Powszechny Zaklad Ubezpiecze? Spólka Akcyjna : Report on the Audit of the Annual Consolidated Financial Statements 2023

This document is a free translation of the Polish original. Terminology current in Anglo-Saxon countries has been used where practicable for the purposes of this translation in order to aid understanding. The binding Polish original should be referred to in matters of interpretation.

Independent Auditor's Report

To the General Shareholders' Meeting and Supervisory Board of Powszechny Zakład Ubezpieczeń S.A.

Report on the Audit of the Annual Consolidated Financial Statements

Opinion

We have audited the accompanying annual consolidated financial statements of Powszechny Zakład Ubezpieczeń S.A. Group (the "Group"), whose parent entity is Powszechny Zakład Ubezpieczeń S.A. (the "Parent Entity"), which comprise:

• the consolidated statement of financial position as at 31 December 2023; and, for the period from 1 January to 31 December 2023:
• the consolidated profit or loss account;
• the consolidated statement of other comprehensive income;
• the consolidated statement of changes in equity;
• the consolidated cash flow statement;

and

• the supplementary information and notes (the "consolidated financial statements").

In our opinion, the accompanying consolidated financial statements of the Group:

• give a true and fair view of the consolidated financial position of the Group as at 31 December 2023 and of its consolidated financial performance and its consolidated cash flows for the financial year then ended in accordance with International Financial Reporting Standards, as adopted by the European Union ("IFRS EU") and the adopted accounting policy;
• comply, in all material respects, with regard to form and content, with applicable laws and the provisions of the Parent Entity's articles of association.

Our audit opinion on the consolidated financial statements is consistent with our report to the Audit Committee dated 20 March 2024.

KPMG Audyt spółka z ograniczoną odpowiedzialnością sp.k.

ul. Inflancka 4A, 00-189 Warsaw, Poland

tel. [phone], fax [phone], [e-mail]

KPMG Audyt Spółka z ograniczoną odpowiedzialnością sp.k., a Polish limited partnership and a member firm of the KPMG global organization of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee.

Company registered at the District Court	KRS 0000339379
for the capital city of Warsaw in Warsaw,	NIP: 527-26-15-362
12th Commercial Division of the National	REGON: 142078130
Business Register.

1

Basis for Opinion

We conducted our audit in accordance with:

• International Standards on Auditing as adopted by the National Council of Statutory Auditors and the Council of Polish Agency for Audit Oversight as National Standards on Auditing (the "NSA");
• the act on statutory auditors, audit firms and public oversight dated 11 May 2017 (the "Act on statutory auditors");
• regulation (EU) No 537/2014 of the European Parliament and of the Council of 16 April 2014 on specific requirements regarding statutory audit of public-interest entities and repealing Commission Decision 2005/909/EC (the "EU Regulation"); and
• other applicable laws.

Our responsibilities under those standards and regulations are further described in the Auditor's Responsibility for the Audit of the Consolidated Financial Statements section of our report.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Independence and Ethics

We are independent of the Group in accordance with International Ethics Standards Board for Accountants International Code of Ethics for Professional Accountants (including International Independence Standards) ("IESBA Code") as adopted by the resolution of the National Council of Statutory Auditors ("NCSA"), together with the ethical requirements that are relevant to our audit of the consolidated financial statements in Poland and we have fulfilled our other ethical responsibilities in accordance with these requirements and the IESBA Code. During our audit the key statutory auditor and the audit firm remained independent of the Group in accordance with requirements of the Act on statutory auditors and the EU Regulation.

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 of the current period. They are the most significant assessed risks of material misstatement, including those due to fraud. Key audit matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon we have summarised our response to those risks. We do not provide a separate opinion on these matters. We have determined the following key audit matters:

Initial application of IFRS 17 Insurance contracts

Total net impact of initial application of IFRS 17 "Insurance contracts" ("IFRS 17" or "the Standard") as at 1 January 2022 ("transition date") amounted to PLN 4 992 million (Cr), recognized as an increase in retained earnings by PLN 5 724 million and a decrease in accumulated other comprehensive income (OCI) by PLN 732 million.

