89 I N T E G R A T E D R E P O R T 2 0 2 1 Report on the audit of the Consolidated and Separate Financial Statements (Cont’d) Independent Auditor’s Report TO THE SHAREHOLDERS OF CIM FINANCIAL SERVICES LTD A U D I T O R ’ S R E P O R T 1. Impairment of net investment in leases and other credit agreements and loans and advances (Cont’d) Audit Response • We used our IT Specialist to assess the completeness, accuracy and validity of data and inputs used during the development and application of the ECL models, • We carried out test of controls around the impairment process, governance, approval and implementation of the models. • We obtained and tested loan arrears reports and ensured all those arrears exceeding 90 days past due were included in the impaired portfolio category for specific impairment assessment. • We engaged with our credit specialist and : - we independently assessed the IFRS 9 estimates (i.e., PD, LGD and CCF). - we reperformed the ECL calculation based on the results extracted from the ECL schedules provided by management. The results were then compared with the results obtained from the challenger model used by the credit specialist to independently reperform the ECL calculation. - we assessed the reasonableness of overlays applied by management to factor in the impact of the COVID-19 pandemic. - for the factoring portfolio we rated a sample of exposures using financial information provided by management to assess the appropriateness of the PD benchmarks. - we compared the PD Term structures used by management to Moody’s PD Term structures to determine if any forward-looking adjustment to the challenger model is required and to ensure they are aligned. • Where exposures are collateralised, we evaluated the Group’s and the Company’s legal rights to the collateral, as well as the appropriateness of the valuations of the collateral in relation to ECL determination, and the linking of collateral to the corresponding accounts. We reviewed the reconciliation and allocation of the General Ledger balances to which the impairment parameters are applied. • We ensured disclosures are in accordance with the requirements of IFRS 9 Financial Instruments. 2. Amalgamation of Cim Financial Services Ltd (CFSL) with five of its wholly-owned subsidiaries Key Audit Matter Effective October 01 2020, Mauritian Eagle Leasing Company Ltd, Cim Agencies Ltd, Cim Management Services Ltd, Cim Shared Services Ltd and Cim Finance Ltd have been amalgamated with and into a single entity, CIM Financial Services Limited, (CFSL). The amalgamation meets the definition of a business combination under common control, hence scoped out IFRS 3 Business Combinations. In line with IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors, management has used its judgement in developing an accounting policy choice which reflect the substance of the transaction. Management has therefore applied the pooling of interests method to the amalgamation as it is more of a business re-organisation. The following steps were applied: - The assets and liabilities of the amalgamating entities are reflected at their carrying amounts with no adjustments made to reflect fair values. - No new assets or liabilities were recognised, at the date of the amalgamation that would otherwise be done under the acquisition method in compliance with IFRS 3. - No goodwill or gain on bargain purchase were recognised as a result of the amalgamation. Given the inherent risk associated, the significant accounting judgement used by management to develop an accounting policy and significance of the balances transferred following the transaction, we deemed the amalgamation to be a key audit matter. Related Disclosures Refer to note 2.4 (accounting policies) and 3 (Significant accounting estimates and judgements) of the accompanying financial statements. Audit Response • We engaged with our IT specialist to perform a Data Migration Review with the objective of ensuring the completeness, accuracy and integrity of the General Ledger balances migrated from the previous Navision systems of the respective entities to the new Navision system of CFSL. We ensured the following: • Appropriateness of the accounting policy, significant accounting judgements developed by management for the amalgamation is reasonable and reflect the substance of the transaction; • The entities being amalgamated were under common control and hence does not fall under the scope of IFRS 3. • All relevant information and IFRS requirements relating to the transaction are fairly presented and disclosed in the financial statements. Other information The Directors are responsible for the other information which comprises the information included in the Integrated Report but does not include the consolidated and separate financial statements and our Auditor’s Report thereon. We have obtained prior to the date of this auditor’s report the statement of compliance, the corporate governance report, the other statutory disclosures, and the statement of directors’ responsibilities in respect of the presentation of the consolidated and separate financial statements and the
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