Al-`Aqar Healthcare REIT Annual Report 2018

FINANCIAL REPORTS 95 INDEPENDENT AUDITORS’ REPORT TO THE UNITHOLDERS OF AL-`AQAR HEALTHCARE REIT Report on the Audit of the Financial Statements Opinion We have audited the financial statements of AL-`AQAR HEALTHCARE REIT (“the Fund”), which comprise the statements of financial position of the Group and of the Fund as at 31 December 2018, and the statements of comprehensive income, statements of changes in net asset value and statements of cash flows of the Group and of the Fund for the year then ended, and notes to the financial statements, including a summary of significant accounting policies and other explanatory information, as set out on pages 98 to 152. In our opinion, the accompanying financial statements of the Group and of the Fund give a true and fair view of the financial position of the Group and of the Fund as at 31 December 2018, and of their financial performance and their cash flows for the year then ended in accordance with the applicable provisions of the Restated Trust Deed dated 31 July 2013, Malaysian Financial Reporting Standards, International Financial Reporting Standards and the requirements of the Securities Commission Malaysia’s Guidelines on Real Estate Investment Trusts and Islamic Real Estate Investment Trusts (“SC Guidelines”). Basis for Opinion We conducted our audit in accordance with approved standards on auditing in Malaysia and International Standards on Auditing. Our responsibilities under those standards are further described in the Auditors’ Responsibilities for the Audit of the Financial Statements section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Independence and Other Ethical Responsibilities We are independent of the Group and of the Fund in accordance with the By-Laws (On Professional Ethics, Conduct and Practice) issued by the Malaysian Institute of Accountants (“By-Laws”) and the International Ethics Standards Board for Accountants’ Code of Ethics for Professional Accountants (“IESBA Code”) and we have fulfilled our other ethical responsibilities in accordance with the said By-Laws and the IESBA Code. Key Audit Matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements of the current year. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Key audit matter Valuation of investment properties Investment properties of the Group and of the Fund as at 31 December 2018 amounting to RM1,485.7 million and RM1,353.3 million respectively (2017: RM1,459.7 million and RM1,320.1 million respectively) are the most quantitatively material account balance in the financial statements. Further, the investment properties are measured at fair value and the valuation of the Group’s and the Fund’s investment properties is inherently subjective due to, among other factors, the individual nature of each property, its location and the expected future rental income for that particular property. The fair values of the Group’s and the Fund’s investment properties, as determined by the independent valuers appointed by the management, are primarily based on the capitalisation of net income method with comparison and cost methodologies used as a secondary check. The accounting policy and key sources of estimation uncertainty for valuation of investment properties are set out in Note 3.4 and Note 4.2(a) to the Financial Statements respectively, and the details of the investment properties of the Fund have been disclosed in Note 11 to the Financial Statements. How the key audit matter was addressed in our audit Our audit procedures included the following: (a) Assessed and discussed with management their process for reviewing the work of the independent valuers. (b) Assessed the competency, independence and integrity of the independent valuers. (c) Obtained the valuation reports and discussed with the independent valuers the results of their work. (d) Tested the integrity of the data provided to the independent valuers to underlying lease agreements. (e) Benchmarked and challenged the key assumptions to external industry data and comparable property transactions, in particular the allowance for void, term yield rates, reversionary yield rates, capitalisation rates and discount rates. (f) We have also assessed the adequacy and appropriateness of the disclosures on valuation methodology and estimation made in the financial statements.