Barclays 2015 Annual Report Download - page 250

248 I Barclays PLC Annual Report 2015 home.barclays/annualreport
Independent Auditors’ report to the members of Barclays PLC
Independent Auditors’ report
Area of focus How our audit addressed the area of focus
Provisions for conduct
redress costs
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 business activities.
For conduct exposures identified, the
measurement of provisions is highly
judgemental and key assumptions are difficult
to forecast, such as complaint volumes. In
particular we focused on the £2.2bn provision
for Payment Protection Insurance (‘PPI’).
Barclays have developed a calculation
methodology which is used to provide data for
tracking PPI, and for provision calculations.
The key input is the future complaints flow
which is inherently difficult to estimate given
the variety of factors which can influence the
volumes.
A new factor impacting estimation uncertainty
this year was the Financial Conduct Authority’s
consultation paper 15/39 in which they
propose a two year timebar and address how
banks should respond to the Plevin ruling. The
Directors have had to make significant
judgements in updating their PPI provision
methodology to reflect the impact these
factors may have on future claims flows.
See Note 27 to the financial statements on
pages 301 and 302.
We assessed and tested the design and operating effectiveness of the
controls over the calculation of the provisions for the cost of conduct
remediation. We determined that we could rely on these controls for the
purposes of the audit. In the view of significant judgements involved, we
also examined the more material provisions in detail and sought
additional evidence.
In relation to PPI, we examined the data capture, analysis and modelling
process around the provision calculations. We tested the nature,
categorisation and history of claim volumes and settlement amounts
and assessed whether the assumptions underpinning the provision
calculations, including future claim volumes and settlement amounts,
where appropriate.
We tested the provisioning models and underlying assumptions used, in
particular how management updated their provisioning models to
address actual complaint flows, the proposed timebar and implications
of the Plevin judgement. To challenge management assumptions, we
have developed and used our own model to run different provisioning
scenarios and compared if management assumptions were within our
range of provisioning.
We have evaluated whether the disclosures within the financial
statements appropriately address the significant uncertainties that exist
around determining the provisions and the sensitivity of the provisions
to changes in the underlying assumptions and the impact of the
proposed timebar.
We considered the sensitivity of the provision to possible variations in
those assumptions. This could result in different amounts for some
provisions to those calculated by Directors, but in our view these
differences were within a reasonable range of outcomes in the context of
the degree of uncertainty.
Litigation and
regulatory claims
We focused on this area because the Group is
subject to challenge in respect of a number of
legal, regulatory and competition matters,
many of which are beyond its 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 29 to the financial statements on
pages 303 to 313.
We assessed and tested the design and operating effectiveness of the
controls over the identification, evaluation, provisioning and reporting of
legal, regulatory and competition matters. We determined that we could
rely on these controls for the purposes of our audit.
In view of the significant judgements required, we also examined the
more material provisions in detail and sought additional evidence. We
evaluated the Group’s assessment of the nature and status of litigation,
claims and provision assessments, if any, and discussed with internal
counsel to understand the legal position and the basis of material risk
positions. In some cases we have confirmed this information directly
with the Group’s external counsel.
As set out in the financial statements, the outcome of litigation and
regulatory claims are dependent on the future outcome of continuing
legal and regulatory processes and consequently the calculations of the
provisions are subject to inherent uncertainty. In our view, the provisions
had been arrived at based on the information currently available to the
Group and after consideration of the legal advice received by the Group.
IT systems and
controls over financial
reporting
We identified IT systems and controls over
financial reporting as an area of focus as the
Group’s financial accounting and reporting
systems are heavily dependent on complex
systems and there is a risk that automated
accounting procedures and related IT
dependent manual controls are not designed
and operating effectively.
A particular area of focus related to logical
access management and segregation of duties
controls which were remediated in 2015.
We assessed and tested the design and operating effectiveness of the
controls over the continued integrity of the IT systems that are relevant
to financial reporting. We examined the framework of governance over
the Group’s IT organisation and the controls over program development
and changes, access to programs and data and IT operations, including
compensating controls where required. Where necessary we also carried
out direct tests of certain aspects of the security of the Group’s IT
systems including access management and segregation of duties.
The combination of the tests of the controls and the direct tests that we
carried out gave us sufficient evidence to enable us to rely on the
continued and proper operation of the Group’s IT systems for the
purposes of our audit.