ESR AR 2019 EN

Independent Auditor’s Report 119 INDEPENDENT AUDITOR’S REPORT ESR Annual Report 2019 Key audit matter How our audit addressed the key audit matter Impairment consideration of goodwill and the other intangible asset with indefinite useful life The goodwill of USD340,243,000 and the other intangible asset with indefinite useful life of USD74,985,000, which arose mainly from past acquisitions, are subject to an annual impairment review. No impairment charge was recognised against these balances in the current financial year. We identified impairment assessment of goodwill and the other intangible asset with indefinite useful life as a key audit matter because the impairment test and assessment were largely based on management’s expectation and estimation of future results of the respective cash-generating units. The assumptions used in impairment test were based on management’s estimates of variables such as budgeted gross fee income, the growth rates and the discount rates. Further disclosures on the Group’s goodwill and the other intangible asset with indefinite useful life are in notes 20 and 21 to the consolidated financial statements. Our audit procedures included, among others, an assessment of the assumptions and methodologies used by the Group in the value in use model. In doing so, we involved our internal valuation specialists to evaluate the valuation methodologies and the key assumptions such as discount rates and terminal growth rates. We assessed the reasonableness of cash flows projection and other related assumptions such as the budgeted gross fee income and future management fee rates. We tested the mathematical accuracy of the cash flows projection. We also reviewed the Group’s disclosure regarding the impairment of goodwill and the other intangible asset with indefinite useful life. Valuation of Investment properties The investment properties of USD2,785,926,000 were subject to fair value revaluation at the end of the year. The fair value as at 31 December 2019 was assessed by independent professional valuers. We identified the valuation of investment properties as a key audit matter because of the significance of total fair value of these investment properties to the consolidated financial statements and because the determination of the fair value involved significant judgement and estimations. The key assumptions included, among others, adopted term yield, reversionary yield and market unit rent for warehouse properties. Further disclosures on the Group’s investment properties are in note 19 to the consolidated financial statements. Our audit procedures included, among others, evaluating the independent professional valuers’ competence, capabilities and objectivity. We involved our internal valuation specialists to evaluate the valuation methodologies and assess the reasonableness of the key assumptions provided by management to the independent professional valuers, such as the adopted term yield, reversionary yield and market unit rent by benchmarking the rates against specific property data, comparables and prior year’s inputs. We also reviewed the disclosures relating to the valuation techniques and key inputs applied by the professional valuers.