To the Stockholders of
El Puerto de Liverpool, S. A. B. de C. V.:
Opinion
We have audited the consolidated financial statements of El Puerto de Liverpool, S. A. B de C. V, and subsidiaries (“the Company”) comprising the consolidated balance sheet at December 31, 2016 and the consolidated statements of comprehensive income, changes in stockholders´equity and cash flows for the year then ended, as well as the notes to the consolidated financial statements which include a summary of significant accounting policies.
In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2016 and its financial performance and cash flows for the year then ended, in accordance with the International Financial Reporting Standards issued by the International Accounting Standards Board "IFRS".
Basis of Opinion
We have conducted our audit in accordance with International Standards on Auditing "ISA". Our liability in accordance with these standards is described later in the “Responsibilities of the Auditors in Relation to the Audit of the Consolidated Financial Statements” section of this report. We are independent of the Company In accordance with the Code of Professional Ethics of the Mexican Institute of Public Accountants AC, together with the ethical requirements that are applicable to our audits of consolidated financial statements in Mexico, and have complied with the rest of our ethical responsibilities in accordance with those requirements and said Code. We believe that the audit evidence we have obtained provides a sufficient and adequate basis for our opinion.
Audit Key Issues
The key audit issues are matters that, according to our professional judgment, have been the most important issues in our audit of the consolidated financial statements for the current period. These issues have been considered in the context of our audit of the consolidated financial statements as a whole and in forming our opinion on them, therefore, we do not express a separate opinion on these issues.
Audit key issue
Provision for impairment of loan portfolio.
As mentioned in Note 3.3.2 to the financial statements, the Company records accounts receivable “loan portfolio”, related to loans granted to customers for purchases of merchandise, goods and services using the credit cards granted to them by the company. At the end of each period, the company evaluates the estimated recoverability of the loan portfolio, and records a provision for impairment when the loans exceed 90 days past due, and considers, in addition, an individual analysis of each account, a behavioral evaluation the portfolio and the seasonality of the business.
We have focused on this item in our audit due to the importance of the balance of accounts receivable amounting to $ 32,436,849 representing one of the most important assets of the Company because accounts receivable are exposed to credit risk, which is considered when estimating the provision for impairment.
In particular, we have focused our audit efforts on the methodology used to determine the provision for impairment of the loan portfolio, which considers, among other factors, the age of the portfolio, the risks of late payment and the history of cancellations and the historical trends of the assumptions mentioned.
As our audit addressed the issue
We have evaluated and considered the controls established by the Company for the evaluation and approval of the credit requests as well as the operation of the customer’s credit limits.
We evaluated and considered the methodology implemented by the Company in order to estimate the impairment provision for accounts receivable.
We obtained the aging report from the Company’s system, which we evaluated the effectiveness of the Information Technology General Controls. For a sample of customers we reperformed its classification in order to evaluate its aging.
We evaluated the historical performance of the write offs for non-recoverable balances and their consideration in the impairment provision, to assess whether the assumptions in previous years could be considered very optimistic.
We selected a sample of clients and evaluated whether during the year they had delay in monthly payments. We met with management to evaluate the consideration of these delay trends in determining the provision; additionally, we compared it with the historical trends.
We recalculated the provision for a sample of customers with an overdue greater than 90 days, taking into account the aging of each balance, the delay risk on payments and the likelihood of write offs.
Additional Information
The Company’s management is responsible for the additional information submitted. This additional information includes the Annual Report presented to the National Banking and Securities Commission (including the consolidated financial statements and our audit opinion), which will be issued after the date of this report.
This additional information is not included in our opinion on the consolidated financial statements and we will not express any audit opinion thereon.
However, in connection with our audit of the Company’s consolidated financial statements, our responsibility is to read this additional information when it becomes available and to assess whether such information is materially inconsistent with our consolidated financial statements or our knowledge acquired through our audit, or appears to contain a material error for other circumstances. When we read the additional information that we have not yet received, we must issue the declaration on the Annual Report required by the CNBV, and if we detect that there is a material error in the CNBV, we must communicate it to those in charge of the Company’s government.
