to the Shareholders of
Telesites, S.A.B. de C.V. and subsidiaries
Opinion
We have audited the accompanying consolidated financial statements of Telesites, S.A.B.
de C.V. and subsidiaries (“the Company”), which comprise the consolidated statement of
financial position as at 31 December 2017, and the consolidated statement of comprehensive
income, statement of changes in equity and statement of cash flow for the year
then ended, and notes to the consolidated financial statements, including a summary of
significant accounting policies.
In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of Telesites, S.A.B. de C.V. and subsidiaries as at 31 December 2017 and its financial performance and cash flows for the year then ended in accordance with International Financial Reporting Standards (IFRS).
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (“ISA”).
Our responsibilities under those standards are described in the “Auditor’s Responsibilities
for the Audit of the consolidated financial statements section” of our report. We are independent
from the Company in accordance with the international Ethics Standards Board
for Accountants” Code of Ethics for Professional Accountants (“IESBA Code”) together with
the ethical requirements that are relevant to air audit of the consolidated financial statements
in Mexico according with the “Codigo de Etica Profesional del Instituto Mexicano de
Contadores Públicos (“IMCP Code”) and we have fulfilled our other ethical responsibilities in
accordance with these requirements and the IESBA Code.
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 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. For each matter below, our description of how our audit addressed the
matter is provided in that context.
We have fulfilled the responsibilities described in the “Auditor’s responsibilities for the audit of the consolidated financial statements” section of our report, in relation to these matters. Accordingly, our audit included the performance of procedures designed to respond to our assessment of the risks of material misstatement of the consolidated financial statements. The results of our audit procedures, including the procedures performed to address the matters below, provide the basis for our audit opinion on the accompanying consolidated financial statements.
1. Property and Equipment
Description of key audit matter
We considered the passive infrastructure under property and equipment as a key audit
matter because the valuation of these assets requires the use of assumptions that
involve calculations that are subjective and complex, since they require that we seek
assistance from specialists of the Company’s management and audit specialists to carry
out our audit procedures.
How we addressed key audit matter
We evaluated the assumptions used to measure and recognize property and equipment
on the basis of a fair value review that we performed in accordance with International
Accounting Standard (IAS) 16 and IFRS 13. For this review, we considered and evaluated
the reconciliation of the beginning and ending balances of property and equipment. Based
on audit samples, we analyzed the increases reflected in property and equipment accounts
by reviewing and comparing significant items to their respective support documentation.
We tested asset depreciation by verifying the mathematical calculations underlying the
depreciation and we carried out substantive analytical procedures as well. To determine
the existence of potential indicators of impairment, we sought assistance from specialists
and we assessed the Company’s presentation and disclosure of passive infrastructure in
accordance with IFRS.
Notes 2.g and 7 to the accompanying consolidated financial statements, include disclosures regarding the Company’s construction and property and equipment.
2. Current and deferred income tax
Description of key audit matter
We considered current and deferred income tax a key audit matter due to the significant
degree of subjectivity inherent in some of the tax criteria adopted by the Company and
which given the diversity of interpretations of Mexican tax laws, the tax authorities may or
may not agree with. We also focused on this area due to the fact that differences in interpretations
of the tax laws could give rise to contingencies for the Company, which could
ultimately affect the recoverability of its deferred tax assets. The Company’s income tax
matters should be handled by personal specialized technical skills in taxes.
How we addressed key audit matter
We compared the book amounts considered in the calculation of current and deferred
taxes against the Company’s audited amounts at the same date. We assessed the financial
projections that support the Company’s decisions regarding the recognition of deferred tax
assets based on their recoverability. We sought assistance from in-house tax specialists to
perform the required tax audit procedures. We analyzed the reconciliation of the Company’s
effective income tax rate and we test significant items. We also evaluated the Company’s
presentation and disclosure of current and deferred income tax in accordance with the
applicable accounting requirements.
Note 2.o to the accompanying consolidated financial statements, includes disclosures regarding the Company’s policies in respect of current and deferred income tax and respect of deferred tax assets.
3. Short-term and long-term debt
Description of key audit matter
We considered the Company’s short-term and long-term debt (structured notes and bank
loans) a key audit matter due to the high level of professional judgement required for the
valuation of these financial liabilities, which are measured at amortized cost, and since they
require that we seek assistance from specialists of the Company’s management and audit
specialists to carry out our audit procedures.
