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Public Disclosure Authorized HRVATSKE CESTE d.o.o. Vončinina 3, Zagreb The Annual Financial Statements and Independent Auditor's Report for the year ended 31 December 2018 Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Content Page Responsibility for the Annual Financial Statements 1 Independent Auditor's Report 2 – 7 Income statement 8 Statement of financial position / Balance sheet 9 – 10 Statement of Changes in Equity 11 Statement of Cash Flows 12 Notes to the Financial Statements 13 – 56 Financial Statements of Public Good 57 - 59 Tel: +385 1 2395 741 BDO Croatia d.o.o. Fax: +385 1 2303 691 10000 Zagreb E-mail: bdo-croatia.hr Trg J. F. Kennedy 6b INDEPENDENT AUDITOR'S REPORT To the Owner of the company Hrvatske ceste d.o.o., Zagreb Report on the audit of the annual financial statements Opinion We have audited the annual financial statements of the company Hrvatske ceste d.o.o., Zagreb, Vončinina 3 (the “Company") for the year ended 31 December 2018, which comprise the Statement of financial position (Balance Sheet) as at 31 December 2018, Income Statement, Statement of other comprehensive income, Statement of changes in equity and Statement of cash flows for the year then ended, and Notes to the financial statements, including a summary of significant accounting policies and other explanations. In our opinion, the accompanying annual financial statements, give a true and fair view of the financial position of the Company as at 31 December 2018, and of its financial performance and cash flows of the Company for the year that ended in accordance with the Accounting Act, the International Financial Reporting Standards (the “IFRS") as adopted by European Committee and published in Official Journal of the European Union and by the Roads Act Basis for Opinion We conducted our audit in accordance with Accounting Act, Audit Act and International Auditing Standards (ISAs). Our responsibilities under those standards are further described in our Independent Auditor’s report under section Auditor’s responsibilities for the audit of the annual financial statements. We are independent of the Company in accordance with the International Ethics Standards Board of Accountants (IESBA Code), and we have fulfilled our other ethical responsibilities in accordance with the IESBA Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Emphasis of matter /i/ We draw attention to Notes 2.9.b) and c) and 14 to the financial statements which explain that financial statements are prepared in accordance with the International Financial Reporting Standards with some exceptions determined by the Roads Act. Our opinion has not been modified in this respect. /ii/ We draw attention to Note 16 to the financial statements which explains that the Company has not completely regulated proprietary-legal relations, i.e. ownership over real estate. Procedures of clearing up and recording of ownership over the real estate are in progress. Our opinion has not been modified in this respect. /iii/ We draw attention to Note 40 to the financial statements where it is determined that a significant number of court disputes are initiated against the Company. Our opinion has not been modified in this respect. 2 Registrirano kod Trgovačkog suda u Zagrebu pod brojem 080044149 OIB 76394522236 BDO Croatia d.o.o. Key Audit Matters Key audit matters are those issues that were, by our professional judgment, of the most importance in our audit of the annual financial statements of the current period and include the recognized most significant risks of significant misstatement due to error or fraud with the greatest impact on our audit strategy, the disposition of our available resources and the time spent by the engaging audit team. We have dealt with these issues in the context of our audit of the annual financial statements as a whole and in forming our opinion about them, and we do not give a separate opinion on these issues. We have identified that the issues listed below are the key audit matters to be disclosed in our Independent Auditor's Report. Key Audit Issues How We Addressed Key Audit Issues Investment maintenance and reconstruction In the audit, we focused on: of real estate, plants and equipment • verifying whether the transactions were recorded in 2018 in accordance with the In the 2018 annual financial statements, the accounting policies of the Company, i Company realized real estate, plant and • check whether for all road reconstructions equipment enhancements and decreases in an estimate of the share of reconstruction in 2018 as set out in Note 16. the investment project has been made and Investment maintenance and reconstruction of whether this estimate is reasonable, real estate, plant and equipment is defined as a key audit matter because it involves Additionally, we have considered whether the significant estimates. accounting policies are in accordance with International Financial Reporting Standards and whether changes in accounting policies Related Disclosures in Related Annual are disclosed in the notes to the financial Financial Statements statements. Please see Notes 2.7 (c) (Accounting Policies) and Note 16. The risk of non-fulfillment of the contractual During our audit, we reviewed the loan provisions of the contract with the lender agreement and the contracted business related to the business indicators indicators. Then we checked the calculation of business Contracts with the lenders include contractual indicators that were defined by contract with provisions based on the business indicators. In the lender and concluded that the Company case of non-fulfillment of these contractual did not meet the contracted business provisions by the Company, the loan obligation indicators. becomes due. However, in February 2019, the Company Related Disclosures in Related Annual received a written statement from the lender Financial Statements that it will not use the right of early payment Please see note 28. of loans irrespective of unfulfilled contractual provisions. Statement was obtained in February 2019, so after December 31, 2018, the loan agreement which was obtained from the EBRD on December 31, 2018, was classified as a short term loan. 3 BDO Croatia d.o.o. Other Information in the Annual Report The Management Board is responsible for other information. Other information includes information included in the Annual report, but do not include the annual financial statements and our Independent auditor's report on them. Our opinion on the annual financial statements does not include other information, except to the extent explicitly stated in the part of our Independent auditor's report, entitled Report on compliance with other legal or regulatory requirements, and we do not express any form of assurance conclusion thereon. In connection with our audit of the annual financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the annual 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. In this sense, except as stated in the Section Emphasis of matters, we do not have anything to report. Responsibilities of the Management Board and Those Charged with Governance for the annual financial statements The Management Board is responsible for the preparation of annual financial statements that give a true and fair view in accordance with IFRS, and for such internal control as the Management Board determines is necessary to enable the preparation of annual financial statements that are free from material misstatement, whether due to fraud or error. In preparing the annual financial statements, the Management Board is responsible for assessing the Company'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 Management Board either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so. Those charged with governance are responsible for overseeing the Company’s financial reporting process. Auditor’s Responsibilities for the audit of the annual financial statements Our objectives are to obtain reasonable assurance about whether the annual financial statements as a whole are free from material misstatement, whether due to fraud or error and to issue an auditor’s 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 ISAs 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 annual financial statements. 4 BDO Croatia d.o.o. Auditor's Responsibilities for the audit of the annual financial statements (continued) As part of an audit in accordance with ISAs, we exercise professional judgment and maintain professional skepticism throughout the audit. We also: Identify and assess the risks of material misstatement of the annual 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 Company’s internal control.