Auditors’ Report

To the annual meeting of the shareholders of Telia Company AB (publ)

Corporate identity number 556103-4249

 

Report on the annual accounts and consolidated accounts

Opinions

We have audited the annual accounts and consolidated accounts of Telia Company AB (publ) for the financial year 2016-01-01 - 2016-12-31 except for the corporate governance statement on pages 51-70. The annual accounts and consolidated accounts of the company are included on pages 22-50, 100-205 and 214 in this document.

In our opinion, the annual accounts have been prepared in accordance with the Annual Accounts Act and present fairly, in all material respects, the financial position of the parent company as of 31 December 2016 and its financial performance and cash flow for the year then ended in accordance with the Annual Accounts Act. The consolidated accounts have been prepared in accordance with the Annual Accounts Act and present fairly, in all material respects, the financial position of the group as of 31 December 2016 and their financial performance and cash flow for the year then ended in accordance with International Financial Reporting Standards (IFRS), as adopted by the EU, and the Annual Accounts Act. Our opinions do not cover the corporate governance statement on pages 51-70. The statutory administration report is consistent with the other parts of the annual accounts and consolidated accounts.

We therefore recommend that the general meeting of shareholders adopts the income statement and balance sheet for the parent company and the group.

Basis for opinions

We conducted our audit in accordance with International Standards on Auditing (ISA) and generally accepted auditing standards in Sweden. Our responsibilities under those standards are further described in the Auditor’s Responsibilities section. We are independent of the parent company and the group in accordance with professional ethics for accountants in Sweden and have otherwise fulfilled our ethical responsibilities in accordance with these requirements.  

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinions.

Key audit matters

Key audit matters of the audit are those matters that, in our professional judgment, were of most significance in our audit of the annual accounts and consolidated accounts of the current period. These matters were addressed in the context of our audit of, and in forming our opinion thereon, the annual accounts and consolidated accounts as a whole, but we do not provide a separate opinion on these matters.

Revenue recognition

Risk description

In Telia Company, net sales amount to SEK 97.8 billion including discontinued operations and comprise of several different revenue streams such as traffic charges including interconnect and roaming, subscription fees, installation fees, services and equipment sales. Telia Company may bundle services and products into one customer offering. Offerings may involve the delivery or performance of multiple products, services, or rights to use assets (multiple deliverables). 

We focused on this area since there are a number of risks mainly relating to the interpretation and application of accounting principles which include management estimates as to when the revenue should be recognized, and as well the completeness and valuation of revenue which mainly derives from the use of complex billing systems and data applications. In these systems and applications a vast amount of data are generated when customers use Telia Company’s services and networks.

Audit procedures

Our audit procedures included, but were not limited to:

  • evaluating the design and testing operational effectiveness of key internal controls, including relevant IT systems, used for billing and monitoring of revenue recognition;
  • review of billing and revenue recognition policies with respect to significant new services, products and tariff plans during the year to determine appropriate revenue recognition;
  • analytical and detailed audit procedures for a selection of recognized revenue and
  • evaluating the adequacy of disclosures related to the various revenue streams.

For further information, please refer to the Group’s accounting principles in note C3 on page 111-120, the key management judgements made in note C2 on pages 107-108 and the disclosures for Net Sales in note C6 on page 124 and information of Net Sales in discontinued operations in note C34 on page 174.

Carrying value of assets

Risk description

Telia Company’s recorded values of intangible and other non-current tangible assets amount to SEK 129.1 billion excluding assets-held-for-sale and represent a significant part of Telia Company’s total assets. Telia Company is required to test such assets for impairment annually or whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. A number of significant assumptions and estimates are involved when testing assets for impairment, among other determine fair value less costs of disposal, identification of cash generating units, estimation of expected future discounted cash flows and determine the weighted average cost of capital (”WACC”). The process for preparing impairment test also includes relevant management and board approvals of business plans and valuations.

We focused on the impairment test of intangible and other non-current tangible assets as the carrying value of such assets is material and the tests are sensitive to changes in assumptions.

Audit procedures

Together with our valuation specialists our audit procedures included, but were not limited to:

  • gained an understanding of managements process for identifying indicators of impairment;
  • evaluating the assumptions and methodologies used by management when testing assets for impairment including sensitivity analyses;
  • evaluating the adequacy of disclosures related to those assumptions to which the outcome of the impairment test is most sensitive.

