CITY DEVELOPMENTS LIMITED ANNUAL REPORT 2022 CORPORATE GOVERNANCE 50 51 In the review of the financial statements for the year ended 31 December 2022, the ARC has discussed with both the Management and the external auditors the accounting principles that were applied and their judgement of items that might affect the integrity of the financial statements. The following significant matters impacting the financial statements were discussed with Management and the external auditors: Significant Matters How the ARC reviewed these matters and what decisions were made Valuation of development properties The ARC considered the approach and methodology applied in assessing the net realisable values of development properties especially those with low margins. Where appropriate, the ARC had inquired of Management on its basis and its strategy to sell the unsold units. The ARC reviewed either Management’s or the valuers’ underlying assumptions on estimated future selling prices by comparing them to recently transacted price of comparable properties located in the vicinity of the Group’s development projects. The ARC also noted the historical accuracy of Management’s estimate of future selling prices in assessing the reasonableness of the estimated future selling prices. The ARC was satisfied with the approach and assessment adopted by Management in arriving at the net realisable values of the development properties as at 31 December 2022. The valuation of the development properties was also an area of focus for the external auditors. The external auditors have included this item as a key audit matter in their audit report for the financial year ended 31 December 2022. Refer to page 111 of the AR. Valuation of hotel assets classified as property, plant and equipment The ARC considered the approach and methodology applied in assessing the valuation of the hotel assets. The ARC reviewed the Management’s approach and methodology in respect of the valuations of the hotel properties conducted by both internal and external valuers, including the review of the methodologies and key assumptions applied in the valuation of hotel properties such as forecasted cashflows, future market growth, occupancy rates, average room rate growth, discount rates, terminal rates and capitalisation rates in the valuation model. The ARC was satisfied with the valuation process and the valuers are members of recognised professional bodies for valuers and have considered their independence in carrying out their work. The valuation methodologies used are in line with generally accepted market practices and the key assumptions used are generally comparable to currently observable market data. The valuation of the hotel assets was also an area of focus for the external auditors. The external auditors have included this item as a key audit matter in their audit report for the financial year ended 31 December 2022. Refer to pages 110 to 111 of the AR. CORPORATE GOVERNANCE Internal Audit (Provisions 10.4 and 10.5) The Internal Audit (“IA”) function is independent of the activities it audits. The Head of IA’s primary reporting line is to the ARC. The appointment, resignation and dismissal of the Head of IA is reviewed and/or approved by the ARC. The ARC also provides input on the annual performance appraisal of the Head of IA and reviews his compensation within the compensation policies of the Company. The ARC meets the Head of IA at least once annually without the presence of Management. The Head of IA has unfettered access to the ARC, the Board and Management as well as the Group’s documents, records, properties and personnel relevant for the performance of audits. IA operates within the framework stated in its IA Charter which is approved and reviewed by the ARC on an annual basis. The standards of the IA Charter are consistent with the International Standards for the Professional Practice of Internal Auditing set by the Institute of Internal Auditors (IIA), an international professional association with global headquarters in the United States of America. The Head of IA, Mr Benson Seah, is a Certified Internal Auditor and a member of various professional bodies, with over 20 years of experience. He has been with the Company since June 2019. All his team members have the relevant qualifications and experience and are members of The Institute of Internal Auditors of Singapore (IIAS) and/or members of other relevant professional bodies. The IA function is a corporate member of IIAS, an affiliate of the IIA. Processes are in place to ensure that the professional competence of IA staff is maintained and upgraded through continuing professional education programmes which comprised technical and non-technical training for the development of the IA staff. Role and Activities of IA The primary role of IA is to assist the Board to evaluate the reliability, adequacy and effectiveness of the internal controls and risk management processes of the Company, reviewing the internal controls of the Company to ensure prompt and accurate recording of transactions and proper safeguarding of assets and reviewing the Company’s compliance with the relevant laws, regulations and policies of the Company. The ARC approved the annual IA plan and received regular reports during 2022 on the progress of the audit work under the IA plan. All IA reports are given to the ARC, the KMP and the Heads of the relevant business divisions, with a summary report of IA results presented at the ARC meetings. IA observations on internal control, operational and control lapses and recommendations to address them were also reviewed and discussed at ARC meetings. The ARC was satisfied that recommendations made were dealt with by the Management in a timely and appropriate manner, with outstanding exceptions or recommendations being closely monitored and reported back to the ARC. The ARC reviewed the effectiveness and adequacy of the IA function including its resources through a review of the IA activities on a regular basis as well as its annual assessment of the IA function. The assessment was facilitated through the use of an evaluation framework which covers IA organisation, resources and continuing professional development, audit plans, work scope, quality of reports and recommendations, IA Charter and IA self-assessment. Based on the assessment conducted for 2022, the ARC is satisfied with the quality and effectiveness of the IA function and that the IA function is currently adequately resourced and has appropriate independent standing within the Group to perform its functions effectively. Provision 10.5 The ARC held five meetings during the year and carried out its duties as set out within its terms of reference. The Company Secretaries maintain records of all ARC meetings including records of discussions on key deliberations and decisions taken. The ARC meets with the internal and external auditors, each separately without the presence of Management, at least once annually. The ARC members continually keep themselves abreast of changes to accounting standards, risks and other issues which may have a material impact on financial statements. For the financial year under review, the ARC conducted a self-assessment of its own effectiveness in the discharge of its roles and responsibilities, which was facilitated through the use of a self-assessment checklist (“ARC SelfAssessment Checklist”). The ARC Self-Assessment Checklist covered, inter alia, the responsibilities of the ARC under its terms of reference, and considered the contribution of the ARC members to the ARC’s deliberation and decision-making process. Based on the self-assessment, the ARC is of the view that it has fulfilled its responsibilities and discharged its duties as set out in its terms of reference. EXTERNAL AUDITORS (Provisions 10.1(d) and 10.1(e)) Cognisant that the external auditors should be free from any business or other relationships with the Group that could materially interfere with their ability to act with integrity and objectivity, the ARC undertook a review of the independence of KPMG and gave careful consideration to the Group’s relationships with them during 2022. In determining the independence of KPMG, the ARC reviewed all aspects of the Group’s relationships
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