TRANSLATORS’ EXPLANATORY NOTE
The English content of this report is a free translation of the registered auditor’s report of the below-mentioned Polish Company. In Poland statutory accounts as well as the auditor’s report should be prepared and presented in Polish and in accordance with Polish legislation and the accounting principles and practices generally adopted in Poland.
The accompanying translation has not been reclassified or adjusted in any way to conform to the accounting principles generally accepted in countries other than Poland, but certain terminology current in Anglo-Saxon countries has been adopted to the extent practicable. In the event of any discrepancies in interpreting the terminology, the Polish language version is binding.
PricewaterhouseCoopers Polska Spółka z ograniczoną odpowiedzialnością Audyt sp. k., Polna 11 str.,
00-633 Warsaw, Poland; T: +48 (22) 746 4000, F: +48 (22) 742 4040, www.pwc.com
PricewaterhouseCoopers Polska Spółka z ograniczoną odpowiedzialnością Audyt sp. k. is entered into the National Court Register maintained by the District Court for the Capital City of Warsaw, under KRS number 0000750050, NIP 526-021-02-28. The seat of the Company is in Warsaw at Polna 11 str.
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Independent Registered Auditor’s Report
To the General Shareholders’ Meeting and the Supervisory Board of Ronson Development SE
Report on the audit of consolidated financial statements
Our opinion
In our opinion, the accompanying annual consolidated financial statements:
give a true and fair view of the consolidated financial position of the group Ronson Development SE (the “Group”), in which Ronson Development SE is the parent entity (the “Parent Company”) as at 31 December 2020 and the Group’s consolidated financial performance and the consolidated cash flows for the year then ended in accordance with the applicable International Financial Reporting Standards as adopted by the European Union and the adopted accounting policies;
comply in terms of form and content with the laws applicable to the Group and the Parent Company’s Articles of Association;
Our opinion is consistent with our additional report to the Audit Committee issued on the date of this report.
What we have audited
We have audited the annual consolidated financial statements of the Group Ronson Development SE which comprise:
the Consolidated Statement of Financial Position as at 31 December 2020;
and the following prepared for the financial year from 1 January to 31 December 2020:
the Consolidated Statement of Comprehensive Income;
the Consolidated Statement of Changes in Equity;
the Consolidated Statement of Cash Flows, and
the Notes to the Consolidated Financial Statements comprising a description of the significant adopted accounting policies and other notes and explanations.
Basis for opinion
Basis for opinion
We conducted our audit in accordance with the National Standards on Auditing in the wording of the International Standards on Auditing as adopted by the resolution of the National Council of Statutory Auditors (“NSA”) and pursuant to the Law of 11 May 2017 on Registered Auditors, Registered Audit Companies and Public Oversight (the “Law on Registered Auditors” – Journal of Laws of 2020, item 1415) and the Regulation (EU)
No. 537/2014 of 16 April 2014 on specific requirements regarding the statutory audit of public-interest entities (the “EU Regulation” – Journal of Laws EU L158). Our responsibilities under NSA are further described in the Auditor’s responsibilities for the audit of the consolidated 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.
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Independence
We are independent of the Group in accordance with the International Code of Ethics for Professional Accountants (including International Independence Standards) issued by the International Ethics Standards Board for Accountants (IESBA Code) as adopted by resolution of the National Council of Statutory Auditors and other ethical requirements that are
relevant to our audit of the financial statements in Poland. We have fulfilled our other ethical responsibilities in accordance with these requirements and the IESBA Code. During the audit, the key registered auditor and the registered audit firm remained independent of the Group in accordance with the independence requirements set out in the Act on Registered Auditors and in the EU Regulation.
Our audit approach
Overview
As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the consolidated financial statements. In particular, we considered where the Parent Company’s Management Board made subjective judgements; for example, in respect of significant accounting estimates that involved making assumptions and considering future events that are inherently uncertain. 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.
