137 OUR SUSTAINABILITY APPROACH HOW WE ARE GOVERNED FINANCIAL STATEMENTS SHAREHOLDERS’ INFORMATION ADDITIONAL INFORMATION Key audit matters (cont’d.) Risk area and rationale Our response Expected credit losses of loans, advances and financing and investments not carried at fair value through profit or loss As at 31 December 2023, loans, advances and financing represent RM1,700.96 million or 25.84% and RM1,726.65 million or 28.43% of the total assets of the Group and of the Bank, respectively, and the instruments carried at amortised cost and fair value through other comprehensive income represent RM1,348.08 million or 20.48% and RM1,348.08 million or 22.20% of the total assets of the Group and of the Bank, respectively. The Group and the Bank are required to account for impairment losses on loans, advances and financing, and investments carried at amortised cost and fair value through other comprehensive income using the expected credit loss (“ECL”) approach. The measurement of ECL requires the application of significant judgement and increased complexity which include the identification of on-balance sheet and off-balance sheet credit exposures with significant deterioration in credit quality, assumptions used in the ECL models (for exposures assessed individually or collectively) such as the expected future cash flows, forward looking macroeconomic factors and probabilityweighted scenarios. Our audit procedures included the assessment of key controls over the origination, segmentation, internal credit quality assessments, recording and monitoring of the loans, advances and financing and the investments. We assessed the processes and effectiveness of key controls over the transfer criteria (for the three stages of credit exposures based on credit quality), impairment measurement methodologies, governance for development, maintenance and validation of ECL models, inputs, basis and assumptions used by the Group and the Bank in staging the credit exposures and calculating the ECL. For staging and identification of credit exposures with significant deterioration in credit quality, we assessed and tested the reasonableness of the transfer criteria applied by the Group and the Bank for different types of credit exposures. We evaluated if the transfer criteria are consistent with the Group’s and the Bank’s credit risk management practices. For the measurement of ECL, we assessed and tested reasonableness of the Group’s and of the Bank’s ECL models, including model input, model design and model performance and management overlays. We challenged whether historical experience is representative of current circumstances and of the recent losses incurred and assessed the reasonableness of forward looking adjustments, macroeconomic factor analysis and probability-weighted scenarios. INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF KENANGA INVESTMENT BANK BERHAD (INCORPORATED IN MALAYSIA)
RkJQdWJsaXNoZXIy NDgzMzc=