KENANGA ANNUAL REPORT 2020

120 5 1 2 3 4 6 7 FINANCIAL STATEMENTS 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.) Valuation of investments in unquoted equity instruments As at 31 December 2020, the carrying values of the Group’s investments in unquoted securities classified as fair value through profit or loss and fair value through other comprehensive income amounted to RM48.5mil and RM1.9mil respectively. The valuation of unquoted investments is significant to our audit, and the valuation methods involved a range of judgement and estimates which are based on current and future market and economic conditions. As the fair values of unquoted financial investments cannot be obtained directly from active markets, they are are determined using the market and income approach, as well as the adjusted net asset method. Each approach has its own inputs and valuation technique in determining the fair value. The Group uses a variety of valuation techniques appropriate in the circumstances that include the use of financial models. The inputs to these models are taken from relevant observable inputs where possible, and minimised the use of unobservable inputs. Such inputs include using prices and other relevant information of comparable peer companies, prices of recent transactions involving similar instruments and adjusted net assets amount. Judgements include considerations such as selection of comparable peer companies, growth rates and discount rates. Refer to summary of accounting policies in Note 3.4(j), significant accounting judgements, estimates and assumptions in Note 4(ii) and the disclosures of fair value of financial instruments in Note 51 to the financial statements. Our audit procedures include reviewing and evaluating management’s rationale for selecting and using the valuation models to assess if the use of such models was appropriate. We assessed the accuracy and appropriateness of market observable inputs. Our audit procedures also included, among others, understanding management’s controls related to the development and calibration of any model used, challenged and assessed the assumptions used, taking into account historical evidence supporting underlying assumptions and comparing internal information against external economic and market data amid the COVID-19 environment. We also reviewed the adequacy of the Group’s disclosures within the financial statements about those key assumptions to which the fair value is most sensitive. INDEPENDENT AUDI TORS ’ REPORT to the Members of Kenanga Investment Bank Berhad (incorporated in Malaysia)