The Group holds a number of significant funding arrangements with suppliers. Agreements in relation to supplier funding are based predominantly on volume related targets, for both purchases and sales, and are most commonly agreed as a fixed percentage of targets up front. These targets are generally a mix of quarterly and annual targets. The timing of recognition of this income is sometimes judgmental, in particular where the target period for measuring achievements spans the year end and it is necessary to ensure there is sufficient evidence justifying recognition.

The key judgements and estimates involved are described in more detail in note 1s) to the Group financial statements.

We updated our understanding of the key supplier funding arrangements across the Group. As part of this, we met with the key commercial and finance process owners, we tested the design and implementation of the Group’s key controls in operation, principally focused on those that determine the appropriate timing of recognition for supplier funding balances, and we performed an analytical assessment of movements in supplier funding throughout the current year to historical trends.

To ensure there is sufficient evidence to support the recognition of supplier funding, we substantively tested and recalculated a sample of amounts with reference to signed supplier contracts. We also obtained confirmations following circularization of a sample of suppliers.

The Group has significant acquisition related intangible assets, including goodwill, (£3,402 million at 30 April 2016 including £3,054 million of goodwill and £348 million of acquisition intangibles) primarily related to the CPW Europe and Dixons Retail plc acquisitions in previous years. The Group’s assessment of impairment of acquisition related intangible assets is a judgmental process which requires estimates concerning the future cash flows and associated discount rates and growth rates based on  management’s projections of future business performance and prospects.

The key judgements and estimates involved are described in more detail in notes 1j), 1k) and 1s) to the Group financial statements.

Management is therefore required to exercise judgement in respect of the level of customer default within the contract period, expected levels of customer spend and customer behaviour beyond the initial contract period. The key judgements and estimates involved are described in more detail in notes 1d), 1s) and 26h) to the Group financial statements.

We evaluated the design and implementation of both the relevant manual and automated controls over the revenue recognition process in respect of commissions receivable, utilising IT specialists to assist with testing of automated controls. In addition we tested that these controls were operating effectively throughout the period.

We have tested the valuation of revenue recognised through review of the Group’s contractual arrangements, substantive testing of management assumptions including tenure, line rental, and churn to data received from networks and testing of cash receipts.

We have also assessed any changes in estimate in comparison to the prior year and reviewed year on year movement in key assumptions.

We place a high level of reliance on the Group’s IT systems and key internal controls. As a result a significant proportion of our audit effort was conducted in this area at local, regional and Group levels and at the Group’s shared service centres.

Our focus, in this our second year as auditors, was on understanding and validating the impacts of key changes being made to the control environment having established an extensive understanding and baseline last year.

The Group has continued to devote considerable resources to the development of key business and related IT controls to ensure a robust system of internal control as described in the Audit and Risk Committee Report on pages 47 to 52.

We conducted detailed end-to-end walkthroughs of the finance processes, utilizing our understanding from the prior year to reassess the design effectiveness of the key internal controls and to identify changes. We then conducted testing of the operating effectiveness of these controls to obtain evidence that they operated throughout the year.

In response to the changes and control enhancements made during the year, we performed the following:

• reviewed the design of the standard controls to ensure they mitigated the relevant financial reporting risks and testing samples from the periods immediately prior to and post implementation;
• where systems changed during the year, tested IT general controls and data migration processes;
• tested the enhanced user access management controls;
• following issues with the implementation of a new billing platform in the UK, we amended our planned audit approach and performed additional substantive testing; and
• tested controls and performed additional substantive procedures of key general ledger account reconciliations and manual journals.

We did not regard any of the control issues identified in 2016 as significant in the context of the Group financial statements. No control matters identified represented a material weakness in internal control.

There are a number of threatened and actual legal, regulatory and tax cases against the Group. There is a high level of judgement required in estimating the level of provisioning required.

Refer to the Audit and Risk Committee Report, note 1 – Critical accounting judgements and key sources of estimation uncertainty, note 17 – Provisions and note 30 – Contingent liabilities and legal proceedings

Our procedures included the following:

• testing key controls surrounding litigation, regulatory and tax procedures;
• where relevant, reading external legal opinions obtained by management;
• meeting with regional and local management and reading subsequent Group correspondence;
• discussing open matters with the Group general counsel, Group litigation, regulatory,  general counsel and tax teams;
• assessing and challenging management’s conclusions through understanding precedents set in similar cases; and
• circularizing where appropriate relevant third party legal representatives and direct discussion with them regarding certain material cases.

