Expected Credit Loss (ECL) - Banking : Illustrative Example - Retail Mortgages

Purpose
This example illustrates how the Accounting Estimates - Required Work Paper (KPMG Clara workflow) may be completed for t

Disclaimer
This document is an illustration and a reference for engagement teams. The information contained herein is of a general natu
concluding on risks of material misstatement and the related responses. Accordingly, this illustration does not replace the nee

Accounting Estimates - Required Work Paper for ECL at a Bank

Engagement teams auditing the financial information of a bank that has adopted IFRS 9 Financial Instruments are expected to
Required Work Paper'. The engagement team documents the consideration in the Application of Audit Guidance – Memo, wh

IS Alert 2020/08

This example is based on the IFRS 9 Global Audit Guidance - Banks: Impairment (the Guidance), which may be found at the fol
IFRS 9 Audit Guidance – Banks: Impairment

ECL Audit process

In completing this illustrative example, the below audit process has been followed:

Conditions of preparation
For the purpose of this example the following conditions apply:
1. It is assumed the engagement team have completed the 'ECL estimate component work paper - KPMG Clara workflow' to id
2. The tabs '1. Understanding' and '4. Results' have not been completed as an illustrative example. Instead, these tabs include
3. The elements listed in tab '2.Risk assessment' are not an exhaustive list of methods / models, assumptions and data used to
4. Only selective examples are provided for each type of response tab (i.e. a response tab has not been completed for each el
5. The 'data scoping work paper' and 'assumptions grouping work paper' have not been completed as part of this illustrative e
6. Tab '3. Overall approach' has not been completed for this illustrative example, however in line with the Guidance the appro
7. It is assumed that Stage 3 ECL provisions are measured on a collective basis rather than on an individual basis for exposures

How has COVID-19 has been considered as part of this example?

As part of this example, we have taken the following approach to COVID-19:
1. COVID-19 is present at the time of completing this example.
2. It is the second reporting period where COVID-19 is present and has an impact on the entity's financial statements.
3. COVID-19 is driving variability in economic conditions. We note some economies are experiencing strong recovery from the
uncertainty due to the impacts of COVID-19.
4. The example illustrates the discovery of a new COVID-19 variant between the entity establishing and validating its ECL resu

Which ECL accounts in the KPMG Clara workflow Library are in-scope for this document? (see Note 1)
- Allowance for impairment loss on loans and advances to banks
- Allowance for impairment loss on loans and advances to customers
- Impairment losses - loans and advances to banks
- Impairment losses - loans and advances to customers

Which risk of material misstatements (RMs) are in-scope for this document?
RMs linked to the 4 ECL accounts are extracted from the KPMG Clara workflow library and are reflected below as 'in-scope'
To expand or minimise scoping below, select the '+' or '-' reflected to the left of the rows displayed.

1. Estimate and disclosure RMs in-scope and addressed in this template

RM ID

2. RMs out of scope and NOT addressed in this template

RM ID

Note 1
To expand or minimise answers below, select the '+' or '-' reflected to the left of the rows displayed

See Section 2a of the IFRS 9 Guidance for guidance on ECL accounts and the business process

The IFRS 9 Guidance is designed in a way that helps teams disaggregate the ECL estimate into ECL estimate components, whic

What are estimate components?

Why is it important to understand estimate components?

How do teams determine ECL estimate components?

Why are estimate components equivalent to accounts under the IFRS 9 Guidance?

Why do teams need to understand the accounts when considering the substantive procedures?

How do teams conclude on the overall ECL estimate if they have completed multiple estimate component workpapers?
 Credit Loss (ECL) - Banking : Illustrative Example - Retail Mortgages

illustrates how the Accounting Estimates - Required Work Paper (KPMG Clara workflow) may be completed for the audit of the 'Expected Credit Los

t is an illustration and a reference for engagement teams. The information contained herein is of a general nature and is not intended to address th
risks of material misstatement and the related responses. Accordingly, this illustration does not replace the need to consider and evidence audit d

stimates - Required Work Paper for ECL at a Bank

eams auditing the financial information of a bank that has adopted IFRS 9 Financial Instruments are expected to consider how to incorporate the IF
k Paper'. The engagement team documents the consideration in the Application of Audit Guidance – Memo, which may be found in the alert at the

