LOLC FINANCE PLC

FINANCIAL STATEMENT

31 MARCH 2022

HMAJ/WDPL/TP

INDEPENDENT AUDITORS' REPORT

TO THE SHAREHOLDERS OF LOLC FINANCE PLC

Report on the audit of the financial statements

Opinion

We have audited the financial statements of LOLC Finance PLC ("the Company"), which comprise the statement of financial position as at 31 March 2022, and the statement of profit or loss and comprehensive income, statement of changes in equity and statement of cash flows for the year then ended, and notes to the financial statements, including a summary of significant accounting policies.

In our opinion, the accompanying financial statements give a true and fair view of the financial position of the Company as at 31 March 2022, and of its financial performance and its cash flows for the year then ended in accordance with Sri Lanka Accounting Standards.

Basis for opinion

We conducted our audit in accordance with Sri Lanka Auditing Standards (SLAuSs). Our responsibilities under those standards are further described in the Auditor's responsibilities for the audit of the financial statements section of our report. We are independent of the Company 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

Key audit matters are those matters that, in our professional judgment, were of most significance in the audit of the financial statements of the current period. These matters were addressed in the context of the audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. For each matter below, our description of how our audit addressed the matter is provided in that context.

We have fulfilled the responsibilities described in the Auditor's responsibilities for the audit of the financial statements section of our report, including in relation to these matters. Accordingly, our audit included the performance of procedures designed to respond to our assessment of the risks of material misstatement of the financial statements. The results of our audit procedures, including the procedures performed to address the matters below, provide the basis for our audit opinion on the accompanying financial statements.

(Contd…2/)

Key audit matter

How our audit addressed the key audit matter

Impairment allowances for financial Our audit procedures included amongst others the following: assets carried at amortised cost

We assessed the level of oversight, review and approval

Impairment

allowances

for

financial

of impairment allowances policies and procedures by

assets carried at amortised cost as

the Board and management

stated in Note 4, 6, 7 & 26 respectively

We evaluated the design, implementation and operating

is in accordance with the accounting

effectiveness of internal controls over estimation of the

policies described in Note 1.4 & 2.3.

impairment allowances, including testing of related

Impairment

allowances

for

financial

system controls

assets carried at amortised cost is a key

We checked the completeness, accuracy and

audit matter due to:

classification of the underlying data used in the

- materiality

of

the

reported

computation of impairment allowances by agreeing

details to relevant source documents and accounting

allowance

which

involved

records of the Company

complex calculations; and

  • significant judgements used in For financial assets assessed on a collective basis for assumptions and estimates impairment:

made by the management as

We tested key calculations used in the impairment

reflected in note 1.4, which in

the current year was influenced

allowances.

by the

need

to assess

the

We assessed whether significant judgements used in

change

in

current economic

assumptions and estimate made by the management in

conditions

on

forward looking

the underlying methodology and management overlays

information and the continuing

were reasonable. We also evaluated the reasonableness

impact

of

COVID-19

debt

of forward-looking information used, economic

moratorium relief measures.

scenarios considered, and probability weighting

assigned to each of those scenarios. Our procedures

were based on the best available information up to the

date of our report

For Loans and Leases assessed on an individual basis for

impairment:

We assessed the reasonableness and timeliness of

Management's internal assessments of credit quality

based on the borrower's particular circumstances

We checked the accuracy of the underlying individual

impairment calculations

We evaluated the reasonableness of key inputs used in

the provision for credit impairment made with the

particular focus on current economic conditions. Such

evaluations were carried out considering value and

timing of cash flow forecasts particularly relating to

elevated risk industries, status of recovery action and

collateral values

We assessed the adequacy of the related financial statement disclosures set out in notes 2.3, 4, 6, 7 & 26.

(Contd…3/)

-2-

Key audit matter

How our audit addressed the key audit matter

Financial reporting related IT based Internal

Our audit procedures included the following:

controls

A significant part of the Company's financial

We obtained an understanding of the Internal

control environment of the processes relating

reporting process is primarily reliant on

to financial reporting and related disclosures.

multiple IT systems with automated

We identified and test checked relevant

processes and internal controls. Further, key

financial statement disclosures are prepared

controls of key IT systems related to the

using data and reports generated by IT

Company's financial reporting process.

systems, that are compiled and formulated

We evaluated the design and operating

with the use of spreadsheets.

effectiveness of IT controls, including those

Accordingly, financial reporting related IT

related to user access and change

based Internal controls is considered a key

management.

audit matter.

We checked key source data of the reports

used to generate key disclosures for accuracy

and completeness, including review of

general ledger reconciliations

Valuation of Investment Properties

Our audit procedures included the following;

Investment properties are carried at fair

We assessed the competency, capability and

value in accordance with its accounting

objectivity of the external valuer engaged by

policies and note disclosed in notes 2.5 and

the Group.

12 respectively. This was a key audit matter

due to the:

We read the external valuer's report and

- materiality

of

the

reported

understood the key estimates made and the

approach taken by the valuer in determining

Investment

Properties

which

the valuation of each property.

amounted to LKR 38 Bn as of

reporting date; and

We assessed the reasonableness of the

- degree of assumptions, judgements

significant judgements made by the valuer and

and

estimation

uncertainties

valuation techniques used, per perch price and

associated with the fair valuation of

value per square foot used by the valuer in the

investment

properties such

as

valuation of each property.

reliance

on

comparable

market

transactions

and

consideration

of

We have also assessed the adequacy of the

current market conditions.

disclosures made in notes 2.5 and 12 in the

financial statements.

Key areas of significant judgments, estimates and assumptions used in the valuation of the investment properties as disclosed in note 12 included the following:

  • Estimate of per perch value of the investment properties
  • Estimate of the per square foot value of the buildings

(Contd…4/)

-3-

Key audit matter

How our audit addressed the key audit matter

Accounting for Merger of the Company with

Our audit procedures included (among others) the

Commercial Leasing and Finance PLC

following procedures:

The Company merged with Commercial

We read the relevant board resolutions and

Leasing and Finance PLC on 31 March 2022.

approvals from regulators and shareholders.

The Company recognised LKR 169Bn as the

merger reserve to the financial statements

We obtained the audited financial statements

as disclosed in note 21.5 & 37. The merger

of Commercial Leasing and Finance PLC. We

was accounted for based on the Statement of

checked the mathematical accuracy of the

Recommended

Practice

for

Merger

calculations and the adjustments related to

Accounting

for

Common

Control

merger accounting.

Combinations issued by CA Sri Lanka.

We assessed the adequacy of the disclosures

We considered the accounting for the merger

included in the notes 21.5 & 37 to the financial

to be a key audit matter as it represents a

statements.

significant transaction entered into by the

Company during the year.

Other information included in the Company's 2022 Annual Report

Other information consists of the information included in the Company's 2022 Annual Report, other than the financial statements and our auditor's report thereon. Management is responsible for the other information. The Company's 2022 annual report is expected to be made available to us after the date of this auditor's report.

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.

Responsibilities of management and those charged with governance for the financial statements

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 Company'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 Company or to cease operations, or has no realistic alternative but to do so.

Those charged with governance are responsible for overseeing the Company's financial reporting process.

(Contd…5/)

-4-

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LOLC Finance plc published this content on 30 June 2022 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 30 June 2022 10:01:06 UTC.