BT : Financial statements 2024

BT Group plc Annual Report 2024

131

Financial statements

Financial statements

Look out for these throughout the report

Significant accounting policies

Critical and key accounting estimates

and significant judgements

Contents

Independent auditor's report	132
Group income statement	145
Group statement of comprehensive income	146
Group balance sheet	147
Group statement of changes in equity	148
Group cash flow statement	149
Notes to the consolidated financial statements	150
Basis of preparation	150
Critical accounting estimates and significant judgements	151
Material accounting policies that apply to the overall
financial statements	152
Segment information	153
Revenue	156
Operating costs	160
Employees	161
Audit, audit related and other non-audit services	162
Specific items	162
Taxation	164
EPS	167
Dividends	167
Intangible assets	168
Property, plant and equipment	172
Leases	175
Trade and other receivables	179
Trade and other payables	182
Provisions & contingent liabilities	183
Retirement benefit plans	185
Own shares (BT Group)	196
Share-based payments	196
Divestments & assets and liabilities classified as held for sale	198
Investments	201
Joint ventures and associates	202
Cash and cash equivalents	205
Loans and other borrowings (BT Group)	206
Finance expense and income	210
Financial instruments and risk management	211
Other reserves	218
Related party transactions	218
Financial commitments	219
Re-presentation of prior year comparatives	220
Post balance sheet events	221
BT Group - Financial Statements of BT Group plc	222
Related undertakings	226
BT Group Additional Information/APM	231

BT Group plc Annual Report 2024

132

Financial statements

KPMG LLP's Independent Auditor's Report to the members of BT Group plc

1. Our opinion is unmodified

In our opinion:

• the financial statements of BT Group plc give a true and fair view of the state of the Group's and of the Parent Company's affairs as at 31 March 2024, and of the Group's profit for the year then ended;
• the Group financial statements have been properly prepared in accordance with UK-adopted international accounting standards;
• the Parent Company financial statements have been properly prepared in accordance with UK accounting standards, including FRS 101 Reduced Disclosure Framework; and
• the Group and Parent Company financial statements have been prepared in accordance with the requirements of the Companies Act 2006.

What our opinion covers

We have audited the Group and Parent Company financial statements of BT Group plc ("the Company") for the year ended 31 March 2024 ("FY24") included in the Annual Report, which comprise:

Group

• Group income statement,
• Group statement of comprehensive income,
• Group balance sheet,
• Group statement of changes in equity,
• Group cash flow statement
• Notes 1 to 33 to the Group financial statements, including the accounting policies in the respective notes.

Parent Company (BT Group plc)

• Company balance sheet
• Company statement of changes in equity
• Notes 1 to 3 to the Parent Company financial statements, including the accounting policies in note 1.

In the current year the Group recognised an impairment charge against goodwill allocated to the Business cash generating unit (CGU) of £488mn (FY23: nil), reflecting the execution risk of the CGU's business plan and increased uncertainty over the projected cashflows.

The valuation of the BT pension scheme ("BTPS") defined obligation also remains a focus area as it is complex, relying on key actuarial assumptions such as discount rates, RPI, and mortality.

We continue to have a focus on the BTPS which holds diverse unquoted assets which are valued based on inputs not directly observable. The valuation of these assets requires the involvement of experts and significant judgement over the key unobservable input.

We continue to identify the recoverability of the Parent Company investment in subsidiaries as a focus area for the Parent Company's standalone accounts. This is due to the materiality of the Parent Company's investment in subsidiaries compared to the company's total assets.

The TNT Sport Joint venture company is in its second year of operations and all significant risks associated with the initial recognition of the balances relating to the disposal of the BT sports division and subsequent re-investment in the Sports JV are no longer applicable.

	Risk
Key Audit Matters	FY24 vs FY23	Item
Accuracy of revenue due to complex	é	4.1
billing systems (Group)
Impairment of Goodwill attributable to	…	4.2
Business CGU (Group)
Valuation of defined benefit obligation
of the BT pension scheme (BTPS)	çè	4.3
(Group)
Valuation of unquoted investments in	ê	4.4
the BT pension scheme (BTPS) (Group)
Recoverability of Parent company
investment in subsidiaries (Parent	çè	4.5
Company)

Basis for opinion

We conducted our audit in accordance with International Standards on Auditing (UK) ("ISAs (UK)") and applicable law. Our responsibilities are described below. We believe that the audit evidence we have obtained is a sufficient and appropriate basis for our opinion. Our audit opinion and matters included in this report are consistent with those discussed and included in our reporting to the Audit and Risk Committee ("ARC").

