The investment properties are stated at their fair values based on independent external valuations. The valuation process is
considered a key audit matter because it involves significant judgement in determining the appropriate valuation methodology
to be used, and in estimating the underlying assumptions to be applied. The valuations are highly sensitive to changes in the key
assumptions applied, particularly those relating to capitalisation, discount and terminal yield rates, and price per square metre.
Our response
We assessed the Group’s process relating to the selection of the external valuers, the determination of the scope of work of the
valuers, and the review of the valuation reports issued by the external valuers.
We evaluated the qualifications and competence of the external valuers. We also read the terms of engagement of the valuers
entered into with the Group to determine whether there were any matters that might have affected the valuers’ objectivity or
placed limitations in the scope of their work.
We considered the valuation methodologies used against those applied by other valuers for similar property types. We assessed
the reasonableness of the projected cash flows used in the valuations by comparing to supporting leases and externally available
industry and economic data. We also assessed the reasonableness of the capitalisation, discount and terminal yield rates, and
price per square metre, used in the valuations by comparing them against historical rates and available industry data, taking into
consideration comparability and market factors.
We further reviewed the appropriateness of the disclosures in the financial statements concerning the key assumptions to which
the valuations are most sensitive to, and the inter-relationship between the assumptions and the valuation amounts.
Our findings
The Group has a structured process in appointing and instructing valuers, and in reviewing and accepting their valuations.
The valuers are members of recognised professional bodies for valuers and have confirmed their independence to the Group
in respect of the work undertaken by them. The valuation methodologies adopted by the valuers are in line with generally
accepted market practices and the key assumptions used are within the range of market data. We also found the disclosures in
the financial statements to be appropriate.
Accounting for significant acquisitions
(Refer to Note 4 to the financial statements)
Risk
The Group makes acquisitions as part of its business strategy. Such transactions can be complex and judgement is involved
in determining whether each transaction is a business combination or an acquisition of an asset, given that the accounting
treatment is different in each case.
The Group accounts for an acquisition as a business combination where an integrated set of activities is acquired, in addition
to the property. In determining whether an integrated set of activities is acquired, the Group considers whether significant
processes, such as strategic management and operational processes, are acquired. Where significant processes are acquired,
the acquisition is considered an acquisition of a business. When an acquisition does not represent a business, it is accounted for
as an acquisition of an asset.
Significant acquisitions made by the Group during the year include the acquisition of 27 investment properties in Australia for a
total consideration of $1.1 billion and ONE@Changi City, a business and science park property in Singapore, for a consideration
of $420 million. These acquisitions have been accounted for as acquisitions of assets by the Group.
Independent auditors’ report
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A-REIT ANNUAL REPORT
2015/2016
