L'Oréal - 2018 Registration Document

2 Corporate Governance

RISK FACTORS AND CONTROL ENVIRONMENT

The Operations Finance Division oversees the regular update of these Group standards, taking into account the changes in regulations and accounting principles: they set out the principles required for harmonised s accounting treatment of transactions. They specify in particular the methods of recording balance sheet items and of identification and valuation of off-balance sheet commitments. The Group’s Accounting Department monitors, on an ongoing basis, new accounting standards currently under preparation, with a view to alerting the General Management and anticipating their effects on the Group’s financial statements; the chart of accounts, applicable to all subsidiaries, and s the key accounting processes provide the definitions and the methodology for preparing the reports which form the basis of the financial statements. The management standards describe how the rules should be applied operationally. They give the valuation rules for some of the key balance sheet and income statement accounts and also stipulate the controls and checks applicable to the key processes. The management standards are regularly supplemented and are thus part of the continuous improvement process. The purpose of this work is both to take action in response to the findings of the Internal Audit Department and to cover the areas corresponding to the accounting and financial risks of subsidiaries. This work has made it possible to bring our approach more closely into line with the recommendations set out in the Application Guide relating to Internal Control of accounting and financial information of the AMF Reference Framework. Organisation and security of information systems Decisions with regard to the selection of software that is adapted to the Group’s financial and accounting requirements are made jointly by the Operational Finance Department and the Information Systems Department. At the level of information systems, the teams work on strengthening the procedures for the separation of tasks and improved control of access rights. Tools have been made available to enable them to ensure that access rights comply with the Group’s rules. Management tools The system for monthly reporting of the various economic indicators enables the monitoring of the evolution of the performance of each subsidiary in a continuous and harmonised manner. It also enables assurance to be obtained that such performance is in line with the objectives set. The reporting and consolidation system, used by all entities, ensures the consistency and reliability of figures at the level of each subsidiary through blocking controls that operate before the financial data is uploaded to Group level. In this regard, the operating profit and loss account by destination, which is common to both management and general accounting, contributes to strengthening the control of accounts in the financial statements through the use of a single reference framework.

In addition, the Group’s organisation, which is based on reporting from each subsidiary that is provided directly by the countries to the parent company, without any intermediate aggregates for the vast majority of the subsidiaries, enables optimisation of the data transfer and the completeness of the information, and in particular enables the checking of the accuracy of the data. The Managing Director and the Finance Director of each subsidiary make a joint commitment with regard to the quality, reliability and completeness of the accounting and financial information they have prepared and sent to the Group’s Operational Finance Department, through a representation letter that they jointly sign. The Audit Committee The role and tasks of the Audit Committee are described above. These tasks are in compliance with European regulations and, in particular, Directive 2014/56/EU and EU regulation 537/2014 on statutory audits, and are based on the report by the working group on the Audit Committee published by the AMF on 22 July 2010.

Processes used to prepare 2.8.3.3.

accounting and financial information

Operational processes contributing to accounting figures

All of the processes that contribute to accounting figures, particularly sales and purchases, and inventory, fixed asset, payroll and treasury management are covered by specific procedures, follow-up checks and rules for validation, authorisation and booking operations.

Closing of the accounts, consolidation and management reporting information

The accounts closing process is governed by precise instructions and is based on a detailed time schedule circulated to all the subsidiaries to make sure that deadlines are met and the financial statements are prepared in a consistent manner. In this regard, the Group has introduced two hard closings (anticipating the work involved in the closure of the financial statements) in May and November which make it possible to better anticipate and speed up closing times. For the preparation of the consolidated financial statements, validation procedures apply at each stage of the process of reporting and processing information. Their purpose is to verify in particular that: inter-company transactions are correctly adjusted and s eliminated (these are reported on a monthly basis); consolidation operations are checked; s accounting standards are correctly applied; s the consolidated published accounting and financial data s are harmonised and properly determined and general accounting data and management reporting figures used in the preparation of the financial information are consistent. Financial communication Managers in charge of Financial Communication prepare a precise timetable for publication of up-to-date information on

REGISTRATION DOCUMENT / L'ORÉAL 2018

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