KEY AUDIT MATTERS (CONTINUED) Key audit matters How our audit addressed the key audit matters Impairment of Financing, Advances and Others Refer to Note 2.5 and 2.10 of the summary of significant accounting policies and Notes 8, 29 and 41 (b)(iii) of the Financial Statements. We focused on this area due to the size of the carrying value of financing, advances and others, which represented 72.2% of total assets of the Group. In addition, impairment is a highly subjective area as the Group exercised significant judgement on the following areas: Timing of identification of Stage 2 and Stage 3 financing, advances and others •• Assessment of objective evidence of impairment of financing, advances and others based on mandatory and judgemental triggers. •• Identification of financing, advances and others that have experienced a significant increase in credit risk. Individual assessment Estimates on the amount and timing of futures cash flows based on realisation of collateral or customer’s business cash flows. Collective assessment Choosing the appropriate collective assessment models and assumptions for the measurement of ECL such as expected future cash flows and forward – looking macroeconomic factors. We tested the design and operating effectiveness of the controls over impairment of financing, advances and others. These controls covered: •• Identification of financing, advances and others that have experienced significant increase in credit risk or objective evidence of impairment; •• Governance over the impairment processes, including model development, model approval and model validation; •• Data used to determine the allowances for credit losses including the completeness and accuracy of the key inputs and assumptions into respective ECL models; and •• Review and approval of the ECL calculation. Our detailed testing over the financing, advances and others are as follows: Individual assessment •• Examined a sample of financing, advances and others particularly focused on customers identified by the Group as having lower credit quality, rescheduled and restructured, borrowers in high risk industries and formed our own judgement as to whether there was a significant increase in credit risk or any objective evidence of impairment. •• Where objective evidence of impairment was identified by the Group and impairment loss was individually calculated, we examined both the quantum and timing of future cash flows used by the Group in the impairment loss calculation, challenging the assumptions and comparing estimates to external evidence where available. Calculations of the discounted cash flows were also re-performed. Collective assessment •• Assessed the methodologies inherent within the collective assessment ECL models applied against the requirements of MFRS 9, including the basis used by the management to determine the key assumptions used in respective ECL models; •• Assessed and tested the significant modelling assumptions, including the basis or judgment used for management’s overlays; •• Assessed and considered reasonableness of forward-looking forecasts assumptions; and •• Tested the accuracy of data inputs used in ECL models and checked the calculation of ECL amount, on a sample basis. Based on the procedures performed on individual and collective assessment, we did not find any material exceptions to the Group’s assessment on impairment of financing, advances and others. Financial Statements 239 01 05 03 07 02 06 09 04 08 Bank Islam Malaysia Berhad
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