PASHA BANK ENG 20

Key Audit Matter How the matter is addressed in our audit Financial impact of TFRS 9 “Financial Instruments” standard and recognition of impairment on financial assets and related important disclosures We considered expected credit loss calculations of financial assets outlined in TFRS 9 as a key audit matter due to the transition to TFRS 9 as a key audit matter due to: - Balance sheet and off balance sheet items that are subject to expected credit loss calculation is material for the financial statements - Complex accounting requirements of TFRS 9 - The model that is established by the Bank management to calculate the expected credit losses has the compliance risk whether it is established based on the requirements of TFRS 9 and other practices - TFRS 9, have complex and intensive control environment - The new, significant and complex judgments and estimations needed for the calculation of expected credit losses and - The complex disclosure requirements of TFRS. Our audit procedures include among others include: - Evaluating the appropriateness of management’s selection of accounting policies based on the requirements of TFRS 9, our business understanding and industry practice. - Identifying and testing relevant controls by involving Process audit specialists. - Evaluating the reasonableness of management’s key judgements and estimates made in expected credit loss calculations, including selection of methods, models, assumptions and data sources and evaluating the appropriateness of management’s selection of accounting policies based on the requirements of TFRS 9, our business understanding and industry practice - Involving financial risk management specialists to challenge significant assumptions judgements relating to credit risk grading, significant increase in credit risk, definition of default, probability of default, macro-economic variables, and recovery rates and significant estimates and judgements. - Assessing the completeness, accuracy and relevance of the data used for the calculation of expected credit loss. - Evaluating the appropriateness and testing the mathematical accuracy of Expected credit loss models applied. - Evaluating the impact of Covid-19 outbreak on staging of loans and macroeconomic parameters used in expected credit losses calculation together with forward-looking estimates and significant assumptions - Evaluating the judgments and estimates used for the individually assessed financial assets. - Evaluating the reasonableness of and tested the post-model adjustments. - Auditing of TFRS 9 disclosures Responsibilities of Management and Those Charged with Governance for the Unconsolidated Financial Statements Bank management is responsible for the preparation and fair presentation of the unconsolidated financial statements in accordance with the BRSA Accounting and Reporting Legislation and for such internal control as management determines is necessary to enable the preparation of the financial statement that is free from material misstatement, whether due to fraud or error. In preparing the unconsolidated financial statements, management is responsible for assessing the Bank’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 Bank or to cease operations, or has no realistic alternative but to do so. Those charged with governance are responsible for overseeing the Bank’s financial reporting process. Auditor’s Responsibilities for the Audit of the Unconsolidated Financial Statements In an independent audit, the responsibilities of us as independent auditors are: Our objectives are to obtain reasonable assurance about whether the unconsolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s 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 BRSA Independent Audit Regulation and ISAs 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 BRSA Independent Audit Regulation and ISAs, we exercise professional judgement and maintain professional skepticism throughout the audit. We also: - Identify and assess the risks of material misstatement of the unconsolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher Annual Report 2020 PASHA Bank Year-End Financial Report 103