NIS А.D. – Naftna Industrija Srbije Novi Sad
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NIS А.D. – Naftna industrija Srbije Novi Sad Financial Statements and Independent Auditor’s Report 31 December 2020 Novi Sad, 9 March 2021 This version of the financial statements is a translation from the original, which was prepared in the Serbian language. All possible care has been taken to ensure that the translation is an accurate representation of the original. However, in all matters of interpretation of information, views or opinions, the original Serbian language version of the document takes precedence over this translation Contents INDEPENDENT AUDITOR’S REPORT FINANCIAL STATEMENTS PREPARED IN ACCORDANCE WITH THE LAW ON ACCOUNTING OF THE REPUBLIC OF SERBIA Balance Sheet 1 Income Statement 4 Statement of Other Comprehensive Income 6 Statement of Cash Flows 7 Statement of Changes in Equity 8 Notes to the Financial Statements 1. General Information 10 2. Summary of Significant Accounting Policies 10 3 Critical Accounting Estimates, Assumptions and Judgments 23 4. Application of New IFRS 27 5. New Accounting Standards 27 6. Financial Risk Management 28 7. Segment Information 36 8. Intangible Assets 40 9. Property, Plant and Equipment 41 10. Investments in Subsidiary 46 11. Investments in Associates and Joint ventures 46 12. Long-term Investments in Parent and Subsidiaries 47 13. Other Long-Term Financial Investments 48 14. Deferred Tax Assets and Liabilities 48 15. Inventory 49 16. Trade Receivables 50 17. Other Receivables 50 18. Short-term Financial Investments 50 19. Cash And Cash Equivalents 51 20. Prepayments and Accrued income 51 21. Off-balance Sheet Assets and Liabilities 51 22. Share Capital 51 23. Long-term Provisions 52 24. Long-term Liabilities 54 25. Short-term Finance Liabilities 55 26. Trade Payables 55 27. Other Short-term Liabilities 56 28. Liabilities for Other Taxes 56 29. Accrued Expenses 56 30. Cost of Material 56 31. Cost of Salaries, Fringe Benefits and Other Personal Expenses 57 32. Cost of Production Services 57 33. Non-production Costs 57 34. Finance Income 58 35. Finance Expense 58 36. Income from Valuation of Assets at Fair Value Through Profit and Loss 58 37. Other Income 58 38. Other Expenses 59 39. Income Taxes 59 40. Commitments and Contingent Liabilities 60 41. Related Parties Transactions 60 42. Reconciliation of Receivables and Payables 64 43. Events After the Reporting Date 64 Contact Information 65 kpmg KPMG d.o.o. Beograd Tel.: +381 (0)11 20 50 500 Milutina Milankovića 1J Fax: +381 (0)11 20 50 550 11070 Belgrade www.kpmg.com/rs Serbia T R A N S L A T I O N Independent Auditor's Report To the Shareholders of Naftna industrija Srbije a.d., Novi Sad Opinion We have audited the accompanying In our opinion, the accompanying separate separate financial statements of Naftna financial statements give a true and fair view industrija Srbije a.d., Novi Sad (the of the unconsolidated financial position of “Company”), which comprise: the Company as at 31 December 2020, and of its unconsolidated financial performance — the separate balance sheet as at and its unconsolidated cash flows for the 31 December 2020; year then ended in accordance with the and, for the period from 1 January to accounting regulations effective in the 31 December 2020: Republic of Serbia. — the separate income statement; — the separate statement of other comprehensive income; — the separate statement of changes in equity; — the separate cash flow statement; and — notes, comprising a summary of significant accounting policies and other explanatory information (the “separate financial statements”). © 2021 KPMG d.o.o. Beograd, a Serbian limited liability company Registration No.: 17148656 and a member firm of the KPMG global organization of independent Tax Identity No.: 100058593 member firms affiliated with KPMG International Limited, a private Bank Acc.: 265-1100310000190-61 English company limited by guarantee. All rights reserved. T R A N S L A T I O N kpmg Basis for Opinion We conducted our audit in accordance with the Accountants (including International Law on Auditing and the Law on Accounting of Independence Standards) (IESBA Code) the Republic of Serbia and applicable auditing together with the ethical requirements that are standards in the Republic of Serbia. Our relevant to our audit of the separate financial responsibilities under those regulations are statements in the Republic of Serbia and we further described in the Auditor’s Responsibility have fulfilled our other ethical responsibilities in for the audit of the separate financial statements accordance with these requirements and the section of our report. We are independent of the IESBA Code. We believe that the audit Company in accordance with International evidence we have obtained is