EURONEXT_Registration_Document_2017

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OTHER INFORMATION

Accounting for the acquisition of businesses Key audit matter

During 2017 Euronext acquired majority interests in a number of companies. As disclosed in notes 2 and 5 to the financial statements total considerations were EUR 176 million, of which EUR 19 million is deferred or contingent. The acquisitions have been included in the consolidated financial position and results of Euronext from the moment control was obtained. Based on the purchase price allocations performed, with the help of external valuators, separately identifiable intangible assets of € 67 million and goodwill of € 122 million have been recognized. Accounting for business combinations involves a number of judgments concerning, among others, the identification of intangible assets, the choice of valuation techniques and the allocation to cash generating units. The use of different techniques and assumptions could produce significantly different estimates. Given the relative size of the amounts involved and the inherent complexity, we consider the accounting for acquisition of businesses as a key audit matter. We gained an understanding of the material business acquisitions and assessed whether the correct accounting treatment has been applied. Furthermore, we tested the considerations paid and the identification and valuation of the identifiable tangible and intangible assets acquired, as well as the liabilities and non-controlling interests resulting from the acquired majority stakes. We have tested whether the accounting treatment is in line with IFRS 3. We have engaged our valuation specialists to evaluate the methodology and assumptions applied by Euronext in the valuation of the separately identifiable intangible assets, in particular the brand name, customer relations and software platforms. We evaluated whether the assumptions used for the purpose of valuing acquired intangible assets were consistent with what a market participant would use, challenged the key assumptions (for example discount rate and longevity of acquired client relationships) against available market data and tested key data inputs to source records. We also performed sensitivity analysis to determine the impact of changes in the key assumptions, both individually and in aggregate. We have evaluated the completeness and appropriateness of the disclosure related to business combinations, included in note 5 within the financial statements, to assess compliance with the disclosure requirements, as included in EU-IFRS. We found the identification and measurement of the identifiable assets, liabilities and non-controlling interests related to the 2017 acquisitions reasonable. The disclosures on the business combinations are in line with the requirements under EU-IFRS. Euronext holds a direct and indirect minority interest in Euroclear Plc. As described in note 19 to the financial statements this interest is classified as available for sale with re-measurement to fair value through the other comprehensive income component of equity. As Euroclear is a non-listed company, Euronext is applying internal models to measure the fair value of its interests. During 2017, as part of its effort to further standardize and formalize the valuation policies, the company undertook a study of universal valuation methods used in the industry. Accordingly, the model framework was enhanced with valuation techniques driven by return on equity and expected dividend growth rates and regression approaches and trading multiples as control methods. Following the share swap transaction as disclosed in note 2 to the financial statements, Euronext derecognized its minority interest in LCH Group Ltd. in return for an interest in LCH SA, a subsidiary of LCH Group Ltd. The interest in LCH Group Ltd. used to be classified as available for sale and was remeasured based on the internal valuation methodology and benchmarked against the envisaged bid on all shares of LCH Group Ltd. from the beginning of 2017. As the new interest in LCH SA is accompanied with certain representative and protective rights for Euronext, the interest has been classified as an investment in associate. Reference is made to note 7 of the financial statements. The determination of the fair value of the investments involves significant management judgement and assumptions as the shares are not traded on an active market. Given the inherent subjectivity we determined this to be a key matter for our audit. Our audit procedures comprised, amongst others of an assessment of the methodology and the appropriateness of the valuation models against generally accepted market practice and inputs used to value the available for sale financial assets. Further, we used our valuation specialists to independently assess the valuations performed. As part of these audit procedures we assessed the accuracy of key inputs used in the valuation such as return on equity and expected dividend growth rates. Finally, we evaluated the completeness and appropriateness of the disclosure related to available-for-sale financial assets as included in note 7 and note 19 of the financial statements, to assess compliance with the disclosure requirements, as included in EU-IFRS. Based on our procedures we assessed the valuation techniques used adequate and the key inputs reasonable. We have not identified any material misstatements regarding the measurement of the fair value of financial instruments as at 31 December 2017. We found the disclosures on the fair value of available for sale financial assets and investment in associates are in line with the requirements under EU-IFRS.

Our audit approach

Key observations

Valuation of available for sale financial assets Key audit matter

Our audit approach

Key observations

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2017 REGISTRATION DOCUMENT