EDC PR 2016 (FS section)

We have fulfilled the responsibilities described in the Auditor’s Responsibilities for the Audit of the
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 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
financial statements.
Recoverability of Goodwill Associated with the Acquisition of Green Core Geothermal Inc. (GCGI)
Under PFRSs, the Company is required to annually test the recoverability of goodwill. As at
December 31, 2016, the Company has goodwill amounting to ₱2.66 billion, of which ₱2.24 billion
resulted from the Company’s acquisition of GCGI in 2009. This annual recoverability test of goodwill is
significant to our audit because the amount of goodwill is material to the consolidated financial
statements. In addition, the assessment process involves significant management judgment about future
market conditions and estimation based on assumptions such as gross margin, economic growth rate
and discount rate. The related disclosures on the Company’s goodwill are included in Note 3 to the
consolidated financial statements.
Audit Response
We obtained an understanding of the Company’s recoverability assessment process and the related
controls. We involved our internal specialist in evaluating the assumptions and methodology used. We
compared the forecasted cash flow assumptions used in the recoverability testing such as budgeted gross
margin to the historical performance of the Company. We also compared the estimated volume and price
of electricity to be sold to the contracted customers and to the spot market with historical information. In
addition, we compared the economic growth rate used with those reflected in the published economic
forecast in the region as well as relevant industry outlook. Likewise, we evaluated the discount rate used
and assessed whether this is consistent with market participant assumptions for similar assets. We also
reviewed the Company’s disclosures about those assumptions to which the outcome of the recoverability
test is most sensitive, specifically those that have the most significant effect on the determination of the
recoverable amount of goodwill
Recoverability of Exploration and Evaluation Assets
The ability of the Company to recover its exploration and evaluation assets depends on the commercial
viability of the geothermal reserves. The carrying value of exploration and evaluation assets as at
December 31, 2016 amounted to ₱3,109.0 million which is considered material to the consolidated
financial statements. This matter is important to our audit because of the substantial amount of
exploration and evaluation assets and the significant management judgment involved in performing a
recoverability review. The related disclosures on exploration and evaluation assets are included in
Notes 3 and 14 to the consolidated financial statements.
158
I Energy Development Corporation Performance Report 2016