INDEPENDENT AUDITORS’ REPORT
To the Stockholders and Board members of Acosta Verde, S. A. B. de C. V.
Opinion
We have audited the accompanying consolidated financial statements of Acosta Verde, S. A. B. de C. V. and subsidiaries (the Company), which comprise the consolidated statement of financial position at December 31, 2021, and the related consolidated statements of comprehensive income, changes in equity and cash flows for the year then ended, and the notes to the consolidated financial statements, which include a summary of significant accounting policies and other explanatory information.
In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position the Company at December 31, 2021, and its financial performance and cash flows for the year then ended, in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board.
Basis for Opinion
We conducted our audit in accordance with International Standards on Auditing (ISAs). Our responsibilities under those standards are further described in the “Auditors’ Responsibilities for the Audit of the Consolidated Financial Statements” section of our report. We are independent from the Company in accordance with the Professional Code of Ethics of the Mexican Institute of Public Accountants (Instituto Mexicano de Contadores Públicos, A.C.), and with other ethical requirements applicable to our audits of consolidated financial statements in Mexico. We have fulfilled our other ethical responsibilities in accordance with those requirements and that 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 for the current year. These matters were considered in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon; therefore, we do not provide a separate opinion on these matters.
| Key audit matter | How our audit addressed the key audit matter |
|---|---|
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Recovery of Deferred Income Tax Asset As mentioned in Notes 4 and 26 to the consolidated financial statements, the Company records deferred income tax assets on tax loss carryforwards generated by some subsidiaries; therefore, it tested their recoverability before recognizing them in the financial statements and during the closing and financial reporting process. The subsidiary that mostly records these tax losses generates an important portion of its income through the services of shopping center development, administration of lease agreements, collections management, and specialized professional services provided to related parties, which are eliminated in the consolidation process. We focused on this matter in the course of our audit, mainly due to the following reasons: 1) the significance of the amount of tax loss carryforwards ($670,264 at December 31, 2021) and 2) the estimate of the recoverable value of deferred assets involves applying significant judgments by the Company’s Management in determining income, projections and future tax results expected by the Company. In particular, we focused our audit efforts on the following key assumptions considered by the Company’s Management in estimating future financial and tax projections to assess the recoverability of deferred income tax assets on tax losses: 1) lease income, 2) number of shopping centers to be built in the next years, from which derive the amount of revenue from development services and the increase in income from administration of lease agreements and collections management, and 3) increases in fees for other specialized professional services provided to related parties. |
As part of our audit, we performed the following procedures:
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Fair value of investment properties As mentioned in Notes 4 and 15 consolidated financial statements, the Company records its investment properties at fair value in the consolidated statement of financial position. Year- to-year variations in fair value are recorded as profit or loss in the consolidated statement of income. The relevant assumptions and the pertinent valuation method are disclosed in Note 4. We focused on this matter in the course of our audit, due to the following reasons: 1) the significance of the value of investment properties for $13,702 million, representing 75% of total assets, and the fact that this is the asset from which the Company’s main business activity derives and 2) the assumptions used in estimating fair value involve applying significant judgments by Management. In particular, we focused on the process to determine the cash flows and on the following key assumptions considered by the Company when estimating fair values: discount rate, terminal capitalization rate, direct capitalization rate and rental prices, lease term and square meters. |
As part of our audit, we performed the following procedures:
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Other Information
The Company’s Management is responsible for the Other Information presented. The Other Information comprises the Annual Report submitted to the National Securities and Banking Commission (CNBV) but does not include the consolidated financial statements or this Independent Auditors’ Report, which will be issued after the date of this report.
The Other Information is not covered by this opinion on the consolidated financial statements and we do not express any audit conclusion on it.
However, in connection with our audit of the consolidated financial statements of the Company, our responsibility is to read the Other Information when it is available and consider whether it is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit, or otherwise appears to contain a material misstatement.
When we read the Other Information not yet received, we will issue the report required by the CNBV and if we conclude that there is a material misstatement therein, we are required to communicate the matter to those charged with governance and, if required, describe the issue in our report.
Responsibilities of Management and those charged with Governance for the Consolidated Financial Statements
The Management of the Company and subsidiaries 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, 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 relating to going concern issues 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.
Auditors’ Responsibilities for the Audit of the Consolidated Financial Statements
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements taken 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 it 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, 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 Company’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 to prepare the consolidated financial statements and, based on the audit evidence obtained, whether a material uncertainty exists relating to events or conditions that may cast significant doubt on the Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditors’ 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 auditors’ report. However, future events or conditions may cause the Company to cease to continue as a going concern.
- Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures in the notes, and whether the consolidated financial statements fairly present the underlying transactions and events.
- Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Company and subsidiaries to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the audit of the consolidated financial statements. 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 on our fulfillment of relevant ethical requirements regarding independence and communicate any relationship and other matters that might reasonably affect our independence and, when applicable, the pertinent actions taken to reduce threats or the 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 year 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 audit engagement partner is who signs this report.
PricewaterhouseCoopers, S.C.
Certified Public Accountant Felipe Córdova Otero Audit Partner
Monterrey, N. L., March 18, 2022
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
| Note | 2021 | 2020 | |
|---|---|---|---|
| Assets | |||
| CURRENT ASSETS: | |||
| Cash and cash equivalents | 6 | $ 3,554,467 | $ 3,301,792 |
| Accounts receivable, net | 7 | 29,341 | 70,667 |
| Related parties | 8 | 4,830 | 5,042 |
| Other accounts receivable | 10 | 3,180 | 4,555 |
| Advance payments | 11 | 1,348 | 5,087 |
| Incentives to lessees not yet accrued | 1 | 45,557 | 56,378 |
| Recoverable taxes | 12 | 166,502 | 299,111 |
| Land inventory | 14 | - | 8,800 |
| Total current assets | 3,805,225 | 3,751,432 | |
| NON-CURRENT ASSETS: | |||
| Construction in progress | 15 | 49,852 | 520,727 |
| Investment properties | 15 | 13,702,500 | 12,757,221 |
| Property and equipment, net | 16 | 116,593 | 121,350 |
| Restricted cash | 17 | 133,865 | 119,581 |
| Incentives to lessees not yet accrued | 1 | 68.726 | 63,891 |
| Guarantee deposits | 13 | 23,449 | 22,418 |
| Intangible assets | 19 | 3,862 | 3,949 |
| Right-of-use asset | 20 | 134,927 | 141,609 |
| Derivative financial instruments | 18 | 62,689 | 173 |
| Investments in joint ventures | 9 | 193,617 | 199,054 |
| Deferred Income Tax | 26 | 20,320 | 2,842 |
| Total non-current assets | 14,510,400 | 13,952,815 | |
| Total assets | $ 18,315,625 | $ 17,704,247 | |
| Liabilities and Stockholders’ Equity | |||
| CURRENT LIABILITIES: | |||
| Current debt | 21 | $ 260,093 | $ 233,881 |
| Accounts payable and deferred income | 22 | 232,500 | 325,363 |
| Lease liabilities | 20 | 17,780 | 16,859 |
| Related parties | 8 | 6,440 | - |
| Derivative financial instruments | 18 | - | 4,128 |
| Income taxes | 30 | 30,309 | 684 |
| Total current liabilities | 547,122 | 580,915 | |
| NON-CURRENT LIABILITIES: | |||
| Non-current debt | 21 | 5,417,919 | 5,596,855 |
| Non-current lease liabilities | 20 | 144,214 | 143,057 |
| Non-current deferred income | 28,944 | 27,389 | |
| Derivative financial instruments | 18 | 42,725 | 104,219 |
| Deferred Income Tax | 26 | 1,678,370 | 1,633,936 |
| Employee benefits | 23 | 4,119 | 5,373 |
| Total non-current liabilities | 7,316,291 | 7,510,829 | |
| Total liabilities | 7,863,413 | 8,091,744 | |
| STOCKHOLDERS’ EQUITY: | |||
| Controlling interest: | |||
| Capital stock | 24 and 25 | 5,925,603 | 5,925,603 |
| Premium on issuance of stocks | 37,904 | 37,904 | |
| Retained earnings | 3,418,014 | 2,740,502 | |
| Other equity accounts | (114,943) | (114,943) | |
| Other comprehensive income | (2,094) | (2,090) | |
| Total controlling interest | 9,264,484 | 8,586,976 | |
| Non-controlling interest | 1,187,728 | 1,025,527 | |
| Total stockholders’ equity | 10,452,212 | 9,612,503 | |
| Total liabilities and stockholders’ equity | $ 18,315,625 | $ 17,704,247 |
The accompanying notes are an integral part of these consolidated Financial Statements.
Chief Executive Officer
Chief Financial Officer
Controller