We have fulfilled our ethical responsibilities under, and we remain independent of the Group in accordance with, UK ethical requirements including the FRC Ethical Standard as applied to listed public interest entities.

2. Overview of our audit

Factors driving our view of risks

Our risk assessment is driven by understanding of the applicable financial reporting framework, our knowledge of the business, the industry and the wider economic environment in which BT Group plc operates.

Revenue from non-long-term contracts remains a focus area due to the complexity arising from the large number of low value transactions managed through a number of distinct billing systems, and the complex IT landscape linking the billing systems together.

In addition, the bespoke nature of the pricing structure within some of Business' contracts means that there is a higher risk of processing error and fraud in relation to a proportion of Business' revenue derived from certain billing systems and estimation uncertainty over the associated refund liabilities.

Audit and Risk Committee Interaction

During the year, the ARC met 6 times. KPMG are invited to attend all ARC meetings and are provided with an opportunity to meet with the ARC in private sessions without the Executive Directors being present. For each Key Audit Matter, we have set out communications with the ARC in section 4, including matters that required particular judgement for each.

The matters included in the Audit and Risk Committee Chair's report on pages 99to 103are materially consistent with our observations of those meetings.

Our Independence

We have fulfilled our ethical responsibilities under, and remain independent of the Group in accordance with, UK ethical requirements including the FRC Ethical Standard as applied to listed public interest entities.

We have not performed any non-audit services during the year ended 31 March 2024 or subsequently which are prohibited by the FRC Ethical Standard.

We were first appointed as auditor by the shareholders for the year ended 31 March 2019. The period of total uninterrupted engagement is for the 6 financial years ended 31 March 2024.

Jonathan Mills has succeeded John Luke as the Lead Engagement Partner for the year ended 31 March 2024. The Group Engagement partner is required to rotate every 5 years. As these are the first set of the Group's financial statements signed by Jonathan Mills, he will be required to rotate off after the FY28 audit.

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Financial statements

The average tenure of partners responsible for component audits as set out in section 7 below is 3 years, with the shortest being 1 year and the longest being 4 years.

Total audit fee	£20.70m
Audit related fees (including interim review)	£2.54m
Other services	£0.03m
Non-audit fee as a % of total audit and audit
related fee %	12%
Date first appointed	11 July 2018
Uninterrupted audit tenure	6 years
Reappointment	4 years
Next financial period which requires a tender	2029
Tenure of Group engagement partner	1 year
Average tenure of component signing partners	3 years

Group	Group Materiality
GPM	Group Performance Materiality
HCM	Highest Component Materiality
PLC	Parent Company Materiality
LCM	Lowest Component Materiality
AMPT	Audit Misstatement Posting Threshold

Group scope (Item 7 below)

We have performed risk assessment and planning procedures to determine which of the Group's components are likely to include risks of material misstatement to the Group financial statements, the type of procedures to be performed at these components and the extent of involvement required from our component auditors around the world.

The total number of entities in scope for FY24 is three which is consistent with FY23.

Materiality (Item 6 below)

The scope of our work is influenced by our view of materiality and our assessed risk of material misstatement.

Group materiality is determined with reference to a benchmark of Group Total Revenue (FY23: Profit before tax normalised by adding back the one-off operating cost arising from the BT Sport disposal). We have determined overall materiality for the Group financial statements as a whole at £135m (FY23: £95m) and for the Parent Company financial statements as a whole at £100m (FY23: £90m).

A key judgement in determining materiality was selecting the most relevant metric as the benchmark, considering which metrics have the greatest bearing on shareholder decisions. The relevant metrics considered for the current year included Revenue, Earnings before interest, taxes, depreciation and amortisation ("EBITDA"), Profit before tax from continuing operations ("PBTCO"), and Total assets. The selected benchmark for the current year is "Revenue," which represents a change from the prior period where the selected benchmark was PBTCO. The change to Revenue is deemed appropriate given shareholders' focus on revenue and cash generation and the current stage of the Fibre To The Premise ("FTTP") capital investment program. In the context of the high levels of capital investment for future growth, Revenue is considered a more representative and stable measure of performance. As such, we based our Group materiality on Total Revenue, of which it represents 0.65% (FY23: 4.95% of normalised PBTCO).

