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Combined Independent Auditor’s and Assurance Report

To: the General Meeting of Shareholders and the Supervisory Board of Triodos Bank N.V.

We have been engaged by Triodos Bank N.V., Zeist (hereafter referred to as ‘Triodos Bank’) to conduct (1) an audit (reasonable assurance) of the financial statements 2015 and (2) a review (limited assurance) of pages 10 to 37 and pages 186 to 192 of the Executive Board Report 2015 (hereafter referred to as ‘the reviewed section of the Report’).

Our opinion and conclusion

Auditor’s report on the audit of the financial statements

In our opinion:

  • the consolidated financial statements on pages 52 to 159 give a true and fair view of the financial position of Triodos Bank as at December 31, 2015, and of its result and its cash flows for 2015 in accordance with Part 9 of Book 2 of the Netherlands Civil Code;
  • the company financial statements on page 160 to 170 give a true and fair view of the financial position of Triodos Bank as at 31 December 2015, and of its result for 2015 in accordance with Part 9 of Book 2 of the Netherlands Civil Code.

Assurance report on the reviewed section of the Report

Based on our review, nothing has come to our attention to indicate that the information in the reviewed section of the Report is not prepared, in all material respects, in accordance with the requirements as included in section 2:391 of the Netherlands Civil Code.

What we have audited and reviewed

Auditor’s report on the audit of the financial statements

We have audited the financial statements 2015 of Triodos Bank N.V., based in Zeist. The financial statements include the consolidated financial statements and the company financial statements.

The consolidated financial statements comprise:

  • the consolidated balance sheet as at December 31, 2015;
  • the consolidated profit and loss account for 2015 and the following consolidated statements for 2015: the statements of comprehensive income, changes in shareholders’ equity and cash flows; and
  • the notes comprising a summary of the significant accounting policies and other explanatory information.

The company financial statements comprise:

  • the company balance sheet as at December 31, 2015;
  • the company profit and loss account for 2015; and
  • the notes comprising a summary of the significant accounting policies and other explanatory information.

Assurance report on the reviewed section of the Report

We have reviewed pages 10 to 37 and pages 186 to 192 of the Executive Board Report 2015.

Basis for our opinion and conclusion

We conducted our audit and our review in accordance with Dutch law, including the Dutch Standards on Auditing and the Dutch Standard 3000 Assurance Engagements Other Than Audits or Reviews of Historical Financial Information respectively. Our responsibilities under those standards are further described in the section “Our responsibility for the audit of the financial statements and review of the reviewed section of the Report” of our report.

We are independent of Triodos Bank in accordance with the Verordening inzake de onafhankelijkheid van accountants bij assurance-opdrachten (ViO) and other relevant independence regulations in the Netherlands. Furthermore, we have complied with the Verordening gedrags- en beroepsregels accountants (VGBA).

We believe that the audit and review evidence we have obtained is sufficient and appropriate to provide a basis for our opinion respectively our conclusion.

Audit approach

Summary

OPINION AND CONCLUSION

  • Unqualified audit opinion
  • Unqualified review conclusion

MATERIALITY

  • EUR 2.1 million overall materiality
  • Based on 4% profit before tax

SCOPE

  • Triodos has a limited number of consolidated entities.
  • More than 99% of total assets and 97% of profit before tax in full audit scope

KEY AUDIT MATTERS

  • Valuation of loan portfolio
  • Information Technology environment
  • Valuation of the deferred tax asset

KEY REVIEW MATTERS

  • Assessing the material aspects for the Executive Board Report
  • Reviewing methodology and reporting for impact measures

Materiality

Misstatements in the financial statements and the reviewed section of the Report can arise from fraud or errors 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 financial statements and the reviewed section of the Report. The materiality affects the nature, timing and extent of our audit and review procedures and the evaluation of the effect of identified misstatements on our opinion and conclusion.

Based on our professional judgement we determined the materiality for the financial statements as a whole at EUR 2.1 million (2014: 2.1 million). The materiality is determined with reference to profit before tax (4%) (2014: 5%) as we consider this benchmark as the most appropriate benchmark given the nature and business of the Triodos Bank. In arriving at this level of materiality, we have also taken into account misstatements and/or possible misstatements that in our opinion are material for qualitative reasons for the users of the financial statements.

We agreed with the Supervisory Board that misstatements in excess of EUR 0.1 million, which are identified during the audit of the financial statements, would be reported to them, as well as other misstatements in the financial statements and the reviewed section of the Report that in our view must be reported on qualitative grounds.

