To the shareholders of IFA Hotels & Resorts – KPSC Kuwait
Report on the Consolidated Financial Statements
We have audited the consolidated financial statements of IFA Hotels and Resorts Kuwaiti Public Shareholding Company (the ‘‘Parent Company”) and Subsidiaries, (collectively the “Group”), which comprise the consolidated statement of financial position as at 31 December 2017, and the consolidated statement of profit or loss, consolidated statement of profit or loss and other comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the year then ended, and notes to the consolidated financial statements, including a summary of significant accounting policies.
In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Group as at 31 December 2017, and its consolidated financial performance and its consolidated cash flows for the year then ended in accordance with International Financial Reporting Standards (IFRSs).
Basis for Opinion
We conducted our audit in accordance with International Standards on Auditing (ISAs). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements section of our report. We are independent of the Group in accordance with the International Ethics Standards Board for Accountants’ Code of Ethics for Professional Accountants (IESBA Code), and we have fulfilled our other ethical responsibilities in accordance with the IESBA Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Key Audit Matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements of the current period. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. We have determined the matters described below as the key audit matters.
IFRS 15 ‘Revenue from Contracts with Customers’ was issued in May 2014 and is effective for annual periods commencing on or after 1 January 2018, with early adoption permitted either based on a full retrospective or modified retrospective application. At the end of the year 2015, the Group reviewed the impact of IFRS 15 on its revenue and elected to early adopt the standard using modified retrospective application from 1 January 2015. The resulting revenue is recognized as per the percentage of completion. The revenue recognized during the year ended 31 December 2017 in respect of properties under development amounting to KD32,896,573 (2016: KD11,789,647) is material to the consolidated financial statements, and is based on significant judgments and assumptions such as determining the percentage of completion at a point in time, and assessing how control passes to the buyer, due to which it is significant to our audit. Accordingly, we considered this as a key audit matter. Refer to notes 5.6, 6.1.2, 6.2.3 and 8 for more information on revenue recognition.
Our audit procedures included, among others, using the report of an independent valuation expert to verify the percentage of completion of each development project as at the reporting date, and critically assessing the methods and assumptions used by the expert. Further, we assessed the adequacy and appropriateness of the disclosures in relation to the accounting policies adopted and the critical judgments and assumptions made.
Cost of completion
IFRS 15 ‘Revenue from Contracts with Customers’ requires the Group to estimate the cost to complete the development projects, in order to determine the cost attributable to the revenue being recognized in a particular period. The cost of revenue recognized in the Group’s consolidated financial statements includes a portion of cost expected to be incurred to complete the property units for which revenue is being recognized. Determination of the expected costs of completion is highly judgmental and involves complex assumptions including the consideration of historical patterns, past experiences, industry averages, quotations, rates of inflations and future market expectations etc., and accordingly we considered this as a key audit matter. Refer to notes 5.6.7 and 6.2.4 for more information on cost of completion.
Our audit procedures included, among others, obtaining an understanding of the significant cost components, as well as a critical assessment of the validity and accuracy of the estimates and assumptions and discussions with the project development team based on targeted inquires made to them. The reasonableness of the basis used for estimates were tested, and the supporting data used to devise those estimates were studied and the adequacy of the disclosures in relation to critical judgments and assumptions made, were also assessed.
Carrying value of properties under development
Under IFRS, the Group is required to carry its properties under development at the lower of cost and net realizable value. This requires management to estimate the current market selling prices of the unsold units and to compare them to the estimated costs of the units which remain unsold as at the reporting date. This assessment requires significant management judgments and assumptions, mainly over the estimated price at which a unit is likely to sell, and is prone to subjectivity since establishing the reliability of sources used to draw comparisons of market prices is critical. Further, every seller in the market is expected to have a different motive and circumstance, and similarly every unit of property in a project may not have homogenous specifications. Accordingly, we considered this as a key audit matter. Refer to notes 5.12, 6.2.6 and 20 for more information on properties under development.
Our audit procedures included determination of the reasonableness of the estimated selling prices of the unsold property units. We inquired and observed management’s estimates in the light of current market prices of properties of comparable sizes and characteristics in the area through the use of online real estate trading portals, as well as recent pattern of variations between actual selling prices and pre-sale estimated selling prices. We also assessed the adequacy of the disclosures in relation to the critical judgments and assumptions.
Group audit and subsidiaries
The Group has a large number of subsidiaries, which are significant to the Group’s consolidated financial statements. The geographically dispersed structure increase the complexity of the Group’s control environment and our ability as a Group auditor to obtain an appropriate level of understanding of these entities including any related party transactions. Due to these factors and the significance of the subsidiaries to the Group’s consolidated financial statements, this is considered as a key audit matter. Refer to notes 5.1, 5.2, 5.3, 6.1.4 and 7.1 for more information on the basis of consolidation, related judgements and the consolidated subsidiaries.
Our audit procedures included, among others, determining the nature and extent of audit procedure to be carried out for subsidiaries and selecting significant subsidiaries based on the size and/or risk profile of these subsidiaries. During our audit we considered the geographical diversity of Group’s structure and have extended our involvement in local audit work performed by the component auditors. We organized meetings and held discussions with components in our audit scope. We, further discussed the audit approach with significant subsidiaries auditors and also provided detailed instructions to them covering the significant areas and risks to be covered including the identification of related parties and transactions with them. We also set out the information required to be reported back to us as part of the group reporting.
Other information included in the Group’s 2017 annual report
Management is responsible for the other information. Other information consists of the information included in the Group’s 2017 Annual Report, other than the consolidated financial statements and our Auditor’s report thereon. We obtained the report of the Parent Company’s Board of Directors, prior to the date of our Auditor’s report and we expect to obtain the remaining sections of the Group’s Annual Report after the date of our Auditor’s report.
Our opinion on the consolidated financial statements does not cover the other information and we do not express any form of assurance conclusion thereon.
In connection with our audit of the consolidated financial statements, our responsibility is to read the other information identified above and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed on the other information that we have obtained prior to the date of this Auditor’s report, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.
Responsibilities of Management and Those Charged with Governance for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with IFRSs, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the consolidated financial statements, management is responsible for assessing the Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Group or to cease operations, or has no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the Group’s financial reporting process.
Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements.
As part of an audit in accordance with ISAs, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:
• Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control.
• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.
• Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to continue as a going concern.
• Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation.
• Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.
We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.
We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.
From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.
Report on Other Legal and Regulatory Requirements
Furthermore, in our opinion, proper books of account have been kept by the Parent Company and the consolidated financial statements, together with the contents of the report of the Parent Company’s board of directors relating to these consolidated financial statements, are in accordance therewith. We further report that we obtained all the information and explanations that we required for the purpose of our audit and that the consolidated financial statements incorporate all information that is required by the Companies Law No. 1 of 2016 and its Executive Regulations, as amended, and by the Parent Company’s Memorandum of Incorporation and Articles of Association, as amended, that an inventory was duly carried out and that, to the best of our knowledge and belief, no violations of the Companies Law, the Executive Regulations, or of the Parent Company’s Memorandum of Incorporation and Articles of Association, as amended, have occurred during the year ended 31 December 2017 that might have had a material effect on the business or financial position of the Parent Company.
28 March 2018
Anwar Y. Al-Qatami (F.C.C.A)
(Licence No. 50-A)
of Grant Thornton - Al-Qatami,
Al-Aiban & Partners
Kuwait 28 March 2018