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Independent Auditor’s Report

To SAP SE, Walldorf

Report on the Audit of Consolidated Financial Statements

Opinion on the Consolidated Financial Statements

We have audited the consolidated financial statements of SAP SE, Walldorf, and its subsidiaries (the Group), which comprise the consolidated statements of financial position as at December 31, 2016, consolidated income statements, consolidated statements of comprehensive income, consolidated statements of changes in equity and consolidated statements of cash flows for the fiscal year from January 1, 2016, to December 31, 2016, and notes to the consolidated financial statements, including a summary of significant accounting policies.

Pursuant to Section 322 (3) sentence 1 half sentence 2 HGB (“Handelsgesetzbuch”: German Commercial Code), we state that, in our opinion, based on our knowledge obtained in the audit, the accompanying consolidated financial statements comply in all material respects with IFRS as adopted by the EU and the supplementary requirements of German commercial law pursuant to Section 315a (1) of the German Commercial Code [HGB], as well as IFRS as adopted by the International Accounting Standards Board and give a true and fair view of the net assets and financial position of the Group as at December 31, 2016 as well as the results of operations for the fiscal year from January 1, 2016, to December 31, 2016, in accordance with these requirements.

Pursuant to Section 322 (3) sentence 1 HGB, we state that our audit of the consolidated financial statements has not led to any reservations with respect to the propriety of the consolidated financial statements.

Basis for Opinion on the Consolidated Financial Statements

We conducted our audit in accordance with Section 317 HGB and German generally accepted standards for the audit of financial statements promulgated by the German Institute of Public Auditors [IDW] as well as in supplementary compliance with International Standards on Auditing (ISA) and guidelines of the Public Company Accounting Oversight Board (United States). Our responsibilities under those standards and additional guidelines 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 requirements of German commercial law and the rules of professional conduct, and we have fulfilled our other ethical responsibilities applicable in Germany 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 for the fiscal year from January 1, 2016 to December 31, 2016. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, but we do not provide a separate opinion on these matters.

Recognition of software licenses revenue

Refer to Note (3b) – Relevant Accounting Policies, Note (3c)Management Judgments and Sources of Estimation Uncertainty, and Note (5) – Revenue.

The Financial Statement Risk

IFRS do not provide specific guidance on recognizing revenue for sales of software and software-related products and services. SAP defined detailed policies, procedures and processes to manage the accounting for its software arrangements. SAP’s revenue generating transactions and, consequently, SAP’s revenue recognition policies are complex. Applying them often requires significant judgment.

Significant judgments include the allocation of revenue from customer contracts to multiple deliverables and the application of the revenue recognition criteria under IAS 18, e.g., assessing whether the significant risks and rewards have been transferred to the buyer and whether the amount of revenue can be measured reliably.

Our Response

We evaluated the compliance of SAP’s accounting policies on software revenue recognition with the IFRS Framework and the individual applicable IFRSs. We considered the design and tested the operating effectiveness of the key controls implemented by SAP on the identification of multiple-element arrangements, the identification of deliverables and separate units of accounting, the identification of fair value for all relevant deliverables other than on-premise software (due to the residual method being applied). For all software arrangements we considered to be individually substantial and for a sample of the remaining software arrangements, we also:

  • obtained an understanding of the transaction through inspection of the underlying contractual agreements and other related documents as well as discussions with SAP’s accounting and/or sales representatives;
  • obtained external confirmations of the key terms and conditions from the respective customers to corroborate the information relevant for the accounting that we received from SAP;
  • assessed whether SAP appropriately identified all separate units of accounting and allocated the transaction price to such units based on either the relative fair value method or the residual method, as applicable, using the established fair values (see next paragraph); and
  • evaluated whether the revenue recognition policies applicable to each separate unit of accounting were applied appropriately to ensure that revenue is recognized in the appropriate period.

We evaluated the fair value assumptions for each deliverable that typically qualifies as a separate unit of accounting in SAP’s multiple-element arrangements by assessing the appropriateness of the methodology applied, testing mathematical accuracy of the underlying calculations and testing selections to corroborate the data underlying SAP’s calculations. We also assessed the appropriateness of the related disclosures in the consolidated financial statements.

Our Observations

SAP has developed an adequate framework for determining the accounting treatment for its software licenses revenue. Our testing did not identify any significant exceptions in the operation of controls. The disclosures appropriately describe this framework. For the vast majority of the software arrangements entered into during 2016, it was clear which of SAP’s revenue policies should apply. Where there was room for interpretation, SAP’s judgment was balanced and appropriate. We did not identify any material errors in calculations.

Income tax exposures

Refer to Note (3b)Relevant Accounting Policies, Note (3c)Management Judgments and Sources of Estimation Uncertainty, and Note (10) – Income Tax.

