INDEPENDENT AUDITOR’S REPORT TO THE SHAREHOLDERS OF AFRASIA BANK LIMITED
Report on the audit of the consolidated and separate financial statements
We have audited the consolidated and separate financial statements of AfrAsia Bank Limited (the “Bank” and the “Public Interest Entity”) and its subsidiaries (the “Group”) set out on pages 6 to 122, which comprise the consolidated and separate statements of financial position as at 30 June 2020, and the consolidated and separate statements of profit or loss and other comprehensive income, consolidated and separate statements of changes in equity and consolidated and separate statements of cash flows for the year then ended, and notes to the financial statements, including a summary of significant accounting policies.
In our opinion, the accompanying consolidated and separate financial statements give a true and fair view of the financial position of the Group and the Bank as at 30 June 2020, and of their consolidated and separate financial performance and consolidated and separate cash flows for the year then ended in accordance with International Financial Reporting Standards (IFRSs), and comply with the requirements of the Mauritius Companies Act 2001, the Financial Reporting Act 2004 and the Banking Act 2004.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (ISAs). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Consolidated and Separate Financial Statements section of our report. We are independent of the Group and the Bank in accordance with the International Ethics Standards Boards for Accountants Code of Ethics for Professional Accountants (IESBA code) and we have fulfilled our other ethical responsibilities in accordance with IESBA Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Key Audit Matters
Key audit matters are those matters, in our professional judgement, were of most significance in our audit of the consolidated and separate financial statements of the current period. These matters were addressed in the context of our audit of the consolidated and separate financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. The key audit matters noted below relate to the consolidated and separate financial statements.
Provision for expected credit losses – Financial assets which are not credit impaired
IFRS 9 requires the Bank to recognise expected credit losses (‘ECL’) on financial instruments, which involves significant judgements and estimates. The key areas where we identified greater levels of management judgements and estimates and therefore increased levels of audit focus in the implementation of IFRS 9 are:
Our audit procedures included amongst others:
We found the assumptions used in determining the expected credit losses in the consolidated and separate financial statements and related disclosures to be appropriate.
Provision for expected credit losses – Credit impaired assets
Provision for expected credit losses on credit-impaired loans and advances to customers at 30 June 2020 amount to MUR 1,972 million and the charge to profit or loss for the year amount to MUR 1,024 million.
The use of assumptions for the measurement of provision for expected credit losses is subjective due to the level of judgement applied by Management. Changes in the assumptions and the methodology applied may have a major impact on the measurement of allowance for credit impairment.
The details of allowance for credit impairment on loans and advances are disclosed in Note 16(b) to the financial statements.
The most significant judgements are:
Due to the significance of the judgements applied in the identification of credit-impaired facilities and determination of the provision for expected credit losses, this item is considered as a key audit matter.
Our audit procedures included amongst others
We found the assumptions used in determining the allowance for credit impairment and disclosures in the consolidated and separate financial statements to be appropriate.
Valuation of financial instruments held at fair value
In the Bank’s separate financial statements, financial assets amounting to MUR 2,374 million are carried at fair value at 30 June 2020.
In determining the fair value of these financial instruments, the Bank uses a variety of methods and makes assumptions that are based on market conditions existing at reporting date. Many of the inputs required can be obtained from readily available liquid market prices and rates. Where observable inputs are used, in particular for level 2 instruments, pricing inputs were developed based on the quoted data in secondary market.
The disclosures relating to financial instruments held at fair value have been provided in Notes 15 and 17 to the financial statements.
The valuation of the Bank’s financial instruments held at fair value is a key area of the audit focus due to the complexity involved in the valuation process.
Our audit procedures included among others:
We found the assumptions used and disclosures in the separate financial statements to be appropriate.
Deferred tax assets
As disclosed in Note 11(d), the Group and the Bank have recognized deferred tax assets at 30 June 2020 for deductible temporary differences that they have assessed to be recoverable.
The recoverability of recognized deferred tax assets is in part dependent on the ability of the Group and the Bank to generate sufficient future taxable profits to realise these deductible temporary differences as well as to obtain the tax benefits on thereon.
We have determined this to be a key audit matter due to the inherent uncertainty in forecasting the amount and timing of future taxable profits and the reversal of temporary differences.
Our procedures in relation to management’s assessment about the recoverability of deferred tax assets included:
We found the assumptions used and disclosure in the consolidated and separate financial statements to be appropriate.
Report on other legal and regulatory requirements
The Mauritius Companies Act 2001
In accordance with the requirements of the Mauritius Companies Act 2001, we report as follows:
The Banking Act 2004
The directors are responsible for the other information. The other information comprises the Interim Chairperson’s Review, Chief Executive Officer’s Message, Corporate Governance Report, Management Discussion and Analysis, Risk Management Report, Statement of Management’s Responsibility for Financial Reporting and Certificate from the Company Secretary. We obtained these prior to the date of this auditor’s report. The other information does not include the consolidated and separate financial statements and our auditor’s report thereon.
Our opinion on the consolidated and separate financial statements do not cover the other information and we do not express any form of assurance conclusion thereon.
In connection with our audit of the consolidated and separate financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.
Corporate governance report
Our responsibility under Financial Reporting Act 2004 is to report on the compliance with the Code of Corporate Governance disclosed in the annual report and assess the explanations given for non-compliance with any requirement of the Code. From our assessment of the disclosures made on corporate governance in the annual report, the Public Interest Entity has, pursuant to section 75 of the Financial Reporting Act 2004, complied with the requirements of the Code.
Responsibilities of directors for the consolidated and separate financial statements
The directors are responsible for the preparation and fair presentation of the consolidated and separate financial statements in accordance with International Financial Reporting Standards, and in compliance with the requirements of the Mauritius Companies Act 2001, the Banking Act 2004, and the Financial Reporting Act 2004 and they are also responsible for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the consolidated and separate financial statements, the directors are responsible for assessing the Group’s and Bank’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group and/or the Bank or to cease operations, or have no realistic alternative but to do so.
The directors are responsible for overseeing the Group’s and the Bank’s financial reporting process.
Our objectives are to obtain reasonable assurance about whether the consolidated and separate financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated and separate financial statements.
Auditor’s responsibilities for the audit of the consolidated and separate financial statements
As part of an audit in accordance with ISAs, we exercise professional judgement and maintain professional scepticism throughout the audit. We also:
We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.
We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.
From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the consolidated and separate financial statements of the current year and are therefore the key audit matters. We describe those matters in our auditor’s report unless laws or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.
This report is made solely to the Bank’s shareholders, as a body, in accordance with section 205 of the Mauritius Companies Act 2001. Our audit work has been undertaken so that we might state to the Bank’s shareholders those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Bank and the Bank’s shareholders as a body, for our audit work, for this report, or for the opinions we have formed.
Jacques de C du Mée, ACA
Licensed by FRC