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88 EXIM BANK MALAYSIA
Annual Report 2020

INDEPENDENT AUDITORS’ REPORT

TO THE MEMBERS OF EXPORT-IMPORT BANK OF MALAYSIA BERHAD
(INCORPORATED IN MALAYSIA)

Key Audit Matters (cont’d.)

Risk area and rationale Our response

Valuation of derivatives and hedge accounting
The carrying amount and nature of the Group’s and the Bank’s We engaged our valuation and financial risk management
derivative financial instruments are as disclosed in Note 9 to the professionals in accordance with the requirements of
financial statements. International Standard on Auditing 620: Reliance on the Work
of an Auditors’ Expert to assist us in performing our audit
Fair valuation of the derivatives involves assessment and procedures on the review of valuation of derivatives and
assumptions that are affected by expected future market application of hedge accounting. Our audit focused on the
and economic conditions, and the use of observable and following key areas:
unobservable inputs and parameters in the financial markets,
and these assessments require the application of significant (a) reviewed the critical terms of the derivative contracts;
judgement and estimates. (b) tested the reasonableness of the assumptions adopted
in the valuation of derivatives, including assessing if the
The Group and the Bank also use derivatives to manage
exposures to interest rates, profit rates and foreign currencies. inputs and parameters used were observable in the
Accordingly, the Group and the Bank apply hedge accounting financial markets;
for hedges which meet specified criteria required under (c) performed independent valuation of selected derivatives
MFRS 9 Financial Instrument. and compared our valuation to those performed by
management;
Refer to summary of significant accounting policies in Note
2.4(f)(vi) and the disclosures of derivatives valuation and hedge (d) reviewed the risk management strategies and basis of the
accounting application in Note 9 to the financial statements. economic hedges applied by the management; and
(e) reviewed the hedge effectiveness determined and
documented by the management for the purpose of
applying hedge accounting.
We also considered whether the disclosures in relation to
derivatives and hedge accounting comply with the relevant
disclosure requirements.
Insurance contract/Takaful certificate and expense liabilities

Insurance contract and Takaful certificate liabilities (which We engaged our Actuarial Services professionals in accordance
comprise premium/contribution liabilities and claims liabilities) with the requirements of International Standard on Auditing
and expense liabilities are determined based on previous claims 620: Reliance on the Work of an Auditors’ Expert to assist us
experience, existing knowledge of events, the terms and in performing our audit procedures on the provision for the
conditions of the relevant Insurance policies or Takaful certificates. insurance contract/takaful certificate and expenses liabilities.
Our audit focused on the following key areas:
Estimates of insurance contract/Takaful certificate and expense
liabilities have to be made for both the expected ultimate cost (a) understood and documented the qualifications, objectivity
of claims reported at the reporting date, and for the expected and independence of the Appointed Actuary tasked with
ultimate cost of claims incurred but not yet reported (“IBNR”) estimating these liabilities;
at the reporting date. The estimation of the provision for these (b) tested the completeness and sufficiency or accuracy of
liabilities are sensitive to various factors and uncertainties. data used in the actuarial valuation;
Significant management judgement is applied in setting these
assumptions. In deriving the provision for these liabilities, the (c) compared the actuarial valuation methodologies and
Board of Directors and management have commissioned a assumptions against recognised actuarial practices, and
third-party independent professional actuary to perform a with industry data;
valuation of such liabilities as at 31 December 2020 based on
requirements of MFRS 4 Insurance Contracts.