The Financial Statement Risk

SAP operates in multiple tax jurisdictions with complexities of transfer pricing, changing tax laws, and intercompany financing transactions. The determination of provisions for tax contingencies requires SAP to make judgments on tax issues and develop estimates regarding SAP’s exposure to tax risks.

Our Response

SAP regularly engages external experts to provide tax opinions to support their own risk assessment. We involved our tax specialists to evaluate these tax opinions. Our specialists also assessed the correspondence with the relevant tax authorities and analyzed and evaluated the assumptions used to determine tax provisions based on our knowledge and experiences of the current application of the relevant legislation by authorities and courts. Through our international network we involved tax specialists with the appropriate knowledge on the respective local tax rules and regulations who reported the results of their assessment to us. We also assessed the adequacy of SAP’s disclosures about income taxes and uncertain tax positions.

Our Observations

SAP’s judgments as to the amounts recognized as tax expense and provisions for tax contingencies as at December 31, 2016 are appropriate. The disclosures provide a balanced description of the current status of tax claims and risks.

Goodwill impairment test for SAP Business Network

Refer to Note (3c) – Management Judgments and Sources of Estimation Uncertainty, Note (15) - Goodwill and Intangible Assets

The Financial Statement Risk

SAP performed the annual goodwill impairment test at the level of its operating segments as there are no lower levels within SAP at which goodwill is monitored for internal management purposes. SAP’s acquisitions led to a material goodwill in the SAP Business Network Segment in which SAP mainly markets and sells the cloud offering developed by SAP Ariba, SAP Fieldglass and Concur. Goodwill allocated to the SAP Business Network is material as of December 31, 2016 (16,8 % of consolidated balance sheet total) and the impairment test involves significant judgment. The key assumptions relate to the determination of the peer group, budgeted revenue growth, budgeted operating margins, pre-tax discount rates and terminal growth rates.

Our Response

SAP has implanted controls designed to ensure that the calculation of the recoverable amount (in the specific case fair value less cost of disposal) for SAP Business Network is appropriate. We tested the design and operating effectiveness of these controls. We involved our valuation specialists to assess the valuation methodologies applied and key assumptions used in measuring the fair value less cost to disposal and to test the mathematical accuracy of the discounted cash flow and other valuation models. We evaluated SAP’s assumptions by comparing the fair value estimates to our own expectations and performed independent sensitivity analysis for each key assumption.

Our Observations

Our testing did not identify any significant exceptions in the operation of controls. Based on our performed sensitivity analysis we concluded that SAP applied a balanced set of assumptions in determining the recoverable amount (fair value less cost of disposal). The valuation results for the goodwill of SAP Business Network are consistent with our internal projections. We did not identify any material errors in valuation methodologies applied or in the calculations made.

Information Other than the Consolidated Financial Statements and Auditor’s Report thereon

The Executive Board of SAP SE is responsible for the information other than the consolidated financial statements and auditor’s report thereon (the other information). The other information comprises the Integrated Report published on the website of SAP SE, including the Annual Report on Form 20-F, except for the annual and consolidated financial statements, the combined group management report by the SAP Group and the management report of SAP SE and our auditor's report thereon.

Our audit opinion on the consolidated financial statements does not cover the other information and we do not express, any form of assurance conclusion thereon, except for selected qualitative and quantitative sustainability disclosures for which we performed an independent assurance engagement and issued an Independent Assurance Report.

In connection with our audit of the consolidated financial statements, our responsibility is to read the other information, and 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. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.

Responsibilities of the Executive Board and the Supervisory Board for the Consolidated Financial Statements

The Executive Board of SAP SE is responsible for the preparation of the consolidated financial statements which comply with IFRS as adopted by the EU and the supplementary requirements of German commercial law pursuant to Section 315a (1) HGB as well as IFRS as adopted by the International Accounting Standards Board and give a true and fair view of the net assets, financial position and results of operations of the Group in accordance with these requirements. Furthermore, the Executive Board is responsible for such internal control as the Executive Board 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, the Executive Board 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 the Executive Board either intends to liquidate the Group or to cease operations, or has no realistic alternative but to do so.

The Supervisory Board is responsible for overseeing the Group’s financial reporting process for the preparation of the consolidated financial statements.

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 on the consolidated financial statements. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Section 317 HGB and German generally accepted standards for the audit of financial statements promulgated by the German Institute of Public Auditors [IDW] as well as in supplementary compliance with ISA and guidelines of the Public Company Accounting Oversight Board (United States) 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 Section 317 HGB and German generally accepted standards for the audit of financial statements promulgated by the German Institute of Public Auditors [IDW] as well as in supplementary compliance with ISA and guidelines of the Public Company Accounting Oversight Board (United States), 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.
  • Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the Executive Board.
  • Conclude on the appropriateness of the Executive Board’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 the consolidated financial statements give a true and fair view of the net assets and financial position as well as the results of operations of the Group in accordance with IFRS as adopted by the EU and the supplementary requirements of German commercial law pursuant to Section 315a (1) HGB as well as IFRS as adopted by the International Accounting Standards Board.
  • Obtain sufficient and 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 the Supervisory Board 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, related safeguards.

