Metsä Board Annual and sustainability report 2022

BUSINESS OPERATIONS AND VALUE CREATION

SUSTAINABILITY REPORT

FINANCIAL DEVELOPMENT

GOVERNANCE

THE KEY AUDIT MATTER

HOW THE MATTER WAS ADDRESSED IN THE AUDIT

Valuation of tangible and intangible assets (Refer to notes 4.1 and 4.2 to the consolidated financial statements) Tangible and intangible assets total EUR 1,126 million and represent 33 percent of the consolidated total assets. The carrying value of construc- tion in progress under the tangible assets amounts to EUR 163 million. Tangible and intangible assets are allocated to cash-generating units and tested for impairment annually or more frequently should there be an indication of impairment. Our audit procedures included evaluation of the appropriateness of the capitalization and depreciation principles applied as well as testing of the financial controls over investments.

We also assessed the key assumptions used in the impairment tests by reference to the budgets approved by the parent company’s Board of Directors, data external to the Group and our own views. We involved KPMG valuation specialists when assessing the mathematical accuracy of the calculations, as well as comparing the assumptions to externally available market and industry data. In addition, we considered the appropriateness of the disclosures regarding the tangible and intangible assets.

Determining the key assumptions used in the cash flow forecasts underlying the impairment tests requires management judgment. Due to the significant carrying values involved, valuation of tangible and intangible assets is determined a key audit matter.

Valuation of inventories (Refer to note 4.4 to the consolidated financial statements)

Inventory management, stocktaking routines and pricing of inventories are key factors in the valuation of inventories. The Group’s carrying value of inventories was EUR 507 million at the end of the financial year. The valuation of inventories involves management estimates in relation to potentially obsolete inventory, as well as to fluctuations in the market prices of finished goods. The valuation of inventories has a significant impact on the profit and loss account and therefore it is determined as a key audit matter.

We evaluated the appropriateness of the accounting policies by refer- ence to IFRS standards, as well as the functionality of the key IT systems of inventory management. We tested the controls over inventory management, accuracy of inventory amounts and valuation of inventories, as well as performed substantive audit procedures relating to the valuation of inventories to test the accuracy of inventory valuation. We also followed the execution of certain stocktaking routines during the financial year.

Financial contracts and hedging instruments (Refer to notes 5.5, 5.6 and 5.7 to the consolidated financial statements)

The financial liabilities amount to EUR 453 million, accounting for 13 percent of the consolidated balance sheet. In addition, the Group has off-balance sheet committed credit facility agreements amounting to EUR 200 million. The Group hedges financial risks with interest rate and foreign currency derivatives and their nominal values amounted to EUR 2,171 million at the end of the financial year. Due to the significance of the financial and derivative contracts and large number of transactions, the financial contracts and hedging instruments are determined as a key audit matter.

Our audit procedures included evaluation of the recognition and meas- urement principles applied to financial instruments for appropriateness in relation to IFRS requirements, as well as testing of controls over the accuracy and valuation of financial instruments. As part of our year-end audit procedures we tested the appropri- ateness of valuations by using various analysis, as well as selecting transactions for testing on a sample basis. In addition, we evaluated the adequacy of the disclosures relating to financial instruments.

Controls over financial reporting and related IT systems

The IT control environment relating to the financial reporting process and the application controls of individual IT systems have an impact on the selected audit approach. As the consolidated financial statements are based on extensive num- ber of data flows from multiple IT systems, consequently the financial reporting control environment is determined as a key audit matter.

Our audit procedures included evaluation of the financial reporting process and related control environment, as well as testing of the effec- tiveness of controls including general IT controls. Our audit procedures focused on testing the reconciliation and approval controls as well as on evaluating the administration of access rights. Our audit procedures extensively consisted of several substantive procedures as well as data analysis relating to the most significant balances on the income statement and on the balance sheet.

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