In our opinion the consolidated financial statements give a true and fair view of the consolidated financial position of the Group as at 31 December 2016, and its consolidated financial performance and its consolidated cash flows for the year then ended in accordance with International Financial Reporting Standards (IFRS) and comply with Swiss law.
Basis for opinion
We conducted our audit in accordance with Swiss law, International Standards on Auditing (ISAs) and Swiss Auditing Standards. Our responsibilities under those provisions and standards are further described in the Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements section of our report.
We are independent of the Group in accordance with the provisions of Swiss law and the requirements of the Swiss audit profession, as well as the IESBA Code of Ethics for Professional Accountants, and we have fulfilled our other ethical responsibilities in accordance with these requirements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements of the current period. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. For each matter below, our description of how our audit addressed the matter is provided in that context.
We have fulfilled the responsibilities described in the Auditor’s responsibilities for the audit of the consolidated financial statements section of our report, including in relation to these matters. Accordingly, our audit included the performance of procedures designed to respond to our assessment of the risks of material misstatement of the consolidated financial statements. The results of our audit procedures, including the procedures performed to address the matters below, provide the basis for our audit opinion on the consolidated financial statements.
Area of focus
Positive and negative replacement values recorded in the consolidated financial statements are a result of classification as held-for-trading, in contrast to those classified as own-use. Their carrying amount is based on valuing current commodity contracts and reflecting existing netting agreements with counterparties.
Classification as held-for-trading requires judgment and has a material impact on both the consolidated balance sheet presentation and the recognition of changes in valuation of these derivatives in the consolidated income statement.
The valuation of these instruments is derived from observable market data on active markets. The positive and negative replacement values are presented net when legally enforceable netting agreements are in place.
The Group defined policies and procedures to account for energy contracts. This process includes segregation of duties and controls.
Due to the significance of these transactions, significant judgment and the potential impact on the consolidated financial statements, the accounting of energy derivatives was considered significant to our audit. Refer to notes 1 and 14 of the consolidated financial statements for further information.
Our audit response
We assessed the Group’s process around accounting of commodity contracts in general and the policies and procedures related to classifying commodity contracts as either held-for-trading or for the purpose of own use in particular. We assessed internal controls over the Group’s accounting for such trading activity.
We evaluated the Group’s policies and procedures around classification, valuation and netting of open positions including the established segregation of duties and discussed these with the Group.
We evaluated the sensitivity of the key assumptions applied and compared these assumptions to other information.
Area of focus
Determining deferred and current income tax amounts requires judgment. The Group is present in different jurisdictions with exposure to different levels of taxation. The Group also records deferred tax assets and liabilities and is required to estimate the recoverability of its deferred tax asset position.
The assessment of the recoverability of deferred tax assets depends on key assumptions applied by the Group, such as budgeted and forecasted profitability on an entity by entity basis, including an assumption about the applicable tax rates (whether enacted or substantially enacted). Due to the exposure of the income tax balances to changes in Group’s judgments and estimates applied, income taxes was considered significant to our audit. Refer to note 5 of the consolidated financial statements for further information.
Our audit response
We assessed the Group’s overall risk exposure regarding income taxes. We evaluated the process and internal controls framework around income taxes, including how judgment and estimates are derived, approved and accounted for. We assessed the Group’s policies around taxation for each major jurisdiction and how the Group mitigates risks arising locally.
We considered the Group’s correspondence with tax authorities and inquired regarding ongoing tax audits and potential disputes.
We evaluated the consistency of the Group’s budgets and forecasts including the assessment of tax rates. We considered current developments in tax legislation and the impact on the Group’s assumptions. We involved tax specialists to assist in examining the Group’s tax policies, deferred tax asset valuation models and underlying assumptions.
Area of focus
Tangible assets is a material balance amounting to 44.4% of total assets in the consolidated financial statements. These comprise primarily power plants, grids and other non-current assets of the Group.
The Group assesses the valuation of its power plants annually or when indicators for impairment exist. The Group’s other non-current assets including grids are assessed for impairment when indicators for impairment exist.
The testing for potential impairments involves the use of estimates and assumptions, such as the forecast production volume, the forecast long-term energy price curve and foreign exchange rates impacting future earnings and cash flows. In addition, discount rates are relevant in obtaining a value in use as of the date of the valuation. Refer to Note 7 for further information.
Our audit response
We assessed the Group’s definition of CGU’s related to its power plants and other assets and related documentation. We further assessed the process to derive the underlying assumptions and estimates around forecast production volumes, the forecast long-term energy price curve and foreign exchange rates. We evaluated the internal controls related to the budgeting and forecasting process as well as the process to derive assumptions and estimates. We evaluated the impairment testing model and involved valuation experts.
We assessed the cash flows derived for each CGU and how the discount rates including applicable input variables were determined. We corroborated the input variables to the discount rates based on sources provided by the Group and tested them against observable market data.
Area of focus
Receivables is a material balance amounting to 20.7% of total assets in the consolidated balance sheet. Receivables comprise a multitude of counterparties, ranging from individual households to corporate customers and governments.
The Group assesses the valuation of its receivables on an individual basis which requires estimates about the future recoverability of these positions. Changes in the Group’s estimates regarding the recovery may have a material impact on the balance sheet. Refer to Note 12 for further information.
Our audit response
We assessed the internal controls framework related to determination of estimates and assumptions underlying the valuation of receivables.
We assessed the valuation allowance by jurisdiction and class of counterparty. We assessed the percentages applied in provisioning for potential future losses by comparing these against historic loss rates incurred and other information.
Other information in the annual report
The Board of Directors is responsible for the other information in the annual report. The other information comprises all information included in the annual report, but does not include the consolidated financial statements, the stand-alone financial statements and our auditor’s reports thereon.
Our opinion on the consolidated financial statements does not cover the other information in the annual report and we do not express any form of assurance conclusion thereon.
In connection with our audit of the consolidated financial statements, our responsibility is to read the other information in the annual report and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.
Responsibility of the Board of Directors for the consolidated financial statements
The Board of Directors is responsible for the preparation of the consolidated financial statements that give a true and fair view in accordance with IFRS and the provisions of Swiss law, and for such internal control as the Board of Directors determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the consolidated financial statements, the Board of Directors is responsible for assessing the Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Board of Directors either intends to liquidate the Group or to cease operations, or has no realistic alternative but to do so.
Auditor’s responsibilities for the audit of the consolidated financial statements
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Swiss law, ISAs and Swiss Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements.
In accordance with article 728a para. 1 item 3 CO and the Swiss Auditing Standard 890, we confirm that an internal control system exists, which has been designed for the preparation of consolidated financial statements according to the instructions of the Board of Directors.
We recommend that the consolidated financial statements submitted to you be approved.