Sunrun Inc
For the period ended Dec 31, 2023. Filed Feb 21, 2024.
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FY2023 · Filed Feb 21, 2024
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Reports of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of Sunrun Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Sunrun Inc. (the Company) as of December 31, 2023 and 2022, the related consolidated statements of operations, comprehensive (loss) income, redeemable noncontrolling interests and stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2023, and the related notes (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, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023, 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, 2023, 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 February 21, 2024 expressed an unqualified 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.
| Noncontrolling Interests and Redeemable Noncontrolling Interests | |
| Description of matter | At December 31, 2023, noncontrolling interests were $1.0 billion andredeemable noncontrolling interests were $0.7 billion. As explained in Note 2to the consolidated financial statements, noncontrolling interests and redeemablenoncontrolling interests represent investors’ interests in the net assets of the taxequity funds that the Company has created to finance the cost of its solar energysystems subject to the Company’s Customer Agreements. The Company hasdetermined that the contractual provisions in the funding arrangements representsubstantive profit sharing arrangements. The Company has further determinedthat the appropriate methodology for attributing income and loss to thenoncontrolling interests and redeemable noncontrolling interests each period is abalance sheet approach referred to as the hypothetical liquidation at book value(“HLBV”) method.Auditing the noncontrolling interests and redeemable noncontrolling interests iscomplex due to the volume of tax equity funds and the allocation of the netincome or loss to the equity holders. Each HLBV calculation is based upon theliquidation provisions of each fund’s contractual agreement used to calculate theamount of income or loss to be attributed to the noncontrolling member. |
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| How We Addressed the Matter inOur Audit | We obtained an understanding, evaluated the design and tested the operatingeffectiveness of internal controls that address the risks of material misstatementrelating to the noncontrolling interests and redeemable noncontrolling interests.This included evaluating controls over establishing each HLBV model andmanagement’s review of each significant input into the HLBV models forcompliance with the contractual provisions of such funding arrangements, thecompleteness and accuracy of underlying data, the calculation of tax capitalaccounts, and the mathematical accuracy of the HLBV models.To test the noncontrolling interests and redeemable noncontrolling interests, ouraudit procedures included, among others, examining the HLBV models forcompliance with contractual provisions in the funding arrangements. We testedthe completeness and accuracy of the underlying data used in the HLBV models.We involved tax professionals to assist in evaluating the calculation of the taxcapital accounts in accordance with the tax code, as well as compliance withcontractual provisions in the funding arrangements. We also tested themathematical accuracy of management’s HLBV models. |
| Goodwill | |
| Description of matter | As reflected in the Company’s Consolidated Financial Statements, at December 31, 2023, the Company’s goodwill was $3.1 billion. As disclosed in Note 2 to the Consolidated Financial Statements, goodwill is evaluated for impairment annually on October 1 or when indicators of impairment exist which suggest that the carrying value may not be recoverable. In 2023, the Company determined there was an indicator of impairment for sustained decline in stock price and performed an interim quantitative assessment. Based on this quantitative assessment, the Company concluded that goodwill for its one reporting unit was partially impaired and recognized a goodwill impairment charge of $1.2 billion in the third quarter of 2023.Auditing management’s third quarter quantitative goodwill impairment test was subjective and required the involvement of a specialist due to the measurement uncertainty in determining fair value of the reporting unit. In particular, the fair value estimate was sensitive to significant assumptions in discount rates applied to estimated future cashflows which may be affected by future market conditions. |
| How We Addressed the Matter inOur Audit | We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s goodwill impairment assessment process. Our procedures included testing controls over management’s review of the significant assumptions in estimating the fair value of the reporting unit and the related evaluation of management’s specialist. We also tested controls over management review of the reconciliation of the estimated fair value of the reporting unit to the total invested capital (including market capitalization) of the Company.To test the estimated fair value of the reporting unit, specifically using the income approach, we performed audit procedures that included, among others, assessing the valuation methodology used to determine the fair value, testing the significant assumptions discussed above and testing the completeness and accuracy of the underlying data used by the Company. For example, we evaluated management’s forecasted cash flows used in the fair value estimate by comparing those assumptions to the historical results of the Company and current industry trends. Additionally, we performed sensitivity analyses of the significant assumptions to evaluate the effect on the fair value estimate of the reporting unit. We also audited the reconciliation of that fair value estimate to the total invested capital (including market capitalization) of its reporting unit in consideration of a control premium based on observable comparable company transactions. We also involved a valuation specialist to assist in evaluating the significant assumptions in the fair value estimate. |
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/s/Ernst & Young LLP
We have served as the Company’s auditor since 2010.
San Francisco, California
February 21, 2024
To the Stockholders and the Board of Directors of Sunrun Inc.
Opinion on Internal Control Over Financial Reporting
We have audited Sunrun Inc.’s internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Sunrun Inc. (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2023, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the 2023 consolidated financial statements of the Company and our report dated February 21, 2024 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. 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 audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; 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 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.
/s/ Ernst & Young LLP
San Francisco, California
February 21, 2024
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