To the Shareholders of ACWA Power Company (A Saudi Joint Stock Company)

Ernst & Young Professional Services (Professional LLC)
Paid-up capital (SR 5,500,000 – Five million five hundred thousand Saudi Riyal)
Head Office, Al Faisaliah Office Tower, 14th Floor
King Fahad Road, P.O. Box 2732, Riyadh 11461
Kingdom of Saudi Arabia

Report on the Audit of the Consolidated Financial Statements


We have audited the consolidated financial statements of ACWA Power Company (A Saudi Joint Stock Company) and its subsidiaries (the “Group”), which comprise the consolidated statement of financial position as at 31 December 2022, and the consolidated statement of comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the year then ended, and notes to the consolidated financial statements, including a summary of significant accounting policies.

In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Group as at 31 December 2022, 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 that are endorsed by the Saudi Organization for Chartered and Professional Accountants.

Basis for Opinion

We conducted our audit in accordance with International Standards on Auditing (“ISAs”) 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 are independent of the Group in accordance with the International Code of Ethics for Professional Accountants (including International Independence Standards), that is endorsed in the Kingdom of Saudi Arabia, that is relevant to our audit of the consolidated financial statements, and we have fulfilled our other ethical responsibilities in accordance with this 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 the auditor’s 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, including 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.

Key audit matter How our audit addressed the key audit matter
Non-financial assets include ‘Goodwill’, ‘Property, plant and equipment’ and ‘Net investment in finance lease’ either held directly or through subsidiaries or equity accounted investees. Goodwill is tested for impairment annually or when impairment indicators are identified, while other non- financial assets are tested for potential impairment if there are indicators of impairment, including, but not limited to, amendments to underlying power purchase agreements either in respect of long term contracted rates or to the term of the underlying offtake arrangements. Finance lease is subject to re-measurement mainly when the lease is modified, the lease term is revised or when there is a change in the non-cancellable period of the lease or there is a change in the estimated unguaranteed residual value or there are changes to the underlying index or rate on which the variable payments are based on.
a. Impairment of goodwill

As of 31 December 2022, the carrying value of Goodwill in the Group’s financial statements amounted to SAR 1,925 million. Based on its annual goodwill impairment assessment, the Board of Directors of the Company has concluded that Goodwill is not impaired. This conclusion was based on a value in use model that require significant judgement with respect to the discount rate and the underlying future cash flows.

The model was based on the most recent financial plans and cash flows that are estimated over the expected period of the underlying projects’ lives.

We considered this to be a key audit matter given the significant judgement and estimation required to determine recoverable amounts and uncertainty inherent in underlying forecasts and assumptions.

Refer to note 3 to the consolidated financial statements for the significant accounting policy relating to impairment of non-financial assets and notes 4 and 6.1 for the significant accounting estimates, assumptions and judgements relating to impairment of non-financial assets.

We performed the following procedures:

  1. Assessed the valuation methodology, including appropriateness of the discount rates used;

  2. Challenged the reasonableness of key assumptions, including discount rates and cash flow forecasts;

  3. For a sample of cash flow forecasts, we agreed input data to supporting evidence such as approved budgets and considered the reasonableness of these budgets.

b. Impairment of property, plant and equipment and re-measurement of net investment in finance lease

As at 31 December 2022, the Group`s consolidated statement of financial position includes Property, plant and equipment amounting to SAR 10,106 million and net investment in finance lease amounting to SAR 11,880 million. For some of those assets where the Group has identified impairment indicators, an exercise was performed to calculate the recoverable amount of these assets.

An impairment loss of SAR 121.6 million was recognized with respect to property, plant and equipment attributable to a subsidiary.

The recoverable amounts were mostly determined based on value-in-use calculations using discounted cash flows models. The models were based on most recent financial plan and included projection periods over the term of the relevant Power Purchase Agreements/ Power and Water Purchase Agreements (where applicable) or the economic life of an asset.

For assets where carrying value is expected to be recovered through a sale of assets, the recoverable amount was determined based on fair value less cost to sell method. The fair value was determined based on bilateral contracts or binding terms, where appropriate.

The finance lease re-measurement is based on the revised cash flows as per the lease agreements which mainly include fixed payments, variable lease payments that depend on index or rate, residual value guarantee provided to the lessor discounted at interest rate implicit in the lease.

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

  • cash flows over the periods the asset is expected to generate including production volumes and tariffs;

  • Pre-tax discount rates.

Refer to note 3 in the consolidated financial statements for the significant accounting policy relating to impairment of non-financial assets, note 4 for significant accounting estimates, assumptions and judgements relating to impairment of non-financial assets, note 5 for property, plant and equipment and note 8 for net investment in finance lease.

We analysed the existence of indicators of impairment losses at the CGU level.