08

is based on the IFRS 9 Global Audit Guidance - Banks: Impairment (the Guidance), which may be found at the following link:
Guidance – Banks: Impairment

this illustrative example, the below audit process has been followed:

preparation
se of this example the following conditions apply:
ed the engagement team have completed the 'ECL estimate component work paper - KPMG Clara workflow' to identify the ECL estimate componen
Understanding' and '4. Results' have not been completed as an illustrative example. Instead, these tabs include guidance and documentation cons
nts listed in tab '2.Risk assessment' are not an exhaustive list of methods / models, assumptions and data used to develop the ECL estimate for a ret
ve examples are provided for each type of response tab (i.e. a response tab has not been completed for each element that is identified in tab '2. Ri
coping work paper' and 'assumptions grouping work paper' have not been completed as part of this illustrative example. However, this illustrative e
rall approach' has not been completed for this illustrative example, however in line with the Guidance the approach taken is to test and evaluate th
ed that Stage 3 ECL provisions are measured on a collective basis rather than on an individual basis for exposures in Stage 3.

ID-19 has been considered as part of this example?

 example, we have taken the following approach to COVID-19:
s present at the time of completing this example.
ond reporting period where COVID-19 is present and has an impact on the entity's financial statements.
s driving variability in economic conditions. We note some economies are experiencing strong recovery from the impacts of COVID-19, however for
ue to the impacts of COVID-19.
e illustrates the discovery of a new COVID-19 variant between the entity establishing and validating its ECL results and the reporting date.

counts in the KPMG Clara workflow Library are in-scope for this document? (see Note 1)
for impairment loss on loans and advances to banks
for impairment loss on loans and advances to customers
nt losses - loans and advances to banks
nt losses - loans and advances to customers

material misstatements (RMs) are in-scope for this document?

o the 4 ECL accounts are extracted from the KPMG Clara workflow library and are reflected below as 'in-scope' or 'out of scope'.
minimise scoping below, select the '+' or '-' reflected to the left of the rows displayed.

nd disclosure RMs in-scope and addressed in this template

RM Description RM Class

scope and NOT addressed in this template

RM Description RM Class

minimise answers below, select the '+' or '-' reflected to the left of the rows displayed

a of the IFRS 9 Guidance for guidance on ECL accounts and the business process

idance is designed in a way that helps teams disaggregate the ECL estimate into ECL estimate components, which are equivalent to accounts loaded

mate components?

ortant to understand estimate components?

s determine ECL estimate components?

mate components equivalent to accounts under the IFRS 9 Guidance?

s need to understand the accounts when considering the substantive procedures?

s conclude on the overall ECL estimate if they have completed multiple estimate component workpapers?
e audit of the 'Expected Credit Loss' estimate for a retail mortgage portfolio at a bank, performed in accordance with IFRS 9. This is not intended to

e and is not intended to address the circumstances of any particular audit engagement. This illustration is not an exhaustive example. It may not inc
d to consider and evidence audit documentation in the engagement team's risk assessment and response based on entity-specific facts, circumstan

consider how to incorporate the IFRS 9 Global Audit Guidance - Banks: Impairment (the Guidance) into their audit approach. This consideration wou
ch may be found in the alert at the following link:

entify the ECL estimate components. This is completed prior to completing the Accounting Estimates - Required Work Paper (as shown above).
guidance and documentation considerations that are designed to assist engagement teams when completing these tabs for their engagements.
develop the ECL estimate for a retail mortgage portfolio. The engagement team identifies elements based on their engagement specific facts and c
ment that is identified in tab '2. Risk assessment').
xample. However, this illustrative example assumes the engagement team has completed these work papers.
ach taken is to test and evaluate the entity's process for developing the estimate.
in Stage 3.
impacts of COVID-19, however for the purposes of this illustrative example we have assumed there is still a greater degree of economic

s and the reporting date.

or 'out of scope'.

Estimate Commonly Account name (Note 1)

Applicable

Commonly
Estimate Applicable Account name (Note 1)

are equivalent to accounts loaded within KPMG Clara workflow .

nce with IFRS 9. This is not intended to be a complete illustration for the audit of the ECL estimate.

t an exhaustive example. It may not include all the information necessary in

ed on entity-specific facts, circumstances and related risks

audit approach. This consideration would include how the guidance can be incorporated into the 'Accounting Estimates -

ed Work Paper (as shown above).

these tabs for their engagements.
their engagement specific facts and circumstances.
reater degree of economic

Assertions Consideration around RMM inclusion

Assertions Reason for being scoped out

Delete this tab before finalizing work paper.