Materiality for the Parent Company financial statements as a whole was set at £100m (FY23: £90m), determined with reference to a benchmark of Parent Company total assets, limited to be less than materiality for Group materiality as a whole. It represents 0.89% (FY23: 0.80%) of the stated benchmark.

Materiality levels used in our audit

The components within the scope of our work accounted for the percentages illustrated on page 134.

In addition, we have performed Group level analysis on the remaining components to determine whether further risks of material misstatement exist in those components.

We consider the scope of our audit, as communicated to the Audit and Risk Committee, to be an appropriate basis for our audit opinion.

Group				95
			135
GPM				61.7
			87.7
HCM				80
			110
PLC				90
			100
LCM	35
50
AMPT	4.75
5.4
			FY23 £m			FY24 £m

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Financial statements

KPMG LLP's Independent Auditor's Report to the members of BT Group plc continued

Coverage of Group financial statements

Revenue	Total assets
13%	4%

87%96%

Profit before tax

17%

83%

Full scope audits

Remaining components

The impact of climate change on our audit

In planning our audit, we considered the potential impacts of climate change on the Group's business and its financial statements.

The Group has committed as set out in the Strategic Report to be a net-zero business by 2030 and has also outlined several shorter- term climate change targets. As a part of our audit, we have performed a risk assessment, including enquiries of management, to understand how the impact of commitments made by the Group in respect of climate change, as well as the physical and transition risks of climate change, may affect the financial statements and our audit.

The potential impacts of these matters relate to the forward- looking estimates, which include projections for impairment assessment of goodwill, useful economic life of vehicle fleet and infrastructure assets impacting on future depreciation charges, and significant assumptions used in pension asset valuations. Taking into account our risk assessment procedures, the remaining useful economic lives of relevant assets and the nature of the assumptions used in the pension valuation, and the financial impact of climate risk and opportunities on the forecasted cashflows, we have assessed that there is not a significant risk to the balances in the financial statements as a result of climate change. Therefore, there is no material impact on the Group's critical accounting estimates and our key audit matters.

We have read the disclosures of climate related information in the annual report and considered their consistency with the financial statements and our audit knowledge. We have not been engaged to provide assurance over the accuracy of the climate risk disclosures in the Annual Report.

3. Going concern, viability and principal risks and uncertainties

The directors have prepared the financial statements on the going concern basis as they do not intend to liquidate the Group or the Parent Company or to cease their operations, and they have concluded that the Group's and the Parent 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 the Group's 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").

Going concern

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 Parent 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 Parent Company's available financial resources over this period were:

• The impact of rising energy prices, supply shortages, and inflationary pressures;
• The impact of significant supply chain disruptions driven by geo- political factors;
• The impact of plans to deliver new initiatives required to meet savings commitments not being realised;
• The likelihood of existing litigation crystallising within the going concern period.

We also considered less predictable but realistic second order impacts, such as a large scale cyber breach, the UK experiencing a significant recession, 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.

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Financial statements

Our procedures also included an assessment of whether the going	Our reporting
concern disclosure in note 1 to the financial statements gives a full	We have nothing material to add or draw attention to in relation to
and accurate description of the directors' assessment of going	these disclosures.
concern. Accordingly, based on those procedures, we found the	We have concluded that these disclosures are materially
directors' use of the going concern basis of accounting without any
consistent with the financial statements and our audit knowledge.
material uncertainty for the Group and Parent Company to be
acceptable. However, as we cannot predict all future events or	4. Key audit matters (KAM)
conditions and as subsequent events may result in outcomes that
are inconsistent with judgements that were reasonable at the time	What we mean
they were made, the above conclusions are not a guarantee that
the Group or the Parent Company will continue in operation.	Key audit matters are those matters that, in our professional
	judgement, were of most significance in the audit of the financial
Our conclusions	statements and include the most significant assessed risks of
- We consider that the directors' use of the going concern basis of	material misstatement (whether or not due to fraud) identified by
accounting in the preparation of the Group and Parent	us, including those which had the greatest effect on:
Company's financial statements is appropriate;	- the overall audit strategy;
- We have not identified, and concur with the directors'	- the allocation of resources in the audit; and
assessment that there is not, a material uncertainty related to	- directing the efforts of the engagement team.
events or conditions that, individually or collectively, may cast
We include below the key audit matters in decreasing order of
significant doubt on the Group's or Parent Company's ability to
continue as a going concern for the going concern period;	audit significance together with our key audit procedures to
- We have nothing material to add or draw attention to in relation	address those matters and our results from those procedures.
These matters were addressed, and our results are based on
to the directors' statement in note 1 to the financial statements
procedures undertaken, for the purpose of our audit of the
on the use of the going concern basis of accounting with no
financial statements as a whole. We do not provide a separate
material uncertainties that may cast significant doubt over the
opinion on these matters.
Group and Parent Company's use of that basis for the going
concern period, and we found the going concern disclosure in	4.1 Accuracy of revenue due to the complex
note 1 to be acceptable; and
billing systems (Group)
- The related statement under the Listing Rules set out on page
126is materially consistent with the financial statements and our	Financial Statement Elements
audit knowledge.

