DOOSAN CORPORATION AND SUBSIDIARIES Consolidated Financial Statements For the Year Ended December 31, 2017 With the independent auditor’s report Doosan Corp. Contents Independent auditors’ report Page Consolidated financial statements Consolidated statements of financial position 1-2 Consolidated statements of profit or loss 3 Consolidated statements of comprehensive income 4 Consolidated statements of changes in equity 5-6 Consolidated statements of cash flows 7-8 Notes to the consolidated financial statements 9-130 한영회계법인 Ernst & Young Han Young 서울특별시 영등포구 여의공원로 111, 태영빌딩 3-8F Taeyoung Building, 111, Yeouigongwon-ro, 07241 Yeongdeungpo-gu, Seoul 07241 Korea Tel: 02 3787 6600 Tel: +82 2 3787 6600 Fax: 02 783 5890 Fax: +82 2 783 5890 ey.com/kr ey.com/kr Independent auditors’ report (English Translation of Report Originally Issued in Korean) To the Shareholders and Board of Directors of Doosan Corporation We have audited the accompanying consolidated financial statements of Doosan Corporation (the “Company”) and its subsidiaries (collectively referred to as the “Group”), which comprise the consolidated statement of financial position as at December 31, 2017, and the consolidated statement of profit or loss, consolidated statement of comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the year then ended, and a summary of significant accounting policies and other explanatory information. Management’s responsibility for the consolidated financial statements Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with Korean International Financial Reporting Standards, and for such internal control as management determines is necessary to enable the preparation of the consolidated financial statements that are free from material misstatement, whether due to fraud or error. Auditors’ responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the Republic of Korea. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditors’ judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditors consider internal control relevant to the entity’s preparation and fair presentation of the consolidated 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 entity’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 overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Group as at December 31, 2017, and its financial performance and cash flows for the year then ended in accordance with Korean International Financial Reporting Standards. Emphasis of matter Without modifying our audit opinion, we draw attention to the following matters: (1) Emphasis of matter in regard to key audit matters in engineer-to-order manufacturing sectors (ETO) In accordance with Accounting Audit Practice Guidelines 2016-1, key audit matters in ETO are selected on the basis of auditors' professional judgment and communication with those charged with governance. Such procedures are based on the consolidated financial statements as a whole, and we do not express an opinion in regard to such matter. We have performed below auditing procedures on the key audit matters in forming the audit opinion. a. General matter Details of key audit matters in ETO described in this audit report are as below. As described in Note 2 to the consolidated financial statements, when the outcome of a construction contract is reliably measurable, construction revenue and construction costs are recognized based on the percentage-of- completion method of contract activities as at December 31, 2017. The percentage-of-completion is calculated by dividing cumulative construction costs to date by the total estimated costs of the construction but excluding contract costs to which the percentage-of-completion does not apply. When the amounts with addition recognized in cumulative contract costs (less loss recognized) exceed the amounts charged by the percentage-of-completion, the Group recognizes the excess as due from customers for contract work and when the amounts charged by the percentage-of-completion exceed the amounts with addition recognized in cumulative contract costs (less loss recognized), the Group recognizes the excess as due to customers for contract work. b. The Group’s accounting policies on revenue recognition based on input method When the Group applies percentage-of-completion to recognize contract revenue and costs for contracts that are not reliably estimated, there exists risk of misstatement in contract revenue and costs. Furthermore, there exists risk of misstatement in contract revenue and costs when the Group cannot apply percentage-of- completion for contracts that are reliably estimated. Accordingly, we identified significant risks in revenue recognition based on the input method. As at December 31, 2017, we performed the following audit procedures for the key audit matters associated with the Group’s accounting policies on revenue recognition based on the input method. Review of the Group’s internal control in relation to the decision on accounting policies of revenue recognition Analytical review and inquiry of the significant changes in and the progress of the major projects Inspection and inquiry of terms and conditions to check whether the criteria for reliable measurement of construction contract are met or not c. Uncertainty in estimating the total costs of the construction contract As described in Note 26 to the accompanying consolidated financial statements, the impact of changes in the total estimated contract amounts and total estimated contract costs on profit or loss for the current and future periods are \12,907 million and \132,357 million, respectively, and the impact on due from customers for contract work (due to customers for contract work) is \12,907 million. Accordingly, when the Group’s total estimated contract costs change, the percentage-of-completion changes and profit or loss for the current and future periods and due from customers for contract work or due to customers for contract work change thereafter. As a matter of fact, we identified the uncertainty in estimating the total contract costs as significant risk. We performed the following audit procedures for the key audit matters, in relation to uncertainties in estimating the total contract costs. Review of internal control related to the Group’s decision on the total estimated contract costs Analytical review and inquiry about changes in major items of total estimated contract costs by reporting period Retrospective review of project with significant changes in the total estimated contract costs Analysis of the discrepancies for project with significant changes in the total estimated contract costs and check supporting documents if necessary Validation of approval from appropriate personnel for the total estimated contract costs Validation of aggregated amounts and distribution of indirect costs by project conducted by system audit team d. Appropriateness of percentage-of-completion of construction Revenue recognition based on the percentage-of-completion has significant risk of incurring material adjustment to the carrying amounts of assets and liabilities after December 31, 2017. If percentage-of- completion is calculated by the ratio of cumulative construction costs to date and total estimated contract costs, and cumulative construction costs to date include contract costs that do not reflect construction performed, there exists a risk of not recognizing contract revenue and cost in an appropriate manner due to misstatement in percentage-of-completion. Accordingly, we identified the appropriateness of the calculation of percentage- of-completion of construction contract as significant risk. We performed the audit procedures for the key audit matters associated with the impact of cumulative contract cost on the percentage-of-completion as at December 31, 2017 as follows. Analytical review and inquiry about reasons for increase/decrease in percentage-of-completion by reporting period Analytical review and inquiry about items of cumulative contract cost by reporting period Review and reconciliation of percentage-of-completion by process (monthly progress report) and percentage-of-completion of costs for major projects Validation of samples of material costs and other expenses to confirm actuality Test for the appropriateness