Amorepacific : 2021 Audit Report

AMOREPACIFIC Group, Inc. and Subsidiaries

Consolidated Financial Statements

December 31, 2021 and 2020

AMOREPACIFIC Group, Inc. and Subsidiaries
Index
December 31, 2021 and 2020
	Page(s)
Independent Auditor's Report…......................................................................................1 - 5
Consolidated Financial Statements
Consolidated Statements of Financial Position........................................................................	6
Consolidated Statements of Comprehensive Income…...........................................................7
Consolidated Statements of Changes in Equity…....................................................................8
Consolidated Statements of Cash Flows…..............................................................................9
Notes to the Consolidated Financial Statements….......................................................... 10 - 97

Independent Auditor's Report

(English Translation of a Report Originally Issued in Korean)

To the Board of Directors and Shareholders of

AMOREPACIFIC Group, Inc.

Opinion

We have audited the accompanying consolidated financial statements of AMOREPACIFIC Group, Inc. and its subsidiaries (collectively referred to as the "Group"), which comprise the consolidated statements of financial position as at December 31, 2021 and 2020, and the consolidated statements of comprehensive income, consolidated statements of changes in equity and consolidated statements of cash flows for the years then ended, and notes to the consolidated financial statements, including a summary of significant accounting policies.

In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Group as at December 31, 2021 and 2020, and its consolidated financial performance and its consolidated cash flows for the years then ended in accordance with International Financial Reporting Standards as adopted by the Republic of Korea (Korean IFRS).

Basis for Opinion

We conducted our audits in accordance with Korean Standards on Auditing. Our responsibilities under those standards are further described in the Auditor's Responsibilities for the Audit of the Consolidated Financial Statements section of our report. We are independent of the Group in accordance with the ethical requirements of the Republic of Korea that are relevant to our audit of the consolidated financial statements and we have fulfilled our other ethical responsibilities in accordance with the ethical requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Key Audit Matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements of the current period. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

(1) Valuation of merchandise and finished goods

Why this matter was determined to be a key audit matter

As described in Note 8 to the consolidated financial statements, the Company's inventories comprise of merchandise and finished goods amount to 393,484 million as at December 31, 2021. The inventories are initially measured at cost and write-down should be recognized if the inventories are damaged, become wholly or partially obsolete, or if expected net realisable value is below the cost. We considered the valuation of merchandise and finished goods as a significant matter in our audit because significant judgements of management are involved in determining obsolescence of the merchandise and finished goods.

How our audit addressed the Key Audit Matter

We performed the following audit procedures for the Group's inventory valuation.

- Obtained and understood the accounting policy on inventory valuation of the Group and tested its appropriateness.

• Obtained an understanding of the management's process and controls on estimation of inventory valuation and confirmed whether it is in compliance with the accounting policies.
• Recalculated the valuation provision on merchandise and finished goods provided by the Group.
• Tested selected samples for the accuracy and completeness of merchandise and finished goods' aging reports.
• Confirmed the accuracy of historical experience rate calculation used by the Group to estimate the provision for valuation due to obsolescence of the merchandise and finished goods.
• Confirmed the accuracy of components of merchandise and finished goods' net realizable value estimated by the Group; such as selling prices, incidental expenses and other.

(2) Impairment Test on Cash Generating Units including AMOREPACIFIC AUSTRALIA PTY LTD.

Why this matter was determined to be a key audit matter

As at December 31, 2021, the Group has determined that there are indications of impairment due to continuous decline in performance of the two cash-generating units such as AMOREPACIFIC AUSTRALIA PTY LTD., AMOREPACIFIC Trading Co., Ltd. The Group performed impairment tests on the cash-generating units including AMOREPACIFIC AUSTRALIA PTY LTD. using value-in-use calculations based on discounted cash flow. We determined accounting for the above impairments of cash generating units as a key audit because the value-in-use involves management's significant judgements and estimates about discount rate, growth rate and future cash flow forecasts. Details are described in Note 1.3 to the consolidated financial statements of the Group.

How our audit addressed the Key Audit Matter

We performed the following audit procedures for the valuation model, key assumptions, and judgments related to the recoverable amount assessment for AMOREPACIFIC AUSTRALIA PTY LTD. and others. We included expert in value assessment when performing audit procedure.

• Evaluated the competency and independence of external experts engaged by management.
• Understands the future cash flows of the cash-generating units and reviewed whether the future cash flow estimate is based on the business plan approved by management.
• Assessed the reasonableness of the key assumptions used in estimating recoverable amount.

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• Compared the discount rates that are independently calculated using an observable information with the discount rates applied by management
• Evaluated the results of a sensitivity analysis on the discount rates performed by management to assess the impact of changes in key assumptions on the impairment tests
• Reviewed the accuracy of the recoverable amount calculation and the appropriateness of the allocation of the impairment loss.
• Assessed the completeness of disclosures related to asset impairment of the Group, including the criteria for determining recoverable amount and the key assumptions used by the Group.

Emphasis of Matter

Without modifying our opinion, we draw attention to Note 3 to the consolidated financial statements of the Group. Note 3 to the consolidated financial statements describes management's plans and action taken to resolve uncertainty relating to the impact of Coronavirus disease 2019 (COVID-19) on the Group's productivity and ability to satisfy customer's orders, and to solve these events or circumstances.

Other Matter

Auditing standards and their application in practice vary among countries. The procedures and practices used in the Republic of Korea to audit such consolidated financial statements may differ from those generally accepted and applied in other countries.

Responsibilities of Management and Those Charged with Governance for the Consolidated Financial Statements

Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with Korean IFRS, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the consolidated financial statements, management is responsible for assessing the Group's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Group or to cease operations.

Those charged with governance are responsible for overseeing the Group's financial reporting process.

Auditor's Responsibilities for the Audit of the Consolidated Financial Statements

Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Korean Standards on Auditing will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements.

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