We have audited the financial statements of Digia Plc (business identity code 0831312-4) for the year ended 31 December, 2016. 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, as well as the parent company’s balance sheet, income statement, statement of cash flows and notes.
In our opinion
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 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.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
The scope of our audit was influenced by our application of materiality. The materiality is determined based on our professional judgement and is used to determine the nature, timing and extent of our audit procedures and to evaluate the effect of identified misstatements on the financial statements as a whole. The level of materiality we set is based on our assessment of the magnitude of misstatements that, individually or in aggregate, could reasonably be expected to have influence on the economic decisions of the users of the financial statements. We have also taken into account misstatements and/or possible misstatements that in our opinion are material for qualitative reasons for the users of the financial statements.
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.
We have also addressed the risk of management override of internal controls. This includes consideration of whether there was evidence of management bias that represented a risk of material misstatement due to fraud.
|Key audit matter||Our response|
|Goodwill, in total €40.6 million, represents 61 percent of the consolidated balance sheet total and 124 percent of the total consolidated equity as at 31 December 2016, and is the most significant single item in the consolidated balance sheet.||We involved KPMG valuation specialists when analyzing the reasonableness of the assumptions underlying the goodwill impairment tests, and the technical accuracy of the impairment model.|
|Goodwill is tested for impairment annually, and more frequently if there is any indication of impairment.||We compared the assumptions used in the impairment tests for 2015, especially in respect of net sales and profitability, into performance in 2016, to assess the accuracy of Digia’s estimation process.|
|Preparation of impairment tests requires high level of management judgement.||As part of our year-end audit procedures we considered the accuracy and adequacy of the notes provided on goodwill and impairment testing in the consolidated financial statements.|
|Key audit matter||Our response|
|Digia recognizes revenue from fixed price contracts and contracts with target price by reference to the stage of completion. The stage of completion of a project is determined as the proportion that project costs incurred for work performed to date bear to the estimated total project costs. Revenue recognition for long-term projects requires management judgements, especially in respect of future costs and amount of work to complete a project. Regardless the monthly project review process applied by the Group there is a risk of estimation accuracy of both cost and work load forecasts for fixed price projects. This especially applies to new software products. If the forecasts are inaccurate, projects may become loss-making.||We assessed the appropriateness of the revenue recognition practices followed by Digia, and tested the effectiveness of the key internal controls in place over completeness and accuracy of revenues.|
|We also performed audit procedures to analyze the revenue recognition principles applied to most significant long-term projects accounted for using percentage-of-completion method, by comparing to IFRS standards, Group’s accounting practices and terms of sale in the contracts.|
|As part of our audit we derived total revenue estimates for certain projects from the contract prices and price changes, as well as actual working hours from the employee time tracking system.|
|Furthermore, we analyzed most significant on-going projects and related work load estimates to identify any loss-making projects.|
|Accounts receivable, totaling €14.3 million as at 31 December 2016, is a significant single balance sheet item. Regardless the fact that there are no significant credit losses incurred in the past, there is a valuation risk associated with the accounts receivable as it is a major single balance sheet item.||We evaluated monitoring routines for accounts receivable and tested the effectiveness of the key internal controls. We also analyzed the accounts receivable and assessed the payments received after the year-end to identify any receivables potentially impaired.|
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 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 cease operations, or there is no realistic alternative but to do so.
Our objectives are to obtain reasonable assurance on 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 aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the 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:
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 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.
The Board of Directors and the Managing Director are responsible for the other information. The other information comprises information included in the report of the Board of Directors and in the Annual Report, but does not include the financial statements and our auditor’s report thereon. We obtained the report of the Board of Directors prior to the date of this auditor’s report, and the Annual Report is expected to be made available to us after that date.
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 and 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 report of the Board of Directors, 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.
Helsinki 2 February 2017
Authorised Public Accountant, KHT