CFSL - Annual report 2018

INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF CIM FINANCIAL SERVICES LTD Report on the Audit of the Financial Statements (Continued) Key Audit Matter How the matter was addressed in the audit Fair valuation of properties accounted under investment properties and property, plant and equipment The Group has properties fair valued at MUR 2,276.1m as at 30 September 2018 which are accounted under investment properties or property, plant and equipment depending on whether they are occupied by the group or not. Subsequent to initial recognition, these investments are carried at fair value representing open-market value determined regularly by external valuers. Given the relative size of the properties and the level of judgement involved in determining the fair value, we identified the valuation of properties as a key audit matter. We have obtained and read the valuation reports for the year ended 30 September 2018 prepared by the independent valuation specialists. We assessed the competency, independence and integrity of the independent valuation specialists engaged by the Group. We held discussions with the independent valuation specialists to understand their approach in determining the fair value of each property. We critically challenged the methodology, key assumptions and critical judgemental areas involved in the valuation. We tested the integrity of data used, including underlying lease and financial information provided to the independent valuation specialists. We reviewed previous periods’ information for consistency in respect of the treatment of investment properties and property, plant and equipment. We verified the correctness of accounting for transfers to/ from investment properties where a change of use has occurred. We have also assessed the appropriateness of the disclosures relating to the valuation techniques and key inputs applied by the independent valuation specialists. Acquisition of The Mauritian Eagle Leasing Company Limited (MELCO) The Group acquired MELCO during the year for a consideration of MUR 205.8m. The Group assessed and concluded that the acquisition constituted a business combination. The Group, with the assistance of an external specialist, determined the fair value of identifiable assets acquired and liabilities assumed on the acquisition date. A gain on business combination has been recognised. The determination of the fair value of the identifiable assets and liabilities involves the use of judgements and assumption. The most significant ones are discount rates, recoverability of receivables and the market value of non-financial assets. Due to the significance of the acquisition and the judgement and assumptions involved, this has been considered to be a key audit matter. We obtained and read the Share Purchase Agreement to understand the key terms and conditions of the transaction. We have assessed management’s evaluation of whether the acquisition is a business combination whereby the assets and liabilities acquired constitute a business. We verified the acquisition date was correctly determined in light of the Share Purchase Agreement. We assessed the competency, independence and integrity of the external specialists. We challenged management’s and the independent specialists’ methodology and key assumptions in the determination of the fair values. We evaluated whether the discount rates used are consistent with market data. We reviewed the calculation of the gain on business combination. We appraised the disclosures made in the financial statements with reference to the relevant standards. 52 CIM FINANCIAL SERVICES LTD ANNUAL REPORT 2018