To the General Meeting and Supervisory Board of Zespół Elektrociepłowni Wrocławskich KOGENERACJA S.A.
Responsibilities of the Company’s Management and members of the Supervisory Board for the financial statements
The Management Board is responsible for the preparation, based on properly maintained accounting records, and fair presentation of the financial statements in accordance with International Accounting Standards, International Financial Reporting Standards and related interpretations announced in the form of European Commission decrees and other applicable laws, as well as the Company’s Statute. The Company’s Management is also responsible for such internal control as Management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
In accordance with the Accounting Act of 29 September 1994 (the ‘Accounting Act’), the Company’s Management and the members of the Company’s Supervisory Board are required to ensure that the financial statements meet the requirements of the Accounting Act.
Our objective was to express an opinion on whether the financial statements give a true and fair view 1 of the financial position and results of the operations of the Company in accordance with International Accounting Standards, International Financial Reporting Standards and related interpretations announced in the form of European Commission regulations and adopted accounting policies.
We conducted our audit of the financial statements in accordance with:
Those regulations require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement.
The purpose of the audit is to obtain reasonable assurance as to whether the financial statements as a whole were prepared based on properly maintained accounting records and are free from material misstatement due to fraud or error, and to issue an independent auditor's report containing our opinion. Reasonable assurance is a high level of assurance, but it is not guarantee that an audit conducted in accordance with the above mentioned standards will always detect material misstatements. Misstatements may arise as a result of fraud or error and are considered material if it can reasonably be expected that individually or in aggregate, they could influence economic decisions of the users taken on the basis of these financial statements. The risk of not detecting a material misstatement due to fraud is higher than the risk of not recognizing a material misstatement due to an error, as fraud may involve collusion, falsification, deliberate omissions, misleading or circumventing internal control and may affect every area of law and regulation, not just this directly affecting the financial statements.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Company’s preparation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the presentation of the financial statements.
The scope of the audit does not include assurance on the future profitability of the audited Company nor effectiveness of conducting business matters now and in the future by the Company’s Management.
In accordance with International Auditing Standard 320 section 5 the concept of materiality is applied by the auditor both in planning and performing the audit, and in evaluating the effect of identified misstatements on the audit and of uncorrected misstatements, if any, on the financial statements and in forming the opinion in the auditor’s report. Hence all auditor’s assertions and statements contained in the auditor’s report, including those on other information or regulatory requirements, are made with the contemplation of the qualitative and quantitative materiality levels established in accordance with auditing standards and auditor’s professional judgement.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. The opinion is consistent with the additional report to the Audit Committee issued on the date of this report.
While conducting our audit, the key certified auditor and the audit firm remained independent of the Company in accordance with the regulations of Act on Statutory Auditors, Regulation 537/2014 and principles of professional ethics adopted by resolutions of the National Council of Statutory Auditors.
Based on our best knowledge and belief, we declare that we have not provided to the Company non-audit services, that are prohibited based on article 136 of the Act on Statutory Auditors and article 5, point 1 of Regulation 537/2014.
Appointment of the audit firm
We were appointed to audit the Company’s financial statements based on the Company’s Supervisory Board resolution 22/640/2017 dated 20 October 2017. We have been auditing the financial statements of the Company for the first time since the beginning of the financial year ended 31 December 2017.
Most significant assessed risks
In the course of our audit we have identified the below described most significant assessed risks of material misstatement (key audit matters), including due to fraud and we designed appropriate audit procedures in response to those risks. Where we considered to be relevant in order to understand the nature of the identified risk and audit procedures performed we have also included key observations arising with respect to those risks.
These matters were addressed in the context of our audit of the accompanying financial statements as a whole, and in forming our opinion thereon. Therefore we do not provide a separate opinion on these matters.
|Key audit matters||Audit procedures in response to the identified risk|
|Impairment of tangible assets
The carrying amount of tangible assets presented in the separate financial statements of Zespół Elektrociepłowni Wrocławskich KOGENERACJA S.A. („KOGENERACJA”, „Company”) as of 31 December 2017 amounted to PLN 1 200 million. As at 31 December 2017, the Management Board of the Company has identified impairment indicators, including the carrying amount of the net assets of the Company exceeds its market capitalization. Taking into consideration above, the Company’s Management Board prepared impairment tests in relation to all cash generating units. The impairment tests were prepared on the basis of the projected cash flows based on long- term assumptions of energy prices paths, coal prices, CO2 emission allowances prices and systems for renewable energy support, taking into consideration other key assumptions relating to operating parameters such as implementation of the Capacity Market mechanism in Poland. The impairment of tangible assets was concluded as key audit matter due to its scale and due to the fact that it is an area of significant judgement of the Management Board. The disclosures of the Company relating to the performed impairment tests were presented in note 16 „Impairment testing of assets” of the notes to the attached financial statements. The disclosures relating to key estimations were presented in note 38 “Accounting estimates and assumptions”.