Reference to the consolidated financial statements: Note 6.2.1 "Implementation of IFRS 17"

Key point of research	Our response
IFRS 17, effective for annual reporting periods	Our audit procedures, performed with the
beginning on 1 January 2023, introduced new	assistance of our own actuarial specialists,
recognition, measurement, presentation and	included, among others:
disclosure requirements for insurance contracts.
Following the requirements of the Standard, at	• inspecting the	Group's	accounting policies
transition date, the Group identified, recognized	and actuarial	methods	and models, and
and measured each group of insurance contracts
			2

based on the full retrospective approach (FRA), unless impracticable, in which case modified retrospective approach (MRA) or fair value approach were applied. The above approaches were applied to different groups of insurance contracts, as considered appropriate under the circumstances. The Standard's adoption was associated with the following main complexities:

• application of the said approaches required significant judgment and developing new assumptions;
• under the Standard, the Group was also required to the determine the appropriate model to be applied in measuring the liability for remaining coverage (LRC) for a given group of contracts. Management's use of the premium allocation approach (PAA) or variable fee approach (VFA) was associated with a complex eligibility assessment;
• IFRS 17 expanded on the scope of disclosures required in the Group's consolidated financial statements compared with those previously required by IFRS 4 Insurance contracts.

In the wake of the above factors, auditing the Standard's initial application by the Group was also complex and required significant judgement due to complexity of models and accounting policy choices. The area was therefore considered by us to be a key audit matter.

assessing their compliance with the requirements of the Standard;

• for a sample of insurance contracts, challenging the grouping of the contracts, by inspecting the contractual conditions and also evaluating the appropriateness of the transition approach adopted;
• challenging key assumptions applied within the transition-date measurement models, by reference to a range of external and internal sources of data;
• for the full retrospective approach (FRA), recalculating the CSM for a sample of groups of insurance contracts;
• for the modified retrospective approach (MRA), challenging whether the modifications applied, including those related to future cash flows at the date of initial recognition, were derived using reasonable and supportable information and maximized the use of information that would have been used to apply a fully retrospective approach;
• challenging, for a sample of insurance contract groups, management's judgements and estimates applied in establishing the eligibility for the use of the PAA or VFA measurement models for the LRC;
• examining whether the Group's disclosures in the consolidated financial statements appropriately address the relevant quantitative and qualitative requirements of IFRS 17.

Liability for incurred claims for insurance contracts under the premium allocation approach

The carrying amount of LIC - insurance contracts under PAA: PLN 15,990 million as at 31 December 2023 (including PLN 14,837 million of PVFCF and PLN 1,153 million of RA) and PLN 13,493 million as at 31 December 2022 (including PLN 12,357 million of PVFCF and PLN 1,136 million of RA).

Reference to the consolidated financial statements: Note 11. "Insurance contracts and reinsurance contracts" and Note 11.4.1.1 "Analysis by remaining coverage period and claims incurred"

Key audit matter	Our response
Liability for incurred claims for insurance contracts	Our audit procedures, performed with the
under PAA (LIC) constitutes a significant element	assistance of our actuarial specialists, included,
of insurance contract liabilities in the Group's	among others:
statement of financial position. In measuring the	•	assessing the methods of estimating the
liability, the Management Board of the Parent
Entity was required to estimate the present value		IBNR and RBNP for annuities applied by the
of future cashflows (PVFCF) for claims that		Group, for consistency of application and also
occurred until 31 December 2023 and the risk		against relevant legal, regulatory and financial
adjustment for non-financial risk (RA) arising from	•	reporting requirements;
the uncertainty in the said cashflows.	testing the design, implementation and
		operating effectiveness of selected controls
		3

The estimation of PVFCF in part related to incurred but not reported claims (IBNR) and reported annuity claims (RBNP for annuities) requires the Management Board of the Parent Entity to apply professional judgment as well as complex and subjective assumptions, especially for lines of business that are considered longer tail such as Motor Third Party Liability (MTPL). This is the case in particular for development of bodily injury claims, including annuities, as well as pain and suffer claims, as a result of the lack of comprehensive information on past occurrence of such type of claims that still burden the risk of payment. In addition, the ultimate loss amounts are also uncertain due primarily to demographic factors and lack of detailed legal solutions regulating the amount of pain and suffer claims.

Relatively insignificant changes in the key assumptions may have a material impact on the amount of the LIC. The key assumptions include:

• claims development ratios;
• indexation levels of annuities; and
• assumed mortality.

Estimating IBNR and RBNP for annuities also requires applying complex formulas and calculation tools that may not work properly and / or rely on incorrect assumptions. In addition, a number of acceptable actuarial methods exist for determining the IBNR and RBNP for annuities.

