Page 70 - 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
Fair valuation of unquoted equity investments
As at 31 December 2022, the Corporation’s unquoted equity investments amounted to USD 326.4 million (2021: USD 336.4 million) representing 11.3% (2021: 11.4%) of total assets.
These instruments are classified as financial assets at fair value through changes in members’ equity and are measured at fair value with the corresponding fair value change recognized in the separate statement of changes in members’ equity. The Corporation use external experts where required to assist it in determining the fair value of these investments.
As disclosed in Notes 3 and 13 the valuation of unquoted equity investments uses inputs other than observable market data and therefore are inherently subjective. It also requires significant judgement by management in determining the appropriate valuation methodology
and use of various assumptions like cash flows, discount rates, market information, market risk adjustments etc.
Given the inherent subjectivity and judgement required in the valuation of such unquoted investments, we determined this to be a key audit matter.
Refer to note 3 to the separate financial statements for the accounting policy and Note 13 for the investment valuation methodology, critical judgment and estimates applied in the fair valuation of equity investment.
1. We obtained an understanding of the unquoted equity valuation process and investment policy.
2. We evaluated the design and implementation of manual controls over:
• the valuation methodologies used.
• the approval, accuracy and completeness of fair valuation of
unquoted equity investments and governance controls over the monitoring of the valuation exercise, through key management and committee meetings that form part of the approval process along with appropriate management review and challenge process.
• the recognition and measurement of fair valuation impact of unquoted equity investments.
3. On a sample basis, we selected unquoted equity investments and involved our specialists, where relevant, to assist us in assessing and evaluating:
• input parameters and assumptions i.e. relevant benchmarks from
comparable companies, tracing of earnings multiples to source information, discounts/premium applied and other relevant benchmark data, and their consistent application, across the valuations, to the extent required; and
• the valuation methodology for each investment taking into account the nature of the investment being valued.
4. We assessed the adequacy of disclosures in the separate financial statements against the requirements of the Financial Accounting Standards issued by AAOIFI.
68 ICD ANNUAL REPORT 2022