Disclosures of emerging and principal risks and longer- term viability

Our responsibility

We are required to perform procedures to identify whether there is a material inconsistency between the directors' disclosures in respect of emerging and principal risks and the viability statement, and the financial statements and our audit knowledge.

Based on those procedures, we have nothing material to add or draw attention to in relation to:

• the directors' confirmation within the Viability statement on page 81that they have carried out a robust assessment of the emerging and principal risks facing the Group, including those that would threaten its business model, future performance, solvency and liquidity;
• the Principal Risks disclosures describing these risks and how emerging risks are identified and explaining how they are being managed and mitigated; and
• the directors' explanation in the Viability statement of how they have assessed the prospects of the Group, over what period they have done so and why they considered that period to be appropriate, and their statement as to whether they have a reasonable expectation that the Group will be able to continue in operation and meet its liabilities as they fall due over the period of their assessment, including any related disclosures drawing attention to any necessary qualifications or assumptions.

We are also required to review the Viability statement set out on page 81under the Listing Rules.

Our work is limited to assessing these matters in the context of only the knowledge acquired during our financial statements audit. 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 absence of anything to report on these statements is not a guarantee as to the Group's and Parent Company's longer-term viability.

	FY24	FY23
Total revenue	£20.8bn	£20.7bn

Our assessment of risk vs FY23

• Increased

Our results

FY24: Acceptable	FY23: Acceptable

Description of the Key Audit Matter

Processing error

The Group's non-long-term contract revenue consists of a large number of low value transactions. The Group operates a number of distinct billing and order-entry systems and the IT landscape underpinning the end-to-end revenue process is complex.

There are multiple products sold at multiple rates with varying price structures in place. These represent a combination of service-based products, such as fixed line telephony, as well as goods, such as the provision of mobile handsets.

The revenue recognition of non-long-term contract revenue is not subject to significant judgement. However, due to the large number of transactions, manual nature of order entry and complexity of the billing systems, this is considered to be an area of most significance in our audit. Within Business we have identified a significant risk of processing error in relation to some billing systems. In addition, the bespoke nature of the pricing structure within some of Business' contracts means that there is a higher risk of processing error and fraud in relation to a proportion of Business' revenue derived from certain billing systems.

Subjective estimate of refund liabilities in Business

The bespoke pricing structure results in a risk of billing inaccuracies within a proportion of Business' revenue and so over the identification of financial liabilities for associated customer refunds. The Group have estimated refund liabilities based on the

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Financial statements

KPMG LLP's Independent Auditor's Report to the members of BT Group plc continued

results of a sample of billing items leading to estimation uncertainty over the refund liabilities.

The effect of these matters is that, as part of our risk assessment for audit planning purposes, we determined that the quantum of refund liabilities had a high degree of estimation uncertainty, with a potential range of reasonable outcomes greater than our materiality for the financial statements as a whole. In conducting our final audit work, we reassessed the degree of estimation uncertainty to be less than materiality. The financial statements (note 5) disclose the range estimated by the Group.

4.2 Impairment of goodwill attributable to the Business CGU (Group)

Financial Statement Elements

	FY24	FY23
Goodwill allocated to Business CGU	£3.56bn	£4.08bn
Impairment charge	£0.49bn	£0.0bn

Our response to the risk

Our procedures to address the risk included:

Process understanding: Obtaining an understanding of the revenue processes by observing transactions from customer initiation to cash received for material revenue streams.

Test of detail: Comparing a sample of revenue transactions, including credit adjustments, to supporting evidence e.g., customer bills, contracts, price lists and cash received (all where applicable).

Test of detail: Agreeing a sample of year end trade receivables to cash received after year end.

