INDEPENDENT AUDITOR’S REPORT
Materiality The scope of our audit was influenced by our application of materiality. Materiality helped us to determine the nature, timing and extent of our audit procedures and to evaluate the effect of misstatements, both individually and on the consolidated financial statements as a whole. The materiality for the consolidated financial statements as a whole was set at $9 million. This was determined with reference to a benchmark of Group profit before income tax. We chose profit before income tax as the benchmark as the Group is a profit oriented business and in our view, this is a key measure of the of the Group’s performance. Key Audit Matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the Group’s financial statements in the current period. We summarise below those matters and our key audit procedures to address those matters in order that the shareholders as a body may better understand the process by which we arrived at our audit opinion. Our procedures were undertaken in the context of and solely for the purpose of our statutory audit opinion on the consolidated financial statements as a whole and we do not express discrete opinions on separate elements of the consolidated financial statements.
The key audit matter
How the matter was addressed in our audit
1. Capitalisation and asset lives (Property, plant and equipment of $3,996 million, with additions during the year of $384 million). Refer to Note 14 of the financial statements.
Our audit procedures in this area included, among others: — examining the operating effectiveness of controls related to the approval of capital projects; — assessing the nature of capitalised costs by checking a sample of costs to invoice to determine whether the description of the expenditure met the capitalisation criteria in the relevant accounting standards; — assessing the useful economic lives stated in the accounting policies of the Group by comparing to industry benchmarks and our knowledge of the business and its operations; and — assessing whether the useful economic lives of each individual asset capitalised in the current period was within the stated policies. We found no material errors in the amounts capitalised in the period and that the estimated useful lives of assets were within an acceptable range when compared to those used in the industry.
Capitalisation of costs and useful lives assigned to these assets are a key audit matter due to the significance of property, plant and equipment to the Group’s business, and due to the judgement involved in determining the carrying value of these assets, principally: — the decision to capitalise or expense costs relating to the electricity and gas distribution networks. This decision depends on whether the expenditure is considered to enhance the network (and therefore capital), or to maintain the current operating capability of the network (and therefore an expense); and — the estimation of the useful life of the asset once the costs are capitalised. Estimated lives range between 2 and 100 years, resulting from the diversity
of property, plant and equipment across a portfolio of businesses. There is also judgment when estimating asset lives due to the uncertainty of the impact of technological change.
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