In our opinion:
• the accompanying consolidated financial statements give a true and fair view of the financial position of ASML Holding N.V. as at December 31, 2017 and of its result and its cash flows for the year then ended, in accordance with International Financial Reporting Standards as adopted by the European Union (IFRS-EU) and with Part 9 of Book 2 of the Dutch Civil Code.
• the accompanying company financial statements give a true and fair view of the financial position of ASML Holding N.V. as at December 31, 2017 and of its result for the year then ended in accordance with Part 9 of Book 2 of the Dutch Civil Code.
What we have audited
We have audited the financial statements 2017 of ASML Holding N.V. (the Company) based in Veldhoven. The financial statements include the consolidated financial statements and the company financial statements.
The consolidated financial statements comprise:
1 the consolidated statement of financial position as at December 31, 2017;
2 the following consolidated statements for 2017: profit or loss, comprehensive income, changes in equity and cash flows; and 3 the notes comprising a summary of the significant accounting policies and other explanatory information.
The company financial statements comprise:
1 the company balance sheet as at December 31, 2017;
2 the company statement of profit or loss for 2017; and
3 the notes comprising a summary of the accounting policies and other explanatory information.
Basis for our opinion
We conducted our audit in accordance with Dutch law, including the Dutch Standards on Auditing. Our responsibilities under those standards are further described in the ‘Our responsibilities for the audit of the financial statements’ section of our report.
We are independent of ASML Holding N.V. in accordance with the EU Regulation on specific requirements regarding statutory audits of public-interest entities, the Wet toezicht accountantsorganisaties (Wta, Audit firms supervision act), the Verordening inzake de onafhankelijkheid van accountants bij assurance-opdrachten (ViO, Code of Ethics for Professional Accountants, a regulation with respect to independence) and other relevant independence regulations in the Netherlands. Furthermore, we have complied with the Verordening gedrags- en beroepsregels accountants (VGBA, Dutch Code of Ethics).
We believe the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Audit approach
Summary Materiality
Based on our professional judgment we determined the materiality for the financial statements as a whole at EUR 80 million (2016:
EUR 70 million). The materiality is determined based on profit before tax (5.0%). We averaged profit before tax over the last 3 years to reduce volatility. We consider profit before tax as the most appropriate benchmark as the main stakeholders are primarily focused on profit before tax. 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 4.0 million, which are identified during the audit, would be reported to them, as well as smaller misstatements that in our view must be reported on qualitative grounds.
Scope of the group audit
ASML Holding N.V. is at the head of a group of components. The financial information of this group is included in the consolidated financial statements of ASML Holding N.V. Given the high level of centralization of operations in the Netherlands, we have centralized our audit approach. Except for the procedures performed by a non-KPMG auditor in relation to the equity interest in Carl Zeiss SMT Holding GmbH & Co. KG, all audit procedures are performed by us, acting as the principal auditor.
By performing the procedures mentioned above, we have been able to obtain sufficient and appropriate audit evidence about the group’s financial information to provide an opinion about the consolidated financial statements.
Coverage
The depth of our audit procedures and our actual coverage varies per account balance depending on our risk assessment. Our coverage for total assets and total net sales can be summarized below.
Our key audit matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements. We have communicated the key audit matters to the Supervisory Board. The key audit 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 in forming our opinion thereon, and we do not provide a separate opinion on these matters.
Revenue recognition for multi-element arrangements and revenue cut-off Description
The total net system sales for the year 2017 amount to EUR 6.374 million. Sales of systems are usually entered into with customers under volume purchase agreements. The volume purchase agreements or other sales contracts relating to system sales usually contain multi-element arrangements, for example delivery of goods, installation, warranty and training. The separately identifiable components are recognized based on relative standalone selling prices. The identification of components in the contracts as well as the allocation of the sales value based on the relative standalone selling prices to the components results in complex accounting and bears the risk that revenue is misstated. In addition, given the individual value of each system, we identified a cut-off risk that system sales could be misstated as a result of recognition in the incorrect period. This risk also applies to the field option sales.
These risks inherently include the risk that management deliberately overstates or understates revenue, as management may feel pressure to achieve planned results.
Our response
Our audit procedures included, amongst others, assessing the appropriateness of the Company’s accounting policies relating to revenue recognition, including multi-element arrangements and assess compliance with IFRS-EU accounting policies. In addition, we have tested the operating effectiveness of the Company’s controls in the sales process and tested selected individual sales transactions to assess proper identification of the components in the contracts and correct allocation of the sales values based on the relative standalone selling prices to components. We also selected sales transactions before and after year-end to assess whether revenue was recognized in the correct period by, amongst others, inspection of sales contracts, inspection of client acceptance documents and performance of stock counts. Finally, we tested individual journal entries based on selection criteria that can be linked to the risks identified.
Our observation
The result of our procedures relating to the accounting for the multi-element arrangements included in volume purchase agreements and other sales contracts and the 2017 cut-off of net system and field option sales were satisfactory.
Acquisition of equity interest in Carl Zeiss SMT Holding GmbH & Co. KG Description
On June 29, 2017 the Company acquired a 24.9 percent interest in Carl Zeiss SMT Holding GmbH & Co. KG, which owns 100 percent of the shares in Carl Zeiss SMT GmbH for a total consideration of EUR 1.0 billion.
The Company determined that the investment will be accounted for under the equity method as an investment in associates because ASML does not control the Partnership Carl Zeiss SMT Holding GmbH & Co. KG, however ASML can exert significant influence over its operating and financial policies. The difference between the consideration and ASML's proportional fair value of the identifiable assets and liabilities was identified as equity method goodwill. The investment in Carl Zeiss SMT Holding GmbH &
Co. KG was a key audit matter as it is a significant transaction that is outside of ASML's normal course of business and the accounting of the investment is complex given the existing funding agreements and the valuation of assets and liabilities against fair value. Refer to Note 12 ‘Investments in associates’ of the Consolidated Financial statements.
Our response
With respect to the accounting for the Carl Zeiss SMT Holding GmbH & Co. KG investment, we have, amongst others, read the investment agreement, examined the accounting considerations, assessed the consideration paid and traced payments to bank statements, tested internal controls over this investment, assessed the identification and the valuation of the identifiable assets and liabilities, including any fair value adjustments, and assessed and challenged significant valuation assumptions, such as the discount rates and the terminal growth rates. In doing so we have included a valuation specialist in our team to assist with the audit of the identification and valuation of the assets and liabilities acquired.
We also obtained an audit report of Carl Zeiss SMT Holding GmbH & Co. KG from its non-KPMG auditor for the results for the 3 months ended September 30, 2017. We provided detailed instructions to this auditor, covering the significant audit areas, including the relevant risks of material misstatement, and the information required to be reported back. In addition, telephone conferences were held with the auditor and a file review was performed. During the telephone conferences and the file review, we discussed the audit approach and the audit findings and observations reported to us.
In addition we performed procedures over the investments in associates result adjustments made by management. These adjustments included differences in accounting principles and policies, basis difference amortization and intra-entity profits. We also tested management’s evaluation for significant events and transactions for the fourth quarter. Finally, we have considered the adequacy of the Company’s disclosures in respect of this acquisition.
Our observation
The result of our procedures relating to management’s accounting for the Carl Zeiss SMT Holding GmbH & Co. KG investment in the 2017 financial statements were satisfactory. Assumptions used by management to determine the proportional fair value of assets and liabilities, impacting the result of this investment, are reasonable.