For further information, please refer to the Group’s accounting principles in note C3 on pages 111-121, the key management judgements made for valuation in note C2 on page 108-109 and the information on intangible and non-current intangible assets in note C12 and C13 on pages 132-136.

Divestments in Eurasia

Risk description

Telia Company announced in September 2015 their intention to divest their operations and assets in Eurasia. The operations to be divested are classified as held for sale and discontinued operations as of 31 December, 2016. According to IFRS 5, non-current assets and disposal groups should be classified as held-for-sale if their carrying value will be recovered principally through a sales transaction rather than through continuing use. One of the conditions that must be satisfied for classification as held-for-sale is that the sale is highly probable within one year. In addition, assets held for sale should be measured at the lower of carrying value and estimated fair value less costs to sell. For operations already fully divested the capital gain or loss calculations can be complex and also include significant management judgements relating to for example provisions for indemnities. 

Since the operations are in countries with complex regulatory environment, compliance with local and international legislations as well as internal policies needs to be adhered to by the Board of directors and management.

We focused on this area since the amounts are significant and valuations and the accounting are complex and based on judgements and estimates. In addition the divestment requires a thorough governance structure to ensure compliance with local and international legislation and internal policies. 

Audit procedures

Our audit procedures included, but were not limited to:

  • review of Telia Company’s actions in order to divest the operations and assets in Eurasia;
  • identification and analysis of facts and circumstances to assess if former segment region Eurasia should be classified as held for sale and reported as discontinued operations as of 31 December, 2016, in accordance with IFRS 5;
  • review and evaluation of the Board of directors’ and management’s process to determine fair value less costs to sell;
  • review of capital gain or loss calculations including presentation in the financial reporting and adequacy of disclosures;
  • gained an understanding of the divestment processes including assessment of compliance to relevant legislation and internal policies as well as testing adequate approvals.

For further information please refer to the Group’s accounting principles in note C3 on pages 111-121, the key management judgements made for classification and valuation of assets held for sale in note C2 on page 110 and the information on assets held for sale and discontinuing operations in note C34 on page 174-178.

Review of Eurasian transactions

Risk description

As described on page 49 in the Annual accounts Telia Company and subsidiaries in the Netherlands are subject to investigations in Sweden, the Netherlands and the US regarding Telia Company’s operations in Uzbekistan and suspected irregularities in 2007 related to those and to the market entry into Uzbekistan. Telia Company has received a preliminary claim from the US and Dutch authorities amounting to USD 1.45 billion and a provision of the same amount in SEK (SEK 13.2 billion, including subsequent foreign currency changes) was recorded in 2016. 

We focused on this area since the amount has a significant impact on the financial position of Telia Company.

Audit procedures

Our audit procedures included, but were not limited to:

  • obtaining from management a description and evaluation of the claim and management’s assessments and judgement related to the most likely outcome;
  • inquiring of and discussions with in-house legal counsel about circumstances and considerations to be made in order to assess the claim; 
  • inquiring of external legal counsel about circumstances and considerations related to the claim and
  • evaluating the adequacy of relevant disclosures.

For further information, please refer to the Risks and uncertainties section in the Board of Directors’ report on pages 49-50, the key management judgements made in note C2 on pages 109-110 and the information on provisions within discontinued operations in note C34 on page 178.

IT-systems for financial reporting

Risk description

In addition to revenues large amounts of data are generated and processed in Telia Company’s IT environment as part of their daily operations. The IT environment is complex and includes multiple applications throughout the Group. In addition data warehouse solutions are being used to capture and aggregate information as needed. The complex IT infrastructure requires processes for maintaining key IT systems and controls that enhance efficiency, consistency and control within business processes. 

We focused on this area since there are risks that all transactions and data used for financial reporting are not captured timely and/or not complete.

Audit procedures

In collaboration with our IT-audit specialists our audit procedures included, but were not limited to:

  • evaluation of Telia Company’s governance model regarding IT and IT controls; 
  • identification, evaluation and testing of general computer controls for systems material to financial reporting;
  • identification, evaluation and testing of automated controls within IT applications as well as data analytic procedures in order to review cut-off and completeness of information for systems material to financial reporting
  • identification, evaluation and testing of controls over critical data for financial reporting.