We tailored the scope of our audit in order to perform sufficient work to enable us to provide an opinion on the consolidated financial statements as a whole, taking into account the structure of the Group, the accounting processes and controls, and the industry in which the Group operated.
Materiality
The scope of our audit was influenced by our application of materiality. An audit is designed to obtain reasonable assurance whether the consolidated 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 consolidated financial statements.
Based on our professional judgement, we determined certain quantitative thresholds for materiality, including the overall materiality for the consolidated financial statements as a whole, 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, if any, both individually and in aggregate on the consolidated financial statements as a whole.
The overall materiality threshold adopted for the purposes of our audit was set at PLN 6.56 million, which represents 0.7% of the total assets of the Group.
We have audited the annual financial statement of the Parent Company and we have conducted audit procedures for selected financial statements line items for specific subsidiaries.
The scope of our audit covered 100% of the Group’s revenue and 100% of the sum of total assets of all the consolidated Group companies before consolidation eliminations.
Timing of revenue recognition
Inventory and land designed for development valuation
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Materiality
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Group scoping
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Key audit matters
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Overall Group materiality
PLN 6.56 million
How we determined it
0.7% of the total assets of the Group
Rationale for the materiality benchmark applied
We have adopted the Groups’ total assets as the basis for determining materiality because the value of total assets in our opinion it is an indicator commonly used by the users of financial statements to evaluate the operations. We adopted the materiality threshold at 0.7% because based on our professional judgement it is within the acceptable quantitative materiality thresholds.
We agreed with the Audit Committee that we would report to them misstatements identified during our audit above PLN 450 thousand, as well
as misstatements below that amount that, in our view, warranted reporting for qualitative reasons.
Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the consolidated financial statements of the current period. They include the most significant identified risks of material misstatements, including the identified risks of material misstatement resulting from fraud. These
matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon. We do not provide a separate opinion on these matters.
Key audit matter
How our audit addressed the key audit matter
Timing of revenue recognition
Revenue arising from selling the residential, commercial real estate and parking places, amounted to PLN 400.3 million for the period ended 31 December 2020 (period ended 31 December 20- 19: PLN 223.5 million), which represents 99.8% of total revenue of the Group for the period (2019: 96% of the total revenue of the Group).
Revenue is one of the key figures reflecting the results of the Group’s operating activities, and determining how to recognize them often requires judgment. The Group recognizes revenue when the performance obligation is satisfied as the result of transferring control over the promised real estate to the customer. The transfer of control over an asset occurs at the moment when the property is physically transferred to the client. In the opinion of the Management, control is considered transferred to the customer when the handover report confirming the handover the transfer has been
Our audit procedures comprised in particular:
a) evaluation applied accounting policies with regard to revenue recognition complied with guidelines in IFRS 15 “Revenue from Contracts with Customers”;
b) understanding and evaluating the revenue recognition process and application of IFRS 15;
c) identification and evaluation of controls in this area;
d) conducting substantive tests in order to verify if revenue was recognized in the correct period in relation to the criterion of transfer of the control, in particular tests of documents for randomly selected samples, reconciliation to source documents (primarily development contracts, handover reports, notarial deeds, sales invoices and bank statements);
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signed by the customer and the Group’s representative and the entire amount resulting from the sale agreement has been paid by the buyer.
Given the importance of the described matter for the correct revenue recognition by the Group in the consolidated financial statements, we considered the issue of determination the accounting policy for revenue recognition, and in particular the timing of revenue recognition, a key audit matter.
In the consolidated financial statements, accounting policy and disclosures relating to revenue recognition, valuation and its structure are presented in Notes to consolidated financial statements point 3(b) and note 6 to the consolidated financial statements .
e) analytical procedures over margin in order to confirm completeness of costs and revenue in the period;
f) evaluating adequacy of disclosures relating to revenue presented in the consolidated financial statements;
Inventory and land designed for development valuation
The inventory and land designed for development in the accompanying annual consolidated financial statements of the Ronson Development SE as at 31 December 2020 is PLN 710.2 million (as at 31 December 2019: PLN 762.4 million), which stands for 76 % of the total assets of the Group as of 31 December 2020 (31 December 2019: 81%).