sufficient and Ethics Standards Board for Accountants appropriate to provide a basis for our opinion. International Code of Ethics for Professional Key Audit Matters Key audit matters are those matters that, in our audit matters were addressed in the context of professional judgment, were of most our audit of the separate financial statements as significance in our audit of the separate financial a whole, and in forming our opinion thereon we statements of the current period. They are the have summarised our response to those risks. most significant assessed risks of material We do not provide a separate opinion on these misstatements, including those due to fraud, matters. We have determined the following key described below and we performed appropriate audit matters: audit procedures to address these matters. Key Decommissioning and restoration provisions Accounting policies and financial disclosures with respect to provisions for decommissioning and restoration are disclosed in Notes 2.17, 3.5, 23, 27, 35 and 37 to the separate financial statements. Carrying amount of decommissioning and restoration provisions as at 31 December 2020: RSD 10,338,464 thousand; New decommissioning provisions and changes in estimates in decommissioning liability amount to RSD 345,084 thousand for the year 2020; Effects of unwinding of discount on decommissioning provision for the year 2020 amount to RSD 88,078 thousand; Income from release of provisions for the year 2020 amount to RSD 695,704 thousand. Key audit matter Our response Decommissioning and restoration provisions In this area, our procedures included, among represent present value of estimated costs of other things, the following: removal of items of property, plant and equipment at the end of their useful life and — Obtaining understanding of the legal restoration of the site (decommission assets). framework relating to the The obligation to remove the assets and to decommissioning and environmental restore the site arises on installation of protection and its effect on the Company’s extraction equipment. Decommission assets present or constructive obligation to are recorded in an amount equal to the decommission assets and to restore the estimated provision and depreciated in site; accordance with the adopted accounting — Evaluating the appropriateness of the policy. All changes in the decommissioning accounting policies used against provision, other than changes resulting from requirements of the relevant reporting the unwinding of the discount, which are framework and industry practice; recorded in profit or loss, are added to or deducted from the cost of the related — Testing the design and implementation of decommission asset in the current period. relevant internal controls over the Once an item of property, plant and identified business process for identifying equipment has been fully depreciated and the obligating events, measurement and asset has a net carrying amount (gross recognition of provision, subsequent ii T R A N S L A T I O N kpmg carrying amount less accumulated changes in recognized provisions and use depreciation) of zero in the balance sheet, of provisions; further changes in any related provision for decommissioning are recognised in profit or — Assessing the Company's discounted loss. cash flow model against the relevant financial reporting standards, market The Company reviews decommissioning and practice and for internal consistency; restoration provisions on an annual basis. This review incorporates the effects of any — Testing on a sample basis the accuracy of changes in local regulations, management's data with respect to the current status and plans with respect to decommissioning and depth of oil wells included in the provision restoration including their expected timing, to the underlying technical cost estimates and discount rate. documentation; Determination of decommissioning and — Evaluating appropriateness of assumed restoration provisions is the complex area timing for dismantling and restoration and requires making a number of activities by reference to documented oil assumptions and judgments, in particular reserves and approved production plans; those relating to estimated costs and timing of decommissioning and restoration activities — Challenging the appropriateness of the as well as discount rate. In addition, there is discount rate by reference to publicly a large number of wells which make the available market data; estimation process time consuming and — Analysing the sensitivity of the Company’s prone to errors. estimate to changes in the discount rate Due to the above, assessment of the and assessing whether its level indicates appropriateness of these provisions required management bias; our increased attention in the course of our Examining whether the Company’s audit.