BPCE - 2018 Registration document

FINANCIAL REPORT Statutory Auditors’ report on the consolidated financial statements

Business combinations, and impairment tests of goodwill and intangible assets with finite lives

Risk identified and main judgements

Our response

The external growth operations carried out by Groupe BPCE lead it to define the control methods implemented over the acquired entities and to allocate the purchase price in compliance with IFRS 3 “Business Combinations”. Subsequent to the acquisition, the identified assets acquired from the target company over which control is taken, and the non-allocated ‘surplus’ recognized in goodwill, are recognized in the consolidated financial statements of Groupe BPCE. This goodwill and intangible assets with finite lives are subject to impairment tests at least annually, based on the assessment of the recoverable amount of the cash-generating units (CGU) to which they are attached or at the first signs of impairment loss. The recoverable amount is based on discounting the estimated future cash flows of the CGU based on the medium-term plans prepared in accordance with Groupe BPCE’s strategic plan for 2018-2020 (TEC 2020) presented in November 2017, and adjusted for the various announcements made by the Group during fiscal year 2018. We deemed that the treatment of business combinations and, goodwill and limited-life intangible assets impairment tests to be a key audit matter by their very nature as they require the exercise of judgment regarding the structuring assumptions used especially for the determination of economic scenarios, financial trajectories or discount levels. At December 31, 2018, the gross value of goodwill amounted to € 5,026 million and accumulated impairment losses stood at € 537 million. The terms of the impairment test implemented by BPCE as well as the key assumptions used to determine the recoverable value and sensitivities of the recoverable amounts are described in Note 3.5.2 to the consolidated financial statements.

With the help of our experts, we evaluated the procedure implemented by the Group to identify signs of potential impairment loss and carried out a critical review of the method used for implementing impairment tests. In particular, our work includes: comparison of assumptions and inputs with external sources; ● review of the reasonableness of the medium-term plans retained ● for each concerned entity involving: the confrontation with the strategic plan of the Group approved - by the governing bodies (supervisory or administrative) of the entities, the assessment of the consistency and reliability of the main - assumptions used to prepare the plans, particularly regarding the financial trajectories developed during past financial years and actually carried out, the analysis of the sensitivity to different valuation inputs - (equity, discount rate…); verification of the consistency of the disclosures published on the ● results of these impairment tests.

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Registration document 2018