POSCO : Consolidated 2020 - 4Q Audit Report

POSCO and Subsidiaries

Consolidated Financial Statements December 31, 2020 and 2019

(With Independent Auditors' Report Thereon)

Table of Contents

Page

Independent Auditors' Report .............................................................................................. 1

Consolidated Financial Statements

Consolidated Statements of Financial Position .................................................................. 6

Consolidated Statements of Comprehensive Income ....................................................... 8

Consolidated Statements of Changes in Equity ................................................................ 9

Consolidated Statements of Cash Flows ......................................................................... 11

Notes to the Consolidated Financial Statements ............................................................ 13

Independent Auditors' Report

Based on a report originally issued in Korean

The Board of Directors and Shareholders

POSCO:

Opinion

We have audited the consolidated financial statements of POSCO and its subsidiaries (the "Company"), which comprise the consolidated statements of financial position as of December 31, 2020 and 2019, the consolidated statements of comprehensive income, 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, 2020 and 2019, 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.

Key Audit Matters

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, 2020. 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.

(a) Assessment of goodwill impairment in the POSCO INTERNATIONAL Corporation cash generating unit

As described in note 15 to the consolidated financial statements, goodwill amounted to W903,893 million as of December 31, 2020, which includes goodwill allocated to the cash generating unit ("CGU") of POSCO INTERNATIONAL Corporation in the amount of W762,816 million. The Company recognized impairment loss on goodwill allocated to the CGU of POSCO INTERNATIONAL Corporation of W188,619 million during the year ended December 31, 2020.

As described in note 15(c) to the consolidated financial statements, the Company performed goodwill impairment test for POSCO INTERNATIONAL Corporation CGU by estimating its value-in-use. In estimating the value-in-use, management's judgment is involved in determining the key assumptions such as discount rate, terminal growth rate and estimated sales that have significant impacts on the estimated value-in-use. Considering significant degree of judgment in estimating value-in-use and the likelihood of existence of management bias, we identified assessment of goodwill impairment related to POSCO INTERNATIONAL Corporation CGU as a key audit matter.

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

• - Testing certain internal controls over the Company's goodwill impairment assessment process;

• - Evaluating the key assumptions (including estimated sales) used to determine the value-in -use by comparison with the latest financial budgets approved by the Board of Directors, historical performance and industry reports;

• - Comparing the future cash flows forecasts prepared in prior year with the current year's performance to assess the Company's ability to accurately forecast;

• - Performing sensitivity analysis on the discount rate, terminal growth rate and estimated sales applied to assess the impact of changes in these key assumptions on the results of management's impairment assessment;

• - Assessing the qualification and objectivity of the external institution engaged by the Company to assess the value-in-use of the POSCO INTERNATIONAL Corporation CGU;

• - Engaging our valuation specialists to assist us in evaluating the discount rate used in the valuation by comparing it against a discount rate that was independently developed using observable information for comparable entities; and

• - Engaging our valuation specialists to assist us in evaluating estimated sales and terminal growth rate by comparing them with observable information for comparable entities.

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