INDEPENDENT AUDITORS’ REPORT TO THE SHAREHOLDERS OF FINANCE HOUSE P.J.S.C
Key audit matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current period. These matters were addressed in the context of our audit of the consolidated financial statements, and in forming our opinion thereon, and we do not provide a consolidated opinion on these matters.
Impairment of loans, advances, and Islamic finance
The Group recognized allowances for credit losses in its consolidated financial statements using expected credit loss (‘ECL”) models. The Group exercises significant judgments and makes a number of assumptions in developing its ECL models which is determined as a function of the assessment of the probability of default (“PD”), loss given default (“LGD”), adjusted for the forward-looking information, and exposure at default (“EAD”) associated with the underlying exposures subject to ECL.
Qualitative adjustments or overlays may also be recorded by the Group using credit judgement where the inputs, assumptions and/or modelling techniques do not capture all relevant risk factors captured by the models.
This is considered a key audit matter, as the determination of ECL involves significant management judgement estimates, use of complex models and this has a material impact on the consolidated financial statements of the Group.
Impact of adopting IFRS 17 “Insurance Contracts” and its related disclosures
The Group adopted IFRS 17 Insurance Contracts with effect from 1 of January 2023, which resulted in changes to the measurement of insurance contracts using updated estimates and assumptions that reflect the timing of cash flows and any uncertainty relating to insurance contracts.
We determined the disclosure for impact of adopting IFRS 17 to be a key audit matter due to the significant changes introduced by the standard, which includes significant estimates and judgements. These impacts will be of particular importance to the readers of these financial statements (Refer to Note 3a and Note 4).
In particular, we have focused on the following key judgements that management have taken on implementing IFRS 17 Insurance Contracts:
– The determination of the transition approach adopted for each group of insurance contracts.
– The methodology adopted, and key assumptions used to determine the impact and restatement of previously reported numbers in accordance with IFRS 17.
– Disclosure of the impact of restatement, in accordance with IFRS 17.