Work paper version: KPMG Clara workflow

Objective: The Accounting Estimates - Required Work Paper facilitates the required procedures and documentation for auditing a single estimate in accordance with KAEG.

9
Information in red text will be provided throughout this illustration to assist with further context as to intended use
of the Estimates work paper.

NOTE: This tab has not been completed as an illustrative example, instead this tab includes guidance and documentation
considerations to assist teams when completing this tab for the ECL estimate.

kpmg Accounting Estimates - Required Work Paper (KCw) (05

Complete all sections on this tab.

Identify the accounting estimate

Estimate name Expected Credit Loss - Mortgages

Estimate description

Example documentation: The estimate is the expected credit loss (ECL) for the entity's retail mortgage portfolio, which is required
retail mortgage portfolio. This includes both 12-month ECLs and lifetime-ECLs, where there has been a significant increase in credit

Significant accounts, disclosures and balances pertaining to the estimate

Significant account/disclosure Assertions Current
Example documentation: Allowance for impairment loss on loans and AV -
advances to customers

Example documentation: Impairment losses - loans and advances to customers AV -

Estimate RMMs
RMM ID RMM Description
109.8.02 An inappropriate amount is estimated and recorded for the expected credit losses (ECL) allowance for
financial assets or contracts.

Understand the entity and its environment, including the entity's ICFR related to the accounting estim

If identified during our general risk assessment procedures specific to this accounting estimate and/or disclosure, document our un
Transactions or other events and conditions that may give rise to the need for, or changes in, the accounting
estimate to be recognized or disclosed in the financial statements.

Regulatory factors relevant to the accounting estimate.

The nature and extent of oversight and governance in place over management’s process for making the accounting
estimate and/or disclosure.

How management identifies the need for, and applies, specialized skills or knowledge related to the accounting
estimate, including with respect to the use of a specialist.
How the entity’s risk assessment process identifies and addresses risks related to the accounting estimate and/or
disclosure, including its susceptibility to management bias.

Matters identified during the RAPD or during other risk assessment procedures.

Understand the process by which the accounting estimate is developed

Document our understanding of the process, including the individual methods, assumptions and data, by which the accounting esti
Engagement teams may reference here to their walkthrough documented at the relevant 1. Understanding screen in the KPMG Cla
disclosures and business processes and Chapter 4.3 in Section 2c. Risk assessment: CERAMIC of the Guidance.

In addition to items that engagement teams would normally understand as part of their walkthrough, for accounting estimates the
- identifies the relevant methods / models, assumptions or sources of data, and changes to them, that are appropriate in the conte
• selects or designs, and applies, the methods used, including the use of models;
• selects the assumptions to be used, including consideration of alternatives, and identifies relevant assumptions; and
• selects the data to be used.
- performs a retrospective review of the estimate and responds to the results of that retrospective review (documented at 'Perform
- understands the degree of estimation uncertainty, including through considering the range of possible measurement outcomes (
- addresses the estimation uncertainty, including selecting a point estimate and related disclosures for inclusion in the financial sta
- identifies when to use, and apply, specialised skills or knowledge related to accounting estimates (documented under 'Managem
The engagement team also identifies and obtains an understanding of the elements of the ECL estimate as part of their walkthroug
1. method(s) / model(s);
2. assumptions; and
3. data
Engagement teams also understand how these elements are applied together to obtain the estimate value. Teams obtain an unde
misstatement associated with them and design an appropriate audit response.

Note: Refer to the KAEG appendix for the specific activities we perform to understand the process. If this understanding is documen
diagram). Otherwise, document our understanding in the above textbox (which should include inquiry and either observation or insp

Identify the individual methods, assumptions and data used in the process on 2. Risk assessment.

