PARENT COMPANY AUDIT OPINION
Independent auditors’ report to the members of BT Group plc
We have audited the parent company financial statements of BT Group plc for the year ended 31 March 2006 which comprise the balance sheet, accounting policies and the related notes. These parent company financial statements have been prepared under the accounting policies set out therein. We have also audited the information in the Report on directors’ remuneration that is described as having been audited.
     We have reported separately on the group financial statements of BT Group plc for the year ended 31 March 2006.

Respective responsibilities of directors and auditors
The directors’ responsibilities for preparing the annual report, the Report on directors’ remuneration and the parent company financial statements in accordance with applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice) are set out in the Statement of directors’ responsibilities.
     Our responsibility is to audit the parent company financial statements and the part of the Report on directors’ remuneration to be audited in accordance with relevant legal and regulatory requirements and International Standards on Auditing (UK and Ireland).
     This report, including the opinion, has been prepared for and only for the company’s members as a body in accordance with Section 235 of the Companies Act 1985 and for no other purpose. We do not, in giving this opinion, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.
     We report to you our opinion as to whether the parent company financial statements give a true and fair view and whether the parent company financial statements and the part of the Report on directors’ remuneration to be audited have been properly prepared in accordance with the Companies Act 1985. We report to you whether, in our opinion the information given in the Report of the directors is consistent with the parent company financial statements. The information given in the Report of the directors includes that specific information presented in the Operating and financial review that is cross referred from the Report of the directors. We also report to you if, in our opinion, the company has not kept proper accounting records, if we have not received all the information and explanations we require for our audit, or if information specified by law regarding directors’ remuneration and other transactions is not disclosed.
     We read other information contained in the Annual Report and Form 20-F and consider whether it is consistent with the audited parent company financial statements. The other information comprises only the Financial headlines, Chairman’s message, Chief Executive’s statement, the Operating and financial Review, the Report of the directors, the Report of the audit committee, the Report of the nomination committee and the unaudited part of the Report on directors’ remuneration. We consider the implications for our report if we become aware of any apparent misstatements or material inconsistencies with the parent company financial statements. Our responsibilities do not extend to any other information.

Basis of audit opinion
We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) issued by the Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the parent company financial statements and the part of the Report on directors’ remuneration to be audited. It also includes an assessment of the significant estimates and judgments made by the directors in the preparation of the parent company financial statements, and of whether the accounting policies are appropriate to the company’s circumstances, consistently applied and adequately disclosed.
     We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the parent company financial statements and the part of the Report on directors’ remuneration to be audited are free from material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the parent company financial statements and the part of the Report on directors’ remuneration to be audited.

PricewaterhouseCoopers LLP
Chartered Accountants and Registered Auditors
London
17 May 2006

Notes:
(a) The maintenance and integrity of the BT Group plc website is the responsibility of the directors; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the financial statements since they were initially presented on the website.
(b) Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

BT GROUP PLC ACCOUNTING POLICIES
(I)  ACCOUNTING BASIS
The financial statements are prepared under the historical cost convention as modified by the revaluation of certain financial instruments in accordance with the Companies Act 1985 and applicable United Kingdom accounting standards (UK GAAP).
     As permitted by Section 230(3) of the Companies Act 1985, the company’s profit and loss account has not been presented.
     The BT Group plc consolidated financial statements for the year ended 31 March 2006 contain a consolidated statement of cash flows. Consequently, the company has taken advantage of the exemption in FRS 1, (Revised 1996) ‘Cash Flow Statements’ not to present its own cash flow statement.
     The company has taken advantage of the exemption in FRS 8, ‘Related Party Disclosures’ not to disclose transactions with other members of the BT Group.
     The BT Group plc consolidated financial statements for the year ended 31 March 2006 contain financial instrument disclosures which comply with FRS 25, ‘Financial Instruments: Disclosure and Presentation’. Consequently, the company has taken advantage of the exemption in FRS 25 not to present separate financial instrument disclosures for the company.

(II) CHANGES IN ACCOUNTING POLICIES
The company has adopted FRS 17, ‘Retirement benefits’, FRS 20, ‘Share based payment’, FRS 21 ‘Events after the balance sheet date’, FRS 23, ‘The effects of changes in foreign exchange rates’, FRS 25, ‘Financial instruments: Disclosure and Presentation’, FRS 26, ‘Financial instruments: Measurement’, and FRS 28, ‘Corresponding amounts’ in these financial statements. The adoption of each of these standards represents a change in accounting policy and the comparative figures have been restated accordingly, except where the exemption to restate comparatives have been taken.
     As a result of adopting FRS 21, the company’s profit for the year ended 31 March 2005 increased by £454 million to £1,024 million. Accrued dividend income of £454 million for the 2004 financial year was reversed and recognised in the 2005 financial year. In addition, the final dividends for the 2005 and 2004 financial years of £551 million and £454 million respectively have been reversed, as the associated dividends had not been approved at those dates. None of the other new accounting standards had any effect on the company’s profit or net assets.

(III) INVESTMENTS
Fixed asset investments, which comprises investments in subsidiary undertakings, are stated at cost and reviewed for impairment if there are indicators that the carrying value may not be recoverable.

(IV) TAXATION
Full provision is made for deferred taxation on all timing differences which have arisen but not reversed at the balance sheet date. Deferred tax assets are recognised to the extent that it is regarded as more likely than not that there will be sufficient taxable profits from which the underlying timing differences can be deducted. The deferred tax balances are not discounted.

(V) DIVIDENDS
Dividend distributions are recognised as a liability in the year in which the dividends are approved by the company’s shareholders. Interim dividends are recognised when they are paid; final dividends when authorised in general meetings by shareholders.

(VI) SHARE CAPITAL
Ordinary shares are classified as equity. Repurchased shares of the company are recorded in the balance sheet as treasury shares and presented as a deduction from shareholders’ equity at cost.

(VII) CASH
Cash includes cash in hand, bank deposits repayable on demand and bank overdrafts.

BT GROUP PLC COMPANY BALANCE SHEET

The financial statements of the company on this page were approved by the board of the directors on 17 May 2006 and were signed on its behalf by

Sir Christopher Bland
Chairman

Ben Verwaayen
Chief Executive

Hanif Lalani
Group Finance Director

  back to top