Source: https://annualreport.tennet.eu/2017/annualreport/other-information/independent-auditor-s-report
Timestamp: 2018-11-16 08:21:34
Document Index: 576806487

Matched Legal Cases: ['art 9', 'art 9', 'art 9', 'art 9', 'art 9', 'art 9']

Independent auditor’s report - Annual report 2017 TenneT Holding B.V.
We have audited the financial statements 2017 of TenneT Holding B.V., based in Arnhem. The financial statements include the consolidated financial statements and the company financial statements.
The accompanying consolidated financial statements give a true and fair view of the financial position of TenneT Holding B.V. as at 31 December 2017, and of its result and its cash flows for 2017 in accordance with International Financial Reporting Standards as adopted by the European Union (EU‑IFRS) and with Part 9 of Book 2 of the Dutch Civil Code; and
The accompanying company financial statements give a true and fair view of the financial position of TenneT Holding B.V. as at 31 December 2017, and of its result for 2017 in accordance with Part 9 of Book 2 of the Dutch Civil Code.
The following statements for 2017: the consolidated statement of income, the consolidated statement of comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows; and
The company statement of income for 2017; and
We are independent of TenneT Holding B.V. in accordance with the EU Regulation on specific requirements regarding statutory audit of public-interest entities, the “Wet toezicht accountantsorganisaties” (Wta, Audit firms supervision act), the “Verordening inzake de onafhankelijkheid van accountants bij assurance-opdrachten” (ViO, Code of Ethics for Professional Accountants, a regulation with respect to independence) and other relevant independence regulations in the Netherlands. Furthermore we have complied with the “Verordening gedrags- en beroepsregels accountants” (VGBA, Dutch Code of Ethics).
Materiality EUR 78 million (2016: EUR 58 million)
Benchmark applied 1.4% of total equity (2016: 1.4% of total equity)
Explanation We have determined total equity to be the most relevant measure for TenneT Holding’s primary stakeholders, being the Dutch State (as the sole shareholder) and external investors in both equity and liability instruments of the group. A sufficient equity balance and solvency ratio is in our view the most relevant measure for the capital providers to make their investment decisions, also considering the long-term nature of TenneT Holding’s core business. The materiality increased as in 2016 audit we did not take the capital contribution of EUR 780 million into account and in 2017 equity increased with EUR 687 million.
We agreed with the Supervisory Board that misstatements in excess of EUR 3.9 million (being 5% of the materiality), which are identified during the audit, would be reported to them, as well as smaller misstatements that in our view must be reported on qualitative grounds.
Our group audit mainly focused on the regulated significant group entities TSO Netherlands, TSO Germany and BritNed (non-regulated). In establishing the overall approach to the group audit, we determined the type of work that needed to be performed at the reporting units within these business segments, either by us, as the group engagement team, or component auditors within EY Netherlands and EY Germany operating under our instruction. Where the work was performed by component auditors, we determined the level of involvement we needed to have in the audit work at those reporting units to be able to conclude whether sufficient appropriate audit evidence had been obtained as a basis for our opinion on the group financial statements as a whole. Accordingly, we identified that the consolidated group entities TSO Netherlands and TSO Germany, which both consist of multiple entities, required an audit of their complete financial information due to their size.
The procedures described above provide coverage of 99% of EBIT (operating profit) and 96% of the total assets of the Group.
Risk Underlying financial information is based on the principle of recognising regulatory assets and liabilities, which (based on the current regulatory framework) need to be collected from or are to be returned to customers through future grid tariffs. Under IFRS, reimbursements or settlements through future grid tariffs may not be taken into account. As a result, regulatory assets or liabilities cannot be recognized under IFRS. The Underlying financial information is reconciled for revenue, EBIT, assets and liabilities to the consolidated financial statements in note 2. The Executive Board manages and monitors TenneT’s business based upon Underlying financial information, as explained in note 2 ‘Segment Information’, as the Executive Board is of the opinion that the presentation of underlying financial information leads to a better financial insight into past and future business performance. The underlying financial information is also included in the ‘Financial’ section of the Our Performance in 2017 chapter. Given the relevance of the topic for the financial statements we conclude that the reconciliation of the Underlying financial information to the consolidated IFRS financial statements is a key audit matter.
Our audit approach We have obtained an understanding of the regulatory frameworks in the Netherlands and Germany, and of relevant regulatory developments. We have assessed whether the Underlying financial information reflects how TenneT’s Executive Board assesses performance and manages the business. We obtained the fourth quarter internal quarterly reporting based on Underlying financial performance and reconciled that information to the segments identified in the segment reporting as included in the financial statements note 2. We audited the movements in the underlying regulatory assets and liabilities and the reconciliation of underlying financial information to the consolidated IFRS financial statements as disclosed in note 2.
