Abacus Property Group – Annual Financial Report 2018

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Inventories Why significant The Group’s total assets include development property assets either held directly or via interests in Joint Ventures. Development assets are carried at the lower of cost or net realisable value. The net realisable value is determined through a feasibility model for each project that estimates the revenue and costs of the development over the life of the project. This was considered a key audit matter as the determination of net realisable value is affected by subjective elements within the estimated costs and projected revenues over an assumed development life. These values are sensitive to changes in the underlying assumptions. Disclosure of inventories is included in Note 6 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 Interviewed Project Managers employed by the Group, to understand the status and progress of the developments We assessed the historical accuracy of previous forecast development outcomes We assessed the feasibility models prepared by the Group for a sample of developments currently in progress Where applicable we evaluated the assumptions adopted in light of current market evidence by: • comparing the sales revenue assumed to the most recent historical or comparable sales; • corroborating the costs projected to signed contracts, recent or actual costs incurred for current or comparable projects; and • assessed contingency estimates for remaining development risks. Where relevant, we performed sensitivity analyses in relation to the key forward looking assumptions including sales price achieved, finance costs, time to completion, and escalation rates. We tested the mathematical accuracy of the feasibilities. 99
Equity Accounted Investments Why significant The Group has entered into a number of joint venture arrangements which are involved in property investment or property development. The application of the equity method of accounting for the joint venture investments is predicated on the Group having joint control with the other party(ies) under the arrangements. We have focused on this area as a key audit matter due to the judgment involved in assessing whether the entities are controlled or joint ventures. Some joint arrangements include the potential to earn variable returns subject to reaching certain performance thresholds. The determination of the variable returns is based on a calculation that is specified under the relevant joint venture agreement. Disclosure of equity accounted investments is included in Note 8 of the financial report. How our audit addressed the key audit matter Our audit procedures included the following: For new joint ventures entered into during the year we assessed the joint venture agreements to understand the ownership interest and rights of each joint venture party. We considered the Group’s assessment of joint control and the determination of applying equity accounting to the investment. For existing joint ventures we confirmed with the Group that there had been no changes to the joint arrangements with respect to decision making power and entitlement to profits nor in the underlying operation and performance of the arrangement, which would amend the conclusion from prior periods. We assessed the Group’s variable return calculation against the provisions of the joint venture agreement and tested the calculation methodology. 100
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Abacus Property Group ANNUAL FINANC
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DIRECTORS’ REPORT 30 June 2018 AB
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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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Abacus Property Group – Annual Financial Report 2018

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