UPM Annual Report 2016

ACCOUNTS

UPM Annual Report 2016

158

159

In brief

Strategy

Businesses

Stakeholders

Governance

Accounts

CONTENTS

EURm

2016

2015

Accruals and deferred income

Personnel expenses

116

Interest expenses

Derivative financial instruments

120

Customer rebates

–

Income taxes

–

Other items

Carrying value, at 31 December

233

260

19. Commitments

EURm

2016

2015

Mortgages

As security against own debt

138

220

As security against group companies’ debt

–

Guarantees

Guarantees for loans on behalf of Group

companies

159

Other guarantees on behalf of Group

companies

Other commitments

Leasing commitments, due within 12 months

Leasing commitments, due after 12 months

147

Other commitments

146

175

Total

485

779

Mortgages given relate mainly to mandatory security for borrowing from

Finnish pension insurance companies.

Other commitments relate mainly to commodity contracts.

Pension commitments of the President and CEO

and the members of the Group Executive Team

Refer Note 3.2

Key management personnel.

Related party transactions

Refer Note 8.3

Related party transactions

Derivatives

All financial derivative contracts of the group were made by the

parent company. All contracts were made with external

counterparties except for one cross currency swap used in managing

foreign currency risk of the group internal assets. Hedge accounting

was not applied. Derivatives were initially recognised at cost in the

balance sheet. The fair value losses of financial derivatives were

recognised through the income statement and presented as a

provision in the balance sheet.

Financial risks, fair values and maturities of the group external

derivatives are disclosed in

Note 6.1

Financial risk management and

Note 6.2

Derivatives and hedge accounting and the group internal

financial derivative in

Note 16

Provisions of the parent company.

18. Current liabilities

EURm

TOTAL

PAYABLES TO

GROUP

COMPANIES

PAYABLES TO

PARTICIPATING

INTEREST

COMPANIES

2016

Bonds

292

–

Loans from financial institutions

–

Pension loans

–

Trade payables

252

Accruals and deferred income

233

–

Other current liabilities

2,210

2,161

–

Carrying value, at 31 December

3,058

2,217

2015

Loans from financial institutions

–

Pension loans

–

Advances received

–

Trade payables

353

Accruals and deferred income

260

–

Other current liabilities

1,474

1,418

Carrying value, at 31 December

2,169

1,489

Opinion

In our opinion,

• the consolidated financial statements give a true and fair view of

the group’s financial performance and financial position in accor-

dance with International Financial Reporting Standards (IFRS) as

adopted by the EU

• the financial statements give a true and fair view of the parent

company’s financial performance and financial position in accor-

dance with the laws and regulations governing the preparation of

the financial statements in Finland and comply with statutory requi-

rements.

What we have audited

We have audited the financial statements of UPM-Kymmene

Corporation (business identity code: 1041090-0) for the year ended

31 December, 2016. The financial statements comprise:

• the consolidated balance sheet, income statement, statement of

comprehensive income, statement of changes in equity, statement

of cash flows and notes, including a summary of significant

accounting policies

• the parent company’s balance sheet, income statement, statement

of cash flows and notes.

Basis for opinion

We conducted our audit in accordance with good auditing practice

in Finland. Our responsibilities under good auditing practice are

further described in the Auditor’s Responsibilities for the Audit of the

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 parent company and of the group

companies in accordance with the ethical requirements that are

applicable in Finland and are relevant to our audit, and we have

fulfilled our other ethical responsibilities in accordance with these

requirements.

Our audit approach

OVERVIEW

Materiality

• Overall group materiality: EUR 54 million, which represents 5% of profit before tax.

Group scoping

• The entities in scope included two individually significant components, nine significant components

and four components with selected significant financial statement line items.

Key audit matters

• Valuation of forest assets

• Valuation of energy shareholdings

• Recoverability of deferred tax assets

• Litigations

As part of designing our audit, we determined materiality and

assessed the risks of material misstatement in the financial statements.

In particular, we considered where management made subjective

judgements; for example, in respect of significant accounting estimates

that involved making assumptions and considering future events that

are inherently uncertain.

Materiality

The scope of our audit was influenced by our application of

materiality. An audit is designed to obtain reasonable assurance

whether 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 group

materiality for the consolidated financial statements 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 on

the financial statements as a whole.

Auditor’s report

(Translation from the Finnish Original)

To the Annual General Meeting of UPM-Kymmene Corporation

Report on the audit of the financial statements