Report of the Statutory Auditor to the General Meeting of Clariant Ltd, Muttenz
Report on the audit of the financial statements
Opinion
We have audited the financial statements of Clariant Ltd, which comprise the balance sheet as at 31 December 2019, income statement and notes for the year then ended, including a summary of significant accounting policies.
In our opinion, the financial statements (marked with the label “Audited information”) as at 31 December 2019 comply with Swiss law and the company’s articles of incorporation.
Basis for opinion
We conducted our audit in accordance with Swiss law and Swiss Auditing Standards. Our responsibilities under those provisions and standards are further described in the “Auditor’s responsibilities for the audit of the financial statements” section of our report.
We are independent of the entity in accordance with the provisions of Swiss law and the requirements of the Swiss audit profession 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.
Overview |
Overall materiality: CHF 21 million |
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We tailored the Scope of our audit in order to perform sufficient work to enable us to provide an opinion on the financial statements as a whole, taking into account the structure of the entity, the accounting processes and controls, and the industry in which the entity operates. As key audit matters the following areas of focus have been identified:
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Materiality
The scope of our audit was influenced by our application of materiality. Our audit opinion aims to provide reasonable assurance that the 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 financial statements.
Based on our professional judgement, we determined certain quantitative thresholds for materiality, including the overall materiality for the 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, both individually and in aggregate, on the financial statements as a whole.
Overall materiality |
CHF 21 million |
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How we determined it |
0.4% of total assets |
Rationale for the materiality benchmark applied |
We chose total assets as the benchmark because, in our view, it is the most relevant measure for the activities of Clariant Ltd as a holding company. |
We agreed with the Audit Committee that we would report to them misstatements above CHF 1 million identified during our audit as well as any misstatements below that amount which, in our view, warranted reporting for qualitative reasons.
Audit scope
We designed our audit by determining materiality and assessing the risks of material misstatement in the financial statements. In particular, we considered where subjective judgements were made; 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.
Report on key audit matters based on the circular 1/2015 of the Federal Audit Oversight Authority
Key audit matters are those matters that, in our professional judgement, 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.
Key audit matter |
How our audit addressed the key audit matter |
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Since 2017, Clariant has been party to an ongoing competition law investigation by the European Commission relating to the ethylene purchasing market. The investigation is ongoing, and a subsidiary of Clariant Ltd recorded a provision of CHF 231 million in 2019 based on the information available at the time to management and the Board of Directors. The outcome of the investigation is uncertain both in terms of the future course of the proceedings and the size of any fines which might be imposed. Please refer to Contingent liabilities, note 13 in the notes to the financial statements. |
We discussed the status of the ongoing investigation with in-house and external legal counsel and considered the relevant correspondence and minutes of the Board of Directors’ and management meetings. We obtained letters from external legal counsel to confirm our understanding of the status and of their assessment of the investigation. We also used internal PwC legal specialists to assist us in assessing the status of the investigation and the appropriateness of the approach taken and the provision recorded by management and the Board of Directors. We discussed our assessment with management, the Audit Committee and the Board of Directors, and we obtained written representations from the company in relation to the case. As set out in the notes to the financial statements, the outcome of the pending investigation depends on future developments and therefore the exposure to risk of Clariant Ltd, as assessed by management and the Board of Directors, is subject to inherent uncertainty. On the basis of the procedures performed and the information obtained, we are satisfied that the approach taken by management and the Board of Directors was appropriate. |
Key audit matter |
How our audit addressed the key audit matter |
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We consider the valuation of shareholdings in and loans to Group companies to be a key audit matter owing to the significant Scope for judgement involved with respect to the assumptions and the discount rates applied for the valuations of the shareholdings as well as to the significance of these shareholdings and loans on the balance sheet. Please refer to Shareholdings in Group companies, note 5 in the notes to the financial statements. |
We evaluated and challenged management’s assumptions and the discount rates applied for the valuations of the shareholdings. We assessed management’s process in grouping together certain shareholdings and the application of generally accepted valuation methods to calculate their value. We tested the calculation method and we compared the input figures used with the Group’s accounting records. We also compared the actual results of the year under review with the figures included in the forecasts made in the prior year in order to assess with hindsight whether any of the assumptions underlying the forecasts might have been too optimistic. We assessed the assumptions relating to the forecasts and found them to be consistent with actual developments and reasonable. We involved PwC valuation specialists to assess the discount rate by comparing the rates with market information. We also tested the valuations of the loans to group companies based on these companies’ financial positions. On the basis of work performed, we consider the approach, assumptions and discount rate used by management to support the carrying value of the shareholdings in and loans to Group companies to be reasonable. |
Responsibilities of the Board of Directors for the financial statements
The Board of Directors is responsible for the preparation of the financial statements in accordance with the provisions of Swiss law and the company’s articles of incorporation, and for such internal control as the Board of Directors determines 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 is responsible for assessing the entity’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 Board of Directors either intends to liquidate the entity or to cease operations, or has no realistic alternative but to do so.
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 Swiss law and Swiss Auditing Standards 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 these financial statements.
A further description of our responsibilities for the audit of the financial statements is located at the website of EXPERTsuisse: http://expertsuisse.ch/en/audit-report-for-public-companies. This description forms part of our auditor’s report.
Report on other legal and regulatory requirements
In accordance with article 728a paragraph 1 item 3 CO and Swiss Auditing Standard 890, we confirm that an internal control system exists which has been designed for the preparation of financial statements according to the instructions of the Board of Directors.
We further confirm that the proposed appropriation of reserves complies with Swiss law and the company’s articles of incorporation. We recommend that the financial statements submitted to you be approved.
PricewaterhouseCoopers AG
Rolf Johner
Audit expert
Auditor in charge
Michael Scheibli
Audit expert
Basel, 11 February 2020