In the wake of the above factors, satisfying ourselves regarding measurement of the LIC, required our increased attention in the audit and as such was determined to be a key audit matter.

within the process of estimating IBNR and RBNP for annuities, including those over:

• • establishing and revising actuarial assumptions;
  • completeness and accuracy of the underlying data; and
  • output of the calculation of IBNR and RBNP for annuities;
• for selected insurance contract groups - independent recalculation of the IBNR and RBNP for annuities and investigating any material differences in comparison to the Group's estimate;
• performing a retrospective assessment of the Group's estimation of IBNR by comparing the prior year's estimate with the actual outcomes;
• assessing the key assumptions in the estimation of IBNR and RBNP for annuities, by analysing changes over time in their value, as well as:
• • for claim development ratios - by reference to the Group's historical data regarding reported and settled claims;
  • for indexation levels of annuities - by reference to the Group's analysis of historical changes in the amounts of paid annuities;
  • for assumed mortality - by reference to publicly available data regarding annual number of deaths in each age bucket.
• examining whether the Group's disclosures in the consolidated financial statements relating to LIC under PAA appropriately address the relevant quantitative and qualitative requirements of the applicable financial reporting framework.

4

Liability for remaining coverage (LRC) for life insurance contracts not measured under thepremium allocation approach (PAA)

The carrying amount of Insurance contract liabilities for life insurance contracts not measured under PAA: PLN 19,584 million (including PLN 9,676 million of PVFCFs, PLN 1,458 million of RA LRC and PLN 8,450 million of CSM) as at 31 December 2023 and PLN 17,754 million (including PLN 8,263 million of PVFCFs, PLN 1,341 million of RA LRC and PLN 8,150 million of CSM) as at 31 December 2022.

Reference to the consolidated financial statements: Note 11 "Insurance contracts and reinsurance contracts" and Note 11.4.1.2. "Analysis by valued component - contracts not measured under PAA"

Key audit matter	Our response
Liability for remaining coverage - LRC for life	Our audit procedures, performed with the
insurance contracts not measured under PAA	assistance of our own actuarial specialists,
('the liability") represents a significant element of	included, among others:
insurance contract liabilities in the Group's	• evaluating the Group's methods and models
statement of financial position. In measuring the
liability, management was required to estimate the		applied in estimating the liability, for
present value of future cash flows (PVFCFs), risk		consistency of application and also against
adjustment for non-financial risk (RA LRC) and		relevant legal, regulatory and financial
contractual service margin (CSM).	•	reporting requirements;
Estimation of PVFCFs requires the Management	testing	the	design,	implementation	and
Board of the Parent Entity to apply professional		operating effectiveness	of selected	controls
	within	the	process	of	the	liability
judgment, as well as complex and subjective
	measurement, including those over:
assumptions, including those with a long-time
	- establishing
horizon. Those assumptions are treated as inputs		and	revising	actuarial
into the cash flow models using actuarial methods.		assumptions;
PVFCFs and further data and assumptions are		- completeness	and	accuracy	of
then used to calculate the RA LRC and CSM.		underlying data; and
Relatively insignificant changes in the key		- calculation of PVFCFs.
assumptions may have a material impact on the	•	challenging the	key	actuarial assumptions
amount of the liability. The key assumptions
include:		used by the Group, as follows:
- mortality, accident, and morbidity rates;		- mortality,	accident	and	morbidity rates,
- resignation/lapse ratios;		lapse ratios and expenses - by reference
	to the Group's historical studies or
- expenses; and		external	market	data,	as considered
	appropriate;
- discount rates.		- discount rates - primarily by reference to
The determination of PVFCFs also requires		risk	free	rates	obtained from	publicly
	available external sources.
applying complex formulas and calculation tools
• for selected groups of insurance contracts -
that may not work properly and / or rely on
incorrect assumptions.		independently	recalculating	PVFCFs	and
For the above reasons, we considered the		comparing the results to those of the Group at
	31 December 2023;
measurement of liability for remaining coverage	•
examining	whether	the	LRC-related
for life insurance contracts not measured under
PAA to be a key audit matter.		disclosures in the consolidated financial
		statements	appropriately	address	the
		qualitative and quantitative requirements of
		the relevant financial reporting standards.

