Review of Michelin's financial statements (2005)

Extract

[...] The financial report gives us a balance sheet that covers the span of a year but it is not always clear how the information was perceived in time. Schedules can therefore specify when Michelin was awarded product registration or the time of tax payments, etc. The second part of the annexes to the tables complements what has been explained in the first part. It has lists the elements of the income by industry and by geographic area. Even the smallest details are provided and all figures are explained and listed. [...]

[...] In accordance with the task entrusted by the General Assembly of Michelin, the auditors presented their report for the year ended December The aim of the report was: - to Control the annual accounts of the "Compagnie Generale des Etablissements Michelin - The justification of their assessments - The specific verifications and information required by law The auditors provide feedback on the financial statements. They verify that the audit was conducted according to standards that ensure that financial statements are free of material misstatement. They then certify that the annual accounts are regular and honest, and give a true and fair financial position and assets of the company at the end of the previous year in accordance with the rules and French GAAP. Finally, the auditors justify their valuations. In accordance with the provisions of Article L. [...]

[...] These results are those of "joint ventures" in which the Michelin Group has "joint control as a result of a contractual agreement." Michelin Group Investments in these companies are included in accounting but the cost share groups in the results of these companies are accounted for and increase the profit before tax of Michelin. It is interesting to clarify this aspect of Michelin's involvement with the results of associated companies, as it helps increase their own results. Moreover, it is clear that if these companies make losses equal to, or greater than the share taken by the Michelin group, then Michelin is not accountable for future losses unless it has incurred obligations or made payments behalf of the company. [...]

[...] This results in uncertainty about the impairment of assets and non financial benefits. Hence Michelin uses accounting do make specific estimates and assumptions that are close to reality. Strategic decisions for five year periods are made using assumptions to determine future market trends. These guidelines help establish "future cash flow models to estimate losses in the value of non financial assets. This results in "impairment", if the value of an asset (whichever is higher of fair value of assets minus cost of sales and value in use) is less than its book value. [...]

[...] The model is the methods of Annexes financial report including that for Michelin. They draw information mostly from the historical cost convention. The Group has adapted to the new IFRS standards imposed by the European Community causing significant changes in methods of calculation. Indeed, the most interesting thing about these schedules is that they help understand how the calculations were made, and the choices Michelin may make to better determine their policy. Since many calculations are made on assumptions, the Group needs to justify what led to the choice of an event leading to a particular calculation. [...]