|As part of the audit, we have documented our understanding of the process and identified internal controls in relation to identification of impairment indicators and preparation of impairment tests and we have also assessed the methodology of identification of cash generating units, moreover we have reviewed the tests. Our procedures included among others the assessment of the impairment test model and its assumptions, with support of valuation specialists, including:
|Initial audit of financial statements
The financial statements of the Company for the year ended 31 December 2017 was the first financial statements being a subject to our audit. During the audit we have performed number of additional procedures to understand and gain the knowledge of the Company’s business profile, accompanying processes, specific risks concerning the activity of the Company, internal controls implemented by the Company and implemented policies which impact on the financial reporting of the Company. These procedures enabled us to assess the audit risk, identify the risk of material misstatements including the inherent risk of the audit and the control risk, determine the materiality levels and audit scope. Moreover, the initial audit additional procedures purpose was to determine whether the opening balance contained misstatements which significantly impacted on the consolidated financial statements for current year and whether the accounting rules (policies) implemented for opening balances were applied on the continuous basis in preparation of the financial statements for current year and whether the changes, which were applied, were appropriately booked and relevantly presented in accordance with applicable reporting standards.
|Our procedures included among others:
In our opinion accompanying financial statements:
- give a true and fair view of the financial position of the Company as at 31 December 2017 and its financial performance for the year from 1 January 2017 to 31 December 2017 in accordance with International Accounting Standards, International Financial Reporting Standards and related interpretations announced in the form of regulations of the European Commission and other applicable laws and the adopted accounting policies,
- have been prepared based on properly, in accordance with chapter 2 of Accounting Act, maintained accounting records,
- are in respect of the form and content in accordance with legal regulations governing the Company and the Company’s Statute.
The financial statements for the previous financial year ended as at 31 December 2016 were the subject to audit by a key certified auditor acting on behalf of another auditing company, which on 6 March 2017 issued an unqualified opinion on this financial statements.
Report on other legal and regulatory requirements
Opinion on the Directors’ Report
Our opinion on the financial statements does not include the Directors’ Report.
The Company’s Management is responsible for preparation of the Directors’ Report in accordance with the Accounting Act and other applicable laws. In addition, the Company’s Management and members of the Company’s Supervisory Board is required to ensure that the Directors’ Report meets the requirements of the Accounting Act.
Our responsibility in accordance with the Act on Statutory Auditors was to issue an opinion on whether the Director’s Report, except for the chapter ‘Statement on disclosing of non-financial information’, was prepared in accordance with relevant laws and that it is consistent with the information contained in the accompanying financial statements.
Our responsibility was also to make a statement, on whether based on our knowledge about the Company and its environment obtained during the audit of the financial statements we have identified in the Director’s Report any material misstatements and to indicate the nature of each of material misstatement.
In our opinion the Directors’ Report was prepared in accordance with the relevant regulations and reconciles with the information derived from the accompanying financial statements. Moreover, based on our knowledge of the Company and its environment obtained during the audit of the financial statements, we have not identified material misstatements in the Directors’ Report.
Opinion on the corporate governance application representation
The Company’s Management and members of the Company’s Supervisory Board are responsible for preparation of the representation on application of corporate governance in accordance with the applicable laws.
In connection with the conducted audit of the financial statements, our responsibility in accordance with the Act on Statutory Auditors was to issue an opinion on whether the issuer, obliged to present a representation on application of corporate governance, constituting a separate part of the Director’s Report, included in the representation information required by applicable laws and whether the related information is in accordance with applicable regulations and with the information included in the financial statements.
In our opinion, in the representation on application of corporate governance, the Company has included information stipulated in paragraph 91, section 5, point 4, letter a, b, g, j, k and l of the Regulation of the Minister of Finance of 19 February 2009 on current and periodic information provided by issuers of securities and conditions of deeming information required by the regulations of a non-member country equal (‘Regulation’). Information stipulated in paragraph 91, section 5, point 4 letter c-f, h and i of the Regulation included in the representation on application of corporate governance is in accordance with applicable laws and information included in the accompanying financial statements.
Information on preparation of the statement on non-financial information
In accordance with the Act on Statutory Auditors, we inform, that the Company has prepared a statement on non-financial information mentioned in article 49b, section 1 of the Accounting Act as a separate element of the Director’s Report.
We have not performed any attestation services in respect to the statement on non-financial information and do not express any assurance in its respect.
Other information, including compliance with obligations arising from the law
In addition, we have concluded that the presented in the part D of accompanying financial statements balance sheet and profit and loss account, prepared separately for each type of business activity in the field of electricity generation for generation units, comply, in all material respects, with the requirements referred to in Article 44 para 2a of the Act dated 10 April 1997 Energy Law ("Energy Law").
The scope of regulatory financial information presented in part D is specified in Article 44 of the Energy Law. Our audit did not include an assessment on whether the information required to be disclosed by law are sufficient to ensure equal treatment of customers and the elimination of cross-subsidization between activities.
Warsaw, 5 March 2018
Key Certified Auditor
Partner’s name and surname
don behalf of
Ernst & Young Audyt Polska
spółka z ograniczoną odpowiedzialnością sp. k.
Rondo ONZ 1
Reg. No 130