5

6

Expected credit losses for loan receivables from clients and provisions for off-balance-sheetliabilities in banking activity

The carrying amount of loan receivables from clients in banking activity amounted to PLN 218,808 million as at 31 December 2023 and PLN 212,693 million as at 31 December 2022. Allowance for expected credit losses on loan receivables from clients amounted to PLN 13,867 million as at 31 December 2023 and PLN 14,563 million as at 31 December 2022. Provisions for off-balance sheet commitments amounted to PLN 578 million as at 31 December 2023 and PLN 514 million as at 31 December 2022.

Net allowances for expected credit losses in 2023 amounted to PLN (1,124) million, and in 2022 PLN (3,068) million.

Reference to the consolidated financial statements: Note 16 " Movement in allowances for expected credit losses and impairment losses on financial instruments", Note 33 "Loan receivables from customers", Note 38 "Expected credit losses and impairment of financial assets" and Note 46 "Provisions"

Key audit matter

Our response

Loan receivables from clients carried at amortized

Our audit procedures, performed with the

cost or at fair value through other comprehensive

assistance of our own credit risk and IT audit

income are presented net of impairment

specialists, included, among others:

allowances estimated based on the expected

• evaluating methods used in establishing the

credit loss model. The process of estimating the

allowances includes two key stages - identification

risk parameters and estimating individual and

of default or significant increase in credit risk, and

collective expected credit losses against the

measurement of expected credit losses. The loss

requirements of the applicable financial

allowance represents a reporting-date estimate of

•

reporting standard;

the credit losses expected to occur on loan

testing

the

design,

implementation

and

receivables over the following 12 months or over

operating effectiveness of selected internal

the entire lifetime of the exposure.

controls (including general IT system controls)

Default and significant increase in credit risk are

applied

in

the

process

of

estimating

allowances

for

expected

credit

losses

identified

mainly

based

on

payment

(including the controls related to monitoring of

delinquencies, borrowers' financial standing and

borrowers' credit

risk

and

verification

of

the current

assessment

of

the

probability

of

collateral values);

default as compared to one at the exposure's

•

challenging

the

appropriateness

of

the

initial recognition.

Expected

credit

losses

are

estimated individually and, for

homogenous loan

Group's identification of default and significant

increase

in

credit

risk

for

the

purposes of

portfolios,

collectively,

based

on

statistical

classification

of

exposures

into

stages,

methods using

risk parameters. The collective

considering

qualitative

and

quantitative

method relies on significant assumptions

criteria;

determined for each homogeneous group of loan

receivables, including risk parameters such as the

• assessing relevance and reliability of the input

probability of default (PD), loss given default

data and challenging the key assumptions

(LGD) or exposure at default (EAD) as well as the

used by the Group in its

measurement of the

criteria/ allocation thresholds to risk categories

expected credit losses, including those used

(stages), based on historical data and also

in establishing the key parameters for the

considering expected macroeconomic conditions.

collective method, such as, in particular,

Measurement of collective expected credit losses

transfer logic between stages, PD, LGD and

EAD,

through,

among

other

things,

requires the Parent Entity's Management Board to

challenging the look-back period applied and

use significant

judgment

and make

significant

the assumed effects

of

expected

future

assumptions,

particularly

with

respect

to

economic conditions on risk parameters;

projections of future economic conditions,

identification of default and significant increase in

credit risk and the selection of data to be used to	•	independently		recalculating	selected
establish the statistical model parameters.		statistical	parameters	and	collective
Also, for loans assessed on an individual basis,		allowances for expected credit losses, for a
significant judgment and assumptions relate to the		sample of exposures or loan portfolios;
recovery scenarios, collateral valuations and	•	for a sample of exposures assessed
timing of cash flows. Relatively insignificant		individually - challenging the Group's
changes in these assumptions and other relevant		identification of significant increase in credit
model parameters could have a material impact		risk and default and, for impaired assets -
on the Group's estimate of expected credit losses.		challenging the key assumptions applied in
We considered this area to be a key audit matter		the credit loss estimates, including those for
due to the significant inherent risk of error and		the amount and timing of recovery, and also
fraud (as regards loan receivables assessed on a		independently recalculating the amounts of
collective basis) and significant estimation		the allowances;
uncertainty associated with the measurement of	•	evaluating		the	completeness	and
the allowances for expected credit losses, and		appropriateness of disclosures in the
also due to the magnitude of the loan portfolio,		consolidated		financial	statements	on
resulting in its material effects on the consolidated		significant judgments and estimates related to
financial statements.		expected credit losses,	and also performing
		an analysis of the expected credit losses'
		sensitivity to changes in key assumptions.