Scope of the group audit and review

Triodos Bank operates five branches in five different European countries and is the parent company of a group of legal entities. Together they form the group of which the financial information is included in the financial statements of Triodos Bank.

Given that we are ultimately responsible for the opinion, we are also responsible for directing, supervising and performing the group audit. In this respect we have determined the nature and extent of the audit procedures to be carried out for group entities and branches. Decisive were the size and/or the risk profile of the group entities or branches. On this basis, we selected group entities for which an audit had to be carried out on the complete set of financial information.

Our group audit mainly focused on significant branches and group entities where significant should be interpreted as significant in size and financial impact as well as significant from a qualitative perspective or audit risk perspective, for example due to specific compliance and regulations, valuation matters or governance aspects. We have:

  • Performed audit procedures ourselves at Triodos Bank Head Office and the Triodos Bank Dutch branch.
  • We used the work of other KPMG auditors when auditing Triodos Bank Spanish, United Kingdom, Belgian and German branches and Triodos Investment Management B.V. We provided these auditors detailed instructions, that included significant audit areas including the relevant risks of material misstatement, the procedures to be performed, and the information required to be reported back to us. We performed site visits to the Spanish, UK and German branches and held audit update conference calls with local auditors throughout the audit. We also performed audit file reviews for all full scope audit branches and entities.
  • Performed analytical review procedures at other group entities.

By performing the procedures mentioned above at components, together with additional procedures at group level, we have been able to obtain sufficient and appropriate audit evidence to provide an opinion on the financial statements.

Profit before tax: >97% full scope audit

Total assets: >99% full scope audit

Key audit and review matters

Key audit and review matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements and our review of the reviewed section of the Report. We have communicated the key audit and review matters to the Supervisory Board. The key audit and review matters are not a comprehensive reflection of all matters discussed.

These matters were addressed in the context of our audit of the financial statements as a whole and the review of the reviewed section of the Report and in forming our opinion respectively conclusion thereon. We do not provide a separate opinion or conclusion on these matters.

KEY AUDIT MATTER 1
The valuation of the loan portfolio

Description

Triodos Bank’s consolidated balance sheet consists for a considerable part of commercial loans and mortgages (loans). Loans are accounted for at amortised cost less any impairment charges. The valuation of a loan is depending on the credit risk related to that loan. When there is objective evidence that a loan might not be recovered in full or in accordance with the contractual terms, for example when there is significant doubt or evidence on breaches of interest payments or repayment of principal, the credit risk and the valuation of that loan is specifically assessed. This assessment requires management judgement and is subject to estimation uncertainty and can lead to the recognition of an impairment loss on the loan or as part of the collective provision on a portfolio of loans with similar risk characteristics.

Our response

We performed specific audit procedures on the valuation of the Bank’s loan portfolio in all branches of Triodos Bank. These audit procedures consisted of understanding and testing the controls designed and implemented by the Company to provide management assurance over the commercial and mortgage lending processes as well as understanding and testing the controls designed and applied by the Company for its credit risk management and impairment process of its commercial and mortgage loans. These credit risk management and impairment processes include but are not limited to periodic revision of loans including applying policies and guidance around ongoing credit risk monitoring of loans and subsequently the evaluation and valuation assessments of these loans. We also inspected individual loan files. These procedures included amongst other procedures, selecting 245 individual loan files taking into consideration sector concentration risk such as for example the solar portfolio in Spain and focusing on those loans with a higher credit risk profile and/or an actual event of default in the year under investigation. We challenged the appropriateness of management’s key assumptions in the impairment testing (including valuation reports of collateral, scenario analysis, loan restructuring measures and collateral valuation haircuts) and performed procedures testing the accuracy of management’s calculation of the recoverable amount of the individual loans. In relation to the Bank’s mortgage portfolio we assessed the collective provisioning methodology applied including the relevant parameters in the calculation.

Our observation

Based on our audit we assess the loan portfolio valuation, in line with prior year, as mildly cautious. We also found that the Bank’s loan documentation showed further enhanced quality and to be up to standard however can still further improve in overall consistency across the different countries.

KEY AUDIT MATTER 2
Information Technology environment

Description

In its day-to-day operations Triodos Bank heavily depends on an effective and efficient information technology environment (IT environment). Having a solid general IT and application control framework in place is most critical to the operations of the Company since this supports the banking and investment management service offerings which to a large extent are being offered through the internet channel. It is therefore of importance that safeguards exist regarding the reliability and continuity of the electronic data processing.