Based on the evidence obtained, while noting the inherent uncertainty with such legal, regulatory and tax matters, we determined the level of provisioning at 31 March 2016 to be appropriate and at a level consistent with previous periods.

We validated the completeness and appropriateness of the related disclosures through assessing that the disclosure of the uncertainties in note 17 and note 30 of the financial statements was sufficient.

We focused on two significant one-off transactions which occurred during the year: the receipt of Indian spectrum auction allocations and the issuance of mandatory convertible bonds. Accounting for these transactions and related disclosures requires the exercise of significant judgement.

Receipt of Indian spectrum auction allocations – at 31 March 2015 the allocation of spectrum was provisional subject to governmental and judiciary approval. During the year ended 31 March 2016, the Group recognized spectrum assets and a corresponding liability of £2,731 million as the prior material uncertainties surrounding the approval processes were no longer present.

Issuance of mandatory convertible bonds – in February 2016 the Group issued £2.88 billion of mandatory convertible bonds. There is significant judgement on the accounting classification of the convertible bond. The bonds are classified as a compound financial instrument and £119 million has been recognized within liabilities and £2,754 million within equity.

Refer to the Audit and Risk Committee Report, note 1 – Critical accounting judgements and key sources of estimation uncertainty and note 22 – Liquidity and capital resources.

Our procedures included the following:

• evaluating the design and implementation of controls in respect of significant one-off  transactions; and
• evaluating management’s accounting papers on how IFRSs have been applied to the receipt of Indian spectrum auction allocations and the issuance of the mandatory convertible bonds.

In addition we performed procedures on specific transactions as follows:

• receipt of Indian spectrum auction allocations – assessed the key judgements around the timing of when substantially all of the risks and rewards of the spectrum asset transferred to the Group; and

• issuance of mandatory convertible bonds –

• reviewed the key terms within the bond contract to conclude that the designation as a compound financial instrument was appropriate and no separately accountable embedded derivatives were present;
• assessed the appropriateness of the liability and equity split; and
• considered the terms of related hedging transactions to confirm that these transactions should be accounted for independently to the bond.

Based on our procedures, we noted no issues and were satisfied with the associated accounting for these matters.

We validated the appropriateness of the related disclosures in note 22 of the financial statements.

The Group operates across a large number of jurisdictions and is subject to periodic challenges by local tax authorities on a range of tax matters during the normal course of business including transfer pricing, indirect taxes and transaction related tax matters. As at 31 March 2016, the Group has current taxes payable of  £540 million.

We have focused on two matters relating to the legal claim in respect of withholding tax on the acquisition of Hutchison Essar Limited and the recognition and recoverability of deferred tax assets in Luxembourg and Germany.

Provisioning claim for withholding tax – there continues to be uncertainty regarding the resolution of the legal claim from the Indian authorities in respect of withholding tax on the acquisition of Hutchison Essar Limited.

Recognition and recoverability of deferred tax assets in Luxembourg and Germany – significant judgement is required in relation to the recognition and recoverability of deferred tax assets, particularly in respect of losses in Luxembourg and Germany. During the current year, £3,207 million of deferred tax assets have been utilized or de-recognized connected with the revaluation of investments for Luxembourg GAAP purposes.

Refer to the Audit and Risk Committee Report, note 1

– Critical accounting judgements and key sources of estimation uncertainty, note 6 – Taxation and note 30 – Contingent liabilities and legal proceedings.

We evaluated the design and implementation of controls in respect of provisioning for withholding tax and the recognition and recoverability of deferred tax assets.

We used our specialist tax knowledge to gain an understanding of the current status of the Indian tax investigation and monitored changes in the disputes by reading external advice received by the Group, where relevant, to establish that the tax provisions had been appropriately adjusted to reflect the latest external developments.

In respect of the deferred tax assets, we assessed the recoverability of losses from a tax perspective through performing the following:

• understanding how losses arose and where they are located, including to which subgroups they are attributed;

• considering whether the losses can be reversed;

• assessing any restrictions on future use;

• evaluating the results of local statutory impairment assessments including reversals;

• considering the impact of recent regulatory developments, as applicable; and

• determining whether any of the losses will expire.

In addition we assessed the application of International Accounting Standard 12 – Income
Taxes including:

• understanding the triggers for recognition and de-recognition of deferred tax assets;
• considering effects of tax planning strategies; and;
• assessing recoverability of assets against forecast income streams, including reliability of future income projections.

