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FINANCIAL STATEMENTS
Materiality • Overall Group materiality: £24.9 million based on 1% of Total equity. • Overall Company materiality: £13.0 million based on 1% of Total equity. • Performance materiality: £18.7 million (Group) and £9.8 million (Company). The scope of our audit As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the financial statements. Capability of the audit in detecting irregularities, including fraud Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities, outlined in the Auditors’ responsibilities for the audit of the financial statements section, to detect material misstatements in respect of irregularities, including fraud. The extent to which our procedures are capable of detecting irregularities, including fraud, is detailed below. Based on our understanding of the Group and industry, we identified that the principal risks of non-compliance with laws and regulations related to breaches of UK regulatory principles, such as those governed by the Prudential Regulation Authority and the Financial Conduct Authority, and we considered the extent to which non-compliance might have a material effect on the financial statements. We also considered those laws and regulations that have a direct impact on the preparation of the financial statements such as the Companies Act 2006. We evaluated management’s incentives and opportunities for fraudulent manipulation of the financial statements (including the risk of override of controls), and determined that the principal risks were related to management bias in accounting estimates and judgemental areas as shown in our Key Audit Matters. Audit procedures performed by the engagement team included: • Discussions with the Board, management, Internal Audit, senior management involved in the Risk and Compliance functions and the Group’s legal function, including consideration of known or suspected instances of non-compliance with laws and regulation and fraud; • Assessment of matters reported on the Group’s whistleblowing register and the results of management’s investigation of such matters where applicable; • Reviewing correspondence with the Prudential Regulation Authority and the Financial Conduct Authority in relation to compliance with laws and regulations; • Meeting with the PRA supervisory team to discuss matters in relation to compliance with laws and regulations; • Attendance at Audit Committee and Group Risk and Compliance Committee meetings; • Reviewing relevant meeting minutes including those of the Board of Directors, Audit, Group Risk and Compliance, Investment and Remuneration Committees; • Reviewing data regarding policyholder complaints, the Group’s register of litigation and claims, Internal Audit reports, and Compliance reports in so far as they related to non-compliance with laws and regulations and fraud; • Procedures relating to the valuation of life insurance contract liabilities, in particular annuitant mortality, credit default and expense assumptions, and the valuation of investments classified as Level 3 under IFRS 13, including Lifetime Mortgages, described in the related Key Audit Matters;
• Validating the appropriateness of journal entries identified based on our fraud risk criteria; • Designing audit procedures to incorporate unpredictability around the nature, timing or extent of our testing; and • Assessing the impact of COVID-19 on the inherent risk of fraud, including potential opportunities for fraud with more remote working and where internal controls may not be operating the way they usually do. There are inherent limitations in the audit procedures described above. We are less likely to become aware of instances of non-compliance with laws and regulations that are not closely related to events and transactions reflected in the financial statements. Also, the risk of not detecting a material misstatement due to fraud is higher than the risk of not detecting one resulting from error, as fraud may involve deliberate concealment by, for example, forgery or intentional misrepresentations, or through collusion. Key audit matters Key audit matters are those matters that, in the auditors’ professional judgement, were of most significance in the audit of the financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) identified by the auditors, including those which had the greatest effect on: the overall audit strategy; the allocation of resources in the audit; and directing the efforts of the engagement team. These matters, and any comments we make on the results of our procedures thereon, were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
This is not a complete list of all risks identified by our audit.
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