Barclays 2013 Annual Report Download - page 275

Areas of particular audit focus
Area of focus How the scope of our audit addressed the area of focus
Impairment of the
carrying value of loans
and advances to banks
and to customers held
at amortised cost
We focused on this area because the directors make
complex and subjective judgements over both timing
of recognition of impairment and the estimation of
the size of any such impairment.
In the Corporate Banking and Investment Bank
components the material portion of impairment is
individually calculated. In the UK, Europe and Absa
Retail and Business Bank and the Barclaycard UK
components the material portion of the impairment
is calculated on a modelled basis for portfolios of
loans and advances.
In particular we focussed on:
 the principal assumptions underlying the
calculation of impairment for portfolios of loans
and advances, the operation of the models to make
those calculations and the application of
adjustments to the results produced by those
models; and
 how impairment events that have not yet resulted
in a payment default are identified and measured,
including the granting of forbearance.
See Notes 7 and 20 to the financial statements on
pages 291 and 324 respectively and the relevant parts
of the Risk review to which they are cross-referred.
We assessed and tested the design and operating
effectiveness of the controls over impairment calculations.
Where impairment was individually calculated, we tested
a sample of loans and advances to ascertain whether the
impairment event had been identified in a timely manner,
including how forbearance had been considered. For
identified impairments, we examined the future cash flow
forecasts prepared by management, challenging the
assumptions made, and comparing the estimates to
external evidence where available.
Where impairment was calculated on a modelled basis,
we tested the basis and operation of those models and
the data used.
In relation to the particular areas of focus set out
opposite:
 we compared the principal assumptions made with our
own knowledge of other practices and actual
experience;
 we tested the operation of the models used to calculate
the impairment including, in some cases, rebuilding
those models independently and comparing the results;
 we examined the basis for the further adjustments
made to the results produced by those models; and
 we tested the operation of the Group’s controls to
identify any potential additional impairment due to
events that have not yet resulted in a payment default,
including the granting of forbearance, and we
specifically examined the individual judgements made
for a sample of loans and advances.
Provisions for the cost
of conduct remediation
We focused on this area because the directors have
made provisions that require significant judgement in
relation to the amount of current and potential future
claims from customers for losses or damages
associated with inappropriate judgements in the
execution of the Group’s business activities.
In particular, we focussed on the provisions in
relation to Payment Protection Insurance redress
(PPI) and Interest Rate Hedging Product redress
(IRHP).
See Note 28 to the financial statements on
pages 332 and 333.
We assessed and tested the design and operating
effectiveness of the directors’ controls over the calculation
of the provisions for the cost of conduct remediation.
In relation to the particular areas of focus set out opposite
we examined the history of claim volumes and settlement
amounts for PPI and IRHP and assessed whether the
assumptions underpinning the provision calculations,
including future claims volumes and settlement amounts,
were appropriate. This assessment considered the latest
information available including regulatory inspections and
communications and our knowledge of other such
redress settlements.
Litigation and
regulatory claims
We focussed on this area because the Group is
subject to challenge in respect of many legal,
regulatory and competition matters, many of which
are beyond their control. Consequently, the directors
make judgements about the incidence and quantum
of such liabilities arising from litigation and
regulatory or competition claims which are subject to
the future outcome of legal or regulatory processes.
See Note 30 to the financial statements on
pages 334 to 340.
We assessed and tested the design and operating
effectiveness of the controls over the identification and
reporting of legal regulatory or competition matters.
We considered the Group’s assessment of the nature
and status of litigation, claims and assessments and
discussed them with senior Group management including
in-house counsel.
We examined the Group’s conclusions with respect to
the provisions and disclosures made for significant cases,
both considering the correspondence between the
Group and its external legal counsel and independently
communicating with certain of those external
legal counsel.
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