For those assets where impairment indicators were identified and impairment test was performed by the Group; , we performed the following:

  1. We verified, for the CGUs tested, that the discounted future cash flow projections correspond to those generated by the assets included in these CGUs and that they were consistent with i) the budget data, medium-term plans, and, beyond, with the Group’s long-term assumptions, ii) past performance, iii) market outlook, iv) the expected operating life of assets; We have assessed, by conducting interviews with management and review of management`s expert report (where applicable), the underlying assumptions on which price and production volume are substantiated;

  2. We performed the following procedures on the Group’s impairment model, as deemed appropriate:

    1. Tested mathematical accuracy and logical integrity of the model;

    2. Evaluated reasonableness of pre-tax discount rate used by cross-checking the underlying assumptions against observable market data;

  3. For those assets where recoverable amount was determined using fair value less cost to sell, we verified the fair value to underlying contracts and assessed reasonableness of cost to sell with reference to observable market data;

  4. Tested sensitivity analysis that considered impact of changes in assumptions on outcome of the impairment assessment;

  5. For finance leases; assessed whether any modification of the lease took place or whether there were changes to the fixed payments or to the underlying index or rate which the variable payments are based on;

  6. Assessed adequacy of Group`s disclosures in the consolidated financial statements in respect of key assumptions, to which the outcome of the impairment test is most sensitive.


As described in note 21 to the consolidated financial statements, the Group (including its equity accounted investees) use derivative financial instruments to hedge interest rate risk and foreign currency exposure on certain loans contracted. Most derivative financial instruments qualify to be designated as cash flow hedges. As at 31 December 2022 the Group recognized SAR 1,029 million of net derivative financial assets related to cash flow hedges.

Due to the significant number of subsidiaries and equity accounted investees as well as the number of contracts entered into by the Group, there is an inherent risk that certain derivative financial instruments, including embedded instruments, might not be properly identified and recorded by the Group.

Derivative financial liabilities, other than cash flow hedges, amounting to SAR 84.2 million are categorized as Level 3 financial instruments and net derivative financial assets of SAR 1,029 million are categorized as Level 2 financial instruments. Unlike other financial instruments whose values or inputs are readily observable and therefore more easily independently corroborated, the valuation is inherently more subjective due to the use of either complex valuation models and/or unobservable inputs. Therefore, we consider this to be a key audit matter due to the subjectivity and complexity involved in assessing Level 3 fair values of derivative financial instruments.

We performed the following procedures:

  1. We inspected, on a sample basis, the Group’s documentation and contracts related to derivative financial liabilities;

  2. We performed the following procedures on the Group’s valuation models for instruments categorized as Level 2 and 3 financial instruments:

    1. Tested mathematical accuracy and logical integrity of the models;

    2. Evaluated reasonableness of discount rates interest rate curves used by cross-checking underlying assumptions against observable market data;

    3. Reconciled input data to supporting evidence such as budgets or purchase quantity forecasts and considered the reasonableness of such budgets and forecasts (for commodity derivative);

    4. Reconciled input data to the underlying derivative contracts (for cash flow hedge instruments).

  3. We obtained confirmation of year end derivative financial instruments from counterparties (where applicable) or performed alternative procedures, as appropriate.

  4. We reviewed significant contracts and agreements concluded during the year to identify potential embedded derivatives.

Other information included in The Group’s 2022 Annual Report

Other information consists of the information included in the Group’s 2022 annual report, other than the consolidated financial statements and our auditor’s report thereon. The Board of Directors is responsible for the other information in its annual report. The Group’s 2022 annual report is expected to be made available to us after the date of this auditor’s report.

Our opinion on the consolidated financial statements does not cover the other information and we will 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 identified above when it becomes available 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.

Responsibilities of the Board of Directors and Those Charged with Governance for the Consolidated Financial Statements

The Board of Directors is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with International Financial Reporting Standards that are endorsed in the Kingdom of Saudi Arabia and other standards and pronouncements that are endorsed by the Saudi Organization for Chartered and Professional Accountants and the provisions of Companies’ Law and Company’s By-laws, and for such internal control as the Board of Directors 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 Board of Directors 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 Board of Directors either intends to liquidate the Group or to cease operations, or has no realistic alternative but to do so.

The Audit Committee is responsible for overseeing the Group’s 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, 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 International Standards on Auditing that are endorsed in the Kingdom of Saudi Arabia 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 International Standards on Auditing that are endorsed in the Kingdom of Saudi Arabia, 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, 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 Board of Directors.
    • Conclude on the appropriateness of the Board of Directors’ 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 Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in 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 Group 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 underlying transactions and events in a manner that achieves fair presentation.
  • Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.

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, actions taken to eliminate threats or safeguards applied.

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.

For Ernst & Young Professional Services

Ahmed Ibrahim Reda
Certified Public Accountant
License No. (356)
Riyadh: 9 Sha’ban 1444H
(1 March 2023)