Page 69 - ICD-AR22-English

Report on the Audit of the Separate Financial Statements (Continued) FOR THE YEAR ENDED 31 DECEMBER 2022
Key audit matter
How our audit addressed the key audit matter
The measurement of ECL amounts for project assets classified as Stage
1 and Stage 2 are carried out by the ECL models with limited manual intervention, however, it is important that models (PD, LGD, EAD and macroeconomic adjustments) are valid throughout the reporting period and are subject to a review process by an independent third party expert. For the impaired project assets the Corporation measures the ECL on the basis of difference between the carrying value of the project assets and the present value of expected future cash flows that can be recovered.
This was considered as a key audit matter and the audit was focused on this matter due to the materiality of the project assets and the complexity of the judgements, assumptions and estimates used in the ECL models
Refer to Note 3 to the separate financial statements for the accounting policy for the impairment of financial assets, Note 25 for the disclosure of impairment and note 31 for credit risk disclosure and the key assumptions and factors considered in determination of ECL.
4. We tested models and the IT applications used in the credit impairment process and verified the integrity of data used as input to the impairment models.
5. The Corporation performed an external validation of the ECL model and LGD models including macro-economic model during the reporting period. We considered the process of this external validation of the models and its impact on the results of the impairment estimate. Finally, we updated our assessment of the methodology and framework designed and implemented by the Corporation as to whether the impairment models outcomes and stage allocations appear reasonable and reflective of the forecasts used by the Corporation to determine future economic conditions at the
reporting date.
6. Where relevant, we involved our specialists to assist us in reviewing model calculations, evaluating related inputs and assessing reasonableness of assumptions used in ECL model particularly around probability of default, loss given default, exposure at default. macroeconomic variables, forecasted macroeconomic scenarios
and probability weights and of assumptions used in post model adjustments (if any) as mentioned above.
7. We assessed the adequacy of disclosures in the separate financial statements against the requirements of the Financial Accounting Standards issued by AAOIFI.
REINVIGORATING THE PRIVATE SECTOR TO SHAPE A BETTER FUTURE 67