Toda : Financial Statements 2022

FINANCIAL STATEMENTS 2022

Year ended March 31, 2022

Independent Auditor's Report

The Board of Directors

Toda Corporation

Opinion

We have audited the accompanying consolidated financial statements of Toda Corporation and its consolidated subsidiaries ("the Group"), which comprise the consolidated balance sheet as of March 31, 2022, and the consolidated statement of income, 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, all expressed in Japanese yen.

In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Group as of March 31, 2022, and its consolidated financial performance and its consolidated cash flows for the year then ended in accordance with accounting principles generally accepted in Japan.

Basis for Opinion

We conducted our audit in accordance with auditing standards generally accepted in Japan. 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 provisions of the Code of Professional Ethics in Japan, and we have fulfilled our other ethical responsibilities as auditors. 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 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.

Estimates of total construction costs

Key Audit Matters Description	How the Key Audit Matters Were
	Addressed in the Audit
In the building construction and civil engineering,	To evaluate the reasonableness of estimates of total
etc., which are the Group's principal business, the	construction costs, we mainly performed the
Group has the performance obligations to construct	following audit procedures.
buildings or structures, etc. and deliver the outcomes	・ We understood the revenue and expenditure
to customers based on construction contracts as	management system and the construction progress
described in Note 2.8. The Group has applied the
management	system for each unit	of construction
method based on the percentage of costs incurred by
revenue recognition developed by the Group, and
the end of each reporting period to the total expected
evaluated the related internal controls, including the
costs as a method of estimating the progress of
approval of	the	execution budget	at the time	of
construction works to the satisfaction of performance
formulation	and	update, which is	the basis	for
obligations. The portion of work completed by the
estimating total construction costs.
method based on the percentage of costs were
429,888 million yen. In addition, the Group records a	・ As for the construction costs in the unit of
provision for losses on construction contracts that	construction revenue recognition selected based on
have not yet been delivered, for which losses are	certain criteria, we examined whether the total
expected to be incurred as of the end of the current	construction costs reflect the actual situation by
fiscal year and for which the amount can be	examining whether there is any abnormality in the
reasonably estimated as described in Note 2.6).	status of cost accrual and examining the
The method based on the percentage of costs is used	appropriateness	of deviation from	the execution
budget.
to record portion of work completed and provision for
losses on construction contracts, which is affected by	・We examined the total construction costs to see if
estimates of total construction costs. Estimating total	any unusual adjustment items were included in the
construction costs is highly individualized for each	total construction costs.
contract, and facts that become known after the start	・By inspecting the process control materials and
of the construction contract may exist or conditions at
the site may change, making timely and appropriate	asking questions, we identified important estimation

Other Information

The other information comprises the information included in the disclosure document that contains audited consolidated financial statements but does not include the consolidated financial statements and our auditor's report thereon.

We have concluded that the other information does not exist. Accordingly, we have not performed any work related to the other information.

Responsibilities of Management and Corporate auditors and the board of corporate auditors for the Consolidated Financial Statements

Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with accounting principles generally accepted in Japan, and for designing and operating such internal control as management determines is necessary to enable the preparation and fair presentation of the 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 Group's ability to continue as a going concern, disclosing, as applicable, matters related to going concern in accordance with accounting principles generally accepted in Japan.

Corporate auditors and the board of corporate auditors are responsible for overseeing the directors' execution of duties relating to the design and operating effectiveness of the controls over the Group's financial reporting process.

Auditor's Responsibilities for the Audit of the Consolidated Financial Statements

As for the floating offshore wind power generation project, in which the Group has made and plans to make large investment as a new business area, the business market itself is new and uncertain, and there is a risk that impairment of fixed assets will not be properly assessed depending on achievement of the business plan.

The Offshore Goto Wind Farm Project in Nagasaki Prefecture is preparing to construct a floating offshore wind farm after the consortium represented by the Group was selected as the operator after a public call for proposals based on the Law Concerning the Promotion of the Utilization of the Sea Area for the Development of Offshore Renewable Energy Power Generation Facilities. The recoverable amount calculated based on the future use value of facilities under construction fell below the book value, therefore, an impairment loss of 312 million yen was recorded as an extraordinary loss as described in Note 9.8).

The estimates of future value in use are subject to uncertainty and require management's judgment, therefore, we have determined this matter to be a key audit matter.

Key Audit Matters Description

Impairment of fixed assets related to the floating offshore wind power generation project

How the Key Audit Matters

Were Addressed in the Audit

In our audit of the impairment of fixed assets related to the floating offshore wind power generation project , we principally performed the following audit procedures.

・We examined the valuation methods used in the calculation of value in use.

・We compared the projected duration of future cash flows in the estimates of future use with the remaining useful life of the related assets.

・As for future cash flows in the estimates of future use , we examined consistency with the underlying business plan approved by the management and observable used market data.

・We discussed with the management the major components included in the business plan estimates, and reviewed the management's assessment of future uncertainties.

・We evaluated the appropriateness of the method for calculating the discount rate based on the valuation items covered and the accounting standard requirements.

review of total construction costs complex. As a result, estimates of total construction costs are highly uncertain and management's judgment has a significant impact.

Based on the above, we have determined estimates of total construction costs to be a key audit matter.

factors related to specifications, construction period, etc. , and evaluated the manager's judgment regarding the effects of uncertainty in the estimation factors.

• As for particularly important projects, we performed on-site observations and additional questioning to examine whether the progress of construction was consistent with the estimate of total construction costs and the progress toward completion of construction.

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. 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 auditing standards generally accepted in Japan, 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. The procedures selected depend on the auditor's judgement. In addition, we obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion.
• Obtain, when performing risk assessment procedures, 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 management.
• Conclude on the appropriateness of management's 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 whether the overall presentation and disclosures of the consolidated financial statements are in accordance with accounting principles generally accepted in Japan, as well as 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 corporate auditors and the board of corporate auditors 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 corporate auditors and the board of corporate auditors with a statement that we have complied with relevant ethical requirements regarding independence, and 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 corporate auditors and the board of corporate auditors, we determine those matters that were of the 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.

Interest Required to Be Disclosed by the Certified Public Accountants Act of Japan

Our firm and its designated engagement partners do not have any interest in the Group which is required to be disclosed pursuant to the provisions of the Certified Public Accountants Act of Japan.

Convenience Translation

We have reviewed the translation of these consolidated financial statements into U.S. dollars, presented for the convenience of readers, and, in our opinion, the accompanying consolidated financial statements have been properly translated on the basis described in Note 1.

SEINAN AUDIT CORPORATION

Minato-ku, Tokyo, Japan

June 29, 2022

Toshio Saito	Daisuke Suzuki
Representative Partner	Representative Partner
Engagement Partner	Engagement Partner
Certified Public Accountant	Certified Public Accountant

Notes to the Reader of Independent Auditor's Report:

This is a copy of the Independent Auditor's Report and the original copies are kept separately by the Company and SEINAN AUDIT CORPORATION.