Inventory and land designed for development consists of capitalized expenses of development projects of multi-family residential real estate at the initial stage, projects under construction and completed projects.
Inventory, that included projects under construction and completed projects, is measured at the lower of cost and net realizable value. The cost of Inventory included, but was not limited to, land acquisition cost, perpetual usufruct value, construction costs, planning and design costs, borrowing costs incurred during the construction period and other costs directly attributed to the project.
Land designed for development included the expenditures incurred at the investment planning stage and is measured at the purchase price of the land, increased by capitalized costs incurred in connection with the preparation of the project, not higher than the net realizable value.
The Group estimated the net realizable value and write off of inventory and land designed for development depending on numerous assumptions, such as, amongst others, the estimated sales prices per square meter, the estimated construction costs and the expected timing of sales of the units.
The Management Board of the Parent Company assessed potential write-offs of the inventory and land designed for development separately for each project.
Considering the inherent risk of uncertainty related to significant judgments and estimates made by the Management Board and the materiality of the
Our audit procedures comprised in particular:
a) evaluation of adopted accounting policies in respect of valuation of inventory and land designed for development in terms of compliance with the appropriate financial reporting standards;
b) understanding and assessing the process of valuation of Inventory and land designed for development, including calculation of net realizable value;
c) identification of controls in this area;
d) inquiry with Management Board of the Parent Company regarding key estimates and judgments in the area of valuation of inventory and land designed for development, benchmarking of key assumptions to similar projects on the market or actual selling prices received on completed projects by the Group;
e) using external PwC valuation experts for assessment the assumptions adopted by the Group to determine the net realizable value;
f) evaluating the correctness and completeness of disclosures in respect of inventory and land designed for development in the consolidated financial statements.
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amounts of inventories and land allocated for development for the consolidated financial statements, we concluded that this is a key issue for our audit.
Given the inherent risk of uncertainty relating to material judgements and estimates made by the Management Board and the materiality of the inventory and land design for development for the consolidated financial statements, we decided that this was a key issue for our audit.
Accounting policy and disclosures relating to inventory and land designed for development are presented in Notes to consolidated financial statements point 3(g) and Note 19 to the consolidated financial statements .
Responsibility of the Management and Supervisory Board for the consolidated financial statements
The Management Board of the Parent Company is responsible for the preparation of the annual consolidated financial statements that give a true and fair view of the Group’s financial position and results of operations, in accordance with International Financial Reporting Standards as adopted by the European Union, the adopted accounting policies, the applicable laws and the Parent’s Articles of Association, and for such internal control as the Management Board 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, the Parent Company’s Management Board 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 the Management Board either intends to liquidate the Group or to cease operations, or has no realistic alternative but to do so.
The Parent Company’s Management Board and members of the Supervisory Board are obliged to ensure that the consolidated financial statements comply with the requirements specified in the Accounting Act of 29 September 1994 (“the Accounting Law” – Consolidated text: Journal of Laws of 2021, item 217, as amended). Members of the Supervisory Board are responsible for overseeing the financial reporting process.
Auditor’s responsibility for the audit of the consolidated financial statements
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 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 the NSA 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 economic decisions of users taken on the basis of these consolidated financial statements.
The scope of the audit does not include an assurance on the Group’s future profitability nor the efficiency and effectiveness of the Parent
Company’s Management Board conducting its affairs, now or in future.
As part of an audit in accordance with NSA, we exercise professional judgement and maintain professional scepticism throughout the audit. We also:
Identify and assess the risks of material misstatement of the consolidated 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,
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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 Group’s internal control.
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the Parent Company’s Management Board.
Conclude on the appropriateness of the Parent Company’s Management Board’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 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 consolidated 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 Group to cease to continue as a going concern.
Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and
events in a manner that achieves fair presentation.
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 the Audit Committee 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 the Audit Committee 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, actions taken to eliminate threats or safeguards applied.
