Toda : Financial Statements 2023

FINANCIAL STATEMENTS 2023

Year ended March 31, 2023

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, 2023, 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, 2023, 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

status

of

related

internal

control

costs as a method of estimating the

progress

of

development and operation, including the approval of

construction works to the satisfaction of performance

the execution budget at the time of formulation and

obligations. The portion of work completed by the

update,

which

is the

basis

for

estimating

total

method based

on

the percentage of

costs were

construction costs.

477,357 million yen. In addition, the Group records a

provision for losses on construction contracts that

・ As for the construction costs in the unit of

have not yet been delivered, for which losses are

construction revenue recognition selected based on

expected to be incurred as of the end of the current

certain criteria, we examined whether the total

fiscal year and for which the amount can be

construction costs reflect the actual situation by

reasonably estimated as described in Note 2.6).

examining whether there is any abnormality in the

The method based on the percentage of costs is used

status of cost accrual and examining the

to record portion of work completed and provision for

appropriateness of deviation from the execution

losses on construction contracts, which is affected by

budget.

estimates of total construction costs. Estimating total

・We examined the total construction costs to see if

construction costs

is highly individualized for each

any unusual adjustment items were included in the

contract, and facts that become known after the start

total construction costs.

of the construction contract may exist or conditions at

the site may change, making timely and appropriate

・ By

inspecting the process

control

materials

and

review of

total

construction

costs

complex. As a

asking questions, we identified important estimation

result, estimates of total construction costs are highly

factors related to specifications, construction period,

uncertain

and

management's judgment has

a

etc. , and evaluated the manager's judgment regarding

significant impact.

the effects of uncertainty in the estimation factors.

Based on the above, we have determined

estimates of

・ As

for

particularly important

projects,

we

total construction costs to be a key audit matter.

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.

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

Key Audit Matters Description

How the Key Audit Matters

Were Addressed in the Audit

As for the floating offshore wind power generation

In our audit of the impairment of fixed assets related

project, in which the Group has made and plans to

to the floating offshore wind power generation

make large investment as Environment and Energy

project , we principally performed the following audit

segment, the business market itself is new and

procedures.

uncertain, and there is a risk that impairment of fixed

・ We

conducted the

site

visit

and

additional

assets will

not

be properly assessed depending

on

questions to determine whether the key assumptions

achievement of the business plan.

used in recording impairment losses reflect actual

The company is constructing a floating offshore wind

conditions.

farm off the coast of Goto City, Nagasaki Prefecture,

・We reviewed contracts or quotations and conducted

as one of its businesses. The recoverable amount of

questions to the person in charge in order to verify

the facilities under construction, which was calculated

based on the future value in use, has fallen below the

consistency with the income plan.

book value, and the book value was reduced to the

・ Regarding

construction

costs

with

approved

recoverable

amount in

the

previous

fiscal

year,

execution budgets, we evaluated the maintenance and

resulting in an impairment loss.

operation of internal controls in the formulation of

In the current consolidated fiscal year, defects were

execution budgets as the basis for estimates, and then

discovered in facilities under construction, and as a

verified the consistency between the approved

result of estimating the recoverable amount, including

execution budgets and the expenditure plans.

the cost of dealing with the defects, an impairment

・Regarding construction costs not yet approved in

loss of 9,534

million

yen

was

recorded

as

an

the execution

budget (including costs

for

handling

extraordinary loss, as described in Note 9.8).

defects), we interviewed the person in charge

The estimates of future value in use are subject to

regarding the process and handling method, and

uncertainty and require management's judgment,

verified the consistency between the cost estimate

therefore, we have determined this matter to be a key

basis documents and the contract conditions in the

audit matter.

approved execution budget.

・ Regarding

operating

expenses,

we

reviewed

the

quotations from prospective order recipients and

verified consistency with the expenditure plan.

・We verified that the discount rate is consistent with

the rate of return on the business plan.

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

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, 2023

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.