# To the Shareholders of Tenaris S.A.

_Source: `DeepSeekOCR_Ardian_pruned_1k/energy-oil-gas-equipment-services/NYSE_TS_2017/NYSE_TS_2017.mmd` · pages 102-108_

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To the Shareholders of Tenaris S.A.

## Report on the audit of the consolidated financial statements

## Our opinion

In our opinion, the accompanying consolidated financial statements give a true and fair view of the consolidated financial position of Tenaris S.A. (the "Company") and its subsidiaries (the "Group") as at 31 December 2017, and of its consolidated financial performance and its consolidated cash flows for the year then ended in accordance with International Financial Reporting Standards (IFRSs) as issued by the International Accounting Standards Board (IASB) and in accordance with IFRS as adopted by the European Union.

Our opinion is consistent with our additional report to the Audit Committee of the Company's Board of Directors (the "Audit Committee").

## What we have audited

The Group's consolidated financial statements comprise:

• the consolidated statement of financial position as at 31 December 2017;

• the consolidated income statement 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;

• the consolidated statement of cash flows for the year then ended; and

• the notes to the consolidated financial statements, which include a summary of significant accounting policies.

## Basis for opinion

We conducted our audit in accordance with the EU Regulation No 537/2014, the Law of 23 July 2016 on the audit profession (Law of 23 July 2016) and with International Standards on Auditing (ISAs) as issued by the International Auditing and Assurance Standards Board (IAASB) and as adopted for Luxembourg by the "Commission de Surveillance du Secteur Financier" (CSSF). Our responsibilities under those Regulation, Law and standards are further described in the "Responsibilities of the "Réviseur d'entreprises agréé" for the audit of the consolidated financial statements" section of our report.

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We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

We are independent of the Group in accordance with the International Ethics Standards Board for Accountants' Code of Ethics for Professional Accountants (IESBA Code) as adopted for Luxembourg by the CSSF together with the ethical requirements that are relevant to our audit of the consolidated financial statements. We have fulfilled our other ethical responsibilities under those ethical requirements.

To the best of our knowledge and belief, we declare that we have not provided non-audit services that are prohibited under Article 5(1) of Regulation (EU) No 537/2014.

The non-audit services that we have provided to the Group, for the year ended 31 December 2017, all of which have been pre-approved by the Audit Committee, are disclosed in Note 32 to the consolidated financial statements.

## Key audit matters

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, and include the most significant assessed risks of material misstatement (whether or not due to fraud). 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.

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## Key audit matter

## Recoverability of long-lived assets

The Group's balance sheet includes goodwill (USD 1,292.5 million) and other long-lived assets (USD 6,229.8 million Property, Plant & Equipment, USD 281.7 million finite-life intangible assets and USD 86.7 million other indefinite life intangible assets). The Group is required to test the amount of goodwill and other indefinite life intangible assets for impairment at least annually. Other long-lived assets are tested in case of impairment triggers.

During the year, Management has tested for impairment those cash generating units (CGUs) containing goodwill and those where impairment indicators were identified.

We focused our audit effort on the U.S. welded tubes business (Maverick CGU) due to its significance (USD 225 million remaining goodwill as of 31 Dec. 2017) and the small headroom observed in prior periods between the recoverable amount as determined using a discounted cash flow (DCF) model and the carrying value. In addition, due to a general deterioration in the U.S. oil & gas industry, an impairment of USD 400 million was recorded in 2015.

The impairment test was significant to our audit due to its complexity, as judgments and assumptions are involved in the assessment of the recoverable amount of Maverick CGU and its business is affected by strong competition, with sales volumes and prices being highly dependent on the oil & gas market conditions.

Due to the conditions described above, Tenaris prepared 2 scenarios for Maverick to determine the value in use of this CGU.

## How our audit addressed the Key audit matter

We challenged the cash flow projections included in the impairment test. Our audit procedures included, among others, the involvement of an internal valuation specialist to assist us in evaluating the assumptions and the valuation methodology used by the Group. We furthermore assessed the appropriateness of other data used by comparing them to external and historical data, when available, such as analyst reports and evolution of rig counts and by analyzing sensitivities in the valuation model, evaluating whether a reasonably possible change in assumptions could cause the carrying amount to exceed its recoverable amount and compared actual cash flow results with previous forecasts.

In addition, we evaluated and tested controls in place over the analysis of impairment indicators on non-financial assets, review of assumptions used and DCF calculations.

We finally assessed the adequacy of the disclosures in the consolidated financial statements.

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The disclosures related to this matter are included in Notes 5 and 11 to the consolidated financial statements.

## Ongoing investigation

Italian and Swiss authorities are investigating whether certain payments were made from accounts of entities presumably associated with affiliates of the Company to accounts controlled by an individual allegedly related to officers of Petróleo Brasileiro S.A. ("Petrobras") and whether such alleged payments were intended to ultimately benefit Confab Industrial S.A., a Brazilian subsidiary of the Company.

The Audit Committee has engaged an external counsel in order to proceed with an internal investigation intended to determine whether the alleged payments were initiated from the Group's officials. In addition, the Company has voluntarily notified the U.S. Securities and Exchange Commission and the U.S. Department of Justice about the current judicial action initiated by the Italian and the Swiss authorities and has informed them about the ongoing internal investigation of the external counsel.

The ongoing investigation was considered as a key audit matter due to the pervasive financial effects that the alleged charges may have on the Company in case they are proved by the authorities and the nature and extent of communications about this matter with those charged with governance.

There is no final conclusion over the ongoing investigation from the external counsel.

The disclosures related to this matter are included in Note 25 (i) to the consolidated financial statements. Our audit approach included the following audit procedures:

• We inquired management about the Company's main investigative actions.

• We had periodic meetings with the Business Conduct Compliance Officer (BCCO) and periodic calls with the external counsel to understand the status of the investigation.

• We discussed the investigations with the Audit Committee and the Company's legal advisors and evaluated whether the disclosures in the notes to the consolidated financial statements are consistent with the results of those investigations.

• We obtained from Tenaris' Legal Counsel a letter related to this matter.

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## Other information

The Board of Directors is responsible for the other information. The other information comprises the information stated in the Annual Report, including the management report and the Corporate Governance Statement, but does not include the consolidated financial statements and our audit report thereon.

Our opinion on the consolidated financial statements does not cover the other information 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 identified above 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.

## Responsibilities of the Board of Directors and those charged with governance for the consolidated financial statements

The Board of Directors is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with IFRSs as issued by the IASB and in accordance with IFRSs as adopted by the European Union, 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.

Those charged with governance are responsible for overseeing the Group's financial reporting process.

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## Responsibilities of the "Réviseur d'entreprises agréé" for the audit of the consolidated financial statements

The objectives of our audit 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 audit 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 the EU Regulation No 537/2014, the Law of 23 July 2016 and with ISAs as issued by the IAASB and as adopted for Luxembourg by the CSSF 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.

As part of an audit in accordance with the EU Regulation No 537/2014, the Law of 23 July 2016 and with ISAs as issued by the IAASB and as adopted for Luxembourg by the CSSF, we exercise professional judgment and maintain professional scepticism throughout the audit. We also:

• identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control;

• obtain an understanding of internal control relevant to the audit 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 Group's internal control;

• evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the Board of Directors;

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• conclude on the appropriateness of the Board of Directors' use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our audit report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our audit report. However, future events or conditions may cause the Group to cease to continue as a going concern;

• evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation;

• obtain sufficient appropriate audit evidence regarding the financial information of the entities and business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the Group audit. We remain solely responsible for our audit opinion.

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in our audit report unless law or regulation precludes public disclosure about the matter.