IFRS 9 was implemented by the Bank on 1 July 2018, This new standard requires the Bank to recognise expected credit losses ('ECL') on financial instruments, which involves significant judgements and estimates. The key areas where we identified greater levels of management judgements and estimates and therefore increased levels of audit focus in the implementation of IFRS 9 are:
Our audit procedures included amongst others:
We found the assumptions used in determining the expected credit losses in the consolidated and separate financial statements and related disclosures to be appropriate.
Provision for credit losses on credit-impaired loans and advances to customers at 30 June 2019 amount to MUR 1,565 million and the charge to profit or loss for the year amount to MUR 870 million.
Due to the significance of the judgements applied in the identification of credit-impaired facilities and determination of the provision for credit losses, this item is considered as a key audit matter.
The use of assumptions for the measurement of provision for credit losses is subjective due to the level of judgement applied by Management, Changes in the assumptions and the methodology applied may have a major impact on the measurement of allowance for credit impairment.
The details of allowance for credit impairment on loans and advances are disclosed in Notes 38 and 17 to the financial statements.
The most significant judgements are:
- whether-impairment events have occurred
- valuation of collateral and future cash flows
- management judgements and assumptions used
Our audit procedures included amongst others:
We found the assumptions used in determining the allowance for credit impairment and disclosures in the consoliddted and separate financial statements to be appropriate.
Goodwill arising from the acquisition of AfrAsia Capital Management Ltd amounting to MUR 134.9 million was fully impaired in profit or loss at 30 lune 2019.
Management conducts annual impairment test to assess the recoverability of the carrying value of goodwill. This is performed by calculating the asset's value-in-use using discounted cash flow models.
As disclosed in Notes 3B and 21, there is inherent uncertainty and significant judgements involved in preparing future cash flow forecasts and applying the appropriate discount rate to determine the value-in-use amount of the cash generating unit.
Accordingly, the impairment test of goodwill is considered to be a key audit matter.
In evaluating the impairment of goodwill, we reviewed the value in use calculations prepared by management. We performed various procedures, including the following:
We found the assumptions used and disclosures in the consolidated financial statements to be appropriate.
As disclosed in Notes 38 and 12(d), the Group and the Bank have recognized deferred tax assets as at 30 June 2019 for deductrble temporary ditferences that they have assessed to be recoverable.
The recoverability of recognized deferred tax assets is in part dependent on the ability of the Group and the Bank to generate future taxable profits to utilize deductible temporary differences as well as to obtain the tax benefits on thereon.
We have determined this to be a key audit matter due to the inherent uncertainty in forecasting the amount and timing of future taxable profits and the reversal of temporary d ifferences.
Our procedures in relation to management's assessment about the recoverability of deferred tax assets included:
We found the assumptions used and disclosure in the consolidated and separate financial statements to be appropriate.
In accordance with the requirements of the Mauritius Companies Act 2001, we report as follows:
The directors are responsible forthe other information. The other information comprises the following: Aboutthis Report, Corporate Profile & Overview, Corporate Governance Repoft, Sustainability at AfrAsia Bank, Risk Management Report, Management Discussion and Analysis, Statement of Management's Responsibility for Financial Reporting and Certificate from the Company Secretary. We obtained these prior to the date of this auditor's report, The other information does not include the consolidated and separate financial statements and our auditor's report thereon.
Our opinion on the consolidated and separate financial statements do not cover the other information and we do not express any form of assurance or conclusion thereon.
In connection with our audit of the consolidated and separate financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated, If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact, We have nothing to report in this regard.
Corporate governance report
Our responsibility under Financial Reporting Act 2004 is to report on the compliance with the Code of Corporate Governance disclosed in the annual report and assess the explanations given for non-compliance with any requirement of the Code. From our assessment of the disclosures made on corporate governance in the annual report, the Public Interest Entity has, pursuant to section 75 of the Financial Reporting Act 2004, complied with the requirements of the Code.
The directors are responsible for the preparation and fair presentation of the consolidated and separate financial statements in accordance with International Financial Reporting Standards, and in compliance with the requirements of the Mauritius Companies Act 2001, the Banking Act 2004, and the Financial Reporting Act 2004 and they are also responsible for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the consolidated and separate financial statements, the directors are responsible for assessing the Group's and Bank's ahility to continlle as a going cnncern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Bank or to cease operations, or have no realistic alternative but to do so.
The directors are responsible for overseeing the Group's and the Bank's financial reporting process.
Our objectives are to obtain reasonable assurance about whether the consolidated and separate 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 ISAs 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 and separate financial statements.
As part of an audit in accordance with ISAs, we exercise professional judgement and maintain professional scepticism throughout the audit, We also:
We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during oui audit,
We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards,
From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the consolidated and separate financial statements of the current year and are therefore the key audit matters. We describe those matters in our auditor's report unless laws or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.
This report is made solely to the Bank's shareholders, as a body, in accordance with section 205 of the Mauritius Companies Act 2001. Our audit work has been undertaken so that we might state to the Bank's shareholders those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to this report, or for the opinions we anyone other than the Bank and the Bank's shareholders as a body, for our audit work, for have formed.
19 September 2019
JACQUES DE C. DU MÉE, ACA
Licensed by FRC