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Consolidated Financial Statements of Samsung Electronics Co., Ltd

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Consolidated Financial Statements of Samsung Electronics Co., Ltd CONSOLIDATED FINANCIAL STATEMENTS OF SAMSUNG ELECTRONICS CO., LTD. AND ITS SUBSIDIARIES INDEX TO FINANCIAL STATEMENTS Page Independent Auditor’s Report............................................................................................... 1 - 6 Consolidated Financial Statements Consolidated Statements of Financial Position......................................................................... 7 - 9 Consolidated Statements of Profit or Loss................................................................................ 10 Consolidated Statements of Comprehensive Income................................................................ 11 Consolidated Statements of Changes in Equity........................................................................ 12 - 15 Consolidated Statements of Cash Flows................................................................................... 16 - 17 Notes to the Consolidated Financial Statements ….................................................................. 18 - 102 Independent Auditor’s Report (English Translation of a Report Originally Issued in Korean) To the Board of Directors and Shareholders of Samsung Electronics Co., Ltd.. Opinion We have audited the accompanying consolidated financial statements of Samsung Electronics Co., Ltd. and its subsidiaries (collectively referred to as the “Company”), which comprise the consolidated statements of financial position as at December 31, 2018 and 2017, and the consolidated statements of profit or loss, comprehensive income, consolidated statements of changes in equity and consolidated statements of cash flows for the years then ended, and notes to the consolidated financial statements, including a summary of significant accounting policies and other explanatory information. In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Group as at December 31, 2018 and 2017, and its consolidated financial performance and its consolidated cash flows for the years then ended in accordance with International Financial Reporting Standards as adopted by the Republic of Korea (“Korean IFRS”). Basis for Opinion We conducted our audits in accordance with Korean Standards on Auditing. 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 ethical requirements of the Republic of Korea that are relevant to our audit of the consolidated financial statements and we have fulfilled our other ethical responsibilities in accordance with the ethical requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. 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. 1 1. Sales promotion activities related to the sales of products Reasons why the matter was determined to be a key audit matter The CE (Consumer Electronics) and IM (Information technology & Mobile communications) business units perform sales promotion activities relating to customers, including retail and telecommunication companies. These activities include providing price discounts and incentives based on agreements with customers, or at the discretion of the Company. These activities are recognized as deductions from revenue at the expected payment amount (refer to note 2.23 and 3). The revenue deduction amounts are material to the consolidated financial statements, and the accounting involves estimates with respect to the amount and timing of recognition. For these reasons we determined the sales promotion activities related to the sales of products a as key audit matter. How we addressed the Key Audit Matter in our audit procedures Our audit procedures performed on sales promotion activities related to the sales of products are as below. Review appropriateness of accounting policy for Company’s revenue deduction Obtain understanding of, and evaluate, the Company’s internal controls relating to the approval of sales promotion activities (terms and amount), and the calculation of revenue deduction amounts Compare prior period estimation of revenue deduction and current year payments and determine whether estimation method is reasonable on a sample basis Review whether sales promotion activities are approved appropriately, and the estimates for revenue deduction are reasonable, by inspect supporting documents on a sample basis Compare actual post year-end payments related to sales promotions with the year-end balance recorded for revenue deductions. Test that revenue deductions are recognized completely and accurately, on a sample basis 2. Valuation of goodwill and intangible assets with indefinite useful lives Reasons why the matter was determined to be a key audit matter As of December 31, 2018, the Company has goodwill and intangible assets with indefinite useful lives of KRW 8,734,348 million (refer to note 14). The Company performs impairment testing for the balance by comparing book values with values in use which are calculated based on the discounted cash flow method (refer to note 2.12 and 3). As material estimation is involved in determining the value in use of each item, we determined the impairment review of goodwill and intangible assets with indefinite useful lives as a key audit matter. How we addressed the Key Audit Matter in our audit procedures Our audit procedures performed on goodwill and intangible assets with indefinite useful lives are as below. Consider business trends related to each item and whether there are observable indications of impairment Review of the independence and eligibility of the Company‘s experts Review of cash generating unit determination and allocated net assets for each item 2 Review of factors used for calculation of value in use, including expected sales amount and growth rate by comparing with market information Review calculation of value in use and sensitivity analysis 3. Depreciation expense cut off on property, plant and equipment Reasons why the matter was determined to be a key audit matter As at December 31, 2018, the Company has recorded KRW 115,416,724 million of property, plant and equipment. KRW 29,398,563 million was recorded as additions to property, plant and equipment in 2018 (refer to note 13). The Company commences recognition of depreciation expense when the property, plant and equipment is available for use (refer to note 2.9) We determined depreciation expense cut-off to be a key audit matter given the material nature of the Company’s property, plant and equipment balance, and related depreciation expense recorded, and considering the judgement needed to determine the condition of available for use is met. How we addressed the Key Audit Matter in our audit procedures Our audit procedures performed on depreciation expense cut off on property, plant and equipment are as below. Obtain understanding of, and evaluate, the Company’s internal controls related to determination of the timing for when property, plant and equipment becomes available for use Observation and inquiry to determine the appropriateness of the Company’s application of the available for use criteria. Inspection of documents which support the timing that available for use criteria were met, on a sample basis 4. Valuation of investments in associates and joint ventures Reasons why the matter was determined to be a key audit matter The Company applies the equity method for accounting for investments in associates and joint ventures. As of December 31, 2018 the Company has KRW 7,313,206 million of investments in associates and joint ventures. KRW 6,557,410 million of investments in associates and joint ventures have quoted market prices in an active market (refer to note 12). Investments in associates and joint ventures are initially recognized at acquisition cost and subsequently accounted for considering changes to the net asset balance of the investees. If there is any objective evidence that the investment in the associate or joint venture is impaired, the Company recognizes the difference between the recoverable amount and the book value as an impairment loss (refer to note 2.3). The Company reviews whether there are indications of impairment in investments in associates and joint ventures. For publicly traded investments, the Company compares book value of each investment with market price and determines whether the investments are impaired. Investments in associates and joint ventures was determined to be a key audit matter given the material nature of the investments and the estimation and judgement involved in the accounting for the investments. 3 How we addressed the Key Audit Matter in our audit procedures Our audit procedures performed on valuation of investments in associates and joint ventures are as below. Consider business trends related to each investment and whether there are any observable indications of impairment Compare market prices with book value of investments on a sample basis Review the Company’s disclosure of market value and book value
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