AXWAY_REGISTRATION_DOCUMENT_2017

AXWAY GROUP AND ITS BUSINESS ACTIVITIES

CORPORATE RESPONSIBILITY

CORPORATE GOVERNANCE

CONSOLIDATED FINANCIAL STATEMENTS

2017 ANNUAL FINANCIAL STATEMENTS

CAPITAL AND AXWAY SOFTWARE STOCK

INFORMATIONS ADMINISTRATIVES ETbJURIDIQUES

COMBINED GENERAL MEETING OFb6bJUNEb2018

Statutory Auditors’ report on the annual financial statements

We considered measurement of business goodwill to be a key point in our audit, in view of its material significance in the annual financial statements, and because of the need for management to exercise judgment in appraising the present value. Our response Our work in auditing the annual financial statements included the following, in particular: ● examining the rules and procedures for conducting impairment testing; ● assessing the reasonableness of the main management estimates, and particularly the cash flow forecasts, the infinity growth rate and the discount rate adopted; ● analyzing the forecasts for consistency with historic performance. Recognition of license revenue (Notes 1.2 and 3.1 to the annual financial statements) Risk identified The company’s activity comprises several business lines including license sales. At 31 December 2017, licensing revenue represented 22.4% of total revenue. As a rule, licensing revenue is recognized immediately upon delivery, which is considered completed when all contractual obligations have been fulfilled, i.e. when any remaining services to be provided are non-material and not liable to call into question the client’s acceptance of goods supplied. Sometimes, contracts comprising multiple components (license, maintenance, ancillary services, etc.) may be negotiated on a fixed-price basis. In this situation, the amount of revenue attributable to the license is obtained by the difference between the total contract amount and the fair value of its other components. In this context, the audit risks concern in particular the correct separation of fiscal years and the rules and procedures for apportioning revenue to contracts with multiple components. Revenue recognition for this business line is considered a key point in our audit in view of its material significance in the annual financial statements, and, in particular, its effect on operating profit. Our response Our audit approach is based on the assessment of the internal control procedures put in place by the company in order to verify the measurement, exhaustiveness and proper separation of fiscal years for licensing revenue. Our approach also relies on substantive audit procedures.

Our work included the following, in particular:

● reviewing the design of the internal system as well as the effectiveness-testing of the key check points in the procedure for recognizing licensing revenue; ● conducting detailed tests, by sampling or other selection methods, on the revenue from licensing contracts signed during the fiscal year in order to verify the reality and measurement of the revenue, and the correct separation of fiscal years; ● In particular, we reconciled the recognized amount of licensing revenue with the contract data, and verified the application of the procedure for apportioning the prices of multiple-component contracts among the different elements of such contracts; ● we examined the proofs of delivery and the terms and procedures for payment. We also assessed the appropriateness of the disclosures in Note 1.2 to the annual financial statements. Measurement of equity investments (Notes 1.2 and 2.1 to the annual financial statements) Risk identified Equity investments recognized on the assets side of the balance sheet at 31 December 2017, amounting to €192.4 million, represent the largest item in the balance sheet. These investments are recognized at the date of initial recognition at their acquisition or subscription cost, and are impaired on the basis of their value-in-use. As stated in Note 1.2 to the annual financial statements, the value-in-use is estimated by management on the basis of the net assets of subsidiaries, together with an analysis of forecast changes and profitability of equity investments based on discounted future cash flows. Estimating the value-in-use of these investments calls for the exercise of judgment by management in choosing the elements to consider for the investments concerned; depending on the case, such elements may be historic data or forecast data. Consequently, a change in the assumptions retained may affect the value-in-use of the equity investments. We therefore considered measurement of equity investments to be a key point in our audit. Our response In assessing the reasonableness of the estimates of value-in-use of equity investments, on the basis of the information communicated to us, our work consisted chiefly of verifying whether the estimates of those values as determined by management were based on an appropriate justification of the valuation method and quantitative data used, as well as, depending on the investment concerned:

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AXWAY - 2017 REGISTRATION DOCUMENT