TAKUMA CO., LTD. and Subsidiaries

Consolidated Financial Statements

For the Years ended March 31,

2023 and 2022

Together with Independent

Auditor's Report

KPMG AZSA LLC

June 2023

Independent auditor's report

To the Board of Directors of TAKUMA Co., Ltd.:

Opinion

We have audited the accompanying consolidated financial statements of TAKUMA Co., Ltd. ("the Company") and its consolidated subsidiaries (collectively referred to as "the Group"), which comprise the consolidated balance sheets as at March 31, 2023 and 2022, the consolidated statements of operations, statements of comprehensive income, statements of changes in net assets and statements of cash flows for the years then ended, and notes, comprising a summary of significant accounting

policies, other explanatory information.

In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Group as at March 31, 2023 and 2022, and its consolidated financial performance and its consolidated cash flows for the years 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 ethical requirements that are relevant to our audit of the consolidated financial statements in Japan, 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.

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 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.

Reasonableness of the estimate of provision for loss on construction contracts in the Domestic Environment and Energy business

The key audit matter

How the matter was addressed in our audit

A provision for loss on construction

The primary procedures we performed to assess the

contracts of 625 million was recognized in

reasonableness of the estimate of provision for loss on

the consolidated balance sheet of Takuma Co,

construction contracts in the Domestic Environment and

Energy business included the following:

Ltd. (the "Company") and its consolidated

subsidiaries (the "Group") for the fiscal year ended March 31, 2023.

In order to account for the possibility of losses on contracted work, the Group posts a provision for loss on construction contracts it expects to sustain during or after the next consolidated fiscal year in the event it determines that estimated construction costs for contracts included in the order backlog at the end of the current fiscal year will significantly exceed the value of underlying orders. In providing a provision for loss on construction contracts, total construction costs to be incurred in the future should be reasonably estimated at the end of the fiscal year.

Core businesses of the Domestic Environment and Energy business, for which a provision for loss on construction contracts was recognized, include construction of municipal solid waste/sewage treatment plants and industrial biomass power generation plants (EPC business), and after- sales services for them including maintenance, operational management, and operation. The estimate of total construction costs for projects in the Domestic Environment and Energy business includes assumptions of possible material effects on the estimate of total construction costs involving a high degree of uncertainty as following:

  • Conditions and specifications for construction of new plants and after-sales services for them are different in each project. As some projects need long time from receiving orders to the completion of delivery and after-services, there may be a time lag between the timing of estimating total construction costs and receiving orders. Therefore, changes in economic situations during the time could lead to changes in prices of necessary materials or construction costs.
  • Additional expenses will incur when deficiency in performance, late delivery or material accidents that may cause injuries/property damage happen due to

(1) Internal control testing

We tested the design and operating effectiveness of certain of the Company's internal controls relevant to the estimation of provision for loss on construction contracts.

In this assessment, we focused on the Company's internal controls to ensure completeness of items to be aggregated and other reasonableness in estimating total construction costs.

  1. Assessment of the reasonableness of the estimate of provision for loss on construction contracts

To assess the reasonableness of the estimate of provision for loss on construction contracts, we:

  • identified projects of which estimate of total construction costs involved a relatively high level of uncertainty based on our understanding of terms of construction outsourcing agreements; details of the projects; cost structure; and conditions for estimate of total construction costs;
  • compared total construction costs with actual costs of past similar projects in the business to which projects we identified belonged, and assessed their variances and the accuracy of the estimate of past total construction costs;
  • inquired of the personnel responsible for the project about the progress toward completion of the construction we identified, including their judgment as to whether the total construction costs should be updated considering the status of the consumption of the project budget, and inspected materials that served as the basis for their responses to our inquiries;
  • compared total construction costs of the identified construction projects with underlying documents of purchase orders and worksheets to calculate costs to assess the appropriateness of the assumption of the total construction costs; and
  • with respect to the construction projects where total construction costs were updated, inspected approval documents for updating the total construction costs and evidence of the estimation, and inquired of the personnel responsible for the projects to challenge the appropriateness of the assumption of the updates of the total construction costs from a professional viewpoint.

problems in designs or construction works.

We, therefore, determined that our

assessment of the reasonableness of the estimate of provision for loss on construction contracts in the Domestic Environment and Energy business was the most significant in our audit of the consolidated financial statements for the current fiscal year, and accordingly, a key audit matter.

Other Information

The other information comprises the information included in the disclosure documents that contain or accompany the audited financial statements, but does not include the financial statements and our auditor's report thereon.

We do not perform any work on the other information as we determine such information does not exist.

Responsibilities of Management and the Audit and supervisory committee for the Consolidated Financial Statements

Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with accounting principles generally accepted in Japan, 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 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 and using the going concern basis of accounting unless management either intends to liquidate the Group or to cease operations, or has no realistic alternative but to do so.

The audit and supervisory committee is responsible for overseeing the directors' performance of their duties with regard to the design, implementation and maintenance of 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. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with auditing standards generally accepted in Japan 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 our 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, 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, while the objective of the audit is not to express 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 presentation and disclosures in the consolidated financial statements are in accordance with accounting standards generally accepted in Japan, 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 the audit and supervisory committee regarding, among other matters, the planned scope and timing of the audit, significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide corporate auditors and the audit and supervisory committee 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 audit and supervisory committee, we determine those matters that were of 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.

Convenience Translation

The U.S. dollar amounts in the accompanying consolidated financial statements with respect to the year ended March 31, 2023 are presented solely for convenience. Our audit also included the translation of yen amounts into U.S. dollar amounts and, in our opinion, such translation has been made on the basis described in Note 1 to the consolidated financial statements.

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TAKUMA Co. Ltd. published this content on 28 June 2023 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 28 June 2023 06:50:03 UTC.