AFRICAN DAWN ANNUAL REPORT 2019 Independent Auditor’s Report To the shareholders of African Dawn Capital Limited continued Matter Audit Response Impairment allowance on Trade Receivables (Note 1.15 and Note 9) 30 At 28 February 2019, trade receivables amounted to R26,45 million against which an impairment allowance of R11,67 million was recorded. This is disclosed in Note 9 to the consolidated and separate financial statements. The Group adopted the accounting standard IFRS 9: Financial Instruments during the current financial year. The standard introduces new requirements around two main aspects of how financial instruments are treated, namely measurement and classification as well as impairment. IFRS 9 introduces new impairment rules which prescribe a new, forward looking, expected credit loss (“ECL”) impairment model which takes into account reasonable and supportable forward-looking information, which will generally result in the earlier recognition of impairment allowances. The impairment allowance was a matter of most significance to the audit and therefore identified as a key audit matter, given the material value of trade receivables as a whole to the consolidated and separate financial statements, the subjective nature / judgements of the impairment allowance calculation and the effect of the impairment allowance on the risk management processes and operations of the Group. There are a number of significant management-determined judgements made on the ECL impairment allowance calculations including: • determining the criteria for a significant increase in credit risk; • techniques used to determine the probability of default (“PDs”) and loss given default (“LGD”) and • forward looking assumptions. These judgements required new models to be built and implemented to measure the expected credit losses on certain financial assets measured at amortised cost. There is a large increase in the data inputs of these models which increases the risk that data used to develop assumptions and operate the model is not appropriate or accurate. Differences between the previously reported carrying amounts and the new carrying amounts of financial instruments as at 28 February 2018 has been recognised in the opening retained earnings as at 1 March 2018. An independent expert was appointed by management to assist with the calculation of the IFRS 9 expected credit losses on the impairment allowance on trade receivables. Our audit approach included obtaining an understanding of the Group’s policy in relation to the expected credit loss impairment allowance of trade receivables, and testing the application of this policy. We performed the following audit procedures: • Evaluated the appropriateness of the application of either a specific expected credit loss model or a simplified approach to the relevant financial assets by understanding the nature of the financial assets and comparing the application to the requirements of the standard; • Tested the IT general control environment and application controls over the ageing of the trade receivables that will determine the staging as per IFRS 9. • Obtained an understanding of the Group’s approach for estimating ECL and whether this is in compliance with IFRS 9; • We assessed the appropriateness of relying on the work of the management expert in terms of ISA620 by: o evaluating the competence, capability and objectivity of the management expert and o Having discussions with the management expert to assess the scope of the review performed by the management expert • We tested the work of the management expert in accordance with ISA620 through verifying the data inputs used by the management expert in the ECL impairment model back to the underlying data We furthermore considered the adequacy of the Group’s disclosure of trade receivables and the related impairment allowance.
AFDAWN AR FINAL 2019
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