We determined that the carrying value of deferred tax assets at 31 March 2016 was supported by management’s plans including intercompany funding arrangements.

We validated the appropriateness of the related disclosures in note 6 and note 30 of the financial statements, including the enhanced disclosures made in respect of the utilization period of deferred tax assets.

Vodafone Group Plc has goodwill of £22,789 million contained within 22 cash generating units (‘CGUs’).

Impairment charges to goodwill have been recognized in prior periods. With challenging trading conditions continuing in certain territories, the Group’s performance and prospects could be impacted increasing the risk that goodwill is impaired.

For the CGUs that contain goodwill, the determination of recoverable amount, being the higher of fair value less costs to sell and value-in-use, requires judgement on the part of management in both identifying and then valuing the relevant CGUs. Recoverable amounts are based on management’s view of variables such as future average revenue per user, average customer numbers and customer churn, timing and approval of future capital, spectrum and operating expenditure and the most appropriate discount rate.

In the year ended 31 March 2016, a pre-tax impairment charge of £450 million was recognized related to goodwill in Romania.

Refer to the Audit and Risk Committee Report, note 1 – Critical accounting judgements and key sources of estimation uncertainty, note 4 – Impairment losses and note 10 – Intangible assets.

We evaluated the appropriateness of management’s identification of the Group’s CGUs and the continued satisfactory operation of the Group’s controls over the impairment assessment process.

Our procedures included challenging management on the suitability of the impairment model and reasonableness of the assumptions, with particular attention paid to the European businesses, through performing the following:

• benchmarking Vodafone’s key market-related assumptions in management’s valuation models with industry comparators and with assumptions made in the prior years including revenue and margin trends, capital expenditure on network assets and spectrum, market share and customer churn, foreign exchange rates and discount rates, against external data where available, using our valuation expertise;

• testing the mathematical accuracy of the cash flow models and agreeing relevant data to Board approved Long-Range Plans; and

• assessing the reliability of management’s forecast through a review of actual performance against previous forecasts.

We validated the appropriateness of the related disclosures in note 4 and note 10 of the financial statements, including the sensitivities provided with respect to Germany, Spain, and Romania.

Based on our procedures, we noted no exceptions and consider management’s key assumptions to be within a reasonable range.

There is an inherent risk around the accuracy of revenue recorded given the complexity of systems and the impact of changing pricing models to revenue recognition (tariff structures, incentive arrangements, discounts etc.).

The application of revenue recognition accounting standards is complex and involves a number of key judgements and estimates.

Refer to the Audit and Risk Committee Report and note 1 – Critical accounting judgements and key sources of estimation uncertainty.

We instructed the eight local operations in Group audit scope to undertake consistent audit procedures. Our audit approach included controls testing and substantive procedures covering, in particular:

• testing the IT environment in which billing, rating and other relevant support systems reside, including the change control procedures in place around systems that bill material revenue streams;

• testing the end-to-end reconciliation from business support systems to billing and rating systems to the general ledger. This testing included validating material journals processed between the billing system and general ledger;

• performing tests on the accuracy of customer bill generation on a sample basis and testing of a sample of the credits and discounts applied to customer bills; and

• testing cash receipts for a sample of customers back to the customer invoice.

We also considered the application of the Group’s accounting policies to amounts billed and the accounting implications of new business models to check that Group accounting policies were appropriate for these models and were followed.

Based on our work, we noted no significant issues on the accuracy of revenue recorded in the year.

We focused on two significant one-off transactions which occurred during the year: the receipt of Indian spectrum auction allocations and the issuance of mandatory convertible bonds. Accounting for these transactions and related disclosures requires the exercise of significant judgement.

Receipt of Indian spectrum auction allocations – at 31 March 2015 the allocation of spectrum was provisional subject to governmental and judiciary approval. During the year ended 31 March 2016, the Group recognized spectrum assets and a corresponding liability of £2,731 million as the prior material uncertainties surrounding the approval processes were no longer present.

Issuance of mandatory convertible bonds – in February 2016 the Group issued £2.88 billion of mandatory convertible bonds. There is significant judgement on the accounting classification of the convertible bond. The bonds are classified as a compound financial instrument and £119 million has been recognized within liabilities and £2,754 million within equity.

Refer to the Audit and Risk Committee Report, note 1 – Critical accounting judgements and key sources of estimation uncertainty and note 22 – Liquidity and capital resources.

Our procedures included the following:

• evaluating the design and implementation of controls in respect of significant one-off transactions; and
• evaluating management’s accounting papers on how IFRSs have been applied to the receipt of Indian spectrum auction allocations and the issuance of the mandatory convertible bonds.

