PASHA_BANK_ANNUAL REPORT 2022

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 Independent Auditor’s Report 112 PASHA Bank 2022 Annual Report