Groupe Renault - 2020 Universal Registration Document

335 GROUPE RENAULT I UNIVERSAL REGISTRATION DOCUMENT 2020 04 STATUTORY AUDITORS’ REPORT ON THE CONSOLIDATED FINANCIAL STATEMENTS GROUPE RENAULT GROUPE RENAULT: A COMPANY THAT ACTS RESPONSIBLY CORPORATE GOVERNANCE FINANCIAL STATEMENTS RENAULT AND ITS SHAREHOLDERS ANNUAL GENERAL MEETING OF RENAULT ON APRIL 23, 2021 ADDITIONAL INFORMATION VALUATION OF LONG-TERM ASSETS OF THE AUTOMOTIVE SECTORS Risk identified Intangible and tangible assets and goodwill, of the “Automotive” operating segments amount to 23,001 million euros. The Group carries out impairment tests on assets as soon as an impairment risk indicator has been identified, and at least once a year for assets with infinite useful life, under the approach described in note 2-M of the consolidated financial statements. The test consists in comparing the net book value of assets with their recoverable value, defined as the higher amount between the value in use and the fair value net of exit costs. The value in use is calculated based on discounted future cash flows. For 2020 year-end closing, these impairment tests consider the decline in sales volumes in 2020, the downward revision of the outlook in the context of the COVID-19 pandemic and the assumptions used in the update of the Renaulution medium-term plan (2021-2025). We have considered that the valuation of assets is a key audit matter because of their significance to the financial statements and because of the estimates and judgments required from Management to prepare these tests, particularly in the current context described above. Our audit response During our audit of the consolidated financial statements, our procedures mainly consisted in: understanding the analysis performed by Management in order to identify impairment indicators; P for assets tested: P reconciling the net book value of assets to the consolidated financial statements, P assessing the consistency of the data on projected volumes and margins used in the tests with the latest management estimates reflected in the P Renaulution medium-term plan for the period 2021-2025 and in the context of the COVID-19 pandemic, assessing, in the context of the COVID-19 pandemic, the reasonableness of the main assumptions used through interviews with management and by P comparing the assumptions with the data used in the previous impairment tests as well as, if applicable, with the historical performance, testing the arithmetical accuracy of the discounted cash flows projections prepared by management, P comparing the discount rate after tax used with external data available, P performing sensitivity analysis on the main assumptions used. P CONSOLIDATION METHOD AND RECOVERABLE VALUE OF THE EQUITY INVESTMENT OF RENAULT IN NISSAN Risk identified As at December 31, 2020, the Renault equity investment in Nissan amounts to 14,618 million euros, and Nissan’s contribution to Renault’s net income corresponds to a loss of 4,970 million euros. As indicated in note 12 to the consolidated financial statements, Renault has a significant influence over Nissan and accounts for its investment using the equity method. The Nissan accounts used to prepare Renault’s financial statements are Nissan’s consolidated accounts published in compliance with Japanese accounting standards, adjusted according to IFRS standards for consolidation purposes. In accordance with the approach described in the accounting rules and methods (note 2-M), an impairment test of the investment in Nissan was carried out at December 31, 2020. We have considered that the consolidation method and recoverable value of the equity investment in Nissan is a key audit matter given its magnitude to Renault’s consolidated financial statements, and given the following areas of attention: (1) the judgment of management to assess the Alliance governance structure as well as facts and circumstances underlying Renault’s significant influence over Nissan, (2) the completeness of adjustments to Nissan’s financial statements required to account for Renault’s share in the result and equity of this company and their accuracy, (3) the estimates used by management in determining the recoverable value of Renault’s investment in Nissan. Our audit response Our audit response to the risks identified mainly consisted in: reading the minutes of the Board of Directors meetings and the related party agreements and commitments register and obtaining confirmation from P management that there were no changes in the governance of Nissan and of the Alliance and/or no new contracts structuring the relations between Renault and Nissan which could modify the analysis of the significant influence exercised by Renault over Nissan; understanding the conclusions and the audit work performed by the independent auditor of Nissan in accordance with our instructions which detail P the procedures to be performed and the conclusion format required for our audit purposes; understanding the audit work performed by the independent auditor of Nissan over the homogenization adjustments required to Nissan’s financial P statements to match with Renault accounting policies; assessing whether there are any identified impairment indicators, the main indicators being significant adverse changes on markets where Nissan P operates or a significant and long lasting drop in Nissan stock market value; examining the relevance of the main assumptions used by Renault in the impairment test performed to assess the recoverable value of its investment in P Nissan, by reference to Nissan mid-term plan, historical performance achieved by Nissan as well as the overall perspectives of the Automotive sector; assessing the appropriateness of the information provided in the notes to the consolidated financial statements. P CALCULATION OF EXPECTED CREDIT LOSSES ON RETAIL AND WHOLESALE RECEIVABLES IN ACCORDANCE WITH THE NEW ACCOUNTING STANDARD IFRS 9 (RCI) Risk identified The sales financing activity is managed by RCI Banque with dedicated offers for individuals and companies as well as the financing of dealer networks. RCI Banque sets aside provisions to cover the risk of losses resulting from the inability of its clients to meet their financial commitments. RCI Banque applies the accounting principles of IFRS 9 "Financial Instruments" which defines a provisioning model for expected losses based on three stages of risk: healthy receivables (stage 1), receivables showing higher credit risk since initial recognition (stage 2), and receivables in default (stage 3). The provisions related to IFRS 9 are detailed in Note 15 of the consolidated financial statements and amounts to 1,064 M€ for an outstanding amount of 41,884 M€. We consider the amount of credit loss provisioning as a key point of the audit, due to the significant amount of customer and network loans in the assets of the Group’s balance sheet, the use of numerous parameters and assumptions in the calculation models and the use of judgment made by management in estimating expected credit losses. Those assumptions are even more important in the current situation of the COVID-19 crisis which brings major economical uncertainties in the world for the years to come in spite of the governement measures taken to favor a rapid economic recovery. Note 15-D of the consolidated financial statements describes the assumptions used to estimate the impact of the COVID-19 crisis. They mainly consisted of additional provisioning on non-overdue outstanding amounts concerned by current or previous moratoriums, to raise the provision estimate for the forward-looking scenario concerning and to increase the weighting of the “adverse” forward-looking scenario. Our audit response Our procedures, performed with our specialists in credit risk, mainly consisted in: assessing the key controls related to the governance established to validate the changes in parameters and key assumptions involved in the calculation P of the expected credit loss provisionning; assessing the methodologies applied to set the parameters used in the provisionning models and their operational integration in the information P systems; assessing the provisionning adjustments made on expertise at local and Group levels on the Corporates and dealers on receivables showing higher credit P risk since initial recognition (stage 2), and receivables in default (stage 3); examining the documentation supporting the additional provisionning booked to reflect the impact of the COVID-19 crisis in the cost of risk and P verifying the calculation of the provisionning on a sampling of contracts; assessing the assumptions used to determine the prospective component of the expected credit loss (forward looking) estimation, in particular on the P weighting of the scenarios; testing the quality of the application program interfaces that support the calculation and accounting of the expected credit losses; P evaluating the staging process and most particularly the identification of the significant increase of credit risk on healthy receivables; P ensuring the completeness and the quality of the data used in the estimation of the provisionning; P carrying out analytical procedures on the evolution of outstanding retail customer and dealer network loans and credit risk impairment; P assessing the appropriateness of the information presented in Notes 2-G and 15 to the consolidated financial statements. 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