As disclosed in note 11, goodwill of €681 million (2015: €590 million) is assessed annually for impairment using a value-in-use basis, while property, plant and equipment of €3,788 million (2015: €3,554 million), as disclosed in note 10, are assessed for impairment where possible impairment indicators are identified.

The Group’s assessment of the carrying value of goodwill and property, plant and equipment requires significant judgement, as described in note 1 to the Group financial statements, in particular forecast future cash flows, future growth rates, the discount rates applied and the determination of the level at which impairments should be assessed.

As such this has been noted as a key audit matter.

Our audit work included evaluating key controls around the impairment review process, and challenging the director’s key assumptions used in the cash flow forecasts included within the impairment models for goodwill and property, plant and equipment with reference to historical trading performance, market expectations and our understanding of the future utilisation of assets by the Group. Particular focus was given to the incorporation of country risk within the Group’s forecasts.

In performing our audit procedures, we used internal valuation specialists to assess the discount rates applied by benchmarking against independent data. Key assumptions challenged include those related to the level at which impairment is assessed, being for property, plant and equipment the lowest level at which largely independent cash inflows can be identified and for goodwill the businesses that are expected to benefit from the acquisition, forecast future cash flows, future growth rates and the discount rates applied.

We also evaluated the directors’ assessment of the sensitivity of the Group’s impairment models to reasonably possible changes in the key assumptions and considered the disclosures provided by the Group in relation to its impairment reviews.

We concluded that the levels at which impairments were assessed were appropriate and that the directors have an appropriate process for determining the assumptions used in the respective models. In the context of the inherent uncertainties disclosed, the calculated recoverable values of the respective assets (or group of assets), determined with reference to the forecast future cash flows, future growth rates and discount rates applied, are considered collectively to be within a reasonable range of the possible outcomes. The disclosure in relation to the impairment reviews and the assumptions applied is considered comprehensive.

The Group continues to invest in significant capital projects with capital expenditure of €446 million during the year ended 31 December 2016, as detailed in note 10, of which €99 million related to the Group’s major capital projects, including those in Świecie (Poland) and South Africa.

The significant level of capital expenditure requires consideration of the nature of costs incurred to ensure that capitalisation of property, plant and equipment meets the specific recognition criteria in IAS 16, ‘Property, Plant and Equipment’ (IAS 16), specifically in relation to assets constructed by the Group, and the application of the directors’ judgement in assigning appropriate useful economic lives. As a result, this was noted as a key audit matter, with the risk focused on certain key projects, where the risk of material misstatement was deemed higher as a result of the complexity of the specific project.

Our audit work included assessing the nature of property, plant and equipment capitalised by the Group to test the validity of amounts capitalised and evaluating whether assets capitalised meet the recognition criteria set out in IAS 16.

Our audit work considered whether capitalisation of assets ceased when the asset is in the location and condition necessary for it to be capable of operating in the manner intended by the Group and that a consistent approach was applied by the Group across all significant operations.

Furthermore, we challenged the useful economic lives assigned with reference to the Group’s historical experience, our understanding of the future utilisation of assets by the Group and by reference to the depreciation policies applied by third parties operating similar assets.

The capitalisation of assets in the year, and the useful economic lives assigned, were assessed to be appropriate based on the evidence obtained. We did not identify any assets capitalised in prior years where we considered the useful economic lives originally assigned needed revision in the year.

The Group has operations in a number of geographical locations and as such is subject to multiple tax jurisdictions, giving rise to complexity in accounting for the Group’s taxation.

In particular, as detailed in note 7, the existence of tax incentives available to the Group and historical tax losses give rise to judgement in determining the appropriate tax charge for the Group and the recognition of deferred tax assets. There are also cross-border transactions which give rise to transfer pricing related risks.

Due to the level of complexity in assessing the relevant tax incentives available to the Group and the level of directors’ judgement required to determine the appropriate Group tax charge, this has been identified as a key audit matter.

Our audit work, which involved taxation audit specialists within specific locations where local tax knowledge was required, included the assessment of taxation assets and liabilities, with particular consideration and challenge given to the judgements taken in relation to accounting for tax incentives, corporate tax provisions and the recognition of deferred tax assets and liabilities.

In addition, we involved transfer pricing specialists to assess the appropriateness of the Group’s assessment of their exposure to transfer pricing related risks. Our assessment included the review of applicable third-party evidence and correspondence with tax authorities. In relation to deferred tax assets, we challenged the appropriateness of the directors’ judgements of the availability of future appropriate taxable profits in assessing whether to recognise deferred tax assets.

Based on the procedures performed, the tax balances recorded have been calculated on an appropriate basis, with an adequate allowance being made for uncertainty in the recovery of deferred tax assets and transfer pricing risks.

Refer to Note 1, Note 2 and Note 12 The fair value of Group’s Biological assets through subsidiaries, joint operations and associates amounts to EUR 3 386 million as of December 31, 2016.