Our response

We performed audit work regarding the IT environment in all branches and for relevant applications and platforms for the purpose of the financial statements audit. Our audit work included applications and platforms supporting the Company’s business operations as well as those driving the financial accounting, including the enabling infrastructure and service providers. As part of our audit we engaged IT auditors and defined a specific IT audit plan that outlines IT audit procedures to be performed in each branch in relation to the financial statements audit. In our audit plan we distinguished between general IT audit procedures focused on amongst others assessing effectiveness of access controls and security measures and IT application audit procedures focused on the assessment of controls embedded in the operational systems. Our plan was also tailored towards the fact that the Company operates both an in-house developed IT system in some of its locations as well as using external IT service providers in others.

Our observation

Our test procedures on the design and operating effectiveness of IT control measures taken, did not result in significant findings on the reliability and continuity of the electronic data processing for the purpose of the audit of the financial statements. We noted improvements in 2015 regarding access control and information security measures and discussed further improvements on these topics in 2016. We noted a further growth (and respective complexity) of Triodos’ IT domain. We observed specific focus and actions being taken to safeguard the Bank’s IT continuity and assurance for the future. We noted that the general IT control framework is subject to continuous improvements, further enhancements and formalisation, with emphasis on improving the control on increasing functional and technical developments.

KEY AUDIT MATTER 3
Valuation of the deferred tax asset

Description

As described in note 11 of the financial statements on page 73 Triodos Bank recognised a deferred tax asset (DTA) for the amount of EUR 6.9 million for tax losses carried forward in respect of net operating losses incurred by the German branch. The DTA represents management’s assessment of the amount of net operating losses incurred by the German branch in the past that can be offset with future German taxable profits. The Company’s German branch has not yet been able to achieve a break-even point and reported a loss for 2015. This resulted in further increase of the DTA balance in 2015. Given the fact that the DTA balance is dependent on management’s estimation on future profitability it is considered as a material estimation uncertainty in our audit.

Our response

We investigated the available documentation supporting the DTA as at 31 December 2015 and we observed that this documentation was also reviewed by the Company’s Supervisory Board. We noted that the financial performance of the Branch improved compared to 2014, however is still loss making and actual 2015 growth of the loan book was behind budget. We also inquired with Group and local management on the business outlook of the German branch and we challenged management’s assumptions underpinning it. Moreover, we challenged management on other relevant expectations applied in their calculation, assessment and conclusions, such as on: the local business environment, market size, relevant competition and business continuity. In performing our procedures and reaching our conclusion we also considered the fact that German tax law allows for indefinite recovery of net operating losses through future taxable income.

Our observation

We found the DTA to be appropriately supported with underlying documentation and calculations, which have been derived from the updated business outlook for Triodos Bank Germany.

KEY REVIEW MATTER 1
Assessing the material aspects for the Executive Board Report

Description

Article 391 Part 9 of Book 2 of the Dutch Civil Code sets the legal requirements for the items to be included in the Executive Board Report. Management of Triodos Bank decides on the aspects they consider material based on stakeholder expectations and the relevance for the business of the bank, Triodos Bank updated the materiality analysis process in 2015 and adapted the way the outcome was presented in the Executive Board Report. The materiality analysis is subject to significant management judgement.

Our response

We reviewed the process that the Bank executed during 2015 to identify and prioritise the items to be reported. We also conducted a media search and a peer review to assess potential material other aspects to be included and compared these with the Company's materiality analysis. We assessed the results from the materiality analysis against the topics as included in the Executive Board Report, also taking into account the guidance as included in Dutch Accounting Standard 400.

Our observation

We found the process that Triodos Bank executed during 2015 to be sufficiently solid to identify relevant material topics for inclusion in the Executive Board Report. We also observed that the material topics as identified in the related process have been reflected in the Executive Board Report in the context of the purpose of the report.

KEY REVIEW MATTER 2
Reviewing methodology and reporting for impact measures

Description

The company reports on its impact along eight measures. In 2015 Triodos Bank added two additional impact measures and the impact per customer for five of the eight impact measures. The data for the impact indicators are inherently subject to assumptions and judgement. In conjunction with the related explanations this may increase the risk that the impact reported lacks sufficient balance for a proper understanding of its use and reliability.

