BP 2013 Annual Report Download - page 122

Consolidated financial statements of the BP group
Independent auditor’s report on the Annual Report and Accounts to the members of
BP p.l.c. – continued
On the basis of our risk assessments, together with our assessment of the group’s overall control environment, our judgement was that overall
performance materiality (that is our tolerance for misstatement in an individual account or balance) for the group should be 75% (2012 75%) of the
materiality we have determined for the group, namely $750 million (2012 $750 million). Our objective in adopting this approach was to ensure that total
uncorrected and undetected audit differences do not exceed our materiality level of $1 billion for the financial statements as a whole.
We agreed with the audit committee that we would report to the committee all audit differences in excess of $50 million (2012 $50 million), as well as
differences below that threshold that, in our view, warranted reporting on qualitative grounds.
An overview of the scope of our audit
We adopted a risk-based approach in determining our audit strategy. This approach focuses audit effort towards higher risk areas, such as
management judgements and estimates and on locations that are considered significant based upon size, complexity and risk.
Our group audit scope focused on key locations. They were selected to provide an appropriate basis for undertaking audit work to address the risks of
material misstatement identified above. Together with the group functions, which are also subject to audit, these locations represent the principal
business units of the group and account for 75% (2012 72%) of the group’s total assets and 84% (2012 72%) of the group’s profit before tax. All
locations within the scope were subject to audit procedures and the extent of audit work was based on our assessment of the risks of material
misstatement and of the materiality of the group’s business operations at those locations. For the remaining locations, we performed other procedures
to ensure there were no significant risks of material misstatement in the group financial statements.
One of the key locations in scope for the group audit is Rosneft, a material associate that represents approximately 4% of the group’s total assets and
7% of the group’s profit before tax. Rosneft is not controlled by the group. We were provided with sufficient access to Rosneft’s auditors in order to
ensure appropriate audit procedures had been completed by them on the financial statements of Rosneft from which the BP equity accounting entries
are determined.
The group audit team continued to follow a programme of planned visits that were designed to ensure that the Senior Statutory Auditor or his
designates visit each of the locations where the group audit scope was focused at least once every two years and the most significant of them at least
once a year. The Senior Statutory Auditor visited Houston four times during the audit primarily to consider the uncertainties over provisions and
contingencies related to the Gulf of Mexico oil spill and he visited Moscow three times primarily to consider the matters related to the equity interestin
Rosneft.
Our response to the risks of material misstatement identified above included the following procedures:
• we focused on the significant uncertainties over provisions and contingencies related to the Gulf of Mexico oil spill; specifically the areas of highest
uncertainty where assumptions or new events could result in a material change to the provisions recorded or contingent liabilities disclosed. We
engaged actuaries to work with the audit team and challenge the expert input provided to BP by external actuaries. We considered the legal opinions
that determined management’s positions, in particular relating to whether BP will be found grossly negligent and the implications for the fines and
penalties payable under the Clean Water Act.
• we performed testing of controls over BP’s internal certification process for technical and commercial experts who are responsible for the estimation
of oil and gas reserves. We assessed whether the changes in proved reserves have been made in compliance with relevant regulations. We ensured
that the updated reserves estimates were included appropriately in consideration of impairment, depreciation, depletion and amortization and
decommissioning provisions.
• we performed testing relating to controls over unauthorized trading activity and obtained confirmations directly from third parties for a sample of
trades. Analytical tools were used to assist us in identifying trades which have the highest risk of unauthorized activity so as to focus our testing on
these trades.
• we challenged management’s judgement that BP exercises significant influence over Rosneft, including obtaining evidence of BP’s participation in
decision-making through representation on the Rosneft board and committees of the board.
• we challenged management’s assumptions used in the determination of the fair value of the assets and liabilities of the Rosneft business. We
engaged valuations specialists to work with the audit team to consider the valuation methodology and specifically the assumptions used around
future oil and gas prices, exchange rates and discount rates. We performed procedures to ensure the veracity of the valuation model and that the
base data used in the model agreed to the underlying books and records.
Opinion on other matter prescribed by the Companies Act 2006
In our opinion the information given in the Strategic Report and the Directors’ Report for the financial year for which the consolidated financial
statements are prepared is consistent with the consolidated financial statements.
Matters on which we are required to report by exception
We have nothing to report in respect of the matters set out below.
Under the International Standards on Auditing (UK and Ireland), we are required to report to you if, in our opinion, information in the annual report is:
• materially inconsistent with the information in the audited financial statements; or
• apparently materially incorrect based on, or materially inconsistent with, our knowledge of the group acquired in the course of performing our audit;
or
• is otherwise misleading.
In particular, we are required to consider whether we have identified any inconsistencies between our knowledge acquired during the audit and the
directors’ statement that they consider the annual report is fair, balanced and understandable and whether the annual report appropriately discloses
those matters that we communicated to the audit committee which we consider should have been disclosed.
This page does not form part of BP’s Annual Report on Form 20-F as filed with the SEC.
118 BP Annual Report and Form 20-F 2013