PSA - 2019 Universal Registration Document

CONSOLIDATED FINANCIAL STATEMENTS AT 31 DECEMBER 2019 Statutory auditors’ report on the consolidated financial statements

RECOVERABLE AMOUNT OF GOODWILL ANDBRANDS

Riskidentified

Ourresponse

The net carryingamountof goodwilland brands is respectively M€ 4,312mand M€ 2,034as at 31 December 2019. These assets are allocated to cashgenerating units (CGUs). As stated in Note 8.3 to the consolidatedfinancial statements, in accordancewith IAS 36 - Impairmentof Assets,goodwilland brandsare not amortizedbut are subjectto impairmenttests at each annualcloseor morefrequentlywhenthere is an indication of impairment.Impairmentis recognizedwhen the recoverable amount of these assets is less than their net carryingamount. The recoverable amountis the higherof value in use and market value. Value in use is determinedby reference to discounted futurecash flowsand requiresa high degreeof judgmenton the partof management, in particularto determine forecasts,discount ratesandperpetuitygrowth rates. Giventhe significanceof theseassetsin the Group’sconsolidated financialstatements,and the degreeof management’s judgment inherentin the estimatesand assumptionsused,we considerthe measurementof the recoverableamountof the Group’sgoodwill and brands as a key audit matter.

We assessed,with our valuationexperts,the methodsused by managementto determinethe recoverableamount of goodwill and brandsof the Group.For each of the CGUs to which these assets are allocated, we obtained Management’s latest Medium-TermPlans and the impairmenttest resultspreparedby Management. On the basisof thisinformation, our work consisted in: reconcilingthe net carryingamountsof the assets testedwith > the accounting records; analyzing the future cash flow projections,in particular the > consistencyof the marginratesand volumesused for the tests with external sources or Management’s latest estimates presented to the Group’s governance bodies; assessingtheprojectionsby comparing themwiththedataused > for the previous impairmenttests and the Group’s historical performance; analyzingthe consistencyof the discountratesused,notablyby > comparing them withthe availablemarket data; verifying,by sampling,the arithmeticalaccuracyof the valuation > modelused byManagement; analyzingthe sensitivityof the recoverableamountof the CGUs > tested to a variationin the main assumptionsused (long-term growth rate, operatingmargin rate used for terminal value, discount rates); assessingtheappropriateness of the informationdisclosed in the > notesto the consolidated financial statements. Withinthe frameworkof our audit of the consolidatedfinancial statements,our work consisted in: analyzingthe Group rules relatingto the initial recognitionof > development costsbasedon the accountingstandards in force, and assessing compliance withthese rules; reconcilingthe net carryingamountsof the assets dedicated, > subject to an impairment test carried out byManagement; testing,by sampling,the complianceof the amountscapitalized > at December 31, 2019withthe underlying documented vidence; holdingdiscussionswithManagemento identifyanyindications > of impairment; analyzingthecashflowprojections, in particulartheconsistency > of themarginratesandvolumesusedfor thetestswithexternal sources or Management’slatest estimates presented to the governance bodies; assessingprojectionsby comparing themwiththedatausedfor > the previous impairment tests and the Group’s historical performance; assessingtheappropriateness of theinformationprovided in the > notesto the consolidated financial statements. Ourresponse

CAPITALIZATION AND VALUATIONOF DEVELOPMENT COSTS

Riskidentified

Developmentcostsare recognizedunderintangibleassetson the balancesheetaccordingto the conditionsdescribed in Note 5.3to the consolidatedfinancial statements and in accordancewith IAS 38 - IntangibleAssets. The amount capitalizedin 2019 was M€ 2,179. Capitalized development costs are amortized on a straight-linebasisfor the assetsallocatedto thePeugeot– Citroën – DS Automotivedivision and the Opel – Vauxhall Automotive division,based on the mass productionagreementand on their useful life cappedat seven years for vehiclesand ten years for sub-assembliesand modules. For the Automotive Equipment business,developmentcosts incurredfor specificordersreceived fromcustomersare amortizedon a straight-linebasis in line with the parts deliverycycle, with a minimumaccumulatedeach year corresponding to straight-line amortization overfiveyears. Capitalizeddevelopmentcosts are subjectto an impairmenttest when there is an indicationof impairment.The Grouprecognizes impairmentwhenthe recoverableamountof the assetis less than its net carryingamount.The recoverableamountis the higherof value in use and market value. Value in use is determinedby referenceto discountedfuture cash flows and requires a high degreeof judgmenton the part of Management, in particularto determine forecasts, discount rates and perpetuity growthrates. We identified the capitalizationand valuation of development costs as a key audit matter due to the significanceof these intangibleassetsin theGroup’sconsolidated balancesheetandthe judgmentexercisedbyManagement upontheirinitialcapitalization and the performance ofimpairmentests,if any.

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PSA - GROUPE PSA - 2019 UNIVERSAL REGISTRATION DOCUMENT