Saudi Arabian Oil : Full year financial report

Saudi Arabian Oil Company

Consolidated financial statements

for the year ended December 31, 202١

Independent auditor's report

Independent auditor's report to the shareholders of Saudi Arabian Oil Company

Report on the audit of the consolidated financial statements

Our opinion

In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of Saudi Arabian Oil Company (the "Company") and its subsidiaries (together the "Group") as at December 31, 2021, and its consolidated financial performance and its consolidated cash flows for the year then ended in accordance with International Financial Reporting Standards, that are endorsed in the Kingdom of Saudi Arabia, and other standards and pronouncements issued by the Saudi Organization for Chartered and Professional Accountants (SOCPA).

What we have audited

The Group's consolidated financial statements comprise:

• the consolidated statement of income for the year ended December 31, 2021;
• the consolidated statement of comprehensive income for the year ended December 31, 2021;
• the consolidated balance sheet as at December 31, 2021;
• the consolidated statement of changes in equity for the year ended December 31, 2021;
• the consolidated statement of cash flows for the year ended December 31, 2021; and
• the notes to the consolidated financial statements, which include significant accounting policies and other explanatory information.

Basis for opinion

We conducted our audit in accordance with International Standards on Auditing, that are endorsed in the Kingdom of Saudi Arabia. Our responsibilities under those standards are further described in the Auditor's responsibilities 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

We are independent of the Group in accordance with the code of professional conduct and ethics, endorsed in the Kingdom of Saudi Arabia, that are relevant to our audit of the consolidated financial statements and we have fulfilled our other ethical responsibilities in accordance with these requirements.

PricewaterhouseCoopers, License No. 25, Saudi Aramco, P.O. Box 1659, Dhahran 31311, Kingdom of Saudi Arabia T: [phone], F: [phone],www.pwc.com/middle-east

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Independent auditor's report to the shareholders of Saudi Arabian Oil Company (continued)

Our audit approach

Overview

Materiality

Group

scoping

Key audit

matters

• We determined overall Group materiality taking into account the profit- oriented nature of the Group.
• Based on income before income taxes and zakat of SAR 769.5 billion, we determined our overall Group materiality at SAR 28.1 billion.
• Our quantitative threshold for reporting misstatements to those charged with governance was set at SAR 1.9 billion.

Based on their size, complexity and risk:

• We considered the Company's standalone operations and four other components located in the Kingdom of Saudi Arabia, the United States of America and the Republic of Korea as significant to the Group audit; and
• We also determined a number of other components to be in scope for the Group audit, in respect of which appropriate audit procedures were performed.

Our key audit matters comprise the following:

• Assessment of recoverability of the goodwill and brand recognised as part of the Saudi Basic Industries Corporation ("SABIC") acquisition; and
• Accounting for the oil pipelines transaction.

As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the consolidated financial statements. In particular, we considered where the Board of Directors made subjective judgments; 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.

Materiality

The scope of our audit was influenced by our application of materiality. An audit is designed to obtain reasonable assurance whether the consolidated 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 consolidated financial statements.

Based on our professional judgment, we determined certain quantitative thresholds for materiality, including the overall Group materiality for the consolidated 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 consolidated financial statements as a whole.

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Independent auditor's report continued

Independent auditor's report to the shareholders of Saudi Arabian Oil Company (continued)

Overall Group	SAR 28.1 billion (2020: SAR 14.2 billion)
materiality
How we determined it	Approximately 4% of income before income taxes and zakat
Rationale for the	Income before income taxes and zakat is an important benchmark for the
materiality benchmark	Group's stakeholders and is a generally accepted benchmark for profit-
applied	oriented groups.

We agreed with those charged with governance that we would report to them misstatements identified during our audit above SAR 1.9 billion.

How we tailored our Group audit scope

We tailored the scope of our audit in order to perform sufficient work to enable us to provide an opinion on the consolidated financial statements as a whole, taking into account the structure of the Group, the accounting processes and controls, and the industry in which the Group operates.

