Plastic Omnium - 2018 Registration Document

4 2018 CONSOLIDATED FINANCIAL STATEMENTS Consolidated financial statements at December 31, 2018 PLASTIC OMNIUM 2018 REGISTRATION DOCUMENT 225 VALUATION OF REVENUE Notes 1.1.7 "Revenue"/"Revenue from contracts with customers" and 1.1 "Accounting policies, accounting rules and principles" in the notes to the consolidated financial statements. Revenues for the year ended December 31, 2018 in the income statement for Compagnie Plastic Omnium amount to €7,245 million. KEY AUDIT MATTER Parts revenue is recognized when the significant risks and rewards of the ownership of the goods are transferred to the buyer, usually upon delivery of the goods, and measured at the fair value of the consideration received, after deducting discounts, rebates and other sales taxes and customs duties. Regarding the revenue from services and tooling, as indicated in Note 1.1.7 "Revenues / Revenue from Contracts with Customers", since January 1, 2018 the Group has been applying IFRS 15. The new accounting treatment is based on the Group's identification of two performance obligations, separate from the production of parts, which are ● the Design of the parts business and certain specific tools, for which control is transferred to customers; Revenue related to "lumps sums" payments and contractually stated amounts that will be paid via part price (“PPA”) that are explicitly identified in the ● contracts, and the negative or positive margin related to these performance obligations are recognized at the start of series production. Costs related to performance obligations are recognized as inventory during the project phase and then expensed when their control is transferred to the customer, i.e. at the start of series production. We have considered revenue recognition and the analysis performed by the Group in regards to the first-time application of IFRS 15 as a key audit matter given: The volume of accounting entries related to sales of goods and the numerous ongoing discussions between the Group and its customers on prices; ● Judgments to be made by Management of the Group to estimate the incurred and projected costs related to the project phase that could lead to an ● incorrect revenue related to the services rendered and the production of tools. OUR RESPONSE We analyzed the process and identified key controls implemented by Management regarding revenue recognition and tested their effectiveness by sampling. In order to assess the recognition of revenue related to the sale of goods, we conducted tests on a sample of contracts by: comparing the sale prices applied to the deliveries of parts with the contractual prices; ● examining the credit notes issued during the period. ● In order to corroborate the level of progress and the recognition of the turnover related to services and tooling, we conducted tests on a sample of contracts by: comparing the sales prices applied to services and tooling at the start of the series life with the contractual prices; ● examining revenue and costs allocated to performance obligations. ● We assessed the conformity of the methodology applied by the Group with IFRS 15 and the impact of the new accounting treatment on revenue and operating margin of the Group as it relates to fiscal year 2018 by analyzing a sample of contracts. EVALUATION OF FIXED ASSETS RELATIVE TO DEVELOPMENT COSTS Note 1.1.11 “Intangible assets”, and note 1.2 “Use of estimates” of the notes to the consolidated financial statements. As of December 31, 2018, fixed assets related to development costs for Compagnie Plastic Omnium amount to €555 million. KEY AUDIT MATTER Development costs incurred during the project phase and related to the execution of the contract concluded with the customer that do not meet a ● performance obligation are posted as intangible assets. These internal and external costs relate to work on the organization of purchasing, logistics and industrial processes in order to produce the parts that will be ordered by customers.