In addition we performed procedures on specific transactions as follows:

• receipt of Indian spectrum auction allocations – assessed the key judgements around the timing of when substantially all of the risks and rewards of the spectrum asset transferred to the Group; and
• issuance of mandatory convertible bonds
  • reviewed the key terms within the bond contract to conclude that the designation as a compound financial instrument was appropriate and no separately accountable embedded derivatives were present;
  • assessed the appropriateness of the liability and equity split; and
  • considered the terms of related hedging transactions to confirm that these transactions should be accounted for independently to the bond.

Based on our procedures, we noted no issues and were satisfied with the associated accounting for these matters.

We validated the appropriateness of the related disclosures in note 22 of the financial statements.

There are a number of areas where management judgement impacts the carrying value of property, plant and equipment, software intangible assets and their respective depreciation profiles. These include:

• the decision to capitalize or expense costs;
•  the annual asset life review including the impact of changes in the Group’s strategy; and
• the timeliness of the transfer from assets in the course of construction.

Refer to the Audit and Risk Committee Report, note 1 – Critical accounting judgements and key sources of estimation uncertainty, note 10 – Intangible assets and note 11 – Property, plant and equipment.

We tested controls in place over the fixed asset cycle, evaluated the appropriateness of capitalization policies, performed tests of details on costs capitalized and assessed the timeliness of the transfer of assets in the course of construction. There were no exceptions noted from our testing.

Our detailed testing on the application of the asset life review identified no issues. In performing these procedures, we challenged the judgements made by
management including:

• the nature of underlying costs capitalized as part of the cost of the network rollout;
• the appropriateness of asset lives applied in the calculation of depreciation; and
• in assessing the need for accelerated depreciation given the network modernization programme in place across Europe under Project Spring.

No issues were noted from our testing.

The group has total provisions of £723m relating to restructuring (£20m), property (£296m), asset retirement obligations (£78m), network share (£60m) and other of £269m (comprising litigation, regulatory risks and insurance claims).

Provisions are based on judgements and estimates made by the directors. In particular, the current telecom regulatory environment has seen an increased frequency and magnitude of matters brought to Ofcom and the Competition Appeal Tribunal in the UK.

For regulatory provisions, we read correspondence and pronouncements from Ofcom and the Competition Appeal Tribunal. We held discussions with management to understand the risk associated with historical transactions where there is not yet a formal dispute but there is a known risk of dispute. For property provisions we tested the underlying cash flows on a sample basis to third party data and assessed the discount rate applied by the directors.

For legal provisions, we held discussions with the group’s general counsel and head of litigation, read the summary of litigation matters provided by management and discussed each of the material cases noted in the report to determine the group’s assessment of the likelihood and magnitude of any liability that may arise. Where appropriate and relevant, we examined correspondence connected with the cases, including external legal advice.

For all provisions, including asset retirement obligations and network share, we tested the calculation of the provisions, assessed the assumptions including with third party data where available, and assessed the judgements against historical trends.

We considered the directors’ judgements on the level of provisioning to be appropriate.

EE Limited was acquired on 29 January 2016 for £11.0bn. We focused on this because the acquisition is material and requires the use of significant management judgement regarding the identification of intangible assets acquired and the valuation of the assets and liabilities acquired. The valuation of certain of the assets involves the use of estimates regarding future cash flows.

A purchase price allocation exercise has been performed by management, assisted by an external expert. The primary element of the valuation exercise assessed the fair value of identifiable intangible assets in the form of software licenses (£415m), telecommunications licenses (£2,524m), customer relationships (£2,610m) and brand (£402m). The allocation also considered the fair values of property, plant and equipment, current assets and current and non-current liabilities.

We evaluated the design and tested the operating effectiveness of controls around the acquisition accounting.

In testing the valuation of the intangible assets (customer relationships, telecommunications licenses and the brand) acquired we:

•  assessed the methodology adopted by management and its appointed expert for calculating the fair values;

• assessed the discount rates applicable to the transaction;

• assessed the key valuation assumptions; and

• validated and challenged key inputs and data used in valuation models such as customer numbers, ARPU and churn assumptions by reference to historical data and our expectations based on our experience of comparable businesses.

For the property, plant and equipment and software licenses we assessed the methodology adopted by management and its expert for calculating the fair values.

Where applicable we used our valuation experts to independently re-perform the valuations prepared by management and the expert.

