Barclays 2013 Annual Report Download - page 66

Corporate governance report
Board Audit Committee continued
 Revisions to IAS 19 became effective from 1 January 2013, which
require actuarial gains and losses arising from defined benefit
pension schemes to be recognised in full. Consequently, the
Committee examined the impact of IAS 19R on the Group’s balance
sheet and the revised presentation in the financial statements. The
Committee agreed that management’s assumptions underlying the
pension valuation were appropriate;
 The Committee assessed the impact of new accounting standards on
Barclays’ published financial statements. It agreed and approved
restated financial statements for 2011 and 2012 reflecting the
implementation of IAS19R and IFRS10 in April 2013. Prior to and in
connection with the rights issue, the Committee also agreed and
approved in late August 2013 the restatement of the financial
statements included in Barclays’ 20F filing for 2012 to reflect the
implementation, as appropriate, of IAS19 and IFRS10 and also IFRS8
and IFRS7 for 2010 in addition to 2011 and 2012. The external auditor
re-signed the audit report in respect of the September 2013
restatement;
 In considering any potential impairment of goodwill, the Committee
focused on management’s track record in forecasting cashflows and
the appropriateness of the discount rates used. Having assessed a
report on the results of impairment testing and the key assumptions
adopted in the calculation of the recoverable amounts, the
Committee agreed that goodwill arising from the businesses
acquired in a previous period by Wealth and Investment Management
should be written off; and
 The Committee debated material judgments relating to litigation
provisions, reviewing the status of current cases and taking into
account recent developments, including any settlements by peers of
similar cases, in order to arrive at an appropriate level of provisioning,
which it recommended to the Board.
In relation to the financial reports overall:
 The Committee evaluated whether the going concern basis of
accounting was appropriate by assessing the Working Capital Report
prepared by management. This report covered the liquidity position
and forecast capital ratios, balance sheet and leverage position.
The report incorporated known or expected regulatory changes, the
impact of possible stress scenarios and details of the performance of
early warning indicators. After examining the forecast, the Committee
concluded that the liquidity and capital position of the Group
remained appropriate and that there were no material uncertainties;
 The Committee examined the 2013 Annual Report and Financial
Statements and was specifically tasked by the Board to advise it on
whether the 2013 Annual Report and Financial Statements are fair,
balanced and understandable. The Committee did this by satisfying
itself that there was a robust process of review and challenge at
different levels within the Group to ensure balance and consistency.
In doing so, the Committee examined the outputs of these processes,
which included reports from the Disclosure Committee on its
assessment of the content, accuracy and balance of the disclosures
and of the outputs from the Group’s Legal & Technical Committee,
and also had the opportunity to directly question the Chief Executive
on the overall messages and tone of his review and the Annual
Report. The Committee also considered other information regarding
the Group’s performance presented to the Board during the period.
After challenge and debate and consideration of all relevant
information, the Committee concluded that it could recommend to
the Board that the 2013 Annual Report and Financial Statements are
fair, balanced and understandable; and
 The Committee evaluated the judgments made regarding adjusting
items as presented in the performance highlights section of the
interim and full-year results announcements and in the Annual
Report. These were items that were significant or one-off in nature
and included the own credit gain and provisions for customer
redress. The Committee also considered the impact of the costs to
achieve Transform.
Governance in action
Customer redress provisions: PPI
A significant area of judgment remains the estimation of provisions
to be made for Payment Protection Insurance (PPI) and Interest
Rate Hedging Products (IRHP) customer redress.
Throughout 2013, the Committee continued to exercise scrutiny
over the level of customer redress provisioning, in particular the
provisions for PPI redress. Ahead of approving the half-year results,
with regard to PPI redress the Committee examined a report setting
out the provisions booked and utilised and the balance remaining. It
assessed range-based estimates for future provision utilisation,
likely future costs and potential provision increases, based on
projected volumes of claims, recent trends in claims experience,
uphold rates (i.e., valid claims found in favour of the customer) and
the average amount of redress paid, per policy. The assessment also
factored in the possible impact of proactive mailing campaigns, the
expected costs of referrals to the Financial Ombudsman Service
(FOS) and potential remediation costs associated with issues arising
from historical redress decisions. The impact on assumptions
resulted in a recommendation by management to increase the level
of provisions held by £1.35bn to £3.95bn, which, having examined
the underlying data and discussed the appropriateness of the
increased provision with the external auditor, the Committee
endorsed. The Committee also considered whether the trends in
data supported the assumptions in its review of the interim
management statement for the third quarter of 2013.
In connection with the 2013 full-year results the Committee
assessed the amount of unutilised provisions against key
assumptions for potential future claims experience, FOS referrals and
remediation costs. It also considered the mix of claims originating
directly from customers and from Claims Management Companies.
Although the flow of claim volumes continues to be unpredictable,
the Committee concluded, based on its examination of the available
information, that no additional provision was required at the 2013
full-year. As part of its review, the Committee also considered the
proposed disclosure of the forecast assumptions used in the
provision calculation and details of the sensitivity analysis performed
on future expected claims, in order to satisfy itself that the
disclosures were open and transparent. Further reviews of PPI claims
experience will be undertaken during 2014 to monitor trends and
ensure that the provision remains appropriate.
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64 Barclays PLC Annual Report 2013