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.

Measurement of Expected Credit Losses (“ECL”) on loans and advances and Islamic financing and investing assets

Refer to note 6 of the consolidated financial statements.

As at 31 December 2019, the Group has significant balance of loans and advances and Islamic financing and investing assets representing 65% of total assets.

The Group recognized allowances for credit losses on its consolidated statement of financial position.

The Group exercises significant judgements and makes a number of assumptions in developing its ECL models, which includes probability of default computation separately for retail and corporate portfolios, determining Loss Given Default (“LGD”) and Exposure at Default (“EAD”) for both funded and unfunded exposures, forward looking adjustments and staging criteria. 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.

Given the inherently judgemental nature of computation of ECL for loans and advances and Islamic financing and investing assets, this is considered a key audit matter.