Opinion
We have audited the consolidated financial statements of Grupo Sanborns, S.A.B. de C.V. and subsidiaries (the “Entity” or “Grupo Sanborns”), which comprise the consolidated statements of financial position as of December 31, 2016, 2015 and 2014, the consolidated statements of comprehensive profit and loss and other comprehensive income, the consolidated statements of changes in stockholders’ equity and the consolidated statements of cash flows for the years then ended, as well as the explanatory notes to the consolidated financial statements, which include a summary of the significant accounting policies used.
In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of Grupo Sanborns, S.A.B. de C.V. and subsidiaries as of December 31, 2016, 2015 and 2014, and their consolidated financial performance and their consolidated cash flows for the years then ended in accordance with the International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB).
Basis for opinion
We conducted our audits in accordance with International Standards on Auditing (ISA). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of Consolidated Financial Statements section of our report. We are independent of the Entity in accordance with the International Ethics Standards Board for Accountants’ Code of Ethics for Professional Accountants (IESBA Code) and the Ethics Code issued by the Mexican Institute of Public Accountants (IMCP Code), and we have fulfilled our other ethical responsibilities in accordance with the IESBA Code and IMCP Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Other Matters
The accompanying consolidated financial statements have been translated into English for the convenience of readers.
Key audit matters
Key audit matters are those that, in our professional judgment, were of most significance in our audit of the consolidated financial statements of the current period. These matters have been 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. We have determined that the matters described below are the key audit issues that should be communicated in our report.
Revenue recognition
Presentation and completeness of the revenues reported in the financial statements
We assumed a risk of material misstatement related to revenue recognition and evaluated what types of revenues, revenue transactions or assertions give rise to such risks.
We verified the completeness of the revenues based on tests related to the daily point-of-sale closing process and the parameters used as a control by the system, as well as aspects related to the cutoff in the appropriate accounting period and its realization in cash or through accounts receivable. We analyzed the accurate presentation of the revenues in the financial statements. The results of our audit procedures were reasonable.
Accounting estimates
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Allowance for doubtful accounts
The Entity carries out sales of goods and services based on credit, resulting in accounts receivable and the corresponding allowance for doubtful accounts, which are determined once the loans have been granted and certain customers fail to pay. The factors considered by the Entity in the allowance for doubtful accounts are mainly collection delays based on the credit conditions established, unsecured accounts and other relevant economic conditions.
We verified and tested that the allowance for doubtful accounts is calculated and recorded in accordance with the accounting operations and policies of the Entity, conducted aging analysis testing and also reviewed the appropriate classification of the overdue receivables which support the parameters applied to determine the allowance for the current year. The results of our audit procedures were reasonable.
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Calculation and recording of the assets and liabilities from labor obligations
The accounting for labor obligations requires the use of actuarial assumptions in the determination of inputs such as retirement age, remaining labor life of employees and workers, as well as entry data that may be sensitive, mainly the discount rate. Additionally, the valuation of the plan assets may have a significant impact on such balances due to the characteristics of the investment portfolio that comprise such assets.
The procedures applied to validate these variables were: 1) evaluate the technical capacity of the independent actuaries, 2) hold discussions with the actuaries responsible for making the respective calculations in order to assess the methodology applied and the principal variables used, 3) challenge the key variables of the calculations, mainly the discount rate; and 4) obtain the plan asset investment portfolio and compare its valuation against independent sources. Also, we considered the appropriateness of the disclosures regarding the balance of labor obligations and whether the disclosures related to the sensitivity analyses adequately reflect the inherent risks to such variables. The results of our audit procedures were reasonable.
Property and equipment
During the year, the Entity has opened, closed, remodeled, expanded and transformed some of its stores in its different formats as part of the regular course of its operations; consequently, we have identified as a risk the appropriate control, recording and disclosure of these operations in the financial statements, given the importance of the amounts invested.
The procedures applied to validate the appropriate recording consist of: 1) review of the amounts budgeted against the amounts invested and the review of internal control for each project, 2) selective physical inspection of the newly opened or remodeled stores, 3) review of the appropriate and timely capitalization of each project to begin its depreciation and 4) review of the correct handling and accounting treatment of the disposal of assets during the closing or remodeling of the stores. The results of our audit procedures were reasonable.
Business acquisitions
During 2016, the Entity acquired a majority shareholding in the entity Claro Shop Holding, S.A. de C.V., and subsidiaries, increased its mayority stake in Sears Operadora México, S.A. de C.V., and also acquired a non-controlling minority stake in Inmuebles SROM, S.A. de C.V. We have identified the risk of material misstatements related to the valuation, recording and presentation of these transactions as key audit matters.
The procedures applied to validate the transactions were: 1) holding discussions with management to understand the bases and terms of the purchases, 2) analysis of supporting documentation of the transactions, 3) reviewing the reasonableness of the process used to determine the fair values of the net assets acquired and 4) challenging management assumptions for the accounting treatment of each transaction.
Additionally, we considered the appropriateness of the disclosures related to each acquisition and whether the respective disclosures adequately reflect the conclusions obtained. The results of our audit procedures were reasonable.
Information Different from the Consolidated Financial Statements and the Auditors’ Report
Management is responsible for the other information. The other information will include the information that will be incorporated into the Annual Report that the Entity is required to prepare in accordance with Article 33, section I, subsection b) of Title Fourth, Chapter First of the General Provisions Applicable to Issuers and Other Stock Market Participants in Mexico, and the Instructions which accompany those provisions (the Provisions). The Annual Report is expected to be available for consultation after the date of this audit report.
Our opinion on the consolidated financial statements will not cover the other information and we will not express any form of assurance thereon.
In relation to our audit of the consolidated financial statements, our responsibility is to read the Annual Report, and when doing so, to consider if the other information contained therein is materially inconsistent with the consolidated financial statements or with our knowledge obtained during the audit, or appears to contain a material misstatement. When we read the Annual Report we will issue the legend on the reading of the Annual Report required by Article 33, section I, subsection b) item 1.2. of the Provisions.
Responsibilities of Management and the Audit Committee for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with IFRS, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, due to fraud or error.
In preparing the consolidated financial statements, management is responsible for assessing the Entity’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 management either intends to liquidate the Entity or to cease operations, or has no realistic alternative but to do so.
The audit committee is responsible for overseeing the Entity’s consolidated financial reporting process.
Auditor’s Responsibilities 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, due to fraud or error, and to issue an auditor’s 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 ISAs 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.
As part of an audit in accordance with ISAs, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:
- Identify and assess the risks of material misstatement of the consolidated financial statements, 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 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 Entity’s internal control.
- Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.
- Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Entity’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention to our auditor’s report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Entity to cease to continue as a going concern.
- Evaluate the overall presentation, structure, and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the relevant transactions and events in a manner that achieves a fair presentation.
We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.
We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and have communicated with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.
From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.
Galaz, Yamazaki, Ruiz Urquiza, S.C.
Member of Deloitte Touche Tohmatsu Limited
C. P. C. Luis Javier Fernández Barragán
March 31, 2017