www.se.com 398 Schneider Electric Universal Registration Document 2021 Chapter 5 – Consolidated financial statements at December 31, 2021 5.6 Statutory auditors’ report on the consolidated financial statements Risk identified continued We considered the measurement of goodwill to be a key audit matter as these assets account for a large part of the group’s consolidated balance sheet and because of the level of management’s judgment required to: • define the CGUs, as an improper mapping could lead your group to not recognize or under-estimate an impairment of goodwill; • determine the assumptions used for the impairment tests of goodwill, particularly the discount rates, perpetuity growth rates and the expected margin rates or royalty rates. Our response Our audit work consisted in: • assessing the group’s definition of the CGUs in light of the applicable accounting standards; • comparing the carrying amount of assets tested with the accounting data; • assessing the procedures implemented by the group to evaluate the future discounted cash flows underlying the determination of the value in use of each CGU and check their consistency with the business plans/cash flow projections; • comparing the business forecasts underlying the future cash flows with actual performance; • with the assistance of our valuation experts, assessing the assumptions used such as discount rates, perpetuity growth rates and expected margin rates, as well as the sensitivity of tests results to a variation of these assumptions; • reconciling the sensitivity analyses performed by the group with our sensitivity calculations; • verifying the arithmetical accuracy of the computations underlying the impairment tests. Finally, we verified that the notes to the consolidated financial statements contain the appropriate information. Activation and measurement of development costs Notes 1.3, 1.8, 4 and 10 to the consolidated financial statements Risk identified As at December 31, 2021, the group’s consolidated balance sheet includes capitalized development costs recognized as intangible assets for M€ 1,169. As described in note 1.8 to the consolidated financial statements, the costs the Group incurs as part of its new projects are capitalized when certain criteria are strictly met and, in particular, when it is probable that future economic benefits attributable to the project will flow to the group. Development-related assets are amortized from the commercial launch and over the lifespan of the underlying technology. Development-related assets which are not amortized yet are tested for impairment at least on an annual basis and whenever there is an indication of impairment risk. As for development-related assets, which are in the amortization period, they are tested for impairment when an impairment risk has been identified. The group recognizes an impairment loss when the recoverable amount of a development-related asset is lower than the corresponding capitalized costs. The capitalization and the measurement of development costs are considered to be a key audit matter due to their materiality when compared to the consolidated assets of the group, and to the management’s judgment exercised when initially determining whether such development costs should be accounted for as intangible assets and when subsequently carrying out impairment tests. Our response Our work consisted, for the development projects that we selected on the basis of qualitative and quantitative criteria, in: • ensuring the criteria for recognizing an intangible asset, as set out in IAS 38, were met and consistently applied; • reconciling, the costs capitalized as at December 31, 2021 with the underlying supporting documentation; • assessing the data and assumptions used by the group when testing development-related assets for impairment, mainly sales and profitability forecasts and discount rates, by inquiring of management and by comparing future cash flows to past performance for capitalized projects for which the group is already generating revenues; • comparing the sensitivity analyses performed by the group to our sensitivity calculations; • verifying the arithmetical accuracy of these impairment tests. Finally, we verified that the notes to the consolidated financial statements contain the appropriate information.