To the Annual General Meeting of Teollisuuden Voima Oyj
In our opinion
· the consolidated financial statements give a true and fair view of the group’s financial position and financial performance and cash flows in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU
· the financial statements give a true and fair view of the parent company’s financial performance and financial position in accordance with the laws and regulations governing the preparation of the financial statements in Finland and comply with statutory requirements.
Our opinion is consistent with the additional report to the Audit Committee.
We have audited the financial statements of Teollisuuden Voima Oyj (business identity code 0196656-0) for the year ended 31 December 2018. The financial statements comprise:
· the consolidated balance sheet, income statement, statement of comprehensive income, statement of changes in equity, statement of cash flows and notes, including a summary of significant accounting policies
· the parent company’s balance sheet, income statement, statement of cash flows and notes.
We conducted our audit in accordance with good auditing practice in Finland. Our responsibilities under good auditing practice are further described in the Auditor’s Responsibilities for the Audit of the 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.
We are independent of the parent company and of the group companies in accordance with the ethical requirements that are applicable in Finland and are relevant to our audit, and we have fulfilled our other ethical responsibilities in accordance with these requirements.
To the best of our knowledge and belief, the non-audit services that we have provided to the parent company and to the group companies are in accordance with the applicable law and regulations in Finland and we have not provided non-audit services that are prohibited under Article 5(1) of Regulation (EU) No 537/2014. The non-audit services that we have provided are disclosed in note 9 to the Financial Statements.
· Overall group materiality: € 25 million, which represents approximately 0,3 % of balance sheet total
· Group audit scope: We audited the consolidated financial statements and the financial statements of the parent company Teollisuuden Voima Oyj.
· Olkiluoto 3 power plant construction in progress
· Assets and provisions related to the nuclear waste management obligation
As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the 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.
The scope of our audit was influenced by our application of materiality. An audit is designed to obtain reasonable assurance whether the 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 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 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 on the financial statements as a whole.
Overall group materiality
€ 25 million
How we determined it
0,3% of balance sheet total
Rationale for the materiality benchmark applied
We chose balance sheet total as the benchmark because the company’s operations are very capital intensive and because, in our view, this is the benchmark against which the performance of the Group is commonly measured by users.
We tailored the scope of our audit, taking into account the structure of the group, the accounting processes and controls, and the industry in which the group operates.
Group audit scope: We audited the consolidated
financial statements and the financial statements of the parent company
Teollisuuden Voima Oyj.
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current period. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
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.
Key audit matter in the audit of the group
How our audit addressed the key audit matter
Olkiluoto 3 power plant construction in progress
Refer to note 12 Property, plant and equipment, Construction in progress and advance payments and 13 Capitalized borrowing costs included in property, plant and equipment, and intangible assets as well as accounting principles: TVO’s cost-price principle and Power plant construction in progress - OL3 EPR
OL3 is a power plant in construction, which has been ordered under a turnkey principle. Delivery of the plant has been significantly delayed from the original schedule.
During the OL3 project € 4.8 billion have been capitalized in balance sheet item Property, plant and equipment, Construction in progress and advance payments.
Under the Articles of Association, each of the shareholders of each series bears their share of the variable and fixed annual costs as specified in detail in the Articles of Association.
Our audit focused especially on this item because of the significant monetary amount capitalized in the balance sheet and because completion of the project has been delayed from the original schedule. In addition, a significant amount of financing expenses have been capitalised on this item.
We audited the internal controls of the company relating to approval of expenses capitalized on the OL3 project. In addition, we reviewed company management measures, records and other documentation regarding monitoring of progress of the project.
We tested, on a sample basis, purchase invoices and company’s own expenses relating to the project to ascertain the costs capitalised against the power plant construction in progress meet the recognition criteria.
During our audit we reviewed whether the borrowing costs were capitalised in accordance with the accounting principles applied, and whether recognition to the project was performed consistently under the same principles as in previous financial statements.
In our audit of the amount capitalised in the balance sheet we considered the provisions regarding shareholder responsibilities incorporated in the Articles of Association.
Assets and provisions related to the nuclear waste management obligation
Refer accounting principle “Assets and provisions related to the nuclear waste management obligation” and “Critical accounting estimates and judgements’, “The provision for future obligations for the decommissioning of the nuclear power plant and for the disposal of spent fuel”. Note 12 Property, plant and equipment, Decommissioning and note 24 Assets and provisions related to the nuclear waste management obligation.
The nuclear waste management obligation totalling € 952 million is shown as a provision under non-current liabilities. The fair value of the nuclear waste management provision has been determined by discounting the future cash flows, which are based on plans about future activity and the estimated expenditure relating to it, taking into account actions already taken.