Our response

We reviewed the definitions and methodology set by the Company and held interviews with management and key individuals in all branches to understand their application of these definitions and methodology. We requested underlying evidence for the impact figures reported on a sample basis and we compared the reported projects with the Company's underlying information. We also conducted a data analysis on the data reported to identify any potential material anomalies. Finally we reviewed whether the presentation of the information to assess whether it provides a balanced overview of the impact as measured by the Company.

Our observation

We concluded that the data reported in the Executive Board Report are sufficiently supported by underlying information. We also concluded that the impact information as presented as a whole, including underlying assumptions, provides a balanced overview of the impact as estimated by the Company. 

Responsibilities of the Executive Board and the Supervisory Board for the financial statements and the Report of the Executive Board

The Executive Board is responsible for the preparation and fair presentation of these financial statements in accordance with Part 9 of Book 2 of the Netherlands Civil Code, and for the preparation of the (complete) Report of the Executive Board in accordance with Part 9 of Book 2 of the Netherlands Civil Code.

Furthermore, the Executive Board is responsible for such internal control as it determines is necessary to enable the preparation of the financial statements and the reviewed section of the Report of the Executive Board that are free from material misstatement, whether due to fraud or error.

As part of the preparation of the financial statements, the Executive Board is responsible for assessing the company’s ability to continue as a going concern. Based on the financial reporting frameworks mentioned, The Management should prepare the financial statements using the going concern basis of accounting unless the Executive Board either intends to liquidate the company or to cease operations, or has no realistic alternative but to do so. The Executive Board should disclose events and circumstances that may cast significant doubt on the company’s ability to continue as a going concern in the financial statements and the Executive Board Report.

The Supervisory Board is responsible for overseeing the company’s financial and non-financial reporting process.

Our responsibility for the audit of the financial statements and the review of the reviewed section of the Report

Auditor’s report on the audit of the financial statements

Our objective is to plan and perform the audit to obtain sufficient and appropriate audit evidence for our opinion. Our audit has been performed with a high, but not absolute, level of assurance, which means we may not have detected all errors and fraud. For a further description of our responsibilities in respect of an audit of financial statements we refer to the website of the professional body for accountants in the Netherlands (NBA) www.nba.nl/standardtexts-auditorsreport.

Assurance report on the reviewed section of the Report

The objective of our review is to provide limited assurance on whether the information in the reviewed section of the Report is, in all material respects, prepared in accordance with section 2:391 of the Netherlands Civil Code based on the Dutch Standard on Assurance engagements 3000. We do not provide any assurance on the feasibility of the targets, expectations policy and ambitions of Triodos Bank.

Procedures performed to obtain a limited level of assurance are aimed at determining the plausibility of information and are less extensive than those for a reasonable level of assurance.

Our procedures included e.g.:

  • A risk analysis, including a media search, to identify potential material other aspects for the company in the reporting period to include in the Executive Board Report.
  • Evaluating the design and implementation of systems and processes for the collection, processing and control of the information in the Executive Board Report, including the consolidation of the data for the report.
  • Interviewing management and key individuals at group and branch level responsible for strategy, policies, management, internal controls and reporting.
  • Interviews with key individuals at group and branch level responsible for providing the information in the Executive Board Report.
  • From the matters communicated with the Supervisory Board, we determine those matters that were of most significance to the audit of the 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, not mentioning it is in the public interest.
  • Evaluating internal and external documentation, based on sampling, to determine the adequacy of the information in the Executive Board Report.
  • An analytical review of the data and trend explanations submitted by all branches for consolidation at group level.

Report on other legal and regulatory requirements

Report on the Report of the Management Board and Other Information

Pursuant to the legal requirement under Part 9 of Book 2 of the Netherlands Civil Code regarding our responsibility to report on the (complete) Report of the Executive Board and the other information:

  • We have no deficiencies to report as a result of our examination whether the Report of the Executive Board, to the extent we can assess, has been prepared in accordance with Part 9 of Book 2 of the Netherlands Code, and whether the other information as required by Part 9 of Book 2 of the Netherlands Civil Code has been annexed.
  • We report that the Report of the Executive Board, to the extent we can assess, is consistent with the financial statements.

Engagement

We are engaged by the General Meeting of Shareholders as auditor of Triodos Bank N.V. for more than 10 years with 2015 being the last year before auditor rotation. We have been re-engaged for the audit for the year 2015 on 22 May 2015.

Amstelveen, 25 February 2016

KPMG Accountants N.V.
P.A.M de Wit RA