Capital expenditure

Risk description

Telia Company is investing significant amounts in their operations and capital expenditure amounts to SEK 21.4 billion for 2016 including discontinued operations. These investments have significant impact of the reporting of the financial position for Telia Company. The significant investments made by Telia Company require robust processes for acquiring and monitoring of intangible and tangible assets. 

We focused on this area since there is significant management judgment required to determine the economic life of assets and assess appropriate amortization and depreciation rates as well as management assessment and application of accounting principles for costs to be capitalized.

Audit procedures

Our audit procedures included, but were not limited to:

  • review of Telia Company’s capital expenditure programs to understand strategy and its impacts on the financial statements;
  • review the process for acquiring and accounting for intangible and tangible assets;
  • detailed sample testing of the nature and amount of capitalized items as well as amortization and depreciation rates applied by Telia Company.

For further information, please refer to the Group’s accounting principles in note C3 on pages 111-121, the principles for useful lives of assets in note C2 on page 108 and the information on Capital Expenditure during 2016 in notes C12, C13 and C34 on pages 132-136 and 174-178.

Other information than the annual accounts and consolidated accounts

This document also contains other information than the annual accounts and consolidated accounts and is found on pages 2-21, 71-99, 206-213 and 220-230. The Board of Directors and the Managing Director are responsible for this other information. 

Our opinion on the annual accounts and consolidated accounts does not cover this other information and we do not express any form of assurance conclusion regarding this other information.

In connection with our audit of the annual accounts and consolidated accounts, our responsibility is to read the information identified above and consider whether the information is materially inconsistent with the annual accounts and consolidated accounts. In this procedure we also take into account our knowledge otherwise obtained in the audit and assess whether the information otherwise appears to be materially misstated.

If we, based on the work performed concerning this information, 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. 

Responsibilities of the Board of Directors and the Managing Director

The Board of Directors and the Managing Director are responsible for the preparation of the annual accounts and consolidated accounts and that they give a fair presentation in accordance with the Annual Accounts Act and, concerning the consolidated accounts, in accordance with IFRS as adopted by the EU. 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 annual accounts and consolidated accounts that are free from material misstatement, whether due to fraud or error.

In preparing the annual accounts and consolidated accounts, The Board of Directors and the Managing Director are responsible for the assessment of the company’s and the group’s ability to continue as a going concern. They disclose, as applicable, matters related to going concern and using the going concern basis of accounting. The going concern basis of accounting is however not applied if the Board of Directors and the Managing Director intends to liquidate the company, to cease operations, or has no realistic alternative but to do so.  

The Audit Committee shall, without prejudice to the Board of Director’s responsibilities and tasks in general, among other things oversee the company’s financial reporting process.

Auditor’s responsibility

Our objectives are to obtain reasonable assurance about whether the annual accounts and consolidated accounts as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinions. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs and generally accepted auditing standards in Sweden 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 annual accounts and consolidated accounts.

As part of an audit in accordance with ISAs, we exercise professional judgment and maintain professional scepticism throughout the audit. We also:

  • Identify and assess the risks of material misstatement of the annual accounts and consolidated accounts, 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 opinions. 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 the company’s internal control relevant to our 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 company’s internal control.
  • Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the Board of Directors and the Managing Director.
  • Conclude on the appropriateness of the Board of Directors’ and the Managing Director’s use of the going concern basis of accounting in preparing the annual accounts and consolidated accounts. We also draw a conclusion, based on the audit evidence obtained, as to whether any material uncertainty exists related to events or conditions that may cast significant doubt on the company’s and 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 annual accounts and consolidated accounts or, if such disclosures are inadequate, to modify our opinion about the annual accounts and consolidated accounts. 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 a company and a group to cease to continue as a going concern.
  • Evaluate the overall presentation, structure and content of the annual accounts and consolidated accounts, including the disclosures, and whether the annual accounts and consolidated accounts represent the underlying transactions and events in a manner that achieves fair presentation.
  • Obtain sufficient and appropriate audit evidence regarding the financial information of the entities or business activities within the group to express an opinion on the consolidated accounts. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our opinions.

We must inform the Board of Directors of, among other matters, the planned scope and timing of the audit. We must also inform of significant audit findings during our audit, including any significant deficiencies in internal control that we identified.

We must also provide the Board of Directors 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 the Board of Directors, we determine those matters that were of most significance in the audit of the annual accounts and consolidated accounts, including the most important assessed risks for material misstatement, and are therefore the key audit matters. We describe these matters in the auditor’s report unless law or regulation precludes disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in the auditor’s report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. 