Growth in renewable energy sources and the implications for grid expenses, as disclosed in notes 3.2.1 and 5.6.3 of the financial statements
Risk The increase in intermittent renewable energy generation, such as onshore and offshore wind and onshore photovoltaic capacity impacts the German onshore grid significantly. TenneT needs to ensure a stable grid operation and to achieve this, balancing measures are needed. The number of measures has grown compared to prior years, and, consequently, the related expenses increased significantly. The complexity of the electricity market and uncertainties in assessing energy production from the likes of wind and solar power makes estimating the grid expenses payable for some areas a complex task. Given the relevance of the topic for the financial statements we conclude that this risk is a key audit matter.
Our audit approach We have obtained an understanding of TenneT’s estimation process in relation to the accrual for balancing measures and other grid related expenses. We obtained and inspected evidence to support the Executive Board’s estimates and key assumptions used in establishing the related accruals. We also tested the integrity of the measurement model applied by TenneT in calculating the estimate, including the formulas applied in the model. We further assessed the adequacy of TenneT’s disclosures as included in notes 3.2.1 and 5.6.3 to the financial statements.
Other provisions, as disclosed in note 5.7.3 of the financial statements
Risk Offshore grid connections and related undersea cabling and landside stations, which are required to be built by TenneT to connect offshore wind farms to the onshore high voltage grid, are in various stages of construction. The engineering, procurement and construction of these projects is complex, large in size and executed in parallel for a number of projects. In prior years, provisions were formed relating to legal claims and to risks associated with delays and interruptions of offshore connections in Germany. Given the relevance of the topic for the financial statements we conclude that this risk is a key audit matter.
Our audit approach We obtained evidence to support the Executive Board’s estimates and key assumptions used in establishing the other provisions, in particular probability of the assumptions. We also tested the integrity of the measurement model, including the formulas applied therein. We evaluated the reasonableness of the Executive Board’s judgements and assumptions applied in measuring the provisions recognised in the consolidated IFRS financial statements, note 5.7.3. We also assessed the adequacy of TenneT’s disclosures as included in note 5.7.3 to the financial statements.
Third-party claims, as disclosed in note 5.6.4 and 7.2.4 of the financial statements
Risk Claims may relate to TenneT’s operations or specific elements of the regulatory framework. These claims are either provided for or (if necessary) disclosed as a contingent liability in the financial statements. The claims are a key element of our audit as they could be material and the Executive Board makes assumptions about the legal position, the likelihood and the impact of the expected future cash outflow related to these claims. For this, the board relies on internal and external advisors. Given the relevance of the topic for the financial statements we conclude that this risk is a key audit matter.
Our audit approach We obtained and inspected internal legal and regulatory letters, legal letters from external attorneys and minutes of meetings of those charged with governance. We also inquired employees from TenneT’s legal department as well as management. We assessed TenneT’s assumptions underlying the recognition and valuation of these claims, as well as management’s position with respect to claims that are not provided for at year-end.
Key observations We consider management’s assessment and position of third-party claims as being appropriate.
In addition to the financial statements and our auditor’s report thereon, the integrated annual report contains other information that consists of:
2017 at a glance;
Our Performance in 2017;
We have read the other information. Based on our knowledge and understanding obtained through our audit of the financial statements or otherwise, we have considered whether the other information contains material misstatements. By performing these procedures, we comply with the requirements of Part 9 of Book 2 of the Dutch Civil Code and the Dutch Standard on Auditing 720. The scope of the procedures performed is less than the scope of those performed in our audit of the financial statements.
Management is responsible for the preparation of the other information, including the director's report in accordance with Part 9 of Book 2 of the Dutch Civil Code and other information pursuant to Part 9 of Book 2 of the Dutch Civil Code.
Regulatory reportings (Ernst & Accountants LLP and EY Network firms outside the Netherlands);
Bond issue procedures (Ernst & Accountants LLP);
Translation services (EY Network firms outside the Netherlands);
Tax consultancy services (EY Network firms outside the Netherlands).
The Executive Board is responsible for the preparation and fair presentation of the financial statements in accordance with EU-IFRS and Part 9 of Book 2 of the Dutch Civil Code. Furthermore, the Executive Board is responsible for such internal control as management determines is necessary to enable the preparation of the financial statements that are free from material misstatement, whether due to fraud or error.
As part of the preparation of the financial statements, the Executive Board is responsible for assessing the company’s ability to continue as a going concern. Based on the financial reporting frameworks mentioned, the Executive Board should prepare the financial statements using the going concern basis of accounting unless management either intends to liquidate the company or to cease operations, or has no realistic alternative but to do so. The Executive Board should disclose events and circumstances that may cast significant doubt on the company’s ability to continue as a going concern in the financial statements.
We have exercised professional judgment and have maintained professional scepticism throughout the audit, in accordance with Dutch Standards on Auditing, ethical requirements and independence requirements. Our audit included e.g.,:
Concluding on the appropriateness of the Executive Board’s 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 company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the 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 auditor’s report. However, future events or conditions may cause a company to cease to continue as a going concern.;
The Hague, 20 February 2018