From the matters communicated to the Audit Committee, 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 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.
Other information, including the Report on the operations
Other information
Other information comprises a combined Report on the Parent Company’s and the Group’s operations for the financial year ended 31 December 2020 (“the combined Report on the operations”) and the corporate governance statement which is a separate part of the combined Report on the operations (together “Other Information”). Other information does not include the consolidated financial statements and our auditor’s report thereon.
Responsibility of the Management and Supervisory Board
The Management Board of the Parent Company is responsible for the preparation of the Other Information in accordance with the law.
The Parent Management Board and the members of the Supervisory Board are obliged to ensure that the Report on the Group’s operations including its separate parts complies with the requirements of the Accounting Law.
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Registered auditor’s responsibility
Our opinion on the consolidated financial statements does not cover the Other Information.
In connection with our audit of the consolidated financial statements, our responsibility is to read the Other Information and, in doing so, consider whether the Other Information is materially inconsistent with the information in the consolidated financial statements, our knowledge obtained in our audit, or otherwise appears to be materially misstated. If, based on the work performed, we identified a material misstatement in the Other Information, we are obliged to inform about it in our audit report. In accordance with the requirements of the Law on the Registered Auditors, we are also obliged to issue an opinion on whether the combined Report on the operations has been prepared in accordance with the law and is consistent with information included in annual consolidated financial statements and annual financial statements of the Parent Company.
Moreover, we are obliged to issue an opinion on whether the Parent Company provided the required information in its corporate governance statement,
Opinion on the combined Report on the operations
Based on the work we carried out during our audit, in our opinion, the combined Report on the operations:
has been prepared in accordance with the requirements of Article 49 of the Accounting Act and para. 70 and para. 71 of the
Regulation of the Minister of Finance dated 29 March 2018 on current and periodical information submitted by issuers of securities and conditions for considering as equivalent the information required under the legislation of a non-Member State (“Regulation on current information” – Journal of Laws 2018, item 757);
is consistent with the information in the consolidated financial statements and financial statements of the Parent Company.
Moreover, based on the knowledge of the Parent Company and the Group and its environment obtained during our audit, we have not identified any material misstatements in the combined Report on the Parent Company’s and the Group’s operations.
Opinion on the corporate governance statement
In our opinion, in its corporate governance statement, the Group included information set out in para. 70.6 (5) of the Regulation on current information. In addition, in our opinion, information specified in paragraph 70.6 (5)(c)–(f), (h) and (i) of the said Regulation included in the corporate governance statement are consistent with the applicable provisions of the law and with information included in the consolidated financial statements and annual financial statements of the Parent Company.
Report on other legal and regulatory requirements
Report on the compliance of the format of consolidated financial statements with the requirements of the European Single Electronic Format (“ESEF”)
We have been engaged as part of our audit engagement letter by the Management Board of the Parent Company to conduct a reasonable assurance engagement for the verification of compliance with the applicable requirements of the electronic reporting format of the consolidated financial statements of Ronson Development SE Group for the year ended 31 December 2020 (the “Electronic Reporting Format of the Consolidated Financial Statements”).
Description of a subject matter and applicable criteria
The Electronic Reporting Format of the Consolidated Financial Statements has been applied by the Management Board of the Parent Company to comply with the requirements of art. 3 and 4 of the Commission Delegated Regulation (EU) 2019/815 of 17 December 2018 supplementing Directive 2004/109/EC of the European Parliament and of the Council with regard to regulatory technical standards on the specification of a single electronic reporting format (the “ESEF Regulation”). The applicable requirements regarding the Electronic Reporting
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Format of the Consolidated Financial Statements are contained in the ESEF Regulation.
The requirements described in the preceding sentence determine the basis for application of the Electronic Reporting Format of the Consolidated Financial Statements and, in our view, constitute appropriate criteria to form a reasonable assurance conclusion.
We have been engaged by the Management Board of the Parent Company to report on the compliance of the format of the consolidated financial statements with the requirements of the ESEF Regulation. This report is intended to be published together with the consolidated financial statements of the Group.
