METSÄ BOARD Annual review 2023
Responsibilities of the Board of Directors and the Managing Director for the Financial Statements 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 a 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.
• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. • Conclude on the appropriateness of the Board of Directors’ and the Managing Director’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 parent company’s or 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 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 parent company or the group to cease to continue as a going concern. • Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events so that the financial statements give a true and fair view. • 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 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 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)
Business operations and value creation 2 This is Metsä Board 4 CEO’s review 6
Tangible and intangible assets total EUR 1,259 million and represent 41 percent of the consolidated total assets. The group’s business operations are capital intensive with valuation risk in tangible and intangible assets. 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 using discounted cash flow model. 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.
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 have tested 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.
Strategy and financial targets
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Value creation
Financial development 10 Key figures 12
Report of the Board of Directors
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• Sustainability statement • Sustainability statement assurance report
Revenue recognition (Refer to note 2.2 to the consolidated financial statements)
The Group’s total revenue EUR 1,942 consist mainly of sales from produced paper board and pulp products. The Group has several pricing and discount principles, and incoterms in use. The revenue is recognized from the sales of goods in the period during which the control of the delivered products is transferred to the customer in accordance with the agreed term of delivery. Due to the significant volume and the risk of revenue recognized to incorrect period, revenue recognition is determined a key audit matter.
We obtained an understanding of the revenue recognition principles and practices. We evaluated the appropriateness of the accounting policies by reference to IFRS standards. Our audit procedures included testing of the effectiveness of controls and substantive procedures over revenue transactions and approvals. Our substantive procedures included revenue cut-off testing and vouching of sales invoices to received payments. In addition, we evaluated the appropriateness of the disclosures relating to revenue recognition principles and notes.
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Consolidated financial statements
78 Notes to the consolidated financial statements 126 Parent company financial statements 129 Notes to the parent company financial statements 142 The Board’s proposal to the Annual General Meeting for the distribution of funds 143 Auditor’s Report 147 Shares and shareholders 151 Ten years in figures 152 Taxes 153 Production capacities 155 Calculation of key ratios and comparable performance measures Corporate governance 157 Corporate governance statement 165 • Board of Directors of Metsä Board 168 • Corporate Management Team of Metsä Board
Auditor’s Responsibilities for the Audit of the Financial Statements
Our objectives are to obtain reasonable assurance about 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 the 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 scepticism throughout the audit. We also: • Identify and assess the risks of material misstatement of the 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, 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 parent company’s or the group’s internal control.
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 394 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 reference to IFRS standards. 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 stocktaking routines in selected inventory locations during the financial year.
ERP renewal process
The consolidated financial statement is based on extensive number of data flows from multiple IT systems. The group has ongoing renewal process for IT systems, which will take several years to finish. New finance ERP was implemented at the beginning of the fiscal year, which is in use alongside with the existing production ERP. ERP takeover and incoherent system environment causes risks relating to access and change management, consequently the ERP renewal process is determined as a key audit matter.
We evaluated the system reconciliations prepared by the management and independently tested the accuracy of balance sheet migration relating to financial reporting during the takeover of the new finance ERP. As a part of testing the existing and new finance ERP, our audit procedures focused on the reconciliation and approval controls as well as on evaluating the administration of access rights.
170 Remuneration report 174 Investor relations and investor information
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Auditor’s Report | METSÄ BOARD ANNUAL REVIEW 2023
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