Business risk, including claims related to Swiss franc (CHF) loans

The carrying amount of loans in CHF amounted to PLN 239 million on 31 December 2023 and PLN 413 million as at 31 December 2022. Due to the risks related to the current and potential legal claims filed by borrowers who have, in the past, been granted mortgage loans denominated in or indexed to CHF ("CHF loans"), the carrying amount of the loan portfolio was reduced by PLN 1,650 million on 31 December 2023 and by PLN 1,824 million at 31 December 2022.

In respect of CHF loans which have been:

• repaid by borrowers,
• not repaid by borrowers, as regards legal costs and statutory late payment interest, or
• not repaid by borrowers, in the amount of the excess of the expected cash outflow over the net book value,

a provision was recognized in the amount of PLN 948 million as at 31 December 2023 (PLN 479 million as at 31 December 2022).

Reference to the consolidated financial statements: Note 8.5.3.2. 'Currency risk' and Note 46 'Provisions'

Key audit matter	Our response
The Group conducts its business operations on	Our audit procedures, performed with the
assistance of our own credit risk specialists,
regulated markets; it is therefore exposed to an	included, among others:
increased risk of changes in legislation and events	• challenging the method used by the Group to
that may reduce cash flows from financial
contracts with customers or result in an obligation	estimate the financial effects of the CHF loan-
or liability arising from past events, whose	related claims by borrowers, as well as the
settlement will require an outflow of resources	related accounting policy;
embodying economic benefits ("risk amount").	• testing the design and implementation	of
As at 31 December 2023, the above relates in	selected internal controls with respect	to
identification, monitoring and estimating	the
particular to the effects of the ruling by the Court
risk amount resulting from CHF loan-related
of Justice of the European Union ("CJEU") dated
claims;
		7

3 October 2019 (Case C- 260/18 ) and subsequent CJEU decisions in CHF loans-related cases, in particular as regards the rulings issued in 2023.

Following the said rulings, for a number of consecutive years, the Group witnessed an increase in the number of lawsuits filed by CHF loan borrowers. The Group expects the growth in the number of lawsuits to continue for some time, which, given lack of uniform line of jurisprudence, may result in lower-than-contractual expected cash flows from CHF loans and in resulting losses incurred by the Group. The Group estimated the amount of expected loss, considering the effects of court proceedings as well as possible out-of- court settlements, with key assumptions including those for the expected amounts of loans subject to the claims, likelihood of unfavorable case outcomes and of various possible court verdicts, the expected magnitude of possible out-of-court settlements with borrowers, legal costs, statutory late payment interest and discount rates. Relatively minor changes in key assumptions may materially impact the amounts of the Group's losses.

In the wake of the above factors, satisfying ourselves regarding the Group's estimate of the risk amount and related disclosures in the consolidated financial statements required our significant attention in the audit of the consolidated financial statements, and as such was considered by us to be a key audit matter.

• assessing the relevance and reliability of the input data used in estimating the allowances and provisions for risks associated with CHF loans, by tracing them to the Group's IT systems and the claims register;
• analyzing an opinion by a legal firm engaged by the Group, including its assessment of the effects thereon of the CJEU's 3 October 2019 ruling, considering court verdicts in Poland in similar cases issued following the said CJEU ruling, the Group's practices and loan agreement templates used for CHF loans;
• challenging key assumptions used by the Group in estimating allowances / provisions for risks associated with the CHF loan portfolio, among other things, through:
• • analysing responses received independently from the Group's external legal counsels and their assessment of the financial effects of the above- mentioned cases;
  • challenging the expected level of customer debt balance inquiries (as a leading indicator of new lawsuits) as well as the level of expected conversion of debt balance inquiries into lawsuits filed, by reference to the Group's historical data;
  • assessment of the appropriateness and correctness of the statistical function applied to project the expected value of loan agreements subject to the lawsuits;
  • challenging the assumptions made in the context of the CJEU's rulings dated 15 June 2023 (Case C-520/21) and 7 December 2023 (Case C-140/22);
  • challenging the estimated amounts of legal costs and statutory late payment interest, by reference to legislative requirements, and the applied discount rates, by reference to publicly available data;
  • assessment of the estimated financial effects of out-of-court settlements by reference to the effects of past executed settlements;
• independently recalculating, for a sample of CHF loans, the amount of the allowance/ provision;
• assessing the sensitivity of the amounts of provisions for the risks stemming from the

8

CHF loan portfolio to changes in key assumptions and assessing whether the assumptions applied may be indicative of the Management Board of the Parent Entity's bias;

• evaluating the completeness and appropriateness of disclosures in the consolidated financial statements in respect of the estimation of risk allowances / provisions resulting from the CHF loan portfolio, against the requirements of the relevant financial reporting standards.

