Affin Bank Berhad | Annual Report 2020

423 AFFIN BANK BERHAD 197501003274 (25046-T) | ANNUAL REPORT 2020 INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF AFFIN BANK BERHAD (Incorporated in Malaysia) Company No: 197501003274 (25046-T) REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS (CONTINUED) Key audit matters (continued) Key audit matters (continued) Impairment assessment of goodwill – RM826,944,000 (Refer to Summary of Significant Accounting Policies Note D, Note AF and Note 22 to the financial statement) Goodwill amounting to RM826,944,000 arose from previous acquisitions and is allocated to Commercial Banking, Investment Banking, Stock-broking, Asset Management and Money-broking cash generating units (‘CGUs’). The Bank determines the recoverable amount of the CGUs based on the value-in-use calculations. Given the materiality of the goodwill and sensitivity of the recoverable amount of Investment Banking and Stock-broking CGUs, impairment of goodwill could have significant impact on the financial statements. We also focused on this area due to the significant judgements made by the Directors over underlying assumptions in the impairment tests. How our audit addressed the key audit matters (continued) We satisfied ourselves with the procedures performed below on the management’s assumptions used in the impairment model. We have compared cash flow projections to the budgets, which were approved by the respective subsidiaries’ Board of Directors, taking into account the impact of Covid-19. We also held discussions with management to understand the basis for the assumptions used and compared the budgets against the actual results from prior years to assess the reliability of budgeting. We tested the assumptions used by management, in relation to the discount rates, compounded annual and terminal growth rates for all CGUs. The discount rates used were based on the pre-tax weighted average cost of capital plus an appropriate risk premium, at the date of assessment of all the CGUs. We have assessed the reasonableness of the discount rates by independently re-calculating the pre-tax weighted average cost of capital based on data of comparable entities obtained from independent sources for each CGU. The terminal growth rates were based on the forecasted Gross Domestic Product (‘GDP’) growth rate of Malaysia. We have compared the terminal growth rates used by management with the forecasted GDP growth rates independently obtained and assessed the reasonableness of the adjustments made to reflect the specific risk of the CGUs. We have assessed the sensitivity of the impairment assessment for each of the CGUs by varying the following: • underlying assumptions applied on the budgeted cash flows in relation to compounded annual growth rates; and • additional sensitivity performed on the discount rates to reflect the Covid-19 uncertainties