To the Shareholders of Arabian Internet and Communication Services Company (A Saudi Joint Stock Company)

Report on the Audit of the Consolidated Financial Statements

Opinion

We have audited the consolidated financial statements of Arabian Internet and Communication Services Company (the “Company”) and its subsidiaries (collectively referred to as the “Group”), which comprise the consolidated statement of financial position as at 31 December 2022, and the consolidated statement of profit or loss 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.

In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Group as at 31 December 2022, and its consolidated financial performance and its consolidated cash flows for the year then ended in accordance with International Financial Reporting Standards that are endorsed in the Kingdom of Saudi Arabia and other standards and pronouncements that are endorsed by the Saudi Organization for Chartered and Professional Accountants.

Basis for Opinion

We conducted our audit in accordance with International Standards on Auditing that are endorsed in the Kingdom of Saudi Arabia. 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 International Code of Ethics for Professional Accountants (including International Independence Standards) that is endorsed in the Kingdom of Saudi Arabia that is relevant to our audit of the consolidated financial statements, and we have fulfilled our other ethical responsibilities in accordance with this Code. 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 auditor’s opinion thereon, and we do not provide a separate opinion on these matters. For each matter below, our description of how our audit addressed the matter is provided in that context.

We have fulfilled the responsibilities described in the Auditor’s Responsibilities for the Audit of the consolidated financial statements section of our report, including in relation to these matters. Accordingly, our audit included the performance of procedures designed to respond to our assessment of the risks of material misstatement of the consolidated financial statements. The results of our audit procedures, including the procedures performed to address the matters below, run on provide the basis for our audit opinion on the accompanying consolidated financial statements.

Key audit matter	How our audit addressed the key audit matter
Acquisitions of two subsidiaries During the financial year ended 31 December 2022, the Group completed two acquisitions amounted to SR 465.6 million of a controlling interest in Giza Systems Company and Giza Arabia which resulted in goodwill of SR 193.4 million and intangible assets of SR 159.5 million. We considered this as a key audit matter due to the significant impact on consolidated balance sheet of the Group and its result which is subject to management judgments and estimates in relation to the allocation of the purchase price to the assets and liabilities acquired. This exercise also require management to determine the fair value of the assets and liabilities acquired and to identify intangible assets and goodwill resulted from this acquisition. The management used an external valuator to determine the fair value. Please refer to Notes 1 and 5 for the related disclosure.	Our audit procedures included, among others, the following: Inspected the sales and purchase agreements and the circulars issued to the shareholders in relation to these acquisitions to obtain an understanding of the transactions and the key terms. Assessed whether the appropriate accounting treatment has been applied to these transactions. Obtained copy of the third-party valuation report related to the acquisition. Assessed the competence and experience of the valuator. Engaged our internal specialists to assess the valuation methodologies used by management and the external valuation expert in the fair valuation of acquired assets and liabilities. Assessed the adequacy of the relevant disclosures in the consolidated financial statements.
Revenue recognition The Group’s revenue mainly comprises of; Core ICT Services, IT Managed and Operational Services, and Digital Services totaling SR 8.8 billion for the year ended 31 December 2022. Also, the revenue from related parties for the year is considered significant, as compared to total revenue. We considered this as a key audit matter due to the estimates and judgments involved in the application of revenue recognition in accordance with IFRS 15. Additionally, there are certain inherent risks associated with revenue, which mainly relate to use of IT applications and customers’ long-term contracts, which have a material impact on the accuracy of recognizing and recording revenue. Refer to Note 3 for the accounting policy relating to revenue recognition, Notes 6 and 37 for the related disclosures.	Our audit procedures included, among others, the following: Involved our IT specialists in testing the design, implementation, and operating effectiveness of IT controls associated to revenue cycle. Evaluated the Group’s accounting policy, as it specifically relates to revenue recognition for compliance with IFRS 15. In relation to the criteria followed by the Management to determine the level of revenue to be recognized, we have, on a sample basis performed the following: – Evaluated management assessment related to identify performance obligation in line with the terms and conditions of contracts with customers; – Tested the transaction price to the underlying contracts, on sample basis, as executed with customers; – Evaluated management assessment to allocate transaction price that is allocated to identified performance obligation; and – Evaluated management assessment of revenue recognition timing, whether is “at a point in time” or “over period of time”. For revenue with related parties, in addition to the audit procedures mentioned above, we have assessed the process followed by the Management in identifying, recording, and reporting revenue from related parties. Assessed the adequacy of the relevant disclosures in the consolidated financial statements.
Allowance for expected credit losses of accounts receivable As at 31 December 2022, the Group’s accounts receivable balance amounted to SR 4.6 billion, against which an impairment allowance of SR 287 million is maintained. The Group assesses at each reporting date whether the accounts receivable are impaired. Management has applied an expected credit loss (“ECL”) model to determine the appropriate allowance for impairment loss. Further, the Group performs an assessment based on a defined policy for certain categories of customers. The determination of allowance for expected credit losses of accounts receivable is based on certain assumptions that relate mainly to risk of default and expected loss rates. The Group applies judgment in making these assumptions and selecting the inputs to the impairment calculation, based on the Group’s past history, market conditions, as well as forward-looking estimates. We considered this as a key audit matter due to the level of judgment applied and estimates made in the application of the ECL model and the assessment of allowance for expected credit losses. Refer to Notes 3 and 4 for the accounting and critical judgments policies relating to allowance for impairment of accounts receivable and Note 14 for the related disclosures.	Our audit procedures performed included, among others, the following: Obtained an understanding of the process used by Management in determining the allowance for expected credit losses of accounts receivable. Assessed significant assumptions used in the ECL model’s calculation such as; forward-looking factors (that reflect the impact of future events) and macroeconomic variables that are used to determine the allowance for expected credit losses. Tested the completeness and mathematical accuracy of the ECL model. Assessed the assumptions used by Management in connection to the determination of allowance for expected credit losses for certain customers’ categories. Tested, on a sample basis, the calculation performed by management of allowance for expected credit losses for these categories of customers. Assessed the adequacy of the relevant disclosures included in the consolidated financial statements.

Other information included in the Group’s 2022 Annual Report

Other information consists of the information included in the Group’s 2022 Annual Report, other than the consolidated financial statements and our auditor’s report thereon. Management is responsible for the other information in its Annual Report. The Group’s 2022 Annual Report is expected to be made available to us after the date of this auditor’s report.

Our opinion on the consolidated financial statements does not cover the other information and we will not express any form of assurance conclusion thereon.

In connection with our audit of the consolidated financial statements, our responsibility is to read the other information identified above when it becomes available and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated.

When we read the Group’s 2022 annual report, if we conclude that there is a material misstatement therein, we are required to communicate the matter to those charged with governance.

Responsibilities of Management and those Charged with Governance for the Consolidated Financial Statements

Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with International Financial Reporting Standards that are endorsed in the Kingdom of Saudi Arabia and other standards and pronouncements that are endorsed by the Saudi Organization for Chartered and Professional Accountants and the provisions of Companies’ Law and Company’s By-laws, 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 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.

Those charged with governance, i.e., the Audit Committee, is responsible for overseeing 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 International Standards on Auditing that are endorsed in the Kingdom of Saudi Arabia 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 an audit in accordance with International Standards on Auditing that are endorsed in the Kingdom of Saudi Arabia, 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, 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 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 those charged with governance 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 those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, actions taken to eliminate threats or safeguards applied.

From the matters communicated with those charged with governance, 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.

For Ernst & Young Professional Services

Rashid S Roshod
Certified Public Accountant
License No. (366)

Riyadh: 7 Sha’ban 1444H
27 February 2023