Test of detail: Within Business, we compared the results of our test of detail over revenue, including error rates by product, in the current and previous years' audits, to the liabilities held for customer refunds and challenged the Group's assessment of refund liabilities based on billing errors identified through our testing and the legal and regulatory risks in relation to billing errors for the products impacted.

Assessing transparency: Considering the adequacy of the Group's disclosures in respect of the sensitivity of the refund liability to error rates and legal risks.

We performed the detailed tests above rather than seeking to rely on the Group's controls because our knowledge of the design of these controls, indicated that we would be unlikely to obtain the required evidence to support reliance on them.

Communications with the Audit and Risk Committee Our discussions with and reporting to the Audit and Risk Committee included:

• Our definition of the key audit matter and our audit approach, including the extent of our planned control reliance.
• The results from our process understanding, including controls gaps identified.
• The results from our substantive testing. We performed an assessment of whether the overstatements of revenue identified through these procedures were material, taking into account findings from other areas of the audit and qualitative aspects of the financial statements as a whole.

Areas of particular auditor judgement

We exercised judgement over the adequacy of liabilities for customer refunds in light of overstatements of revenue identified through our testing over pricing within Business. Particular judgement was needed over the applicable error rate and periods impacted.

Our results

The results of our testing were satisfactory (FY23: satisfactory) and we considered the revenue relating to non-long-term contract revenue and the estimate of refund liabilities and related disclosures to be acceptable (FY23: acceptable).

Further information in the Annual Report and Accounts: Refer to page 156for the accounting policy on Revenue (note 5) for the financial disclosures.

Our assessment of risk vs FY23

…

Our results

FY24: Acceptable	FY23: Acceptable

Description of the Key Audit Matter

Forecast-based assessment

The recoverability of goodwill allocated to the Business cash generating unit ("CGU") is assessed using value in use which is based on forecast future cash flows, within a discounted cashflow model.

For the Business CGU, the execution risk associated with the transition from legacy to next generation telecommunication products and services in conjunction with ongoing cost reductions and uncertainty in relation to the economic outlook renders precise forecasting of the underlying cash flows challenging. There is also estimation uncertainty over the appropriate terminal growth rate and discount rate applied to the projected cashflows.

In the current year the Group recognised an impairment charge against goodwill allocated to the Business CGU of £488mn (FY23: nil), reflecting the execution risk of the CGU's business plan and increased uncertainty over the projected cashflows.

The effect of these matters is that, as part of our risk assessment, we determined that the value in use used to support the recoverable amount of the goodwill allocated to the Business CGU has a high degree of estimation uncertainty, with a potential range of reasonable impairment outcomes greater than our materiality for the financial statements as a whole, and possibly many times that amount. The financial statements (note13) disclose the sensitivity estimated by the Group.

Our response to the risk

Our procedures to address the risk included:

Our valuation expertise: Using our own valuation specialists, assessing the methodology, principles and integrity of the value in use model.

Benchmarking assumptions: Challenging the appropriateness of the Business CGU discount rate and long-term growth rate by determining an independent discount rate and benchmarking the long term growth rate against externally derived data and analyst reports.

Our sector experience: Using our sector experience inspecting the Group's medium term strategic plans used to derive the forecast cash flows and comparing the assumptions applied by the directors in the forecast cash flows against those plans, and the forecasts approved by the Board.

Assessing consistency: Assessing the consistency of the forecasts used by the Group across different areas such as goodwill impairment testing and the viability assessment.

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Financial statements

Historical comparison: Assessing the historical accuracy of the forecasts used in the Business CGU's impairment model by considering actual performance against prior year budgets and challenging whether the forecast cashflows were risk adjusted based on the downside risks and opportunities identified by the Group.

Sensitivity analysis: Considering the sensitivity of the recoverable amount to reasonably possible changes in the key inputs and assumptions used in determining the value in use of the Business CGU and the resulting impairment charge including the impact of changes in EBITDA compound annual growth rate in the forecast period, long term growth rate and discount rate.

Comparing valuations: Performing a stand back assessment by comparing the combined value in use of all of the CGUs of the Group to the Group's market capitalisation to assess the reasonableness of those cash flows and assessing and challenging the difference and whether the assumptions applied in the impairment test were acceptable.

Assessing transparency: Assessing whether the Group's disclosures about the sensitivity of the outcome of the impairment assessment to changes in key assumptions reflected the risks inherent in the recoverable amount of goodwill.

