Naftna Industrija Srbije A.D
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Naftna industrija Srbije A.D. Consolidated Financial Statements and Independent Auditor’s Report 31 December 2016 This version of the financial statements is a translation from the original, which was prepared in 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 CONSOLIDATED FINANCIAL STATEMENTS Consolidated Statement of Financial Position 1 Consolidated Statement of Profit and Loss and Other Comprehensive Income 2 Consolidated Statement of Changes in Shareholders’ Equity 3 Consolidated Statement of Cash Flows 4 Notes to the Consolidated Financial Statements 1. Generalinformation 5 2. Summary of Significant Accounting Policies 5 3 Critical Accounting Estimates, Assumptions and Judgments 15 4. Application of New IFRS 18 5. New Accounting Standards 19 6. Financial Risk Management 20 7. Segment Information 24 8. Cash and Cash Equivalents 27 9. Trade and Other Receivables 28 10. Inventories 29 11. Other Current Assets 30 12. Property, Plant and Equipment 31 13. Investment Property 33 14. Goodwill and Other Intangible Assets 35 15. Investments in Joint Venture 36 16. Trade and Other Non-Current Receivables 37 17. Deferred Income Tax 37 18. Other Non-current Assets 38 19. Short-term Debt and Current Portion of Long-term Debt 38 20. Trade and Other Payables 39 21. Other Current Liabilities 39 22. Other Taxes Payable 39 23. Long-term Debt 39 24. Provisions for Liabilities and Charges 41 25. Share Capital 43 26. Purchases of Oil, Gas and Petroleum Products 43 27. Production and Manufacturing Expenses 43 28. Selling, General and Administrative Expenses 43 29. Taxes Other than Income Tax 44 30. Employee Costs 44 31. Other Expenses, net 44 32. Net Foreign Exchange Loss 44 33. Finance Income 44 34. Finance Expenses 45 35. IncomeTaxes 45 36. Operating Leases 46 37. Commitments and Contingent Liabilities 46 38. Group Entities 47 39. Related Party Transactions 48 Contact information 51 Independent auditor’s report To the Board of Directors of Naftna Industrija Srbije a.d., Novi Sad Our opinion In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of Naftna Industrija Srbije a.d., Novi Sad (the “Company”) and its subsidiaries (together “the Group”) as at 31 December 2016, and its consolidated financial performance and its consolidated cash flows for the year then ended in accordance with International Financial Reporting Standards. What we have audited The Group consolidated financial statements comprise: the consolidated statement of financial position as at 31 December 2016; the consolidated statement of profit and loss and other comprehensive income for the year then ended; the consolidated statement of changes in shareholders’ equity for the year then ended; the consolidated statement of cash flows for the year then ended; and the notes to the consolidated financial statements, which include a summary of significant accounting policies. 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 believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Independence We are independent of the Group in accordance with the International Ethics Standards Board for Accountants’ Code of Ethics for Professional Accountants (IESBA Code) and the ethical requirements of the Law on Auditing that are relevant to our audit of the consolidated financial statements in the Republic of Serbia. We have fulfilled our other ethical responsibilities in accordance with these requirements and the IESBA Code. PricewaterhouseCoopers d.o.o., Omladinskih brigada 88a, 11070 Belgrade, Republic of Serbia T: +381 11 3302 100, F:+381 11 3302 101, www.pwc.rs This version of our report/ the accompanying documents is a translation from the original, which was prepared in Serbian. 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 language version of our report takes precedence over this translation. Our audit approach Overview We set the overall group materiality at 1,698,000 thousand Serbian dinars (hereafter “RSD”), which represents 5% of five years average profit before tax. We conducted audit work at 9 reporting units in 4 countries. The group engagement team was auditing Serbian subsidiaries, while PwC network firms in Bulgaria, Romania and Bosnia and Herzegovina audited NIS foreign subsidiaries in respective countries. Our audit scope addressed 98%of the Group’s revenues and 100% of the Group’s absolute value of underlying profit before tax. Recoverability of carrying amount of property, plant and equipment Estimation of decommissioning and environmental protection provisions We designed our audit by determining materiality and assessing the risks of material misstatement in the consolidated financial statements. In particular, we considered where management made subjective judgements; for example, in respect of significant accounting estimates that involved making assumptions and considering future events that are inherently uncertain. As in all of our audits, we also addressed the risk of management override of internal controls, including among other matters consideration of whether there was evidence of bias that represented a risk of material misstatement due to fraud. Materiality The scope of our audit was influenced by our application of materiality. An audit is designed to obtain reasonable assurance whether the consolidated financial statements are free from material misstatement. Misstatements may arise due to fraud or error. They are considered material if individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the consolidated financial statements. Based on our professional judgement, we determined certain quantitative thresholds for materiality, including the overall group materiality for the consolidated financial statements as a whole as set out in the table below. These, together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our audit procedures and to evaluate the effect of misstatements, if any, both individually and in aggregate on the consolidated financial statements as a whole. Overall group materiality RSD 1,698,000 thousand How we determined it 5% of five-year average profit before taxation Rationale for the materiality Given that current year profit before taxation has been materially benchmark applied impacted by volatility of the market price of crude oil, we determined that our materiality should be based on five-year average profit before taxation, which is more representative of sustained business performance. We have chosen 5% which is consistent with quantitative materiality thresholds used for profit-oriented companies in this sector. We agreed with the Audit Committee that we would report to them misstatements identified during our audit above RSD 85,000 thousand as well as misstatements below that amount that, in our view, warranted reporting for qualitative reasons. ii This version of our report/ the accompanying documents is a translation from the original, which was prepared in Serbian. 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 language version of our report takes precedence over this translation. 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. 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. Key audit matter How our audit addressed the Key audit matter Recoverability of carrying amount of property, plant and equipment Impact of recent crude oil volatility is disclosed in We first assessed management’s macroeconomic the Note 3.8 to the consolidated financial assumptions, which include both short-term and long- statements. During 2016, the spot price of Brent term views on commodity prices, inflation rates and crude oil has remained low compared to 2015, discount rates. The price assumptions underlying averaging 41 United States dollars for the barrel management’s asset recoverability models represent a (2015: $55/b) (Hereafter referred to as “USD”). critical judgement in the process. We compared the short-term price assumptions used by management to The recoverability of the carrying amount of the market forward curves. property, plant and equipment, which amounts to RSD 253,760,267 thousand, is dependent upon the We also compared the short and long-term assumptions, future cash flows of the business. Bearing in mind mainly weighted average