The present initial value of the provision for the decommissioning of a nuclear power plant (at the time of commissioning the nuclear power plant) has been capitalised as property, plant and equipment and will be adjusted later for possible changes in the plan. The amount recognised relating to decommissioning will be depreciated over the estimated operating time of the nuclear power plant.
The provision for spent fuel covers the future disposal costs of fuel used by the end of each accounting period. The costs for the disposal are expensed during the operating time of the plant, based on fuel usage. The impact of any changes to the plan will be recognised immediately in the income statement based on fuel used by the end of each accounting period.
The assets and provisions related to the nuclear waste management obligation involve inherent judgement, since the estimates made extend far into the future, and subsequently these items on the income statement and balance sheet were subject to special scrutiny.
We reviewed long-term cash flow forecasts and related documentation and interviewed preparers of these calculations to assess foundations of the estimates and assumptions used, and whether the cash flow forecasts are prepared consistently based on the best knowledge available at the time. The most significant estimates relate to the amount and time of realization of the future costs.
We also examined whether changes to the estimates are appropriately documented and approved by the management.
We tested whether the calculations are technically prepared under the same principles from one accounting period to another.
We assessed whether the discount rate and inflation ratio used in the calculation are appropriately determined, and whether the criteria for the used interest rate and inflation ratio are appropriately documented and approved.
Division of cash flows into costs related to decommissioning of a nuclear power plant and those related to disposal of spent fuel affects the outcome of the calculation. We tested whether the division described above is made according to the documented fundamentals and whether the division as a rule remains the same from one accounting period to another.
We have no key audit matters to report with respect to our audit of the parent company financial statements.
There are no significant risks of material misstatement referred to in Article 10(2c) of Regulation (EU) No 537/2014 with respect to the consolidated financial statements or the parent company financial statements.
The Board of Directors and the Managing Director are responsible for the preparation of consolidated financial statements that give a true and fair view in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU, and of financial statements that give a true and fair view in accordance with the laws and regulations governing the preparation of financial statements in Finland and comply with statutory requirements. The Board of Directors and the Managing Director are also responsible for such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the Board of Directors and the Managing Director are responsible for assessing the parent company’s and the group’s ability to continue as a going concern, disclosing, as applicable, matters relating to going concern and using the going concern basis of accounting. The financial statements are prepared using the going concern basis of accounting unless there is an intention to liquidate the parent company or the group or to cease operations, or there is no realistic alternative but to do so.
Our objectives are to obtain reasonable assurance about whether the 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 good auditing practice 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 financial statements.
As part of an audit in accordance with good auditing practice, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:
· Identify and assess the risks of material misstatement of the 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 parent company’s or the group’s internal control.
· Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.
· Conclude on the appropriateness of the Board of Directors’ and the Managing Director’s use of the going concern basis of accounting and based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the parent company’s or the group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the parent company or the group to cease to continue as a going concern.
· Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events so that the financial statements give a true and fair view.
· Obtain sufficient appropriate audit
evidence regarding the financial information of the entities or business
activities within the group to express an opinion on the consolidated financial
statements. We are responsible for the direction, supervision and performance
of the group audit. We remain solely responsible for our audit opinion.
We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.
We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.
From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.
Teollisuuden Voima Oyj became a public interest entity in June 2009. We have been the auditors of Teollisuuden Voima Oyj all that time it has been a public interest entity.
The Board of Directors and the Managing Director are responsible for the other information. The other information comprises the report of the Board of Directors and the information included in the Annual Report, but does not include the financial statements and our auditor’s report thereon. We have obtained the report of the Board of Directors and Annual Report prior to the date of this auditor’s report.
Our opinion on the financial statements does not cover the other information.
In connection with our audit of the financial statements, our responsibility is to read the other information identified above and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. With respect to the report of the Board of Directors, our responsibility also includes considering whether the report of the Board of Directors has been prepared in accordance with the applicable laws and regulations.
In our opinion
· the information in the report of the Board of Directors is consistent with the information in the financial statements
· the report of the Board of Directors has been prepared in accordance with the applicable laws and regulations.
If, based on the work we have performed on the other information that we obtained prior to the date of this auditor’s report, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.
We support that the financial statements of the parent company and the consolidated financial statements should be adopted. The proposal by the Board of Directors regarding the result of the accounting period is in compliance with the Companies Act. We support that the members of the Board of Directors and the Managing Director of the parent company should be discharged from liability for the period audited by us.
Helsinki 27 February 2019
Authorised Public Accountants
Authorised Public Accountant (KHT)