We performed the detailed tests above rather than seeking to rely on any of the Group's controls because the nature of the balance is such that we would expect to obtain audit evidence primarily through the detailed procedures described.

Communications with the Audit and Risk Committee Our discussions with and reporting to the Audit and Risk Committee included:

• Our definition of the key audit matter relating to the impairment of goodwill allocated to the Business CGU.
• Our audit response to the key audit matter which included our assessment of the forecasted cashflows and the use of specialists to challenge the value in use model and key assumptions and our assessment over accuracy and completeness of the disclosures.

4.3 Valuation of defined benefit obligation of the BT Pension Scheme (BTPS) (Group)

Financial Statement Elements

	FY24	FY23
BTPS Obligation	£40.0bn	£41.6bn

Our assessment of risk vs FY23

çè

Our results

FY24: Acceptable	FY23: Acceptable

Description of the Key Audit Matter

Subjective valuation

The valuation of the BT pension scheme ("BTPS") defined benefit obligation is complex and requires a significant degree of estimation in determining the assumptions. It is dependent on key actuarial assumptions, including the discount rate, retail price index ("RPI") and mortality assumptions. A change in the methodology applied or small changes in the key actuarial assumptions may have a significant impact on the measurement of the defined benefit pension obligation.

The effect of these matters is that, as part of our risk assessment, we determined the valuation of the BTPS defined benefit obligation had a high degree of estimation uncertainty, with a potential range of reasonable outcomes greater than our materiality for the financial statements as a whole, and possibly many times that amount. The financial statements (note 19) disclose the key sensitivities of the defined benefit pension obligation to changes in key assumptions.

Our response to the risk

Areas of particular auditor judgement

We identified the following as the areas of particular auditor judgement:

• Subjective and complex auditor judgement was required in evaluating the key assumptions included in the estimation of the value in use. This includes the quantum of risk adjustments needed to be applied to forecasts to account for the underlying execution risk associated with the transition from legacy to next generation products and services, in conjunction with an ongoing project to reduce the CGU's cost base to deliver those products and services. This is in addition to the evaluation of the terminal growth rate and discount rate.
• We performed an assessment of whether an understatement of the impairment charge identified through these procedures was material.

Our results

We found the goodwill allocated to the Business CGU balance, and the related impairment charge, to be acceptable (FY23: acceptable.

Further information in the Annual Report and Accounts: See the Audit and Risk Committee Report on page 101for details on how the Audit and Risk Committee considered impairment of goodwill as an area of significant attention, page 168for the accounting policy on Impairment on goodwill (note 13) for the financial disclosures.

Our procedures to address the risk included:

Evaluation of the Group's experts: Evaluating the scope, competency and objectivity of the Group's external experts who assisted in determining the actuarial assumptions used to determine the defined benefit obligation.

Our actuarial expertise: With the support of our own actuarial specialists, we performed the following:

• Evaluating the judgements made and the appropriateness of methodologies used by the Group and the Group's experts in determining the key actuarial assumptions;
• Comparing the assumptions used by the Group to our independently compiled expected ranges based on market observable data points and our market experience.

Assessing transparency: Considering the adequacy of the Group's disclosures in respect of the sensitivity of the obligation to these assumptions.

We performed the tests above rather than seeking to rely on any of the Group's controls because the nature of the balance is such that we would expect to obtain audit evidence primarily through the detailed procedures described.

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Financial statements

KPMG LLP's Independent Auditor's Report to the members of BT Group plc continued

Communications with the Audit and Risk Committee Our discussions with and reporting to the Audit and Risk Committee included:

4.4 Valuation of unquoted assets in the BT Pension Scheme (BTPS) (Group)

• Our definition of the key audit matter relating to the valuation of the defined benefit obligation of the BTPS.
• Our audit response to the key audit matter which included the use of specialists to challenge key aspects of the Group's actuarial valuation.

Areas of particular auditor judgement

We identified the following as the areas of particular auditor judgement:

• Subjective and complex auditor judgement was required in evaluating the key actuarial assumptions used by the Group (including the discount rate, retail price index and mortality assumptions).

Our results

We found the valuation of the defined benefit obligation of the BT Pension Scheme and related disclosures to be acceptable (FY23: acceptable).

Further information in the Annual Report and Accounts: See the Audit and Risk Committee Report on page 101for details on how the Audit and Risk Committee considered the valuation of defined benefit obligation of the BTPS as an area of significant attention, page 185for the accounting policy on the Retirement Benefit Plan (note 19) for the financial disclosures.

