vi
Key audit matter
How our audit addressed the Key audit
matter
We also assessed adequacy of disclosures in
Notes 2, 12 and 32 to the consolidated financial
statements and assessed their compliance with
the
disclosure requ
irements of IAS 39 ‘Financial
Instruments: Recognition and Measurement’
and IFRS 7 ‘Financial Instruments: Disclosures’.
Acceptability of current estimates of the Group’s
management regarding the receivables
impairment for the purpose of preparing the
financial statements for the year ended
31 December 2016 does not guarantee that
future events that are
inherently uncertain
would not lead to significant changes in these
estimates.
Our procedures have not identified any findings
that evidence that there is a need for significant
adjustments to be made to the consolidated
financial statements.
Contingent tax liabilities
For matters requiring disclosure and related
judgements and accounting estimates see
Note 29 to the consolidated financial
statements.
We consider this audit issue as a key audit matter
because the Russian tax legislation (including
transfer pricing legislation and rules for
deductibility of certain expenses for income tax
purposes), which was enacted or substantively
enacted at the end of the reporting period, is
subject to varying interpretations when being
applied to the transactions and activities of the
Group. Consequently, tax positions taken by the
Group’s management and the formal
documentation supporting these tax positions
may be challenged by tax authorities. While
preparing the consolidated financial statements
the Group’s management assesses the probability
that tax liabilities will arise and their amounts,
taking into account actual or potential tax claims
and existing tax law application practice.
When the Group management assesses potential
tax liability, it takes into account that fiscal periods
remain open to review by the authorities in respect
of taxes for three calendar years preceding the
year when decision about the review was made.
Our audit procedures aimed at assessing the
probability that tax liabilities will arise, and their
amount included:
sample testing of accuracy of calculations and
recognition of short-term tax liabilities in the
consolidated financial statements;
sample testing of correctness of tax incentives
application and calculation;
assessing the reasonableness of the
management’s position on recording significant
tax liabilities ari
sing in the course of the Group’s
operations where the
Group’s tax positions may
be challenged by tax authorities in their audits
and in application of tax incentives;
reviewing the tax authorities’ acts and decisions
based on the results of their audits;
reviewing court decisions made with respect to
tax disputes where Group companies are
involved;
analysing court practice in the area of tax
disputes related to operations where the
Group’s
tax positions may be challenged by tax
authorities during their audit;
vii
Key audit matter
How our audit addressed the Key audit
matter
If the probability of incurring potential tax
liabilities is assessed as high (exceeding 50%), the
accrued provision is included within short-term
liabilities. At 31 December 2016, the accrued
provision is insignificant. Other identified
potential tax liabilities are disclosed in Note 29 to
the consolidated financial statements.
While it is not possible to make a sufficiently
reliable estimate of the probability of the
unfavourable developments for the Group, the
impact of such developments may be significant to
the overall financial position and financial
performance of the Group.
sample testing of adequacy of provisions for tax
liabilities recorded in the consolidated financial
statements, where the management assessed
their probability as high;
obtaining management’s written
representations
related to their assessment
of the amount of potential tax liabilities.
When performing the above procedures we engaged
our tax specialists.
We also assessed adequacy of disclosures on
contingent tax liabilities in Note 29 to the
consolidated financial statements with reference to
the disclosure requirements of IAS 37 ‘Provisions,
Contingent Liabilities and Contingent Assets’.
Acceptability of current estimates regarding the
contingent tax liabilities made by the Group
management in preparing the financial
statements for the year ended 31 December 2016
does not guarantee that future events that are
inherently uncertain
would not lead to a
significant change in these estimates.
Our procedures have not identified any findings
that evidence that there is a need for significant
additional disclosures to be made in these
consolidated financial statements.
How we tailored our Group audit scope
We tailored the scope of our audit in order to perform sufficient work to be able to give an opinion on
the consolidated financial statements as a whole, taking into account the geographic and management
structure of the Group, the accounting processes and controls as well as the
specific nature of the
industry in which the Group operates.
The Group’s consolidated financial statements are prepared based on the financial information of its
components, i.e. individual companies of the Group. If we considered a component to be significant,
we audited its financial information based on the materiality level established for each such
component.
Similar to the determination of the overall materiality, significance of components was
assessed based
on the component’s individual share in the Group’s revenue. We determined the following significant
components, which individually account for more than 15% of the Group's total revenue:
PJSC RusHydro, PJSC DEK, JSC DGK, PJSC Yakutskenergo.
If we did not consider that the procedures performed at the level of significant components provided
adequate audit evidence for expressing our opinion on the consolidated financial statements as a
whole, we performed analytical procedures at the Group level and audit of individual balances and
types of operations for other components of the Group.