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 consolidated 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 separate opinion on these matters.

Impairment of loans, advances and Islamic finance

As described in note 19 and 20 to the consolidated financial statements, the Group had loans, advances and Islamic finance receivables of AED 2,076 million as at 31 December 2024 representing 66.33% of total assets.

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.

How our audit Addressed the Key Audit Matter

Our audit procedures in this area include the following:

• obtained an understanding of the credit risk management process and estimation process of determining impairment allowances for loans, advances and Islamic finance and tested the operating effectiveness of relevant controls within these operations.
• for a sample of exposures, performed a detailed credit review and challenged the appropriateness of the Group’s application of the staging criteria including adequacy of provisioning.
• tested the completeness and accuracy of the data used in the calculation of ECL.
• we involved our IFRS 9 experts to assess:

– the conceptual framework used for developing the Group’s impairment policy in the context of its compliance with the requirements of IFRS 9 – Financial Instruments.

– ECL modelling methodology and calculations used to compute the probability of default (PD), loss given default (LGD), and exposure at default (EAD) including reasonableness of the assumptions.

– the appropriateness of the macro-economic variables, multiple economic scenarios chosen and scenario weightings.

• tested the calculation methodology and traced a sample back to source data for a sample of wholesale and retail exposures.
• evaluated post model adjustments and management overlays in order to assess the reasonableness of these judgements.
• for the Stage 3 exposures and for a sample of wholesale exposures we also assessed whether relevant impairment events were identified in a timely manner and the appropriateness of the provisioning assumptions such as estimated future cash flows, collateral valuations and estimates of recovery.
• assessed the disclosure in the consolidated financial statements relating to ECL against the requirements of IFRS Accounting Standards.