_366 2023 UNIVERSAL REGISTRATION DOCUMENT_MICHELIN 5 FINANCIAL PERFORMANCE 2023 consolidated financial statements 2.6 Critical accounting estimates and judgments The preparation of the consolidated financial statements in accordance with IFRS requires that management use assumptions and estimates to calculate the value of assets and liabilities at the date of the consolidated statement of financial position and the amount of income and expenses for the reporting period. Actual results could differ from those estimates. The main sources of uncertainty relating to key assumptions and judgments concern impairment of non-financial assets, employee benefit obligations, income taxes, goodwill, intangible assets acquired in business combinations and the assets' estimated useful lives, the definition of the enforceable period of a lease and the effect on revenue recognition of deferred customer discounts. 2.6.1 Impairment of non-financial assets The cash generating units' (CGU) future cash flows used to calculate value in use (note 3.17) are derived mainly from forecasts set out in the Group's five-year business plan. The forecasts are prepared by the Business Departments and Business Lines based on the strategic objectives validated by the Managers. The process requires using critical estimates and judgments, especially to determine market trends, raw material costs and pricing policies. Consequently, actual cash flows may differ from the estimates used to calculate the CGUs' value in use (see in particular the comments in note 2.5 concerning the recognition of climate risk). Quantitative information is provided in note 13.1. 2.6.2 Employee benefit obligations The Group uses defined contribution plans which generally require, on top of the portion financed by the Group, a contribution from each salaried employee, defined as a percentage of their compensation. Some subsidiaries also recognize liabilities for pension plans, jubilees and other post-employment benefits linked to rights acquired by the employees through plans specific to these subsidiaries or resulting from certain legal obligations. The valuation of these benefits is carried out annually with the assistance of independent actuaries. The actuarial method used is the projected unit credit method. In accordance with this method, statistical information and various assumptions are used in calculating the expenses, liabilities and assets related to the benefit plans. Assumptions mainly include the discount rate, the inflation rate, the long‑term salary increase rate and the expected rate of growth in future medical costs. Statistical information is mainly related to demographic assumptions such as mortality, employee turnover, disability and retirement age. Assumptions and statistical information are determined based on internal guidelines, in consultation with the actuaries. Discount rates are determined with the assistance of independent actuaries based on the same maturities as the liabilities. The rate of salary increases is determined by each country based on a long-term salary policy and takes into consideration all of the relevant factors including market practices, as well as career development, promotion and seniority, among other inputs. The inflation rates, calculated over standard durations, are determined using several methods: ● by using actuarial models based on target rates published by central banks, forecasts from Consensus Economics and inflation swap curves; ● by taking the spread between inflation-linked bonds and conventional securities. The rates are then adjusted with a spread which represents the liquidity and risk premium embedded in the inflation-linked bonds; ● based on historical averages. The other assumptions (retirement age, employee turnover, healthcare cost trend, mortality and disability) reflect the demographic and economic situation of the countries and subsidiaries in which the plans are in force. The actual data (such as inflation, mortality and real return on assets) may differ from the long-term actuarial assumptions used. The resulting difference is recognized as a gain or loss in other comprehensive income. Quantitative information is provided in note 27.
RkJQdWJsaXNoZXIy NzMxNTcx