The Group's operations are conducted through many components in several parts of the world. The most significant component within the Group is the Company itself and most of the audit effort was spent by the Group engagement team based in Dhahran, Kingdom of Saudi Arabia. The Group engagement team tested IT general controls, application and manual controls over systems and processes related to the Company's financial information supplemented by tests of detail and analytical procedures. Certain audit procedures were carried out by the Group engagement team with assistance from internal accounting, valuation, pension, tax and IT experts and specialists. The Group engagement team also directed the work done by the various component teams across different locations and performed audit procedures on the consolidation workings and disclosures.

We identified four additional significant components where a full scope audit on the respective components' financial information was performed under our instructions. Members of the Group engagement team performed the full scope audit of the significant component located in Dhahran, Kingdom of Saudi Arabia. Component teams in Riyadh, Kingdom of Saudi Arabia, the United States of America and the Republic of Korea performed full scope audits of the components at those locations. We also requested certain other component teams to perform appropriate audit procedures. The selection of these components was based on qualitative and quantitative considerations, including whether the component accounted for a significant proportion of individual consolidated financial statement line items.

The Group engagement team's involvement in the audit work performed by component teams considered the relative significance and complexity of the individual component. This included allocating overall Group materiality to the different components, sending formal instructions, obtaining regular updates on progress and results of procedures as well as reviewing deliverables and the relevant underlying working papers.

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. 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.

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Independent auditor's report to the shareholders of Saudi Arabian Oil Company (continued)

Key audit matter

Assessment of recoverability of the goodwill and brand recognised as part of the SABIC acquisition

International Accounting Standard ("IAS") 36 'Impairment of Assets', that is endorsed in the Kingdom of Saudi Arabia, requires goodwill and intangible assets that have indefinite useful lives to be tested annually, irrespective of whether there is any indication of impairment.

Management performed an assessment of recoverability of the goodwill and brand (determined to have an indefinite useful life) recognised as part of the SABIC acquisition. The carrying amounts of these assets were SAR 99.1 billion and SAR 18.2 billion, respectively, at December 31, 2021.

Goodwill has been allocated to the Downstream operating segment. Therefore, the goodwill impairment test was performed at the Downstream operating segment level. The brand test was performed based on an aggregation of the relevant cash-generating units.

The recoverable amounts were determined based on value-in-use calculations derived using discounted cash flow models. The models were based on the most recent financial plans and included 10-year projection periods with terminal values assumed thereafter.

The exercise performed by management supported the goodwill and brand carrying values and did not identify the need for any impairment charges to be recognised.

We considered this to be a key audit matter given the significant estimates involved in determining recoverable amounts and the uncertainty inherent in the underlying forecasts and assumptions. The key inputs to the recoverable amounts included the:

• Cash flows during the 10-year periods including the commodity prices, margins and other underlying assumptions;
• Terminal values; and
• Pre-taxdiscount rates.

Refer to Note 2(e), Note 2(h), Note 6 and Note 35(a)(i) to the consolidated financial statements for further information.

How our audit addressed the Key auditmatter

Our procedures included the following:

• We reviewed the appropriateness of management's allocation of goodwill to the Downstream operating segment and brand to the aggregation of the relevant cash-generating units, based on the requirements of IAS 36 'Impairment of Assets', that is endorsed in the Kingdom of Saudi Arabia.
• We considered the completeness of the carrying values of the assets and liabilities considered as part of the impairment tests for the goodwill and brand.
• With input from internal valuation experts, where considered necessary, we performed the following procedures on management's valuation models, as deemed appropriate:
• • Considered the consistency of certain unobservable inputs underlying the 10-year cash flows such as expected product volumes and future costs with approved financial plans;
  • Compared a sample of forecast commodity prices and margins underlying the 10-year cash flows to market data points;
  • Evaluated the reasonableness of approved financial plans by comparison to historical results;
  • Assessed the reasonableness of the approach and inputs used to determine the terminal values;
  • Evaluated the reasonableness of the pre-tax discount rates used by cross-checking the underlying assumptions against observable market data;
  • Tested the mathematical accuracy and logical integrity of the models; and
  • Tested management's sensitivity analyses that considered the impact of changes in assumptions on the outcome of the impairment assessments.
• We considered the reasonableness of the movements in recoverable amounts during the year ended December 31, 2021.
• We considered the appropriateness of the related accounting policies and disclosures in the consolidated financial statements.

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