Responsibility of the Management Board and the Supervisory Board
The Management Board of the Parent Company is responsible for the application of the Electronic Reporting Format of the Consolidated Financial Statements that complies with the requirements of the ESEF Regulation.
This responsibility includes the selection and application of appropriate markups in iXBRL using ESEF taxonomy and designing, implementing and maintaining internal controls relevant for the preparation of the Electronic Reporting Format of the Consolidated Financial Statements which is free from material non- compliance with the requirements of the ESEF Regulation.
Members of the Supervisory Board are responsible for overseeing the financial reporting process.
Our responsibility
Our responsibility was to express a reasonable assurance conclusion whether the Electronic Reporting Format of the Consolidated Financial Statements complies with the ESEF Regulation.
We conducted our engagement in accordance with National Standard on Assurance Engagements 3000 (Revised) ‘Assurance Engagements other than Audits and Reviews of Historical Financial Information’, in the wording of the International Standard on Assurance Services 3000 (Revised) as adopted by the National Council of Statutory Auditors (KSUA 3000 (Z)). This standard requires that we comply with ethical requirements, plan and perform
procedures to obtain reasonable assurance whether the Electronic Reporting Format of the Consolidated Financial Statements is prepared, in all material aspects, in accordance with the applicable requirements.
Reasonable assurance is a high level of assurance, but it does not guarantee that the service performed in accordance with KSUA 3000 (Z) will always detect the existing material misstatement.
Summary of the work performed
Our planned and performed procedures were aimed at obtaining reasonable assurance that the Electronic Reporting Format of the Consolidated Financial Statements was applied, in all material aspects, in accordance with the applicable requirements and such application is free from material errors or omissions. Our procedures included in particular:
obtaining an understanding of the internal control system and processes relevant to the application of the Electronic Reporting Format of the Consolidated Financial Statements, including the preparation of the XHTML format and marking up the consolidated financial statements;
verification whether the XHTML format was applied properly;
obtaining sufficient appropriate evidence as to the operating effectiveness of relevant controls over the marking up process when the assessment of the risks of material misstatement include an expectation that such internal controls are operating effectively or procedures other than testing controls cannot alone provide sufficient appropriate evidence;
evaluating the completeness of marking up the consolidated financial statements using the iXBRL markup language according to the requirements of the implementation of electronic format as described in the ESEF Regulation;
evaluating the appropriateness of the Group’s' use of XBRL markups selected from the ESEF taxonomy and the creation of extension markups where no suitable element in the ESEF taxonomy has been identified; and
evaluating the appropriateness of anchoring of the extension elements to the ESEF taxonomy.
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We believe that the evidence we have obtained is sufficient and appropriate to provide a basis for our conclusion.
Conclusion
In our opinion, based on the procedures performed, the Electronic Reporting Format of the Consolidated Financial Statements complies, in all material respects, with the ESEF Regulation.
Statement on the provision of non-audit services
To the best of our knowledge and belief, we declare that the non-audit services we have provided to the Parent Company and its subsidiaries are in accordance with the applicable laws and regulations in Poland and that we have not provided any non-audit services prohibited under Article 5(1) of the EU regulation and Article 136 of the Law on Registered Auditors.
The non-audit services which we have provided to the Company and its subsidiaries during the audited period are disclosed in the note 39 to the consolidated financial statements
Appointment
We have been appointed to audit the annual consolidated financial statements of the Group by the Resolution of the Supervisory Board of 4 December 2019. The consolidated financial statements of the Group were audited by us for the first time.
The Key Registered Auditor responsible for the audit on behalf of PricewaterhouseCoopers Polska spółka z ograniczoną odpowiedzialnością Audyt sp.k., a company entered on the list of Registered Audit Companies with the number 144., is Piotr Wyszogrodzki
Piotr Wyszogrodzki
Key Registered Auditor
No. 90091
Warsaw, 10 March 2021