Responsibilities of the Administration and those Responsible for the Government of the Company in relation to the Consolidated Financial Statements
The Company’s management and subsidiaries are responsible for the preparation and fair presentation of the consolidated financial statements in accordance with IFRS and for the internal control it deemed necessary to enable the preparation of consolidated financial statements free of material misstatement, whether for fraud or error.
In preparing the consolidated financial statements, Management is responsible for evaluating the Company’s ability to continue as a going concern; Disclose, as the case may be, matters relating to business in progress and use the business accounting base in progress, unless the Administration intends to liquidate the Company or cease operations, or there is no alternative more realistic than doing so.
The Audit Committee is responsible for overseeing the Company’s financial reporting process.
Responsibilities of the Auditors in relation to the Audit of the Consolidated Financial Statements
Our objectives are to obtain reasonable assurance that the consolidated financial statements as a whole are free from material misstatement, whether for fraud or error, and to issue an audit report containing our opinion. Reasonable security is a high level of security, but it does not guarantee that an audit performed in accordance with ISA will always detect a material error, when it exists. Errors may be due to fraud or error and are considered material if individually or in aggregate form can reasonably be expected to influence the economic decisions that users make based on the consolidated financial statements.
- During an audit in accordance with ISAs, we apply our professional judgment and maintain an attitude of professional skepticism. Also,
- We identify and evaluate the material error risks in the consolidated financial statements, whether for fraud or error, design and apply audit procedures to respond to such risks, and obtain audit evidence sufficient and adequate to support our opinion. The risk of not detecting a material error resulting from fraud is higher than one that results from unintentional error, as fraud may involve collusion, forgery, deliberate omissions, intentionally misleading statements or circumvention of internal controls.
- We obtain an understanding of the internal control relevant to the audit, in order to design audit procedures that are appropriate to the circumstances, and not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control.
- We evaluate the ownership of the accounting policies applied and the reasonableness of the accounting estimates and the corresponding information disclosed by the Administration.
- We evaluate whether it is appropriate for the Administration to use the business presumption in progress to prepare the consolidated financial statements and whether, based on the audit evidence obtained, there is material uncertainty regarding events or conditions that generate significant doubt about the ability to The Company to continue as a going concern. If we conclude that there is material uncertainty, it is required that we draw attention in our audit report to the corresponding information disclosed in the consolidated financial statements or, if those disclosures are inadequate, that we express a modified opinion. Our findings are based on audit evidence obtained to date from our audit report. However, future events or conditions may cause the Company to cease to be a going concern.
- We evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosed information, and whether the consolidated financial statements represent the underlying transactions and events and achieve a fair presentation.
- We obtain sufficient and adequate audit evidence regarding the financial information of the entities or business activities that make up the economic group to express an opinion on the consolidated financial statements. We are responsible for the management, supervision and audit of the consolidated financial statements. We are solely responsible for our audit opinion.
We communicate to the Audit Committee, among other issues, the scope and timing of the audit and the significant findings of the audit, as well as any significant deficiencies in internal control that we identified in the course of our audit.
We also provide the audit committee with a statement stating that we have met the applicable ethics requirements for independence and we communicate to you all relationships and other matters that could reasonably influence our independence and, if applicable, the applicable safeguards.
Among the issues communicated to the Audit Committee, we identified those that were most significant in the audit of the consolidated financial statements of the current period and which are therefore the key audit issues. We describe these issues in our audit report unless legal or regulatory provisions prohibit disclosure or, in extremely rare circumstances, we determine that an issue should not be reported in our report because the adverse consequences of doing so would be expected to outweigh the benefits of public interest.
The name of the partner in charge of the Company’s audit is Antonio Mansilla Ávila.
PricewaterhouseCoopers, S. C.
C.P.C. Antonio Mansilla Ávila
Audit Partner
Mexico City, February 28, 2017