From the matters communicated with the Supervisory Board, 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 report on the audit of the consolidated financial statements unless law or regulation precludes public disclosure about the matter.

Other Legal and Regulatory Requirements

Report on the Audit of the Group Management Report

Opinion on the Group Management Report

We have audited the combined group management report by the SAP Group and the management report of SAP SE, Walldorf (“Group Management Report”), for the fiscal year from January 1, 2016 to December 31, 2016.

In our opinion, based on our knowledge obtained in the audit, the accompanying Group Management Report as a whole provides a suitable view of the Group’s position. In all material respects, the Group Management Report is consistent with the consolidated financial statements, complies with the German statutory requirements and suitably presents the opportunities and risks of future development.

Pursuant to Section 322 (3) sentence 1 HGB, we state that our audit has not led to any reservations with respect to the propriety of the Group Management Report.

Basis for Opinion on the Group Management Report

We conducted our audit in accordance with Section 317 (2) HGB and German generally accepted standards for the audit of management reports promulgated by the German Institute of Public Auditors [IDW]. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion

Responsibilities of the Executive Board and the Supervisory Board for the Group Management Report

The Executive Board of SAP SE is responsible for the preparation of the Group Management Report, which as a whole provides a suitable view of the Group’s position, is consistent with the consolidated financial statements, complies with the German statutory requirements and suitably presents the opportunities and risks of future development. Furthermore, the Executive Board is responsible for such arrangements and measures (systems) as the Executive Board determines are necessary to enable the preparation of the Group Management Report in compliance with the requirements of German commercial law applicable pursuant to Section 315a (1) HGB, German Accounting Standards number 17 and 20 (GAS 17, GAS 20) and the International Financial Reporting Standard (IFRS) Practice Statement Management Commentary and for providing sufficient and appropriate evidence for the statements in the Group Management Report.

The Supervisory Board is responsible for overseeing the Group’s financial reporting process for the preparation of the Group Management Report.

Auditor’s Responsibilities for the Audit of the Group Management Report

Our objectives are to obtain reasonable assurance whether the Group Management Report as a whole provides a suitable view of the Group’s position, as well as, in all material respects, is consistent with the consolidated financial statements and our knowledge obtained in the audit, complies with the German statutory requirements, and suitably presents the opportunities and risks of future development and to issue an auditor’s report that includes our opinion on the Group Management Report.

Report on the System of Internal Control over Consolidated Financial Reporting pursuant to PCAOB

Opinion on the System of Internal Control over Consolidated Financial Reporting

We have audited the system of internal control over consolidated financial reporting of SAP SE, Walldorf, and its subsidiaries in place as at December 31, 2016. This control system is based on criteria set out in the Internal Control – Integrated Framework of the Committee of Sponsoring Organizations of the Treadway Commission (COSO) (version of 2013).

In our opinion, SAP maintained effective internal control over consolidated financial reporting as at December 31, 2016 based on the criteria set out in the Internal Control – Integrated Framework issued by COSO (in the version of 2013).

Executive Board’s and Supervisory Board’s Responsibility for the System of Internal Control over Consolidated Financial Reporting

SAP SE’s Executive Board is responsible for maintaining an effective system of internal control over consolidated financial reporting and assessing its effectiveness, which is included in the Executive Board’s report on the system of internal control over consolidated financial reporting.

A company’s system of internal control over consolidated financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting in the consolidated financial statements and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s system of internal control over consolidated financial reporting includes policies and procedures to (1) ensure an accounting system that in reasonable detail accurately and fairly reflects the transactions and dispositions of the company’s assets, (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect material misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

The Supervisory Board is responsible for overseeing the Group’s system of internal control over consolidated financial reporting.

Auditor’s Responsibility for the System of Internal Control over Consolidated Financial Reporting

Our responsibility is to express an opinion on the system of internal control over consolidated financial reporting based on our audit. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether effective internal control over consolidated financial reporting was maintained in all material respects. Our audit of internal control over consolidated financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk of material deficiencies in internal control, testing and evaluating the design and operating effectiveness of internal control based on this assessment, and performing such other procedures as we considered necessary in the circumstances.

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

Responsible Auditor

The engagement partner on the audit resulting in this independent auditor's report is Dr. Bert Böttcher.

Mannheim, February 22, 2017

KPMG AG Wirtschaftsprüfungsgesellschaft

Dr. Böttcher
Wirtschaftsprüfer
German Public Auditor

Herold
Wirtschaftsprüferin
German Public Auditor

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