KENANGA ANNUAL REPORT 2019

113 Key audit matters (cont’d.) Risk area and rationale Our response Expected credit losses of loans, advances and financing and investments not carried at fair value through profit or loss (cont’d.) Refer to summary of significant accounting policies in Note 3.4(k)(ii), significant accounting judgements, estimates and assumptions in Note 4(iii), loans, advances and financing in Note 9, financial investments other than those carried at fair value through profit or loss in Note 7, and disclosures of credit risk exposures in Note 50(a) to the financial statements. For the measurement of ECL, we assessed and tested reasonableness of the Group’s and the Bank’s ECL models, including model input, model design and model performance for significant portfolios. We challenged whether historical experience is representative of current circumstances and of the recent losses incurred in the portfolios and assessed the reasonableness of forward looking adjustments, macroeconomic factor analysis and probability-weighted multiple scenarios. We evaluated if changes in modeling approaches, parameters and assumptions are needed and if any changes made were appropriate. We also assessed, tested and monitored the sensitivity of the credit loss provisions to changes in modelling assumptions. With respect to individually assessed ECL which are mainly in relation to the impaired assets in Stage 3, we reviewed and tested a sample of loans, advances and financing and investments to evaluate the timely identification by the Group and the Bank of exposures with significant deterioration in credit quality or which have been impaired. Where impairment has been identified, we challenged and assessed the Group’s and the Bank’s assumptions on the expected future cash flows, including the value of realisable collaterals based on available market information and the multiple scenarios considered. We also assessed whether the financial statement disclosures are adequate and appropriately reflect the Group’s and the Bank’s exposures to credit risk. INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF KENANGA INVESTMENT BANK BERHAD (INCORPORATED IN MALAYSIA)