TO THE SHAREHOLDERS OF DFCC BANK PLC
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 2019, and income statement, statements of profit or loss and other 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 as set out in the chapter on Financial Reports 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 2019, 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 Note 4 (Use of Judgements and Estimates), Note 17 (Impairment for Loans and Other Losses), Note 31 (Loans to and receivables from banks) and Note 32 (Loans to and receivables from other customers), to these Financial Statements.
|Risk Description||Our Responses|
As disclosed in Notes 31 and 32 to these financial statements, the Bank has recorded loans to and receivables from banks and loans to and receivables from other customers of LKR 8,485 Mn and LKR 285,225 Mn respectively as at 31 December 2019. High degree of complexity and judgement involved in estimating individual and collective impairment of LKR 82 Mn and LKR 12,406 Mn respectively as at that date. Given the complexity of SLFRS 9 and its pervasive impact on the financial sector we focused on the Bank’s disclosure of the impact of measuring expected credit losses (ECL) on loans and receivables and the significant judgement exercised by the Bank. The models used by the Bank. 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 these models including selection and input of forward looking information 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
Assessing the adequacy of collectively assessed provisions
|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
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
User access controls 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 2020