2022 Universal Registration Document

As described in Notes 1.6 and 1.8 to the financial statements, their value is examined annually by reference to their value in use, which takes into account:

• for investments : the current and projected profitability of the holding concerned and the share of equity held;
• for intangible assets: discounted future cash flows.

Estimating the value in use of these assets requires Management judgment in determining future cash flow projections and key assumptions.

Given the weight of investments and intangible assets in the balance sheet and the uncertainties inherent in certain items, including the realization of forecasts used in the valuation of value in use, we considered the valuation of these assets to be a key audit issue with a risk of material misstatement.

We assessed the reasonableness of the key estimates and more specifically:

• the consistency of revenue projections and margin rates, compared to past performance and the economic and financial context;
• corroboration of the growth rates used with the performance analyses of the global cosmetics market, taking into account the specificities of the local markets and distribution channels in which the Group operates;
• discount rates applied to future cash flows by comparing the parameters composing them with external references, by integrating valuation experts into our team.

In the normal course of its activities, the Company is involved in legal proceedings and is subject to fiscal, customs and administrative controls.

Provisions are made to deal with probable resource outflows for the benefit of third parties, without compensation for your Company. They mainly concern risks and disputes of a commercial and financial nature, as well as risks with administrations and related to personnel. They are estimated taking into account the most probable assumptions or using statistical methods depending on the nature of the provisions.

The significant provisions concern in particular the situation of litigation with the competition authority and the risks with the administrations mentioned in Note 18 to the financial statements.

Provisions for liabilities and charges amounted to M€ 597 at December 31, 2022.

The identification and assessment of these elements is considered to be a key audit matter given:

• the high level of Management judgment required to determine the risks to be provisioned and to assess with sufficient reliability the amounts to be provisioned;
• the potentially material impact of these provisions on the Company's earnings.

In order to identify and obtain an understanding of all existing disputes and liabilities, as well as the related judgments, we made inquiries with the General Management and the Legal and Tax Departments.

We familiarized ourselves with the internal control framework put in place to identify and assess these risks. We corroborated the list of identified tax disputes with information provided by the Company's tax departments and key tax advisors. We corroborated the list of identified disputes with information provided by the Company's leading law firms we interviewed.

For major litigation for which a liability is made, we assessed the quality of Management's estimates by considering the data and assumptions used and the calculations made. We also conducted a retrospective analysis by comparing the amounts paid over the last few years with the amounts previously provisioned.

We have, if necessary by integrating tax experts into our team, carried out the following procedures:

• we have reviewed procedural matters and/or tax or technical opinions rendered by external advisors selected by Management to assess the appropriateness of a liability;
• based on the information provided to us, we have critically reviewed the risk estimates and verified that Management's assessments are within these acceptable ranges;
• where relevant, we have checked the permanence of the methods used for these evaluations.

With regard to contingent liabilities, we have, where appropriate by integrating tax experts into our team, reviewed procedural elements and/or tax or technical opinions issued by external advisors selected by Management in order to assess the merits of a lack of funds.

The Company's merchandise sales is presented net of product returns made to distribution and discounts and rebates granted.

These various deductions from sales are recorded simultaneously with the recognition of sales on the basis in particular of contractual conditions and statistical data from past experience.

The revenue assessment thus includes, at the end of the financial year, estimates related to the amounts deducted, which we considered to be (i) complex, due to the diversity of contractual agreements and commercial conditions existing in the Company's different markets, (ii) sensitive, revenue being a key indicator in the evaluation of the performance of the Group and its Management and (iii) significant in relation to their impact in the financial statements.

The evaluation of product returns, discounts, rebates and other benefits granted to customers is therefore considered to be a key point of the audit.

We have assessed the appropriateness of the accounting policies applied by the Company with respect to the recognition of product returns, discounts, rebates and other benefits granted to customers, with respect to French accounting principles.

We familiarized ourselves with the internal control system put in place in the Company, which makes it possible to evaluate and record the items deducted from sales, particularly at closing, and we have tested, by sampling, the main controls of this system.

We also carried out substantive tests on representative samples in order to assess the reasonableness of the estimate of product returns and customer benefits. These tests mainly included:

• analysing the valuation methods used, in particular, by critically examining the assumptions used, checking the permanence of the methods and analyzing the anteriority and unwinding of provisions for the previous financial year;
• reconciling statistical data from past experience and contractual conditions with data contained in information systems dedicated to the management of commercial conditions;
• verifying the arithmetic accuracy of the calculation of the corresponding entries (including the residual commitment at closing), their recording in the accounts and their presentation in the financial statements.