Universal Registration Document - Fiscal 2023

As stated in Note 6.4 “Impairment of non-current assets” to the consolidated financial statements, an impairment loss is recognized if the recoverable amount of goodwill as determined during the annual impairment test or during a specific test carried out where there is an indication of impairment, is lower than its carrying amount.

The recoverable amount is the higher of fair value (less the selling costs corresponding to the amount for which the Group could sell the asset) and its value in use, is typically determined based on the calculation of discounted future cash flows and requires significant judgment from management, in particular as regards the preparation of business forecasts (generally for five years), as well as the discount and long-term growth rates used.

We deemed the measurement of the recoverable amount of goodwill to be a key audit matter, due to the importance of these assets in the consolidated statement of financial position and the inherent uncertainty of certain inputs, in particular the likelihood of achieving forecast results included in such measurement.

Our response

We performed a critical review of the methods applied by Management to determine the recoverable amount of goodwill. Our work consisted in:

• familiarizing ourselves with the methodology used to perform the impairment tests and assessing its compliance with IAS 36;
• assessing the methodology used to reallocate goodwill performed during the financial year ended August 31, 2023, with regard to the new organization of the On-site Services activity;
• verifying, via sampling, the arithmetic accuracy of the model used to calculate values in use;
• reconciling the elements comprising the net carrying amount of the assets used for the impairment test with the financial statements;
• assessing the Group’s Management’s assumptions underlying the projected cash flows via interviews with the management of the geographical areas concerned;
• assessing, with the support of our valuation experts, the reasonableness of the discount rates applied to projected future cash flows and the perpetual-term growth rate used for projected flows;
• assessing the sensitivity analyses of values in use to changes in the main assumptions used by the Group’s Management;
• evaluating the appropriateness of the information disclosed in note 6.4 to the consolidated financial statements.

Tax risks

Note 10.2 to the consolidated financial statements

Key Audit Matter

The Group Sodexo has operations in numerous countries around the world and, in the normal course of its business, is subject to regular inspections by local tax authorities.

Such inspections may give rise to tax reassessments and disputes with tax authorities. As stated in Note 10 “Provisions, litigation and contingent liabilities” to the consolidated financial statements, a provision is recognized if the Group has a legal or constructive obligation at the closing date, if it is likely to have an outflow of resources and if the amount of the liability can be reliably estimated.

Estimates of the impacts of these tax risks and any related provisions involve significant judgment by Management, especially as regards the expected outcome of disputes in progress or the occurrence of possible identified risks. Accordingly, we deemed this subject to be a key audit matter.

Our response

We gained an understanding of the internal control procedures implemented to identify tax risks and uncertain tax positions and, when necessary, determine the necessary provisions.

With the support of our tax experts, we also:

• held meetings with the Group’s tax department and the management of the companies concerned to assess the latest status of any inspections in progress and tax reassessments notified by the tax authorities, and to monitor developments in any dispute in progress;
• consulted the recent decisions and communication of the Group’s companies with the tax authorities and with their tax advisors;
• analysed tax advisors’ responses to our requests for information or their analyses of disputes in progress;
• conducted a critical review of the estimates and positions adopted by Management;
• verified that the latest developments had been factored into the risk analysis and the estimates of the provisions set aside in the statement of financial position.