Abacus Property Group – Annual Financial Report 2018

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Investment Properties Why significant The Group’s total assets include investment properties either held directly or via interests in Joint Ventures. These assets are carried at fair value, which is assessed by the directors with reference to either external independent property valuations or internal valuations, and are based on market conditions existing at the reporting date. This was considered a key audit matter due to the number of judgments required in determining fair value. These judgments include assessing the capitalisation rate, discount rate, market rent, re-leasing costs and forecast occupancy levels. Disclosure of investment properties and significant judgments are included in Note 5 of the financial report. How our audit addressed the key audit matter Our audit procedures included the following: We assessed the effectiveness of relevant controls over the leasing process and associated tenancy reports which are used as source data in the property valuations by testing a sample of the relevant controls. For a sample of internal and external valuations, we evaluated the key assumptions and tested key inputs to tenancy schedules. These assumptions and inputs included market and contractual rent, occupancy rates including forecast occupancy levels, lease terms, re-leasing costs, operating expenditure and future capital expenditure. For a sample of internal valuations we tested the mathematical accuracy of the valuation. For selected properties we involved our real estate specialists to assist with the assessment of the valuation. Where relevant we evaluated the movement in the capitalisation rates across the portfolio based on our knowledge of the property portfolio, published industry reports and comparable external valuations. Where relevant we assessed the reasonableness of comparable transactions utilised in the valuation process. We evaluated the suitability of the valuation methodology across the portfolio based on the type of asset; and We assessed the qualifications, competence and objectivity of the valuers. 97
Property Loans Why significant The Group provides mortgage loans to external parties for which the underlying security is primarily development property assets. This was considered a key audit matter as the assessment of the recoverability of the loans, including any capitalised interest, is subject to significant judgment as to the value of underlying security or performance of the underlying development. Changes in feasibility assumptions impacting project cashflows may give rise to an impairment of the loans. Some of the loan arrangements include a profit share component that entitles the Group to additional returns, depending on the outcome of the underlying development. There are complex accounting judgments relating to the amount and timing of revenue recognition for these participation rights. Disclosure of property loans is included in note 7 of the financial report. Disclosure of revenue recognition policies is included in Note 22(f) of the financial report. How our audit addressed the key audit matter Our audit procedures included the following: We considered the Group’s assessment of recoverability of the loans. We evaluated the adequacy of the security on a sample of loans by assessing the feasibilities of the underlying development asset. For this sample we assessed the feasibility by performing procedures consistent with those performed on Inventories as set out in the inventories key audit matter below. For a sample of properties, where a valuation was obtained as part of the recoverability assessment performed by the Group, we assessed the valuation by performing procedures consistent with those performed on Investment property valuations referred to in the preceding key audit matter. We assessed the qualifications, competence and objectivity of the valuers, the assumptions used in the valuations and evaluated the suitability of the valuation methodology for valuations obtained. We evaluated the classification of loans and the status of the underlying property supporting recoverability based on the expected timing of settlement and the status of the underlying developments. We assessed the Group’s framework for recognising additional revenue for loans with profit share arrangements and re-performed the Group’s calculations based on the underlying development financial information. 98
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Abacus Property Group ANNUAL FINANC
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DIRECTORS’ REPORT 30 June 2018 AB
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Ernst & Young 200 George Street Syd
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CONSOLIDATED STATEMENT OF COMPREHEN
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ABACUS PROPERTY GROUP CONSOLIDATED
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CONSOLIDATED STATEMENT OF CHANGES I
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NOTES TO THE FINANCIAL STATEMENTS -
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Abacus Property Group – Annual Financial Report 2018

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