SCH2017_DRF_EN_Livre.indb

5

Consolidated financial statements at December 31, 2017 Notes to the consolidated financial statements

1.3 – Basis of presentation The financial statements have been prepared on a historical cost basis, except for derivative instruments and certain financial assets, which are measured at fair value. Financial liabilities are measured using the amortized cost model. The book value of hedged assets and liabilities, under fair-value hedge, corresponds to their fair value, for the part corresponding to the hedged risk. 1.4 – Use of estimates and assumptions The preparation of financial statements requires Group and subsidiary management to make estimates and assumptions that are reflected in the amounts of assets and liabilities reported in the consolidated balance sheet, the revenues and expenses in the statement of income and the obligations created during the reporting period. Actual results may differ. These assumptions mainly concern: E the measurement of the recoverable amount of goodwill, property, plant and equipment and intangible assets (note 1.9) and the measurement of the goodwill impairment (note 1.11); E the measurement of the recoverable amount of non-current financial assets (note 1.12 and note 15); E the realizable value of inventories and work in progress (note 1.13); E the recoverable amount of accounts receivable (note 1.14); E the valuation of share-based payments (note 1.20); E the calculation of provisions for contingencies and charges, in particular for warranties (note 1.21); E the measurement of pension and other post-employment benefit obligations (note 1.19 and note 22); E the measurement of deferred tax assets related to carry-forward losses (note 16). 1.5 – Consolidation principles Significant subsidiaries, over which the Group exercises exclusive control, either directly or indirectly, are fully consolidated. Exclusive control is control by all means including ownership of a majority voting interest, significant minority ownership, and contracts or agreements with other shareholders. Group investments in entities controlled jointly with a limited number of partners, such as joint ventures and companies over which the Group has significant influence (“associates”) are accounted for by the equity consolidation method. Significant influence is presumed to exist when more than 20% of voting rights are held by the Group. Companies acquired or sold during the year are included in or removed from the consolidated financial statements as of the date when effective control is acquired or relinquished. Intra-group balances and transactions are eliminated. The list of consolidated main subsidiaries and associates can be found in note 32. The reporting date for all companies included in the scope of consolidation is December 31, with the exception of certain associates accounted for by the equity method. For the latter however, financial statements up to September 30 of the financial year have been used (maximum difference of three months in line with the standards).

Phase 3 – Hedge accounting In accordance with IFRS 9 (paragraph 6.1.3), the Group decided to keep applying IAS 39 hedge accounting requirements. Application of IFRS 15 – Revenue from contracts with customers in 2018 On October 2016, the European Union adopted IFRS 15 “Revenue from Contracts with Customers”, which must be applied from January 2018 at the latest. The Group has not opted for early adoption of this standard. The Group has performed analysis on each of the revenue streams described in note 1.24: transactional sales, service revenue and long- term contracts. For transactional and services revenue, no significant impact is expected with regards to current practices, as revenue is recognised when or as performances obligations are satisfied. Regarding long-term contracts, IFRS 15 requires that both the existence of enforceable right to payment and the absence of alternative use are demonstrated, to be able to recognise revenue over time using the percentage of completion method. The Group has analysed a representative sample of current contracts. This analysis has proven that the application of IFRS 15 requirements would have no significant impact in comparison with the current accounting practices. However, the Group has adjusted its long-term contracts internal processes to comply fully with all IFRS 15 requirements. In conclusion, based on the global analysis performed by the Group found that there is no significant deviation from IFRS 15 new requirements regarding revenue recognition. Therefore, the Group does not expect any significant impacts from the application of IFRS 15 in 2018. Application of IFRS 16 – Leases in 2019 IFRS 16 “Leases” will be mandatory for financial years beginning on or after January 1 st , 2019. This standard requires all leases other than short-term leases and leases of low-value assets to be recognised in the lessee’s balance sheet in the form of a right-of-use asset, with a corresponding financial liability. Currently, leases classified as “operating leases” are reported as off-balance sheet items (see note 13.3). The Group is currently analysing further the impacts on the financial statements. 1.2 – Application of IFRS 5 – Non-current assets held for sale and discontinued operations On April 20, 2017, the Group announced the disposal of its Solar activity. At the end of this ongoing process, the Group will have a minority representation on Solar’s board. This activity used to be reported within the Low Voltage (Building) business segment of Schneider Electric. Solar activity net income (EUR(25) million) and the estimated loss incurred from the disposal of the business (EUR(69) million) have been reclassified to discontinued operations in the Group consolidated financial statements. The comparative information has been restated.

2017 REGISTRATION DOCUMENT SCHNEIDER ELECTRIC

234