BP 2015 Annual Report Download - page 102

Risk Our response to the risk What we concluded to
the Audit Committee
The current geopolitical environment in Russia and the
existence of US and EU economic sanctions may impact
BP’s ability to exercise significant influence over Rosneft
and the consequent accounting for the group’s interest in
Rosneft using the equity method (as described on page 69 of
the report of the audit committee and Notes 1 and 16 of the
financial statements).
Geopolitical developments (such as further sanctions) may
present changes which could diminish the ability of the group to
exert significant influence, through diminished participation in
the financial and operating policy decisions of Rosneft.
For the Rosneft operating segment the primary audit
engagement team performed the following audit procedures.
•We assessed the impact of sanctions imposed by the US and
EU to determine the effect on the group’s ability to exercise
significant influence over Rosneft. We did this through
discussion with the group’s legal team and through observing
the interaction between BP and Rosneft. We verified the
second BP-appointed director to the board of Rosneft and
considered whether BP demonstrated significant influence
under IFRS criteria.
•We considered the adequacy of the financial and other
information provided to BP to allow compliance with its
reporting obligations, observing that appropriate review was
completed by BP on the information reported.
•We provided instructions to Rosneft’s independent auditors
who reported in accordance with our timetable and
instructions.
Based on our
procedures we are
satisfied that the
criteria in IFRS for
equity accounting
are met in respect of
Rosneft and that the
impact of sanctions
extant at this time
does not prevent the
exercise of
significant influence
by BP.
The scope of our audit
Our assessment of audit risk, our evaluation of materiality and our allocation of performance materiality determine our audit scope for each entity
within the group. Taken together, this enables us to form an opinion on the consolidated financial statements. We take into account size, risk profile,
the organization of the group and effectiveness of group-wide controls, changes in the business environment and other factors such as recent internal
audit results when assessing the level of work to be performed at each component.
In scoping the audit we reflect the group’s structure (Upstream, Downstream, Rosneft, Other businesses and corporate and Gulf of Mexico oil spill),
plus the group’s functions. In assessing the risk of material misstatement to the group financial statements, and to ensure we had adequate
quantitative coverage of significant accounts in the financial statements, we performed full or specific scope audit procedures over 47 components
covering the UK, US, Angola, Azerbaijan, Germany, Russia, Singapore and the group functions, representing the principal business units within the
group.
Of the 47 components selected, we performed an audit of the complete financial information of 9 components (“full scope components”) which were
selected based on their size or risk characteristics. For the remaining 38 components (“specific scope components”), we performed audit procedures
on specific accounts within that component that we considered had the potential for the greatest impact on the significant accounts in the financial
statements either because of the size of these accounts or their risk profile.
For the current year, the full scope components contributed 43% of the group’s loss before tax, 41% of the group’s revenue and 11% of the group’s
property, plant and equipment. The specific scope components contributed 29% of the group’s revenue and 55% of the group’s property, plant and
equipment. The audit scope of these components may not have included testing of all significant accounts of the component but will have contributed
to the coverage of significant accounts tested for the group. Of the 38 specific scope components, we instructed 7 of these locations to perform
specified procedures over impairment of goodwill and other intangible assets, recoverability of certain receivables and the carrying value of certain
investments held by the group.
The remaining components not subject to full or specific group scoping are not significant individually or in the aggregate. They include many small,
low risk components and balances; each remaining component represents an average of 0.02% of the total group loss before tax and 0.04% of total
group revenue. For these components, we performed other procedures, including evaluating and testing management’s group wide controls across
a range of geographies and segments, specifically testing the oversight and review controls that management has in place to ensure there are no
material misstatements in these locations. We performed analytical and enquiry procedures to address the risk of residual misstatement on a
segment-wide and component basis. We tested consolidation journals to identify the existence of any further risks of misstatement that could have
been material to the group financial statements.
Changes from the prior year
In the current year we designed full and specific procedures for in-scope components, which represents a change from the prior year when specific
scope components only, were included. This change did not result in a significant change in the level of procedures undertaken at locations.
Involvement with component teams
In establishing our overall approach to the group audit, we determined the type of work that needed to be undertaken at each of the components by
us, as the primary audit engagement team, or by component auditors from other EY global network firms operating under our instruction. Of the 9 full
scope components, audit procedures were performed on 5 of these directly by the primary audit engagement team. For the 38 specific scope
components, audit procedures were performed on 18 directly by the primary audit engagement team. Where work was performed by component
auditors, we determined the appropriate level of involvement to enable us to determine that sufficient audit evidence had been obtained as a basis for
our opinion on the group as a whole.
98 BP Annual Report and Form 20-F 2015
This page does not form part of BP’s Annual Report on Form 20-F as filed with the SEC.