HERMÈS - 2019 Universal Registration Document

CONSOLIDATED FINANCIAL STATEMENTS STATUTORY AUDITORS’ REPORT ON THE CONSOLIDATED FINANCIAL STATEMENTS

First-time application of IFRS 16 Notes 1.1.1., 1.7 and 14 of the Notes to the consolidated financial statements

Description of risk The Group has decided to apply IFRS 16 on a full retrospective basis to each prior period for which financial information is presented, in accordance with IAS 8. In application of IFRS 16, property leases with fixed rents are now recognised in assets through a right-of-use asset and in liabilities through a lease liability corresponding to the present value of future payments. The cumulative effect at 1 January 2018 of the restatements required by the standard is reflected in a €34.3 million reduction in equity, net of deferred tax, and the recognition of right-of-use assets for a net carrying amount of €910.3 million and lease liabilities of €1,006.8 million. In addition, the impact of the application of IFRS 16 on the recurring operating income for the 2018 financial year was a positive €30.3 million and is negligible in terms of net profit. We considered this to be a key audit matter due to the significant amount of right-of-use assets and lease liabilities in the financial statements, and the degree of judgment required to determine certain assumptions. How our audit addressed this risk Our work involved: considering the analysis carried out by management of leases and assessing the estimates and main assumptions used as part of the s implementation of the new standard, IFRS 16 Leases; examining the process for identifying leases and collecting the necessary information from subsidiaries to verify the completeness and accuracy of s the contractual database used for calculating right-of-use assets and lease liabilities; approving the calculation module implemented by the Company to calculate the accounting impact of IFRS 16; s assessing whether the discount rates entered in the calculation module are consistent with the market data provided by our experts; s verifying the accuracy and completeness of the accounting restatements at the transition date and at the closing date; s assessing the appropriateness of the information provided in Notes 1.1.1, 1.7 and 14 of the Notes to the consolidated financial statements. s Description of risk The Group’s Inventories and work-in-progress are shown in the balance sheet, amounting to €1,850 million in gross value and €1,133 million in net value at 31 December 2019, representing 11% of the total consolidated assets. The Management of Hermès International is responsible for determining the amount of the impairment required to reduce the inventory value to its probable sale value if this value is lower. This impairment is calculated in accordance with: the condition of the inventories and their obsolescence (notably finished seasons or collections); and s an estimation of the prospects for distributing the inventories on the different markets. s We considered this to be a key audit matter due to the nature of the inventories and the fact that the above prospects and the potential impairment resulting from them are by nature dependent on the assumptions, estimates and assessments made by the management. Furthermore, inventories are present in a large number of subsidiaries, elimination of the internal margins in the consolidated financial statements is of particular importance because of their impact on the gross value of the inventories and the level of impairment to be recorded. How our audit addressed this risk During our work we: examined the procedures for the valuation and impairment of inventories; s carried out a critical review of the methodology used by the management to impair inventories given the distribution history of the said inventories s and our knowledge of the Group’s business sectors; Valuation of inventories and work-in-progress – Notes 1.11 and 20 of the Notes to the consolidated financial statements

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compared the durations and life-cycles adopted by the management with historical performances; and s assessed the level of impairment compared to the prospects for sale and the age of the inventories. s

2019 UNIVERSAL REGISTRATION DOCUMENT HERMÈS INTERNATIONAL

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