KENANGA INVESTMENT BANK BERHAD INTEGRATED ANNUAL REPORT 2024 WE ARE KENANGA OUR SUSTAINABILITY APPROACH LEADERSHIP STATEMENT HOW WE ARE GOVERNED OUR VALUE CREATION APPROACH FINANCIAL STATEMENTS SHAREHOLDERS’ INFORMATION ADDITIONAL INFORMATION 153 152 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 (cont’d.) Refer to the material accounting policy information in Note 3.4(k) (ii), significant accounting estimates and judgements in Note 4(iii) and the disclosures of loans, advances and financing in Note 9, investments other than those carried at fair value through profit or loss in Note 7 and disclosure of credit risk exposures in Note 51(a) to the financial statements. We evaluated if changes in modeling approaches, parameters and assumptions are needed and if any changes made were appropriate. We also assessed, tested and monitored the sensitivity of the credit loss provisions to changes in modelling assumptions. With respect to individually assessed ECL which are mainly in relation to the impaired assets in Stage 3, we reviewed and tested a sample of loans, advances and financing and investments to evaluate the timely identification by the Group and the Bank of exposures with significant deterioration in credit quality or which have been impaired. For cases where impairment has been identified, we assessed the Group’s and the Bank’s assumptions on the expected future cash flows, including the value of realisable collaterals based on available market information and the scenarios considered. We have challenged the assumptions and compared estimates to external evidence where available. We also assessed whether the financial statement disclosures are adequate and appropriately reflect the Group’s and the Bank’s exposures to credit risk. Impairment of goodwill As at 31 December 2024, the goodwill recognised in the financial statements of the Group and of the Bank are RM241.03 million or 3.15% and RM252.91 million or 3.76% of the total assets of the Group and of the Bank, respectively. Goodwill impairment testing of cash generating units (“CGUs”) relies on estimates of value-in-use (“VIU”) based on estimated future cash flows. The Group and the Bank are required to annually test the amount of goodwill for impairment. These involve management judgement and are based on assumptions that are affected by expected future market and economic conditions. Refer to material accounting policy information in Note 3.4(e) (i), significant accounting estimates and judgements in Note 4(i) and the disclosure of intangible assets in Note 17 to the financial statements. Our audit procedures included, among others, evaluating the assumptions and methodologies used by the Group and the Bank in performing the impairment assessment. We tested the basis of preparing the cash flow forecasts taking into account the back testing results on the accuracy of previous forecasts and the historical evidence supporting underlying assumptions. We assessed the appropriateness of the other key assumptions, such as the growth rates used to extrapolate the cash flows and the discount rates applied, by comparing against internal information, external economic and market data. We assessed the sensitivity analysis performed by management on the key inputs to the impairment models, to understand the impact that reasonable alternative assumptions would have on the overall carrying amounts. We also reviewed the adequacy of the Group’s and of the Bank’s disclosures within the financial statements about those key assumptions to which the VIU is most sensitive. INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF KENANGA INVESTMENT BANK BERHAD (INCORPORATED IN MALAYSIA) INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF KENANGA INVESTMENT BANK BERHAD (INCORPORATED IN MALAYSIA) Key audit matters (cont’d.) Risk area and rationale Our response Valuation of investments in unquoted equity instruments As at 31 December 2024, the carrying values of the Group’s and of the Bank’s investments in unquoted securities classified as fair value through profit or loss and fair value through other comprehensive income amounted to RM255.02 million and RM1.42 million, and RM257.22 million and RM1.42 million, respectively. The valuation of unquoted investments involved a range of judgement and estimates which are based on current and future market and economic conditions. As the fair values of unquoted financial investments cannot be obtained directly from active markets, they are determined using the market and income approach, as well as the adjusted net asset method. Each approach has its own inputs and valuation technique in determining the fair value. The Group and the Bank use a variety of valuation techniques appropriate in the circumstances that include the use of financial models. The inputs to these models are taken from relevant observable inputs where possible to minimise the use of unobservable inputs. Such inputs include using prices and other relevant information of comparable peer companies, prices of recent transactions involving similar instruments and adjusted net assets amount. Judgements include considerations such as selection of comparable peer companies, growth rates and discount rates. Refer to material accounting policy information in Note 3.4(j), significant accounting estimates and judgements in Note 4(ii) and the disclosures of fair value of financial instruments in Note 52 to the financial statements. Our audit procedures include reviewing and evaluating management’s rationale for selecting and using the valuation models to assess if the use of such models was appropriate. We assessed the accuracy and appropriateness of market observable inputs. Our audit procedures also included, among others, understanding management’s controls related to the development and calibration of any model used, challenged and assessed the assumptions used, taking into account historical evidence supporting underlying assumptions and comparing internal information against external economic and market data. As the fair values are sensitive towards changes to some of the key inputs, we also assessed the impact that reasonable alternative assumptions would have on the overall carrying amounts. We also reviewed the adequacy of the Group’s and of the Bank’s disclosures within the financial statements about those key assumptions to which the fair value is most sensitive.
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