BIMB Integrated Annual Report 2017

The key audit matter identified are: How the matter was addressed in our audit Valuation of financial instruments held at fair value The valuation of financial instruments held at fair value may be misstated due to the complexity involved in valuing the instruments and the application of valuation techniques which often involve the exercise of judgement and the use of assumptions and estimates. Refer to the significant accounting policy in Note 2.5, the disclosure of financial assets held-for-trading (Note 5), financial assets available-for-sale (Note 7) and the disclosure of fair value hierarchy in Note 47. Our audit procedures in addressing this key audit matter included: • tested the Group’s controls over the valuation and methodology validation process. Our testing of the design and operation of the controls provided a basis for us to continue with the planned nature, timing and extent of our audit procedures. • tested a selection of pricing inputs used, that they were externally sourced and were correctly input into the pricing methodology. • independently valued a selection of the Group’s financial instruments held at fair value and compared these tomanagement’s valuation. • ascertained the appropriateness of carrying value of impaired or defaulted financial instruments and determine if management’s impairment assessment is appropriate. Valuation of takaful contract liabilities The takaful contract liabilities comprise of provision for outstandingclaims, provision for unearnedcontributions and participants’ funds for both the family and general businesses. The main risks associated with the takaful contract liabilities are in respect of actuarial liabilities for the family takaful business and the provision for outstanding claims for both family and general takaful businesses as described below. Actuarial Liabilities – Family takaful contract liabilities The actuarial liabilities comprise 82% of participants’ funds within the family takaful contract liabilities. This is an area requiring significant judgment over the estimation of future expected benefits payable to participants of long-term certificates. Economic and operating assumptions such as discount, mortality, and morbidity and surrender rates are the key inputs used in the estimation of these actuarial liabilities. In addressing this key audit matter, we used our own actuarial specialists to assist us in performing procedures in this area, which included: • assessed the appropriateness of the Group’s methodology for calculating the actuarial liabilities and outstanding claims against the requirements of both the Risk-Based Capital Framework for Takaful Operators (RBC-T Framework) and the Guidelines on Valuation Basis for Liabilities of Family and General Takaful Businesses (Valuation Guidelines) as issued by Bank Negara Malaysia (BNM). • assessed and challenged the appropriateness of discount, mortality, morbidity and surrender rate assumptions used in the calculation of actuarial liabilities by reference to the Group and industry historical data and the requirements of RBC-T Framework and Valuation Guidelines as issued by BNM. • assessed and challenged the appropriateness of past claims trends assumptions used in the projection of unreported claims as at the balance sheet date by reference to the Group and industry historical data. • tested the underlying data used in the Group estimation process to source documentation. INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF BIMB HOLDINGS BERHAD (Company No. 423858-X) (Incorporated in Malaysia) 301 Overview Value Creation Accountability Financial Statements Sustainability Performance Data Shareholders Information 21 st AGM Information Management Discussion & Analysis e