4. Going concern
The directors have prepared the financial statements on the
going concern basis as they do not intend to liquidate the
Group or the Company or to cease their operations, and as
they have concluded that the Group’s and the Company’s
financial position means that this is realistic. They have also
concluded that there are no material uncertainties that could
have cast significant doubt over their ability to continue as a
going concern for at least a year from the date of approval of
the financial statements (“the going concern period”).
We used our knowledge of the Group, its industry, and the
general economic environment to identify the inherent risks to
its business model and analysed how those risks might affect
the Group’s and Company’s financial resources or ability to
continue operations over the going concern period. The risks
that we considered most likely to adversely affect the Group’s
and Company’s available financial resources over this period
were:
•The impact of prolonged stagflation driven by geo-political
factors and Covid-19 persistence;
•The impact of an industrial action and international trade
sanctions;
•The impact of a significant supply chain disruptions driven
by the geo-political factors;
•The impact of an increased level of financial market volatility
and deterioration of BT’s covenant triggers on the funding
obligation of BT Pension Scheme;
We also considered less predictable but realistic second order
impacts, such as a large scale cyber breach or adverse changes
to telecoms regulation which could result in a rapid reduction
of available financial resources.
We considered whether these risks could plausibly affect the
liquidity in the going concern period by comparing severe but
plausible downside scenarios that could arise from these risks
individually and collectively against the level of available
financial resources indicated by the Group’s financial forecasts.
We also assessed the completeness of the going concern
disclosure.
Our conclusions based on this work:
•we consider that the directors’ use of the going concern
basis of accounting in the preparation of the financial
statements is appropriate;
•we have not identified, and concur with the directors’
assessment that there is not, a material uncertainty related
to events or conditions that, individually or collectively, may
cast significant doubt on the Group’s or Company's ability to
continue as a going concern for the going concern period;
•we found the going concern disclosure in note 1 to be
acceptable.
However, as we cannot predict all future events or conditions
and as subsequent events may result in outcomes that are
inconsistent with judgements that were reasonable at the time
they were made, the above conclusions are not a guarantee
that the Group or the Company will continue in operation.
5. Fraud and breaches of laws and
regulations – ability to detect
Identifying and responding to risks of material misstatement
due to fraud
To identify risks of material misstatement due to fraud (“fraud
risks”) we assessed events or conditions that could indicate an
incentive or pressure to commit fraud or provide an
opportunity to commit fraud. Our risk assessment procedures
included:
•enquiring of directors, the audit committee, internal audit
and inspection of policy documentation as to the Group’s
high-level policies and procedures to prevent and detect
fraud, including the internal audit function, and the Group’s
channel for “whistleblowing”, as well as whether they have
knowledge of any actual, suspected or alleged fraud;
•reading Board, Remuneration Committee and Executive
Committee minutes;
•considering remuneration incentive schemes and
performance targets for management and directors
including the EPS target for management remuneration;
•using analytical procedures to identify any unusual or
unexpected relationships.
We communicated identified fraud risks throughout the audit
team and remained alert to any indications of fraud
throughout the audit. This included communication from the
Group to full scope component audit teams of relevant fraud
risks identified at the Group level and request to full scope
component audit teams to report to the Group audit team any
instances of fraud that could give rise to a material
misstatement at Group.
As required by auditing standards, and taking into account
possible pressures to meet profit targets, recent revisions to
guidance and our overall knowledge of the control
environment, we performed procedures to address the risk of
management override of controls, in particular the risk that
Group and component management may be in a position to
make inappropriate accounting entries.
On this audit we do not believe there is a fraud risk related to
revenue recognition because non-long-term contract
revenues are not judgemental and consist of a high number of
low value transactions, and long-term contracts are generally
low in complexity with most having a revenue recognition
profile aligned to billing.
We did not identify any additional fraud risks.
We performed procedures including:
•identifying journal entries to test for all full scope
components based on risk criteria and comparing the
identified entries to supporting documentation. These
included those posted by senior finance management, those
posted and approved by the same user and those posted to
unusual or seldom used accounts;
•assessing whether the judgements made in making
accounting estimates are indicative of a potential bias;
•evaluating the business purpose for significant unusual
transactions.
Identifying and responding to risks of material misstatement
due to non-compliance with laws and regulations
We identified areas of laws and regulations that could
reasonably be expected to have a material effect on the
financial statements from our general commercial and sector
experience, through discussion with the directors and other
management (as required by auditing standards), and from
inspection of the Group’s regulatory and legal correspondence
and discussed with the directors and other management the
policies and procedures regarding compliance with laws and
regulations.