
reporting, is reported to the
Audit & Risk Committee .
PricewaterhouseCoopers, which has audited the consolidated
financial statements for 2015/16, has also audited the
eectiveness of the group’s internal control over financial reporting
under Auditing Standard No. 5 of the PCAOB.
Internal control and risk management
The Board is responsible for the group’s systems of internal control
and risk management and for reviewing the eectiveness of those
systems each year. These systems are designed to manage, rather
than eliminate, the risk of failure to achieve business objectives; any
system can provide only reasonable, and not absolute, assurance
against material misstatement or loss.
The Board also takes account of significant social, environmental
and ethical matters that relate to BT’s businesses and reviews BT’s
corporate responsibility policy annually. The company’s workplace
practices, specific environmental, social and ethical risks and
opportunities and details of underlying governance processes are
dealt with on pages 31 to 41 in the Delivering our strategy
section.
We have enterprise‑wide risk management processes for
identifying, evaluating and managing the principal risks faced by
the group. These processes have been in place throughout the year
and have continued upto the date on which this document was
approved. The processes arein accordance with the FRC Guidance
on risk management, internal control and related financial and
business reporting.
Risk assessment and evaluation take place as an integral part
of BT’s annual strategic planning cycle. We have a detailed risk
management process which identifies the key risks facing the
group, each line of business and BT TSO.
The key features of our enterprise‑wide risk management and
internal control process (covering financial, operational and
compliance controls) are:
• senior executives collectively review the group’s key risks and have
created a Group Risk Register describing the risks, owners and
mitigation strategies. The Group Risk Panel and the Operating
Committee
review this before it is reviewed and approved by the
Board;
• the lines of business and BT TSO carry out risk assessments of
their operations, create risk registers relating to those operations
and ensure that the key risks are addressed;
• senior executives with responsibility for major group operations
report quarterly their opinion on the eectiveness of the
operation of internal controls in their areas of responsibility;
• the group’s internal auditors carry out continuing assessments
of the quality of risk management and control, report to
management and the Audit & Risk Committee on the status of
specific areas identified for improvement and promote eective
risk management in the lines of business and BT TSO; and
• the Audit & Risk Committee , on behalf of the Board, considers
the eectiveness of the group’s internal control procedures
during the financial year. It reviews reports from the internal
and external auditors and reports its conclusions to the Board.
The Audit & Risk Committee has carried out these actions for
2015/16.
We have not dealt with joint ventures and associates, which BT
does not control, as part of the group risk management process.
They are responsible for their own internal control assessment.
Our significant accounting policies are set out on pages 174 to
180. Theconsistent application of those policies is subject to
ongoing verification through management review and independent
review byinternal and external auditors.
The processes supporting the preparation and consolidation of
the financial statements have been documented and are subject
to annual verification through the programme of testing done
by our internal auditors. This serves to confirm the operation of
the internal controls over financial reporting and compliance with
the Sarbanes‑Oxley Act. The
Audit & Risk Committee reviews BT’s
published financial results, related disclosures and accounting
judgements. The committee’s activities are set out on pages 118
to 121.
The Board has approved the formal statement of matters which
are reserved to it for consideration, approval or oversight. It has
also approved the group’s corporate governance framework,
which sets out the high level principles by which BT is managed
and the responsibilities and powers of the
Operating Committee
and the group’s senior executives. As part of this framework, the
development and implementation of certain powers relating to
group‑wide policies and practices are reserved to identified senior
executives.