AES CORP
For the period ended Dec 31, 2024. Filed Mar 11, 2025.
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FY2024 · Filed Mar 11, 2025
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Part A— Report of Independent Registered Public Accounting Firm
Our auditors are Ernst & Young LLP, located in Tysons, Virginia. Their PCAOB ID number is 42.
Part B— Financial Statements and Supplementary Data
To the Stockholders and the Board of Directors of The AES Corporation
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of The AES Corporation (the Company) as of December 31, 2024, and 2023, the related consolidated statements of operations, comprehensive income (loss), changes in equity and cash flows for each of the three years in the period ended December 31, 2024, and the related notes and financial statement schedule listed in the Index at Item 15(a) (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2024 and 2023, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2024, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2024, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated March 10, 2025 expressed an adverse opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
| Allocation of Earnings to Noncontrolling Interests in Tax Equity Partnerships | |
| Description of the Matter | A significant number of renewables projects at AES Clean Energy have been financed with tax equity structures, where the tax equity investors receive a portion of the economic attributes of the facilities, including tax attributes, that vary over the life of the projects. When the allocation of earnings and losses, cash distributions, and tax benefits are not based on fixed ownership percentages, the Company uses the hypothetical liquidation at book value (HLBV) method to calculate the earnings attributable to noncontrolling interest for consolidated partnerships, when it is a reasonable approximation of the profit-sharing arrangement. As discussed in Note 18 to the consolidated financial statements, AES Clean Energy Development and AES Renewable Holdings sold noncontrolling interest to tax equity investors resulting in an increase of $866 million to noncontrolling interest in 2024.Auditing the allocation of earnings to noncontrolling interest holders for significant new tax equity partnerships was complex due to the evaluation of whether a newly established HLBV model used to allocate earnings appropriately reflects the unique substantive profit-sharing terms and features within each arrangement. A greater extent of audit effort and specialized skill and knowledge was required to evaluate compliance with the contractual provisions in each partnership agreement as well as the appropriateness of the investors’ capital account balances used in the HLBV models. |
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| How We Addressed the Matter in Our Audit | We obtained an understanding, evaluated the design and tested the operating effectiveness of the controls over the Company’s process for developing the HLBV model for new tax equity arrangements. For example, we tested management’s review of substantive profit-sharing terms to evaluate whether they are properly reflected in the HLBV model for new arrangements.To test the allocation of earnings to noncontrolling interest holders for new significant tax equity partnerships, we read the related partnership agreements to understand the substantive profit-sharing provisions. We evaluated the HLBV models for consistency with the contractual provisions in the related partnership agreements and tested the capital contributions made by the tax equity investors and tax credits transferred by the partnership. We involved tax subject matter professionals to assist in evaluating the calculation of the investors’ capital accounts used in the HLBV models, including the proceeds attributable to the tax equity investor due to the recognition of investment tax credits and other adjustments as required by the U.S. Internal Revenue Code. Additionally, we tested the allocation of earnings by recalculating the hypothetical liquidation in the HLBV models based on the liquidation provisions of the related partnership agreements. |
| Accounting for the Madison and Birdseye Acquisition | |
| Description of the Matter | During 2024, the Company completed the acquisition of the Madison solar project and the Birdseye pipeline of early-stage renewable energy development projects. The transaction was accounted for as a business combination with a purchase price of $20 million paid in cash, as disclosed in Note 26 to the consolidated financial statements. The acquisition resulted in a bargain purchase gain of $20 million, primarily due to the determination that the Madison solar project would qualify for an increased investment tax credit (ITC) based on studies performed subsequent to the acquisition date, which resulted in a measurement period adjustment related to the increase of the fair value of assets acquired. Auditing the Company's accounting for the acquisition was complex due to the unobservable inputs used by management to determine the fair values of the significant assets acquired and liabilities assumed at the acquisition date, primarily consisting of the construction work in progress (CWIP) of $78 million and the off-market virtual power purchase agreement (VPPA) liability of $53 million. These fair value estimates were sensitive to the significant assumptions used, including the market PPA price, forecasted operating expenses, and the discount rates utilized, which affected the bargain purchase gain recognized. |
| How We Addressed the Matter in Our Audit | We obtained an understanding, evaluated the design and tested the operating effectiveness of the Company’s controls over the accounting for the acquisition. For example, we tested controls over the Company’s accounting considerations and the valuation of the significant assets acquired and liabilities assumed, including management’s review of the valuation models, the significant assumptions used to develop the estimates, and the completeness and accuracy of the data used in the valuations. To test the estimated fair value of the significant assets acquired and liabilities assumed, we performed audit procedures that included, among others, evaluating the Company's selection of the valuation methodology, evaluating the significant assumptions used, and evaluating the completeness and accuracy of the underlying data supporting the significant assumptions. For example, we compared the significant assumptions used by management to third-party industry and market data and to the Company’s historical operating results. We involved our internal valuation specialists to assist in our evaluation of the reasonableness of the Company’s valuation methodology and the discount rates used in the valuations. We also tested the Company’s measurement period adjustment, including assumptions used in determining the Madison solar project’s qualification for the ITC, and the Company’s assessment over the bargain purchase recognized in the transaction. |
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/s/ Ernst & Young LLP
We have served as the Company's auditor since 2008.
Tysons, Virginia
March 10, 2025
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