Financial Statement Elements

FY24 FY23

Longevity Insurance Contract for the

BTPS: included within the unquoted £(0.9)bn £(0.8)bn BTPS plan assets

Our assessment of risk vs FY23

ê

Our results

FY24: Acceptable	FY23: Acceptable

Description of the Key Audit Matter

Subjective valuation

The BTPS have unquoted plan assets in private equity, UK and overseas property, mature infrastructure, longevity insurance contracts, secure income and non-core credit assets which are classified as fair value level three assets.

Significant judgement is required to determine the value of a portion of these unquoted investments, which are valued based on inputs that are not directly observable. The Group engages valuation experts to value these assets.

In FY24, the most significant valuation judgement of the above is in respect of a longevity insurance contract. The key unobservable inputs used to determine the fair value of that longevity insurance contract include the discount rate and projected future mortality.

The effect of these matters is that, as part of our risk assessment, we determined that the valuation of a longevity insurance contract asset held by the BTPS has a high degree of estimation uncertainty, with a potential range of reasonable outcomes greater than our materiality for the financial statements as a whole, and possibly many times that amount.

The financial statements (note 19) disclose the key sensitivities of the valuation of plan assets to changes in key assumptions.

Our response to the risk

Our procedures to address the risk included:

Assessing valuers' credentials: Evaluating the scope, competencies and objectivity of the Group's external experts who assisted in determining the key unobservable inputs and the valuation of a longevity insurance contract.

Comparing valuations: Challenging, with the support of our own actuarial specialists, the fair value of a longevity insurance contract by comparing with an independently developed range of fair values using assumptions, such as the discount rate and projected future mortality, based on external data. External data included market views of the impact from COVID on future mortality, market discount rates and the demographic analysis available from the 30 June 2023 triennial funding valuation.

Assessing transparency: Considering the adequacy of the Group's disclosures in respect of the sensitivity of a longevity insurance contract asset valuation to these assumptions.

We performed the detailed tests above rather than seeking to rely on any of the Group's controls because our knowledge of the design of these controls indicated that we would not be able to obtain the required evidence to support reliance on controls.

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Financial statements

Communications with the Audit and Risk Committee Our discussions with and reporting to the Audit and Risk Committee included:

• Our definition of the key audit matter relating to the valuation of a longevity insurance contract.
• Our audit response to the key audit matter which included the use of specialists to challenge key aspects of the Group's valuation of a longevity insurance contract.

Areas of particular auditor judgement

We identified the following as the areas of particular auditor judgement:

• Subjective and complex auditor judgement was required in evaluating the key assumptions used by the Group (including the discount rate and projected mortality)

Our results

We found the valuation of a longevity insurance contract and related disclosures to be acceptable (FY23: acceptable).

Further information in the Annual Report and Accounts: See the Audit and Risk Committee Report on page 101for details on how the Audit and Risk Committee considered the valuation of unquoted investments in the BTPS (including the longevity insurance contract) as an area of significant attention, page 185for the accounting policy on Retirement benefit plans (note 19) for the financial disclosures.

4.5 Recoverability of Parent company investment in subsidiaries

Financial Statement Elements

	FY24	FY23
Investment in subsidiary	£11.3bn	£11.3bn

Our assessment of risk vs FY23

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Our results

FY24: Acceptable FY23: Acceptable

Description of the Key Audit Matter

Low risk, high value

The carrying amount of the Parent company investment in subsidiary represents 100% (FY23: 100%), of the Parent company's total assets.

The recoverability is not at a high risk of significant misstatement or subject to significant judgement. However, due to their materiality in the context of the Parent company financial statements, this is considered to be the area that had the greatest effect on our overall Parent company audit.

Our response to the risk

Our procedures to address the risk included:

Test of detail: Comparing the carrying amount of the Parent company's investment with the calculated value in use of the investment.

Comparing valuations: Comparing the carrying amount of the Parent company's investment with the market capitalisation of the Group.

We performed the tests above rather than seeking to rely on any of the Parent company's controls because the nature of the balance is such that we would expect to obtain audit evidence primarily through the detailed procedures described.

Communications with the Audit and Risk Committee Our discussions with and reporting to the Audit and Risk Committee included:

• Our definition of the key audit matter and our findings along with the procedures performed to address the corresponding risk.
• The result of our substantive testing.

Areas of particular auditor judgement

We did not identify any areas of particular auditor judgement.