The value of Biological assets is measured at fair value less costs to sell. The fair value is determined using discounted cash flows based on sustainable forest management plans taking into account the growth potential of one cycle. The one cycle varies depending on the geographic location and species. These discounted cash flows require estimates of growth, harvest, sales price and costs.

Due to the level of judgment involved in the valuation of Biological Assets, complexity of the governance structure as well as the significance of biological assets to the Group’s financial position, this is considered to be a key audit matter.

As part of our audit procedures, we have gained understanding over the management review and monitoring controls for interpretation of group policy and IAS 41 standard.

We have tested management’s controls and effectiveness of systems in place for the existence and valuation of Biological assets directly owned by the subsidiary companies.

We have assessed the key assumptions contained within the fair value calculations including sales price assumptions, growth assumptions and discount rates. We have used Deloitte specialists where applicable.

We have performed analytic review of the results of the IAS 41 valuations to highlight outliers which warrant further procedures.

We have assessed and tested the controls and procedures around management’s recording of Joint Operations results, including impact of Biological assets valuation.

As part of our audit procedures, we have assessed and tested the controls and procedures around management’s recording of Forest associate results including impact of Biological assets valuation, as this has direct impact to Group’s Equity accounted investments Balance Sheet line item.

As part of our audit procedures, we have communicated with the auditors of the four largest associates and Joint Operations. As part of the communication, among other things we have gone through the key audit procedures performed.

We have assessed the appropriateness of presentation in the consolidated financial statements.

Refer to Note 2, Note 10 and Note 11 As at 31 December 2016, the Group has Goodwill of EUR 238 million, which is assessed at least annually for impairment, and EUR 5 791 million property, plant and equipment and other intangible assets, which are assessed for impairment where possible impairment indicators are identified.

In 2016 the Group recorded an impairment of EUR 92 million for property, plant and equipment and other intangible assets. Impairment related mainly to Newsprint Europe Cash generating unit in Paper Division, for which an impairment of EUR 78 million was recorded due to further weakened long-term earnings expectations resulting from decline in the European Paper markets. In addition, the Group recorded EUR 11 million impairment of Goodwill, which was fully relating to Corrugated China operations in Packaging Solutions Division.

As at 31 December 2016, the value of Stora Enso Oyj’s subsidiary shares amounted to EUR 6 179 million in the parent company’s financial statements prepared in accordance with the Finnish Gaap. Under Finnish Gaap, an impairment is recorded when it is considered to be substantial and permanent. In 2016 impairment of subsidiary shares amounted to EUR 58 million.

The assessment of the recoverable amount requires significant judgment, in particular relating to estimated cash flow projections and discount rates.

Due to the level of judgment, market environment and significance to the Group’s financial position, this is considered to be a key audit matter.

The Group has significant investment projects with Property, plant and equipment, and other intangible assets additions of EUR 638 million during the year ended 31 December 2016.

The significant level of additions requires consideration of the nature of costs incurred to ensure that capitalization of property, plant and equipment, and intangible assets meets the recognition criteria of IAS 16 and IAS 38, and the application of the judgment assigning appropriate useful economic lives. Thus, this is considered to be a key audit matter.

As part of our audit procedures we have evaluated the robustness of budgeting process, which is basis for the valuations.

We have tested the controls and review procedures around identification of impairment indicators. We have critically evaluated management’s methodologies in preparing impairment models and documented basis for key assumptions.

We performed procedures on those Cash Generating Units where management has identified impairment indicators; or where the recoverable amount is close to carrying value.

As part of our audit procedures we assessed the assumptions contained within the calculations including growth assumptions, discount rates and implications of industry changes. In addition, we have analysed earlier estimates against actual business development. We have used Deloitte specialists where applicable.

We have reviewed the appropriateness of the controls relating to the significant investment projects, such as the controls over accounting being in line with IFRS and group policy.

As part of our audit procedures we assessed the validity of amounts capitalized and assumptions relating to depreciations.

Refer to Note 2, Note 22 and Note 29 As of 31 December 2016 the Group had environmental, restructuring and other provisions totalling EUR 134 million.

In addition the Group has disclosed significant open legal cases and other contingent liabilities in Note 29. The assessment of the existence of the present legal or constructive obligation, analysis of the probability of the related payment and analysis of a reliable estimate, requires management’s judgement to ensure appropriate accounting or disclosures.

Due to the level of judgement relating to recog-nition, valuation and presentation of provisions and contingent liabilities, this is considered to be a key audit matter.

As part of our audit procedures we have assessed man-agement’s processes to identify new possible obligations and changes in existing obligations for compliance with group policy and IAS 37 requirements.

We have analysed significant changes from prior periods and obtain a detailed understanding of these items and assumptions applied.

We have obtained legal representation letters on the main outstanding legal cases. As part of our audit procedures we have reviewed minutes of board meetings (including the sub-committees).

We have held regular meetings with management and legal counsels. We have assessed the appropriateness of presentation in the consolidated financial statements.