TECHNICOLOR_REGISTRATION_DOCUMENT_2017

- 6 FINANCIAL STATEMENTS Statutory Auditors’ report on the consolidated financial statements for the year ended December 31, 2017

IMPAIRMENT TESTING OF GOODWILL Note 4 to the consolidated financial statements Risk identified

Goodwill is recorded in the balance sheet as of December 31, 2017 at a net carrying amount of €942 million, compared with total assets of €3.712 million. Goodwill is recognized in the currency of the acquired subsidiary/associate and measured at cost less accumulated impairment losses and translated into euros at the effective rate at the end of the period. Goodwill is not amortized but is tested annually for impairment. The Group performs impairment tests on goodwill as disclosed in Notes 4.1 and 4.4 of the notes to the consolidated financial statements. We considered the valuation of goodwill to be a key audit matter given the relative importance of these assets in the consolidated financial statements and since the determination of their recoverable amount, generally based on discounted cash flow forecasts, is based on assumptions, estimates and management assessments and judgements, notably concerning business forecasts, long-term growth rates and discount rates. We focused, in particular, on goodwill of the Entertainment Services segment due to uncertainties surrounding the future of physical media in the DVD Services division and the finite useful life of this asset. Our response We examined the implementation of impairment tests by the Group and focused our procedures on the divisions where intangible assets represent a significant portion of net assets and are highly sensitive to changes in budget assumptions. We reviewed the Group’s process for establishing business plans and assessed the reasonableness of the key assumptions and estimates by: verifying the consistency of cash flow forecasts with past performance and 3-years plan approved by the Board of Directors, ■ comparing growth rates used to extrapolate cash flows beyond the forecast period and discount rates with market data and our benchmarks. ■ And,

reviewing sensitivity analysis disclosed in the notes to the consolidated financial statements. ■ We verified the appropriateness of disclosures in the notes to the consolidated financial statements. These analyses were performed with the assistance of our valuation experts. RECOVERABILITY OF DEFERRED TAX ASSETS Note 6.2 to the consolidated financial statements Risk identified

Net deferred tax assets amount to €82 million as of December 31, 2017. The basis for computation of deferred tax assets include €3.3 billion of tax losses carried forward, mainly in France and the United States. These losses are partially expected to be consumed in the five next years. We identified this issue as a key audit matter due to the uncertainty surrounding the recoverability of the deferred tax assets and the level of judgement exercised by management in this respect. The recoverable amount of deferred tax assets is measured using tax rates that are expected to apply in the period when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the reporting date. Deferred tax amounts are classified as non-current assets and liabilities.

253

TECHNICOLOR

REGISTRATION DOCUMENT 2017