How we addressed key audit matter
We evaluated management’s calculation of the Company’s debt. We also applied analytical
testing to interest accrued on the debt and we compared the results of this testing to the
reconciliation of the Company’s interest payable. We analyzed the determination of the
market values of the debt and the calculation of accrued interest and we assessed these
amounts for consistency with the terms and conditions of the respective loan agreements.
We compared the book balances of the debt with the balances reported in the balance
confirmations received from the financial institutions with which the Company contracted
the debt. We evaluated the Company’s risk from fluctuations in the interest rates of the
debt. We received assistance from a valuation specialist to value the Company’s debt recognized
at amortized cost. We also evaluated the Company’s presentation and disclosure
of its structured notes in accordance with IFRS.
Note 2.e to the accompanying consolidated financial statements, includes disclosures related to this matter.
4. Asset retirement obligation
Description of key audit matter
We considered the Company’s asset retirement obligation a key audit matter due to high
professional judgement required to calculated this obligation and because it requires the
use of assumptions that involve estimates that are subjective and complex, since they
require that we seek assistance from specialists of the Company’s management and audit
specialists to carry out our audit procedures.
How we addressed key audit matter
We reviewed the Company’s calculation of its asset retirement obligation and we verified
the correct valuation of the principal components of the provision in accordance with IAS
37. Using audit samples, we reviewed the Company’s lease agreements to verify the term
of each asset retirement obligation. We also received assistance from a valuation specialist
to verify the reasonableness of the provision and we assessed the correct presentation and
disclosure of the Company’s asset retirement obligation in accordance with IFRS.
Note 2.l to the accompanying consolidated financial statements, includes disclosures related to the Company’s asset retirement obligation.
5. Revenue Recognition
Description of key audit matter
We considered revenue recognition a key audit matter due to the importance of this area
for users of the Company’s financial statements and due to the importance of having audit
evidence regarding revenue recognition in accordance to IAS 18, as well as to fact that
revenue recognition encompasses a number of audit considerations, including the measurement,
recognition, disclosure of revenue and tax aspects relating to the taxability of the
Company’s revenue.
How we addressed key audit matter
As part of our audit we verified the Company’s correct revenue recognition in accordance
with IFRS on the basis of substantive tests, which included verifying the existence of
support documentation for a sample of significant items selected in accordance with ISA,
the execution of analytical procedures that included variance analyses, cut-off test to verify
recognition of revenue in the correct period, a review of revenue calculations, and a review
of the Company’s current lease agreements.
Note 2.c to the accompanying consolidated financial statements, includes disclosures regarding the Company’s revenue recognition policies.
Other information
Management is responsible for the other information. The other information comprises
the information included in the annual report filed with the Comisión Nacional Bancaria y
de Valores (“CNBV”), but does not include the consolidated financial statements and our
auditor’s report thereon. We expect to obtain the other information after the date of this
auditor’s report.
Our opinion on the consolidated financial statements does not cover the other information and we do not express any form of assurance conclusion thereon.
In connection with our audit of the consolidated financial statements, our responsibility is to read the other information when we have access to it and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. When we read and consider the Annual Report, if we conclude that there is a material misstatement therein, we are required to communicate the matter to those charged with governance and to issue a statement on the Annual Report required by the CNBV, that contains a description of the matter.
Responsibilities of Management and of those charged with governance for the consolidated
financial statements
Management is responsible for the preparation and fair presentation of the accompanying
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, whether due to fraud or error.
In preparing the consolidated financial statements, Management is responsible for assessing
the Company’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 Company or to cease operations, or has no realistic
alternative but to do so.
Those charged with governance are responsible for overseeing the Company’s financial
reporting process.
Auditor’s responsibilities for the audit of the consolidated financial statements
The objectives of our audit 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 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 ISA 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 ISA, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:
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 to communicate 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.
The engagement partner on the audit resulting in this independent auditor’s report is Jose Andres Marin.
Our audit opinion and the accompanying financial statements and footnotes have been translated from the original Spanish version into English for convenience purposes only.
Mancera, S.C.
Integrante de
Ernst & Young Global Limited
Jose Andres Marin
Mexico City
11 April, 2018
