Korea Electric Power : Audit Report

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KOREA ELECTRIC POWER	Donnelley Financial fhpaxe-egvdoc1EGV	06-Mar-2019 17:00 EST	707081 6-K_2.CTL2
FORM 6-K (AUDIT REPO			HKG		0C
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Period Of Report>03-08-2019

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Conformed Document Type>6-K

Description>Form6-K

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KOREA ELECTRIC POWER	Donnelley Financial	FWPAXE-EGVRS26	EGV pf_rend	06-Mar-2019 16:06 EST	707081 TX 3	3*
12.9.12.0
FORM 6-K (AUDIT REPO					HKG		HTM ESS	0C
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KOREA ELECTRIC POWER CORPORATION

AND SUBSIDIARIES

Consolidated Financial Statements

December 31, 2018

(With Independent Auditors' Report Thereon)

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KOREA ELECTRIC POWER	Donnelley Financial	FWPAXE-EGVRS26	EGV pf_rend	06-Mar-2019 16:06 EST	707081 TX 4	3*
12.9.12.0
FORM 6-K (AUDIT REPO					HKG		HTM ESS	0C
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INDEX TO FINANCIAL STATEMENTS
								Page
Independent Auditors' Report								1
Consolidated Statements of Financial Position							5
Consolidated Statements of Comprehensive Income (Loss)							7
Consolidated Statements of Changes in Equity							9
Consolidated Statements of Cash Flows							11
Notes to the Consolidated Financial Statements							13

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KOREA ELECTRIC POWER	Donnelley Financial	FWPAXE-EGVRS26	EGV pf_rend	06-Mar-2019 16:06 EST	707081 TX 5	4*
12.9.12.0
FORM 6-K (AUDIT REPO					HKG		HTM ESS	0C
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Independent Auditors' Report

Based on a report originally issued in Korean

To the Shareholders and Board of Directors of

Korea Electric Power Corporation:

Report on the Audit of the Consolidated Financial Statements

Opinion

We have audited the consolidated statement of financial statements of Korea Electric Power Corporation and its subsidiaries (the "Company"), which comprise the consolidated statements of financial position as of December 31, 2018 and 2017, the consolidated statements of comprehensive income (loss), changes in equity and cash flows for the years then ended, and notes, comprising significant accounting policies and other explanatory information.

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, 2018 and 2017, and its consolidated financial performance and its consolidated cash flows for the years then ended in accordance with Korean International Financial Reporting Standards ("K-IFRS").

Basis for Opinion

We conducted our audits in accordance with Korean Standards on Auditing (KSAs). Our responsibilities under those standards are further described in the Auditors' Responsibilities for the Audit of the Consolidated Financial Statements section of our report. We are independent of the Company in accordance with the ethical requirements that are relevant to our audit of the consolidated financial statements in Republic of Korea, 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.

Emphasis of Matter

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements as of and for the year ended December 31, 2018. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

(1) Assessment of impairment of property, plant and equipment ("PP&E") in electricity transmission and distribution business

As discussed in note 3.(18) to the consolidated financial statements, at each reporting date, the Company assesses if any indicator of impairment for it is PP&E exists. If there is an impairment indicator for a cash-generating unit ("CGU"), the Company compares recoverable amount of the CGU with its carrying value to determine if the PP&E which are allocated to the respective PP&E are impaired.

The Company is comprised of a number of cash-generating units ("CGUs"). In view of the significant difference between the Company's market capitalization and its consolidated net assets carrying amount, management considered that an indicator of impairment of the Company's PP&E existed as of December 31, 2018, which is attributed to the CGU of electricity transmission and distribution business.

Management performed impairment assessment of the Company's PP&E allocated to its electricity transmission and distribution CGU by comparing the carrying amount of the CGU with its value-in-use (VIU) determined based on discounted cash flow forecasts. Preparing the VIU estimation requires management to exercise significant judgment, particularly in relations to estimating future sales volumes, unit cost of sales, cost of power purchase, capital expenditure, discount rate, etc. We have identified assessment of impairment of PP&E in the electricity transmission and distribution business as a key audit matter because the carrying value of these assets are significant to the consolidated financial statements and also because estimation using a discounted cash flow forecast is complex and involves the exercise of significant management judgment in estimating the variable inputs, which can be inherently uncertain and could be subject to management bias.

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KOREA ELECTRIC POWER	Donnelley Financial	FWPAXE-EGVRS26	EGV pf_rend	06-Mar-2019 16:06 EST	707081 TX 6	3*
12.9.12.0
FORM 6-K (AUDIT REPO					HKG		HTM ESS	0C
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The primary procedures we performed to address this key audit matter included:

• Testing the effectiveness of certain internal controls relating to the Company's assessment of impairment of PP&E
• Assessing management's identification of CGU and the allocation of assets to each CGU with reference to our understanding of the Company's business and the requirements of the prevailing accounting standards
• Performing look back analysis to assess the accuracy of the forecast
• Assessing the qualification and objectivity of the external institution engaged by the Company to assess the impairment of PP&E
• Utilizing our internal valuation specialists to recalculate the discount rate, VIU evaluation and calculation method used by management
• Obtaining the Company's business plan and external data for major variable inputs such as future sales volumes, unit cost of sales, cost of power purchase, etc. used in calculating VIU, and examine whether there were any indicators of management bias
• Obtaining from the Company sensitivity analyses of the key assumptions adopted in the discounted cash flow forecasts and assessing the impact of changes in the key assumptions to the conclusions reached in the impairment assessments and whether there were any indicators of management bias

(2) Recognition of construction contract revenue

The Company is engaged in the UAE nuclear power plant business. In relation to this business, we have reviewed application of input method, estimation of total contract costs, assessment of percentage-of-completion, recoverability of due from customers for contract work and accounting for the variation of construction contract considering qualitative and quantitative factors such as construction progress, financial uncertainty, etc.

(a) Uncertainty of estimated total contract costs

Construction contracts are generally performed for long term duration, and the total contract costs are estimated based on estimated future amounts such as material costs, labor costs, outsourcing costs and others which are expected to be incurred during construction period. The actual total contract costs can vary from the Company's original estimates because of changes in condition. Total estimated contract costs changed by W817,393 million for the year ended December 31, 2018 as described in note 23.(5) to the consolidated financial statements. Considering possible impact from the uncertainty, we have identified the Company's uncertainty of estimated total contract costs as a significant risk.

The primary procedures we performed to address this key audit matter included:

• Considering total contract cost calculation method and principal assumptions
• Testing the effectiveness of certain internal controls relating to the Company's estimation of total contract cost
• Inquiring and inspecting relevant documents regarding the variation on significant and main components of total contract costs
  (b) Accounting for the variation of construction contract

Variation of construction contracts occurred during the year ended December 31, 2018 and had significant impact on profits or loss of the construction contract as described in note 23.(5) to the consolidated financial statements. For this reason, we have identified the accounting for the variation of construction contract as a significant risk.

The primary procedures we performed to address this key audit matter included:

• Testing the effectiveness of certain internal controls relating to the change of construction contract
• Inspecting documents and evaluation of appropriateness of the basis used for the calculating total contract revenue for selected samples on contracts with changes
• Inquiring and inspecting documents related to the causes of change when the contracted revenue significantly changed through the construction work change other than the initially agreed upon contracted amount
• Assessing whether additional contract costs according to changes in construction work were reflected in the estimated total contract costs and percentage of completion
• Inspecting that the change in construction contract has been appropriately disclosed in the notes to the consolidated financial statements

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