Report on the audit of the consolidated financial statements
We have audited the consolidated financial statements of Schindler Holding Ltd. and its subsidiaries (the Group), which comprise the consolidated income statement and consolidated statement of comprehensive income for the year ended 31 December 2021, the consolidated balance sheet as at 31 December 2021, the consolidated statement of changes in equity and consolidated cash flow statement 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 (pages 4 to 52) give a true and fair view of the consolidated financial position of the Group as at 31 December 2021 and its consolidated financial performance and its consolidated cash flows for the year then ended in accordance with the International Financial Reporting Standards (IFRS) and comply with Swiss law.
Basis for opinion
We conducted our audit in accordance with Swiss law, International Standards on Auditing (ISAs) and Swiss Auditing Standards. Our responsibilities under those provisions and 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 provisions of Swiss law and the requirements of the Swiss audit profession, as well as the International Code of Ethics for Professional Accountants (including International Independence Standards) of the International Ethics Standards Board for Accountants (IESBA Code), and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Our audit approach
Overall Group materiality: CHF 56 000 000
We concluded full scope audit work at 18 reporting units in 11 countries. Our audit scope addressed over 81% of the Group’s revenue. In addition, specified procedures were performed on selected balance sheet and income statement line items on a further 7 reporting units.
As key audit matter the following area of focus has been identified:
Revenue recognition for new installations and modernizations
The scope of our audit was influenced by our application of materiality. Our audit opinion aims to provide reasonable assurance that the consolidated financial statements are free from material misstatement. Misstatements may arise due to fraud or error. They are considered material if, individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the consolidated financial statements.
Based on our professional judgement, we determined certain quantitative thresholds for materiality, including the overall Group materiality for the consolidated financial statements as a whole as set out in the table below. These, together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our audit procedures and to evaluate the effect of misstatements, both individually and in aggregate, on the consolidated financial statements as a whole.
Overall Group materiality
CHF 56 000 000
Profit before tax
Rationale for the materiality benchmark applied
We chose profit before taxes as the benchmark because, in our view, profit before taxes is the benchmark against which the performance of the Group is most commonly measured, and it is a generally accepted benchmark.
We tailored the scope of our audit in order to perform sufficient work to enable us to provide an opinion on the consolidated financial statements as a whole, taking into account the structure of the Group, the accounting processes and controls, and the industry in which the Group operates.
The Group’s financial statements are a consolidation of 88 reporting units, comprising the Group’s operating businesses and centralized functions. The audit strategy for the audit of the consolidated financial statements was determined taking into account the work performed by the component auditors. As Group auditor, we performed the audit of the consolidation, disclosures and presentation of the consolidated financial statements and of the impairment testing of goodwill. Where audits were performed by component auditors, we ensured that, as Group auditor, we were adequately involved in the audit in order to assess whether sufficient appropriate audit evidence was obtained from the work of the component auditors to provide a basis for our opinion. Our involvement comprised communicating the risks identified at Group level, specifying the audit procedures relating to the accounting of key audit areas, specifying the materiality thresholds to be applied, conducting virtual and physical meetings with the component auditors during the planning phase, the interim audit and the year-end audit, and analyzing their reporting.
Key audit matters
Key audit matters are those matters that, in our professional judgement, 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.
Revenue recognition for new installations and modernizations
Key audit matter
The Schindler Group recognizes revenue from contracts with customers for new installation and modernizations as well as from the provision of maintenance services over time. Revenue relating to repairs is recorded at a point in time. In the financial year 2021, CHF 9 483 million of revenue was recognized over time, which includes revenue from new installations and modernizations, representing 84% of total revenue.
We consider revenue recognition for new installations and modernizations to be a key audit matter for the following reason:
Management uses judgement and estimates to determine the total project cost and project margin. Management applies an input-based method which compares relative costs incurred to the total costs expected to measure progress towards the satisfaction of the performance obligations. An incorrect estimate of the expected costs could have a significant impact on the recorded revenue for new installations and modernizations, the related balance sheet amounts and the net profit of the Group.
Please refer to Note 4 ‘Revenue’ in the notes to the consolidated financial statements.
How our audit addressed the key audit matter
Our response to address revenue recognition for new installations and modernizations included in particular the following audit procedures:
- We gained an understanding of the processes implemented by management to record revenue for new installations and modernizations, including management’s processes relating to the estimates to measure the progress of these projects.
- We assessed the design and the existence of the key controls implemented by management. Further, we tested the effectiveness of selected manual and automated controls.
- We assessed the relevant contract terms and verified whether they had been correctly recorded in the accounting records.
- We evaluated whether all performance obligations in the selected contracts were satisfied over time.
- We assessed whether the internal guidelines regarding the approval of the costs and margins had been adhered to. We verified whether the approved planned cost had been correctly recorded in the project accounting records.
- We discussed the progress of selected projects with the project controllers and project managers based on the latest project accounting records, the costs still to be incurred until their completion and changes in the margin.
- For the projects completed during 2021, we compared various final parameters with the estimates made in the project’s planning phase in order to assess, with hindsight, the accuracy of the estimates made by management.
For a sample of customer contracts, we assessed the accounting treatment applied. We assessed whether management’s estimate of the measure of progress and the timing of revenue recognition was appropriate. With regards to these samples:
To address the estimation uncertainty in the total project cost and project margin, we performed the following audit procedures:
We obtained written information from representatives of the Group. We inspected this written information with regards to indications of potential quality deficiencies or penalties for non-performance, and assessed whether these matters were recorded appropriately in the consolidated financial statements.
Our audit approach allowed us to conclude on the revenue recognition for new installations and modernizations.
Other information in the annual report
The Board of Directors is responsible for the other information in the annual report. The other information comprises all information included in the annual report, but does not include the consolidated financial statements, the stand-alone financial statements and the remuneration report of Schindler Holding Ltd. and our auditor’s reports thereon.
Our opinion on the consolidated financial statements does not cover the other information in the annual report 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 in the annual report 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. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.
Responsibilities of the Board of Directors for the consolidated financial statements
The Board of Directors is responsible for the preparation of the consolidated financial statements that give a true and fair view in accordance with IFRS and the provisions of Swiss law, 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.
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 guaranteethat an audit conducted in accordance with Swiss law, ISAs and Swiss Auditing Standards 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.
A further description of our responsibilities for the audit of the consolidated financial statements is located at the website of EXPERTsuisse: expertsuisse.ch/en/audit-report-for-public-companies. This description forms part of our auditor’s report.
Report on other legal and regulatory requirements
In accordance with article 728a paragraph 1 item 3 CO and Swiss Auditing Standard 890, we confirm that an internal control system exists which has been designed for the preparation of consolidated financial statements according to the instructions of the Board of Directors.
We recommend that the consolidated financial statements submitted to you be approved.
Auditor in charge
Zurich, 15 February 2022
PricewaterhouseCoopers AG, Birchstrasse 160, 8050 Zurich, Switzerland