AO PricewaterhouseCoopers Audit
White Square Office Center 10 Butyrsky Val Moscow, Russia, 125047
T: +7 (495) 967-6000, F:+7 (495) 967-6001, www.pwc.ru
Independent Auditor’s Report
To the Shareholders and Board of Directors of Public Joint Stock Company Federal
Hydro-Generating Company
– RusHydro (PJSC RusHydro):
Our opinion
In our opinion, the consolidated financial statements present fairly, in all material respects, the
consolidated financial position of PJSC RusHydro and its subsidiaries (together
– 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).
What we have audited
The Group’s consolidated financial statements comprise:
the consolidated statement of financial position as at 31 December 2016;
the consolidated statement of profit and loss for the year then ended;
the consolidated statement of comprehensive income for the year then ended;
the consolidated statement of changes in equity for the year then ended; and
the consolidated statement of cash flows
for the year then ended;
the notes to the consolidated financial statements, which include significant accounting policies
and other explanatory information.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (ISAs). Our
responsibilities under those standards are further described in the Auditor’s Responsibilities for the
Audit of the Consolidated Financial Statements section of our report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our opinion.
Independence
We are independent of the Group in accordance with the International Ethics Standards Board for
Accountants’ Code of Ethics for Professional Accountants (IESBA Code) together with the ethical
requirements of the Auditor’s Professional Ethics Code and Auditor’s Independence Rules that are
relevant to our audit of the consolidated financial statements in the Russian Federation. We have
fulfilled our other ethical responsibilities in accordance with these requirements and the IESBA Code.
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Our audit approach
Overview
PJSC RusHydro
’s shares are listed on the Moscow Exchange. The Group’s principal business
operations are generation and sales of electricity, capacity and heat energy in the Russian wholesale
and retail markets. The Group companies are also involved in
other operations, including electricity
transmission and distribution, construction, repairs and provision of other services.
Overall group materiality: Russian Roubles (“RUB”) 3,600 million,
which represents 1% of total revenues and government grants.
We conducted audit work at those companies of the Group that were
considered significant components based on their individual share in
the Group’s revenue, which exceeds 15%: PJSC RusHydro, PJSC DEK,
JSC DGK, PJSC Yakutskenergo.
Our audit scope covered
inter alia 67% of the Group’s revenues and
83% of the Group’s total carrying value of property, plant and
equipment.
Key audit matters
Assessment of impairment of property, plant and equipment
Assessment of impairment of accounts receivable
Contingent tax liabilities
We designed our audit by determining materiality and assessing the risks of
material misstatement in
the consolidated financial statements. In particular, we considered where management made
subjective judgements; for example, in respect of significant accounting estimates that involved
making assumptions and considering future events that are inherently uncertain. We also addressed
the risk of management override of internal controls, including among other matters consideration of
whether there was evidence of bias that represented a risk of material misstatement due to fraud.
Materiality
The scope of our audit was influenced by our application of materiality. An audit is designed to obtain
reasonable assurance whether the financial statements are free from material misstatement.
Misstatements may arise due to fraud or error. They are considered material if individually or in
aggregate, they could reasonably be expected to influence the economic decisions of users taken on the
basis of the consolidated financial statements.
Based on
our professional judgement, we determined certain quantitative thresholds for materiality,
including the overall group materiality for the consolidated financial statements as a whole as set out
in the table below. These, together with qualitative considerations, helped us to determine the scope of
our audit and the nature, timing and extent of our audit procedures and to evaluate the effect of
misstatements, if any, both individually and in aggregate on the consolidated financial statements as a
whole.
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Overall group materiality
RUB 3,600 million
How we determined it
1% of total revenues and government grants
Rationale for the
materiality benchmark
applied
We chose total revenues and government grants as the
benchmark because, in our view, it is
the benchmark against
which the Group’s performance is represented to the fullest
extent possible. We chose 1% which is consistent with
quantitative materiality thresholds used for profit-oriented
companies in this sector.
Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in
our audit of the consolidated financial statements for the reporting 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.
Key audit matter
How our audit addressed the Key audit
matter
Assessment of impairment of property,
plant and equipment
For matters requiring disclosures and related
significant accounting policies, judgements
and accounting estimates see Notes 2, 7 and
32 to the consolidated financial statements.
At 31 December 2016, the Group’s aggregate
carrying amount of property, plant and
equipment was RUB 765,047 million. This is
the most significant asset
on the Group’s
balance sheet, it accounts for 78% of the total
value of assets.
The Group’s management performed analysis
of the business performance, industry outlook
and operational plans and then assessed the
recoverable value of property, plant and
equipment by cash generating units for the
purpose of impairment testing. Impairment
arises
when the recoverable amount, which is
determined as the hi
gher of the asset’s fair
value less costs to sell and its value in use, is
below the carrying amount of the analysed
assets.
The management’s testing identified
impairment of a number of cash generating
units, and the Company accrued
impairment
loss of RUB 26,525 million in the statement of
income for the year ended 31 December 2016.
We obtained and reviewed financial models that
the management used for assessing the PP&E
impairment. We engaged our valuation experts
to form our conclusion on the assumptions and
methodology that were used in the impairment
assessment.
Our audit procedures related to the
management’s assessment of PP&E impairment
included:
review of the methodology used by the
Group’s management for the impairment test
purposes;
examination, on a test basis, of key
assumptions used in financial models and
whether they are in line with the approved
budgets and business plans, external
available and reliable sources (including
macroeconomic forecasts, information on
regulated and market electricity and capacity
prices, etc.) and our industry-specific
expertise;
assessment of
competence, skills, experience
and objectivity of the management’s experts;
examination, on a test basis, of accuracy and
relevance of inputs that the management