Our results

We found the Parent company's conclusion that there is no impairment of its investment in subsidiary to be acceptable (FY23: acceptable).

Further information in the Annual Report and Accounts: Refer to page 224for the accounting policy on Investments in Subsidiaries Undertakings.

We continue to perform procedures over the ongoing measurement of balances held in relation to BT's investment in the Sports JV. However, in FY23 all significant risks were associated with the disposal accounting and subsequent re-investment in the Sports JV related to the initial recognition of balances. We have concluded there are no significant risks over the subsequent measurement of these balances in FY24 and therefore we have not identified a related KAM in our audit report in FY24.

5. Our ability to detect irregularities, and our response

Fraud - Identifying and responding to risks of material misstatement due to fraud

Fraud risk assessment

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 and Risk 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 targets for management remuneration;
• using analytical procedures to identify any unusual or unexpected relationships.

Risk communications

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 the Group level.

BT Group plc Annual Report 2024

140

Financial statements

KPMG LLP's Independent Auditor's Report to the members of BT Group plc continued

Fraud risks

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 perform procedures to address the risk of management override of controls, and the risk of fraudulent revenue recognition in relation to certain revenue streams in Business, in particular:

• the risk that Group and component management may be in a position to make inappropriate accounting entries; and
• the risk that certain revenue streams in Business are overstated given the bespoke nature of the pricing structure within these contracts and associated risk of processing errors.

Procedures to address fraud risks

In determining the audit procedures, we took into account the results of our evaluation and test of operating effectiveness of some of the Group-wide fraud risk management controls.

We also performed procedures including:

• Identifying journal entries to test for all full scope components based on high 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;
• Increased testing over certain revenue streams in Business.
• Evaluating the business purpose for significant unusual transactions.

Laws and regulations - Identifying and responding to risks of material misstatement relating to compliance with laws and regulations

Laws and regulations risk assessment

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.

As the Group is regulated, our assessment of risks involved gaining an understanding of the control environment including the Group's procedures for complying with regulatory requirements.

Risk communications

We communicated identified laws and regulations throughout our team and remained alert to any indications of non-compliance throughout the audit. This included communication from the Group to full-scope component audit teams of relevant laws and regulations identified at the Group level, and a request for full scope component auditors to report to the Group audit team any instances of non-compliance with laws and regulations that could give rise to a material misstatement at the Group level.

The potential effect of these laws and regulations on the financial statements varies considerably.

Direct laws context and link to audit

Firstly, the Group is subject to laws and regulations that directly affect the financial statements including financial reporting legislation (including related companies legislation), distributable profits legislation, taxation legislation, and pension legislation and we assessed the extent of compliance with these laws and regulations as part of our procedures on the related financial statement items.

Most significant indirect law/ regulation areas

Secondly, the Group is subject to many other laws and regulations where the consequences of non-compliance could have a material effect on amounts or disclosures in the financial statements, for instance through the imposition of fines or litigation or the loss of the Group's licence to operate. We identified the following areas as those most likely to have such an effect: anti-bribery, regulations affecting telecommunication providers, and certain aspects of company legislation recognising the financial and regulated nature of the Group's activities (including compliance with Ofcom regulation) and its legal form.

Auditing standards limit the required audit procedures to identify non-compliance with these laws and regulations to enquiry of the directors and other management and inspection of regulatory and legal correspondence, if any. Therefore if a breach of operational regulations is not disclosed to us or evident from relevant correspondence, an audit will not detect that breach.

Known actual or suspected matters

For the legal matters discussed in note 18 we assessed disclosures against our understanding from legal correspondence.

Significant actual or suspected breaches discussed with Audit and Risk Committee

We discussed with the Audit and Risk Committee other matters related to actual or suspected breaches of laws or regulations, for which disclosure is not necessary, and considered any implications for our audit.

Context

Context of the ability of the audit to detect fraud or breaches of law or regulation

Owing to the inherent limitations of an audit, there is an unavoidable risk that we may not have detected some material misstatements in the financial statements, even though we have properly planned and performed our audit in accordance with auditing standards. For example, the further removed non- compliance with laws and regulations is from the events and transactions reflected in the financial statements, the less likely the inherently limited procedures required by auditing standards would identify it. In addition, as with any audit, there remained a higher risk of non-detection of fraud, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal controls. Our audit procedures are designed to detect material misstatement. We are not responsible for preventing non-compliance or fraud and cannot be expected to detect non-compliance with all laws and regulations.