To the Board of Directors and Shareholders PJSC MegaFon
We have audited the consolidated financial statements of PJSC MegaFon (the “Company”) and its subsidiaries (the “Group”), which comprise the consolidated statement of financial position as at 31 December 2016, the consolidated statements of income and other comprehensive income, changes in equity and cash flows for the year then ended, and notes, comprising 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 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 (IFRS).
We conducted our audit in accordance with International Standards on Auditing (ISAs). Our responsibilities under those standards are further described in the Auditors’ Responsibilities for the Audit of the Consolidated Financial Statements section of our report. We are independent of the Group in accordance with the independence requirements that are relevant to our audit of the consolidated financial statements in the Russian Federation and with the International Ethics Standards Board for Accountants’ Code of Ethics for Professional Accountants (IESBA Code), and we have fulfilled our other ethical responsibilities in accordance with the requirements in the Russian Federation and the IESBA Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
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.
|REVENUE RECOGNITION - TECHNICAL COMPLEXITY|
|Please refer to the Note 2.1 in the consolidated financial statements.|
|The key audit matter||How the matter was addressed in our audit|
|Revenue is a material amount consisting of a high volume of
individually low value transactions. There are a number of
complex IT systems used to process revenue-related data and
the Group relies on the output of these IT systems.
The major risks of distortion of revenue arise from:
||Our audit procedures included an assessment of the Group’s policies
and controls in place over the IT system environment to determine their
effectiveness in preventing and/or detecting revenue-related data distortion
We tested the following key controls over the revenue-related systems:
|GOODWILL IMPAIRMENT TESTING - CASH GENERATING UNIT “BROADBAND INTERNET”|
|The key audit matter||How the matter was addressed in our audit|
|Please refer to the Note 3.2.2 in the consolidated financial statements.|
|Part of the Group’s goodwill is allocated to the “Broadband
internet” cash generating unit (CGU).
In addition to an annual goodwill impairment test required by International Financial Reporting Standards, the Group identified impairment indications in respect of the “Broadband internet” CGU at 31 December 2016.
Impairment testing is complex and based on highly judgmental assumptions.
|We involved KPMG valuation specialists to assist us in testing the
appropriateness of the Group’s methodology and key assumptions applied
to determine the recoverable amount of the “Broadband internet” CGU.
We checked the key assumptions used by the Group in its discounted cash
flow model as follows
Management is responsible for the other information. The other information comprises the information included in the Annual Report other than the consolidated financial statements and our auditors’ report thereon. The Annual Report is expected to be made available to us after the date of this auditors’ report.
Our opinion on the consolidated financial statements does not cover the other information and we will 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 identified above when it becomes available 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.
Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with IFRS, 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.
Those charged with governance are responsible for overseeing the Group’s financial reporting process.
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 auditors’ 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 judgment and maintain professional skepticism throughout the audit. We also:
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 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 consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditors’ 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.
The engagement partner on the audit resulting in this independent auditors’ report is:
15 March 2017