Impairment of goodwill

The carrying amount of goodwill amounted to PLN 2,801 million as at 31 December 2023 and PLN 2,808 million as at 31 December 2022.

Reference to the consolidated financial statements: Note 27 "Goodwill"

Key audit matter		Our response
As at 31 December 2023, goodwill related to	Our audit procedures, performed with the
acquisition of subsidiaries, in the amount of PLN	assistance of our own valuation specialists,
2,801 million, was recognized in the Group's	included, among others:
consolidated financial statements.		•	testing	the	design	and	implementation	of
As described in Note 27, goodwill, which is not		selected internal controls within the process of
subject to amortization, is tested annually for		testing goodwill for impairment, including
impairment, regardless of the existence of any		those over key assumptions and data;
impairment triggers.		•	challenging	the	appropriateness	of	the
Accordingly, as at 31 December 2023, the Group
	grouping of assets and allocation of goodwill
estimated the recoverable amount of goodwill,		into CGUs;
based on the value-in-use of the cash-generating	• In respect of the Group's value-in-use method
units ("CGU") to which it was allocated. Based o		and model:
the test results, no impairment was identified and
	- assessing whether the method meets the
no impairment losses recognized.
Estimating a CGU's recoverable	amount is		requirements	of	the	applicable	financial
	reporting	standards	and	the	model	is
complex and requires the Management Board of
	mathematically	correct	and	logically
the Parent Entity to apply professional judgement
	consistent;
and to make complex and subjective
	- challenging the key assumptions used
assumptions. Relatively insignificant changes in
key assumptions may have a material impact on		therein, as follows:
the estimate of the recoverable amount. Such key		o	the forecasted financial results and
assumptions included: the amounts of expected
future cash flows, growth rates in	the residual			cash flows of each CGU tested - by
		reference		approved	budgets,
period and discount rates.
			historical data and considering the
For the above reasons, impairment of goodwill			accuracy of budgeting in previous
was considered by us as a key audit matter.			periods;
			o growth rates in the residual period - by
				reference to market data;
			o discount rates - among other things,
				by reference to publicly available
				data, considering the characteristics
				of a given CGU;
											9

• evaluating the completeness and appropriateness of disclosures in the consolidated financial statements in respect of goodwill and related impairment testing.

Responsibility of the Management Board and Supervisory Board of the Parent Entity for the Consolidated Financial Statements

The Management Board of the Parent Entity is responsible for the preparation of consolidated financial statements that give a true and fair view in accordance with IFRS EU, the adopted accounting policy, the applicable laws and the provisions of the Parent Entity's articles of association and for such internal control as the Management Board of the Parent Entity determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the consolidated financial statements, the Management Board of the Parent Entity is responsible for assessing the Group'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 Management Board of the Parent Entity either intends to liquidate the Group or to cease operations, or has no realistic alternative but to do so.

According to the accounting act dated 29 September 1994 (the "Accounting Act"), the Management Board and members of the Supervisory Board of the Parent Entity are required to ensure that the consolidated financial statements are in compliance with the requirements set forth in the Accounting Act. Members of the Supervisory Board of the Parent Entity are responsible for overseeing the Group's financial reporting process.

Auditor's Responsibility for the Audit of the Consolidated Financial Statements

Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors' 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 NSAs 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 consolidated financial statements.

The scope of audit does not include assurance on the future viability of the Group or on the efficiency or effectiveness with which the Management Board of the Parent Entity has conducted or will conduct the affairs of the Group.

As part of an audit in accordance with NSAs, we exercise professional judgment and maintain professional scepticism throughout the audit. We also:

• identify and assess the risks of material misstatement of the consolidated 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 Group's internal control;
• evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the Management Board of the Parent Entity;

10