Amorepacific : 2022 Audit Report

AMOREPACIFIC Group, Inc. and its subsidiaries

Consolidated financial statements

for the year ended December 31, 2022 with the independent auditor's report

AMOREPACIFIC Group, Inc. and its subsidiaries

Table of contents

Independent auditor's report

Consolidated financial statements	Page
Consolidated statements of financial position	1
Consolidated statements of comprehensive income	2
Consolidated statements of changes in equity	3
Consolidated statements of cash flows	4
Notes to the consolidated financial statements	5

Ernst & Young Han Young

2-4F,6-8F, Taeyoung Building, 111, Yeouigongwon-ro,

Yeongdeungpo-gu, Seoul 07241 Korea

Tel: [phone]

Fax: [phone] ey.com/kr

Independent auditor's report

(English Translation of a Report Originally Issued in Korean)

The Shareholders and Board of Directors

AMOREPACIFIC Group Inc. and its subsidiaries

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 statement of financial position as of December 31, 2022, and the consolidated statement of comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the year then ended, and the notes to the financial statements, including a summary of significant accounting policies.

In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Group as of December 31, 2022, and its consolidated financial performance and its consolidated cash flow for the year then ended in accordance with International Financial Reporting Standards as adopted by the Republic of Korea ("KIFRS").

Basis for opinion

We conducted our audit in accordance with Korean Standards on Auditing ("KSA"). 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 that are relevant to our audit of the consolidated financial statements in the Republic of Korea, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our 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. Impairment test on cash generating units of AMOREPACIFIC Trading Co.,Ltd. - Estimation of recoverable amount.

As described in Note 1.3 to the consolidated financial statements, the total assets of AMOREPACIFIC Trading Co., Ltd., a subsidiary of the Group, amounts to 382,731 million and accounts for 5.0% of total assets in the Group's consolidated statement of financial position as of December 31, 2022. As described in Note 3 to the consolidated financial statements, the Group annually measures the recoverable amount of a cash generating unit ("CGU") to which goodwill is allocated at the higher of the asset`s value-in-use and its fair value less costs of disposal and compares the recoverable amount to the carrying amount of the CGU. As described in Note 1.3 to the consolidated financial statements, the Group measured the recoverable amount based on the value-in-use of AMOREPACIFIC Trading Co., Ltd.'s CGUs.

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We have identified the impairment testing of CGUs of AMOREPACIFIC Trading Co., Ltd. as a key audit matter because the value-in-use involves management's significant judgements and estimates such as future cash flow forecasts, discount rate and perpetual growth rates.

The main audit procedures that we have conducted for this key audit matter are as follows:

• We evaluated the competency and independence of external specialists used for in-house testing performed by management.
• We evaluated key assumptions, such as the valuation model methodology and discount rate used by management to measure value-in-use, by involving internal specialists.
• We compared business plans approved by the Group with external market information in respect of sales growth rate, ratio of operating profit to revenue and perpetual growth rate used by management to measure value-in-use.
• We evaluated the appropriateness of management's estimation by comparing estimates presented in the business plan that management provided for the prior year with the actual performance.
• We recalculated recoverable amount using the valuation model methodology provided by management.
• We evaluate the sensitivity of value-in-use depending on fluctuations in discount rate and perpetual growth rate.

1. Sales from domestic e-commerce channels in the Daily Beauty ("DB") business division - Occurrence and measurement

As described in Note 4 to the consolidated financial statements, the Group's Daily Beauty ("DB") business division is mainly engaged in manufacturing and sales of personal household products, and others. Sales of the DB business division usually arise from various channels such as e-commerce,multi-brand shops, and large discount stores.

As sales presented in the consolidated financial statements are one of the key financial performance evaluation indicators or the Group, there are inherent risks such as the risk of misstatement of sales price per unit or overstatement of profits using fictitious vendors. In addition, sales arising from domestic e-commercechannels of the DB business division are measured on the basis of variable considerations and considerations to be paid to customers. Thus, complexities exist in estimating and calculating key factors affecting such sales, including price discounts, and the frequency of the occurrence of such sales and the proportion of such sales is significant, compared to sales generated from other business sectors or channels.Therefore, we identified the occurrence and measurement of sales generated from domestic e-commerce channels of the DB business division as a key audit matter.

The main audit procedures that we have conducted for these key audit matters are as follows:

• We obtained an understanding of then controls related to sales from domestic e-commerce channels of the DB business division and evaluated such controls.
• We assessed revenues recognized in accordance with KIFRS 1115 Revenue from contracts with customers, by testing newly concluded contracts during the current period by inspecting contracts on a sample basis.
• We performed analytical procedures such as trend analysis of monthly performance for items including sales and discounts.
• We assessed documents on transactions selected on a sample basis and reviewed accounting treatment for the occurrence and measurement of revenue.
• We conducted confirmation procedures for the balance of trade receivables selected on a sample basis in relation to sales from domestic e-commerce channels of the DB business division.

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Other matters

The consolidated financial statements as of and for the year ended December 31, 2021, were audited by Samil PricewaterhouseCoopers, whose report dated March 16, 2022 expressed an unqualified opinion thereon.

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 KIFRS, 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, or has no realistic alternative but to do so.

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 KSA 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.

As part of an audit in accordance with KSA. we exercise professional judgment and maintain professional skepticism throughout the audit. We also:

• Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group's internal control.
• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.
• Conclude on the appropriateness of management's use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw

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