Report on other legal and regulatory requirements 

Opinions

In addition to our audit of the annual accounts and consolidated accounts, we have also audited the administration of the Board of Directors and the Managing Director of Telia Company AB (publ) for the financial year 2016-01-01 - 2016-12-31 and the proposed appropriations of the company’s profit or loss.

We recommend to the general meeting of shareholders that the profit to be appropriated in accordance with the proposal in the statutory administration report and that the members of the Board of Directors and the Managing Director be discharged from liability for the financial year. 

Basis for Opinions

We conducted the audit in accordance with generally accepted auditing standards in Sweden. Our responsibilities under those standards are further described in the Auditor’s Responsibilities section. We are independent of the parent company and the group in accordance with professional ethics for accountants in Sweden and have otherwise fulfilled our ethical responsibilities in accordance with these requirements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinions. 

Responsibilities of the Board of Directors and the Managing Director

The Board of Directors is responsible for the proposal for appropriations of the company’s profit or loss. At the proposal of a dividend, this includes an assessment of whether the dividend is justifiable considering the requirements which the company’s and the group’s type of operations, size and risks place on the size of the parent company’s and the group’s equity, consolidation requirements, liquidity and position in general.

The Board of Directors is responsible for the company’s organization and the administration of the company’s affairs. This includes among other things continuous assessment of the company’s and the group’s financial situation and ensuring that the company’s organization is designed so that the accounting, management of assets and the company’s financial affairs otherwise are controlled in a reassuring manner. The Managing Director shall manage the ongoing administration according to the Board of Directors’ guidelines and instructions and among other matters take measures that are necessary to fulfill the company’s accounting in accordance with law and handle the management of assets in a reassuring manner.

Auditor’s responsibility

Our objective concerning the audit of the administration, and thereby our opinion about discharge from liability, is to obtain audit evidence to assess with a reasonable degree of assurance whether any member of the Board of Directors or the Managing Director in any material respect:

  • has undertaken any action or been guilty of any omission which can give rise to liability to the company, or
  • in any other way has acted in contravention of the Companies Act, the Annual Accounts Act or the Articles of Association.

Our objective concerning the audit of the proposed appropriations of the company’s profit or loss, and thereby our opinion about this, is to assess with reasonable degree of assurance whether the proposal is in accordance with the Companies Act.

Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with generally accepted auditing standards in Sweden will always detect actions or omissions that can give rise to liability to the company, or that the proposed appropriations of the company’s profit or loss are not in accordance with the Companies Act.

As part of an audit in accordance with generally accepted auditing standards in Sweden, we exercise professional judgment and maintain professional scepticism throughout the audit. The examination of the administration and the proposed appropriations of the company’s profit or loss is based primarily on the audit of the accounts. Additional audit procedures performed are based on our professional judgment with starting point in risk and materiality. This means that we focus the examination on such actions, areas and relationships that are material for the operations and where deviations and violations would have particular importance for the company’s situation. We examine and test decisions undertaken, support for decisions, actions taken and other circumstances that are relevant to our opinion concerning discharge from liability. As a basis for our opinion on the Board of Directors’ proposed appropriations of the company’s profit or loss we examined the Board of Directors’ reasoned statement and a selection of supporting evidence in order to be able to assess whether the proposal is in accordance with the Companies Act. 

Auditor’s examination of the corporate governance report

The Board of Directors is responsible for that the corporate governance statement on pages 51-70 has been prepared in accordance with the Annual Accounts Act.

Our examination of the corporate governance statement is conducted in accordance with FAR’s auditing standard RevU 16 The auditor’s examination of the corporate governance statement. This means that our examination of the corporate governance statement is different and substantially less in scope than an audit conducted in accordance with International Standards on Auditing and generally accepted auditing standards in Sweden. We believe that the examination has provided us with sufficient basis for our opinions.

A corporate governance statement has been prepared. Disclosures in accordance with chapter 6 section 6 the second paragraph points 2-6 of the Annual Accounts Act and chapter 7 section 31 the second paragraph the same law are consistent with the other parts of the annual accounts and consolidated accounts and are in accordance with the Annual Accounts Act. 

 


 

Stockholm, March 8, 2017

Deloitte AB

Signature on Swedish original

 

Jan Nilsson

Authorized Public Accountant