We have audited the financial statements of DFCC Bank PLC (“the Bank”) and the consolidated financial statements of the Bank and its subsidiaries (“the Group”), which comprise the statement of financial position as at 31 December 2018, and income statement, statements of comprehensive income, changes in equity and cash flows for the year then ended, and notes to the financial statements, including a summary of significant accounting policies set out on pages 136 to 242 of this Annual Report.
In our opinion, the accompanying financial statements of the Bank and the Group give a true and fair view of the financial position of the Bank and the Group as at 31 December 2018, and of their financial performance and cash flows for the year then ended in accordance with Sri Lanka Accounting Standards.
We conducted our audit in accordance with Sri Lanka Auditing Standards (SLAuSs). Our responsibilities under those standards are further described in the Auditors’ Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the
Bank in accordance with the Code of Ethics issued by CA Sri Lanka (“Code of Ethics”) and we have fulfilled our other ethical responsibilities in accordance with the Code of Ethics. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the Bank financial statements and the consolidated financial statements of the current period. These matters were addressed in the context of our audit of the Bank’s financial statements and the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
Refer to the accounting policies in “Note 5.3.7 to the Financial Statements: Identification and measurement of impairment”, “Note 2.7 to the Financial Statements: Critical accounting estimates and judgements”, “explanatory
Note 30 and 16 to the Financial Statements: Loans and receivables from other customers and Impairment for loans
and other losses” and “Note 2.8.2 to the Financial Statements: SLFRS 9 – Financial Instruments”.
|Risk description||Our responses|
|As disclosed in Note 30 to these financial statements, the Bank has recorded loans to and receivables from other customers of LKR 261,299 Mn as at 31 December 2018 and there is high degree of complexity and judgement involved for the Bank in estimating individual and collective impairment of LKR 11,566 Mn as at that date.
Given the complexity of SLFRS 9 and its expected pervasive impact on the financial sector we focused on the Bank’s disclosure of the expected impact of measuring credit losses on loans and receivables and the significant judgement exercised by the Bank. The Bank’s models to calculate ECLs are inherently complex and judgement is applied in determining the correct construct of the models. There are also a number of key assumptions made by the Bank in applying the requirements of SLFRS 9 to the models including selection and input of forward-looking information.
As permitted by the transitional provision of SLFRS 9, the impact of adopting SLFRS 9 is considered as an adjustment to equity as at 1 January 2018 (Day One), without restating the comparative information. The Note 2.8.2 to these financial statement provides the impact on transition to SLFRS 9 – “Financial Instruments” on retained earnings as at 1 January 2018.
The Group has applied new accounting policies, including transition option election and practical expedients with the application of new significant judgements and estimates which are subject to estimation uncertainty and management bias.
The allowance for credit impairment has been identified as a key audit matter as the Bank has significant credit exposure to number of customers across a wide range of lending and other products and industries.
|Our audit procedures to assess impairment of loans and advances to customers included the following:
Assessing impairment for individually significant customers
|Our audit procedures for transition to the SLFRS 9 on 1 January 2018 included the following:
|Risk description||Our responses|
|The Bank’s key financial accounting and reporting processes are highly dependent on the automated controls over the Bank’s information systems. As such that there exist a risk that gaps in the IT control environment, including automated accounting procedures, IT dependent manual controls and controls preventing unauthorised access to systems and data could result in the financial accounting and reporting records being materially misstated. The IT systems and controls, as they impact the financial recording and reporting of transactions, is a key audit matter and our audit approach could significantly differ depending on the effective operation of the Bank’s IT controls||We used our internal IT specialists to perform audit procedures to assess IT systems and controls over ﬁnancial reporting, which included the following:
General IT controls design, observation and operation
Management is responsible for the other information. The other information comprises the information included in the Annual Report, but does not include the financial statements and our Auditor’s Report thereon.
Our opinion on the financial statements does not cover the other information and we will not express any form of assurance conclusion thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information identified above when it becomes available 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.
Management is responsible for the preparation of financial statements that give a true and fair view in accordance with Sri Lanka Accounting Standards, and for such internal control as Management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, Management is responsible for assessing the Group’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 Management either intends to liquidate the Group or to cease operations, or has no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the Bank’s and the Group’s financial reporting process.
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an Auditors’ 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 SLAuSs 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 financial statements.
As part of an audit in accordance with SLAuSs, we exercise professional judgement and maintain professional skepticism 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 ethical requirements in accordance with the Code of Ethics 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 financial statements of the current period and are therefore the key audit matters. We describe these matters in our Auditors’ Report unless law 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.
As required by Section 163 (2) of the Companies
Act No. 07 of 2007, we have obtained all the information and explanations that were required for the audit and, as far as appears from our examination, proper accounting records have been kept by the Bank.
CA Sri Lanka membership number of the engagement partner responsible for signing this Independent Auditors’ Report FCA 2294.
Colombo, Sri Lanka
18 February 2019