We found the methodologies and the assumptions applied to be within a reasonable range.

Using our knowledge of the mobile and wider telecoms industry we assessed the completeness of the identification of the assets acquired and assessed the appropriateness of the assets’ useful economic lives. The assets identified and the lives assigned are consistent with our expectations.

We read relevant contracts, agreements and board minutes which supported our final conclusions in respect of the acquisition accounting.

We focused on this area as it involves significant judgements in respect of:

• the determination and timing of recognition of contract profits and the assumptions underpinning the lifetime profitability forecasts for the contracts;

• completeness and adequacy of provisions against contracts projected to be loss making; and

• the recoverability of contract-specific assets, including deferred costs and property, plant and equipment.

We tested a sample of major contracts through the year, focusing our work on those which were material by size or which we otherwise regarded as higher risk because of the nature of the contract or its stage of delivery. In performing this testing we assessed the appropriateness of the assumptions and judgements underpinning the accounting for these major contracts as follows:

• We evaluated the design and tested the operating effectiveness of controls in respect of the accounting for major contracts.

• We obtained and read the relevant sections of the contracts agreed between BT and the customer, tested a sample of revenue and cost transactions by tracing them to supporting evidence of delivery and acceptance and assessed the revenue recognized in the period by comparing it with the contractual terms and actual pattern of delivery of services.

• We compared the forecast results of each contract to the actual results to assess the performance of the contract and the historical accuracy of forecasting.

We challenged the recoverability of contract-specific assets dedicated to the sampled contracts by examining contractual cover and the associated deferred revenue or assessing recoverability against the forecast profitability of the relevant contract.

We assessed the reasonableness of lifetime profitability forecasts by analyzing historical contract performance relative to overall contractual commitments. We challenged the directors’ assumptions on the future costs including any forecast savings by assessing the actions required to achieve these forecasts. In determining whether the provisions for loss making contracts are adequate, we considered the results of the above procedures.

Based on the results of each of the procedures as set out above we considered the related financial statement amounts to be appropriate and in line with the group’s accounting policies as set out in note 3.

We evaluated the relevant IT systems and the design of controls, and tested the operating effectiveness of controls over the:

• capture and recording of revenue transactions;

• authorization of rate changes and the input of this information to the billing systems; and

• calculation of amounts billed to customers.

We determined that the operation of the controls provided us with evidence over the accuracy of revenue recorded.

We also tested a sample of customer bills and checked these to cash received from customers. Our testing included customer bills for consumers, corporate and wholesale customers.

Based on our work, we noted no significant issues in the accuracy of revenue recorded in the year.

We focused on the BT Pension Scheme (BTPS) because the valuation of the BT Pension Scheme obligations (£49.1bn) and unquoted investments (£15.8bn) require the use of estimates and significant judgement, and a small change in the assumptions can have a material impact on the financial statements.

The EE Pension Scheme (EEPS) has significantly lower obligations (£710m) and unquoted investments (£99m). We focused on the EE Pension Scheme because the valuation of the obligations and unquoted investments also requires the use of estimates and significant judgement.

We evaluated the design and tested the operating effectiveness of controls in respect of the determination of the pension scheme obligations in the BTPS. We determined these controls to be operating and this provided us with evidence over the obligations.

We used our actuarial experts to assess the reasonableness of actuarial assumptions used in valuing pension scheme obligations. The assumptions used were consistent with our internally developed benchmarks.

The pension assets include significant unquoted pension asset investments. We tested the existence of the unquoted investments and the valuation of these investments on a sample basis. Specifically:

• For property assets in BTPS, we tested internal controls at the property fund manager and obtained valuation reports prepared by third party specialist valuers. We assessed the methods and assumptions used by the valuers.

• For direct investments held by the BTPS, the valuations of the investments are derived from discounted cash flow models. We assessed the assumptions used in the valuations by checking that the assumptions used were consistent with our internally developed range of discount rates, by comparing the cash flows to historical results and considering the impact of other external information. We tested the accuracy of the calculations and assessed whether the assumptions used were in line with other market participants and reflected the particular status of the investment shareholding.

• For other unquoted investments in both schemes we obtained confirmations from the custodians and the investment managers.

We considered the estimates and judgements used by the directors for the obligations and the unquoted investments to be within an acceptable range.

Capitalization of costs and the useful lives assigned to assets are areas of significant judgement by the directors.

There are two main risks that we addressed in our audit:

• the risk that amounts being capitalized do not meet capitalization criteria; and

• the risk that the useful economic lives assigned to assets are inappropriate.

