Independent auditor’s report on the consolidated financial statements of Public Joint-Stock Company AVTOVAZ and its subsidiaries for 2018 April 2019 Independent auditor’s report on the consolidated financial statements of Public Joint-Stock Company AVTOVAZ and its subsidiaries Contents Page Independent auditor’s report 3 Appendices Consolidated statement of financial position 9 Consolidated statement of comprehensive income 10 Consolidated statement of cash flows 11 Consolidated statement of changes in equity 12 Notes to the consolidated financial statements 13 2 Ernst & Young LLC ООО «Эрнст энд Янг» Sadovnicheskaya Nab., 77, bld. 1 Россия, 115035, Москва Moscow, 115035, Russia Садовническая наб., 77, стр. 1 Tel: +7 (495) 705 9700 Тел.: +7 (495) 705 9700 +7 (495) 755 9700 +7 (495) 755 9700 Fax: +7 (495) 755 9701 Факс: +7 (495) 755 9701 www.ey.com/ru ОКПО: 59002827 Independent auditor’s report To the Shareholder and Board of Directors of Public Joint-Stock Company AVTOVAZ Opinion We have audited the consolidated financial statements of Public Joint-Stock Company AVTOVAZ (PJSC AVTOVAZ) and its subsidiaries (the Group), which comprise the consolidated statement of financial position as at 31 December 2018, and the consolidated statement of comprehensive income, consolidated statement of cash flows and consolidated statement of changes in equity for 2018, and notes to the consolidated financial statements, including a summary of significant accounting policies. In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Group as at 31 December 2018 and its consolidated financial performance and its consolidated cash flows for 2018 in accordance with International Financial Reporting Standards (IFRSs). Basis for opinion We conducted our audit in accordance with International Standards on Auditing (ISAs). Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the consolidated financial statements section of our report. We are independent of the Group in accordance with the International Ethics Standards Board for Accountants’ Code of Ethics for Professional Accountants (IESBA Code) together with the ethical requirements that are relevant to our audit of the consolidated financial statements in the Russian Federation, and we have fulfilled our other ethical responsibilities in accordance with these requirements and the IESBA Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. 3 A member firm of Ernst & Young Global Limited Material uncertainty related to going concern We draw attention to Note 2 to the consolidated financial statements, which indicates that, as of 31 December 2018, the Group’s current liabilities exceeded its current assets by 9,177 million rubles, and net assets of the Group were negative. As stated in Note 2, these events or conditions, along with other matters as set forth in Note 2, indicate that a material uncertainty exists that may cast significant doubt on the Group’s ability to continue as a going concern. Our opinion is not modified in respect of this matter. 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. In addition to the matter described in the Material uncertainty related to going concern section, we have determined the matters described below to be the key audit matters to be communicated in our report. 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. For each matter below, our description of how our audit addressed the matter is provided in that context. We have fulfilled the responsibilities described in the Auditor’s responsibilities for the audit of the consolidated financial statements section of our report, including in relation to these matters. Accordingly, our audit included the performance of procedures designed to respond to our assessment of the risks of material misstatement of the consolidated financial statements. The results of our audit procedures, including the procedures performed to address the matters below, provide the basis for our audit opinion on the accompanying consolidated financial statements. Key audit matter y audit matter How the matter was addressed in the audit Revenue recognition Revenue is the Group’s key performance We analysed the Group’s accounting policies for measure, which gives rise to a risk that revenue revenue recognition, including the criteria for may be misstated in order to achieve revenue recognition and sales incentives performance targets. In this regard, revenue classification. recognition was one of the key audit matters. We analysed indicators of control transfer to Information regarding revenue is disclosed in customers. On a sample basis, we compared the date Note 22 to the consolidated financial statements. of control transfer with the date of revenue recognition. We performed analytical procedures in respect of revenue that included, among others, the analysis of monthly or quarterly sales to detect unusual fluctuations (by type of goods and services, by geographical areas) and reconciliation with comparative information for prior periods and the anticipated results of the Group. We analysed the terms of dealer agreements covering rewards related to sales incentives. 4 A member firm of Ernst & Young Global Limited Key audit matter y audit matter How the matter was addressed in the audit Impairment of non-financial assets At the end of each reporting period management We analysed management’s assessment of whether should assess whether there is any indication that there was any indication of potential impairment, as non-financial assets may be impaired or that an well as indication that an impairment loss recognized impairment loss recognized in previous periods in previous periods no longer existed or had may no longer exist or may have decreased. decreased: among other things, we compared actual As management’s assessment of any indication of results for 2018, market share and car sales volumes potential impairment of non-financial assets is to the projected data used in the impairment testing largely subjective and due to significance of non- in the previous periods. financial assets to the consolidated financial statements, this assessment was one of the key audit matters. Information regarding indication of impairment of non-financial assets is disclosed in Note 5 to the consolidated financial statements. Other information included in the 2018 Annual Report of PJSC AVTOVAZ Other information consists of the information included in in the 2018 Annual Report of PJSC AVTOVAZ, other than the consolidated financial statements and our auditor’s report thereon. Management is responsible for the other information. The 2018 Annual Report of PJSC AVTOVAZ is expected to be made available to us after the date of this auditor’s report. 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 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. 5 A member firm of Ernst & Young Global Limited Responsibilities of management and the Audit Committee of the Board of Directors for the consolidated financial statements Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with IFRSs, and for such internal control as management 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, management 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 management either intends to liquidate the Group or to cease operations, or has no realistic alternative but to do so. The Audit Committee of the Board of Directors is responsible for overseeing the Group’s consolidated financial reporting process. Auditor’s responsibilities for the audit of the consolidated financial statements Our objectives 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 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 consolidated financial statements. As part of an audit in accordance with ISAs, we exercise professional