My first Publication ocbc_ar17_fullreport_english | Page 156

INDEPENDENT AUDITORS’ REPORT
To The Members Of Oversea-Chinese Banking Corporation Limited
Report on the audit of the financial statements
Opinion
We have audited the financial statements of Oversea-Chinese Banking Corporation Limited (the Bank) and its subsidiaries (the Group),
which comprise the consolidated balance sheet of the Group and the balance sheet of the Bank as at 31 December 2017, the
consolidated income statement, consolidated statement of comprehensive income, consolidated statement of changes in equity
and consolidated cash flow statement of the Group and the income statement, statement of comprehensive income and statement
of changes in equity of the Bank for the year then ended, and notes to the financial statements, including a summary of significant
accounting policies as set out on pages 159 to 272.
In our opinion, the accompanying consolidated financial statements of the Group and the balance sheet, income statement, statement
of comprehensive income and statement of changes in equity of the Bank are properly drawn up in accordance with the provisions
of the Companies Act, Chapter 50 (the Act) and Financial Reporting Standards in Singapore (FRSs) including the modification of the
requirements of FRS 39 Financial Instruments: Recognition and Measurement in respect of loan loss provisioning by Notice to Banks
No. 612 ‘Credit Files, Grading and Provisioning’ issued by the Monetary Authority of Singapore, so as to give a true and fair view of the
consolidated financial position of the Group and the financial position of the Bank as at 31 December 2017 and of the consolidated
financial performance, consolidated changes in equity and consolidated cash flows of the Group and the financial performance and
changes in equity of the Bank for the year ended on that date.
Basis for opinion
We conducted our audit in accordance with Singapore Standards on Auditing (SSAs). Our responsibilities under those standards are
further described in the Auditors’ responsibilities for the audit of the financial statements section of our report. We are independent of
the Group in accordance with the Accounting and Corporate Regulatory Authority (ACRA) Code of Professional Conduct and Ethics for
Public Accountants and Accounting Entities (ACRA Code) together with the ethical requirements that are relevant to our audit of the
financial statements in Singapore, and we have fulfilled our other ethical responsibilities in accordance with these requirements and
the ACRA 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 judgement, were of most significance in our audit of the financial
statements of the current period. These matters were addressed in the context of our audit of the financial statements as a whole, and
in forming our opinion thereon, and we do not provide a separate opinion on these matters.
Impairment of loans and bills receivable
(Refer to Notes 9, 26, 28 and 29 to the financial statements.)
The key audit matter How the matter was addressed in our audit
At 31 December 2017, the Group’s loans and bills receivable
comprised 51% of its total assets. The determination of
impairment allowance required on loans and bills receivable is
highly subjective due to judgement applied both in identifying
impaired exposures and in estimating the related allowances.
These estimates include amounts and timing of expected cash
flows and collateral values. We tested key controls in place over the credit approval, grading
and monitoring of loans and bills receivable. We also tested the
controls over the determination of impairment allowances for
individually assessed loans and bills receivable.
As a result of the significance of loans and bills receivable
and the related estimation uncertainty, together with
the heightened credit risk in certain industry sectors, the
impairment of loans and bills receivable is considered a key
audit risk.
In 2017, the portfolio that gave rise to a significant degree of
estimation uncertainty was the oil and gas sector portfolio.
The extended low oil prices and the weak demand of oil and
gas platforms and offshore vessels have impacted a number of
borrowers in the portfolio.
We were also focussed on other individually significant
exposures that have become or were at risk of being impaired.
These included credit exposures that were refinanced or
restructured and non-performing loans.
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For a sample of exposures, we performed credit file reviews to
test the appropriateness of credit grading, and collectibility of
loans. We challenged the Group’s assumptions of the expected
future cash flows including the realisable value of collaterals and
time to sell based on our understanding of the counterparties,
the business environment and externally derived evidence.
In view of the sustained downturn in the oil and gas sector, we
scoped in additional loans in this sector for credit assessment.
We recomputed management’s calculation of portfolio
allowances to ascertain that the Group’s portfolio allowances
were maintained in accordance with the requirements of MAS
Notice 612.
In our view, the impairment allowances were within an
acceptable range of estimates.