Our work also focused on the capitalization of costs for broadband deployment under the BDUK programme and the recognition of the associated capital grants.

We evaluated the design and tested the operating effectiveness of controls around the property, plant and equipment cycle and software intangible assets cycle, including the controls over whether engineering (labour) activity is capital or operating in nature. We determined that the operation of the controls provided us with audit evidence in respect of the capitalization practices.

We assessed the nature of costs incurred in capital projects through testing of amounts recorded and assessing whether the description of the expenditure met capitalization criteria. We found no material misstatements from our testing.

We tested the controls over the annual review of asset lives. In addition, we tested whether the directors’ decisions on asset lives are appropriate by considering our knowledge of the business and practice in the wider telecoms industry. We also tested whether approved asset life changes were appropriately applied prospectively to the fixed asset register. We found that the asset lives were consistent with those commonly used in the industry and appropriately reflected technological developments.

We assessed the key assumptions (primarily the forecast level of end users) applied by the directors to calculate the level of capital grants attributable to superfast broadband deployment in rural areas and we tested the calculation of the accrual and deferral based on these assumptions and the current level of capital investment. We considered the level of grant recognition to be appropriate.

We focused on this area due to the judgements required in determining the group’s effective tax rate, specifically in relation to the recognition of uncertain tax positions and potential deferred tax assets relating to tax losses.

The group has recognized a deferred tax asset of £293m relating to historical trading losses in EE. The recoverability of this asset is dependent on the future structuring of the group.

In conjunction with our tax specialists, we evaluated management’s rationale in relation to the level of tax provisions. We considered the status of recent and current tax audits and enquiries, the results of previous claims and changes to the tax environments. We utilized our specialist tax knowledge and experience of similar situations elsewhere to examine tax planning arrangements and assess management’s judgements. We considered the level of provisioning to be appropriate.

In the calculation of deferred tax assets, we evaluated the amount of tax losses recognized in light of future projected profitability of the relevant subsidiary companies, by assessing the forecasts against past results and our expectations of future trading performance.

In assessing the measurement and recoverability of the EE deferred tax asset we tested management’s controls over the calculation of the asset and the review of the future recoverability. We assessed the recoverability of the asset using both our specialist tax knowledge and our knowledge of the group.

We determined the deferred tax asset to be supported through the forecast of future profits and the proposed structuring of the group following the acquisition of EE.

As at 31 March 2016, goodwill relating to the BT Global Services cash generating unit (CGU) amounted to £1,145m out of a total goodwill balance of £7,878m. The directors prepared an impairment assessment that was based on a value in use calculation of the BT Global Services CGU.

We focused on the impairment assessment for BT Global Services as the assessment is sensitive to changes in assumptions (in particular the long term growth rate, the discount rate and the assumptions underlying future operating cash flows). The directors concluded that there was no impairment of goodwill.

We agreed the cash flow forecasts used in the impairment model to Board approved forecasts. We considered the directors’ expectations in respect of material contract activity (including new business and contract renewals) and planned operational improvements and whether these were appropriately reflected in the cash flow forecasts.

We compared actual historical cash flow results for the BT Global Services CGU with previous forecasts and determined whether any differences fell within an acceptable range.

We independently calculated a weighted average cost of capital by making reference to market data and verified the long term growth rate to market data.

We assessed the sufficiency of the sensitivity analysis performed by the directors and performed further sensitivity analyses, primarily focused on changes in operating cash flows.

As a result of our work we determined that the judgement by the directors that no impairment was required was reasonable. We considered the disclosures in note 12 of the financial statements and assessed them as appropriate.

As at 31 March 2016, commissions paid to third parties and recorded as a prepayment on the balance sheet total £104m.

We focused on this area as commissions paid to third party dealers who introduce customers to the EE network are material, and are recorded in more than one accounting period. We focused on whether the amounts payable have been accurately captured and whether amounts recorded on the balance sheet as assets are recoverable.

We read contracts with significant indirect channel dealers and considered the accounting treatment for commissions including the timing of recognition of commissions due on activation and over the customer life.

We tested a sample of commission payments and checked these to detailed commission payment documentation shared with dealers and to cash payments.

We tested the calculation of accruals for unpaid commissions including retrospective claims from dealers, and assessed the assumptions and judgements against historical trends.

We found no material misstatements in our substantive testing and, from the evidence obtained, we considered the directors’ judgements on the level of accruals and recoverability of assets through offset against future charges from the dealers to be appropriate.