Document the requirements of the applicable financial reporting framework (including the recognition criteria, measurement base
the entity and its environment.
The recognition and measurement requirements for ECLs are in IFRS 9 Financial Instruments. The requirements for presentation an
team to document the requirements of IFRS 9 they may use the 'IFRS 9 Technical Decisions log' which is available on the IFRS 9 Gl
Recognition:
- IFRS 9.5.5.1 requires that an entity recognises a loss allowance for expected credit losses on a financial asset that is measured at a
financial guarantee contract to which the impairment requirements apply.
- The impairment model in IFRS 9 is an expected loss model, which means that it is not necessary for a loss event to occur before a

Measurement:
- ECLs are a probability-weighted estimate of credit losses over the expected life of the financial instrument. Credit losses are the p
- The measurement of ECLs reflects: (a) an unbiased probability-weighted amount; (b) the time value of money; and (c) reasonabl
conditions and forecasts of future economic conditions [IFRS 9.5.5.17].
- IFRS 9 does not prescribe a single method to measure ECLs. The methods used to measure ECLs may vary based on the type of fin
- For requirements related to the measurement of ECLs, please see:
• 12-month ECLs vs lifetime ECLs: See Insights into IFRS, Chapter 7.8.40.
• Definition of default: See Insights into IFRS, Chapter 7.8.50.
• Significant increase in credit risk: See Insights into IFRS, Chapter 7.8.60.
• Period over which to measure ECLs: See Insights into IFRS, Chapter 7.8.200.
• Individual vs collective basis: See Insights into IFRS, Chapter 7.8.250.
• Discount rate: See Insights into IFRS, Chapter 7.8.220.
• Forward looking information: See Insights into IFRS, Chapter 7.8.238.
Presentation and disclosure requirements:
See pgs. 10-11 of Section 4e. Disclosures of the IFRS 9 Global Audit Guidance - Banks: Impairment for an overview of the present

For related presentation and disclosure requirements, cross reference to the appropriate disclosure checklist may be provided if the
1

The calculation frequency i

Calculation frequency: quarterly or annually.
For ECLs, management's es
estimate in the financial st
Management's estimation process determines a: the output).

IT Layer(s) used in the accounting estimate How it is used

(including for which elements)
[Ref] [Identify each IT Layer or write NONE]
Insert rows as needed

How it is used
Service organization(s) used in the accounting estimate (including for which elements)
[Ref] [Identify each service organization or write NONE]
Insert rows as needed

Management's specialist(s) used in the accounting estimate How it is used

(including for which elements)
[Ref] [Identify each specialist or write NONE]
Insert rows as needed

Understand how management understands and addresses estimation uncertainty

Document how management understands the degree of estimation uncertainty, including through considering the
range of possible measurement outcomes.

Document how management addresses estimation uncertainty, including selecting a point estimate and related
disclosures for inclusion in the financial statements.

Has management taken the appropriate steps to understand and address estimation uncertainty?
Perform each of the following procedures to address the risk:
Request management to perform additional procedures to understand estimation uncertainty or to address it by
reconsidering the selection of their point estimate or considering providing additional disclosures relating to the
estimation uncertainty. Document and evaluate management's response.
 If management's response does not sufficiently address estimation uncertainty, develop an auditor's point
estimate or range, to the extent possible, by selecting "Develop an independent expectation for comparison to
the entity's estimate" as the substantive approach to test the accounting estimate.

Evaluate whether a control deficiency exists.

Perform and evaluate a retrospective review of the accounting estimate

Did the estimate exist in the prior period?

Document how management reviews the outcomes or re-estimations of the previous accounting estimate and how
they respond to the results of that review. If management did not perform a retrospective review, evaluate the
implications of such on our ability to rely on controls and on our assessment of inherent risk.

Perform a retrospective review of the accounting estimate.

Document any relevant matters that we learned from our retrospective review related to the accounting estimate
and/or disclosure and their impact on our identification and assessment of the RMM(s).

Do the judgments and decisions made by management in the prior year indicate possible management bias,
including indicators of fraud?

Were differences identified as a result of our retrospective review?

Identify whether the differences represent an error or change in estimate:
If error:

Audit misstatement(s) identified The difference between the outcom

or an assumption in the current per
[Ref] [Identify each audit misstatement] recognised in the prior period does
Insert rows as needed misstatement of the prior-period fin
typically associated with a high degr
uncertainty. Due to this, it is expecte
between the prior period modelled
Control deficiency(ies) identified the outcome of these in the current
judgement to assess these differenc
[Ref] [Identify each control deficiency]
Insert rows as needed

If change in estimate:
Document rationale that the difference represents a change in estimate.
ontext as to intended use

nce and documentation

per (KCw) (05/20)

portfolio, which is required under the impairment model in IFRS 9. The ECL estimate predicts the present value of cash shortfalls over the expected life
significant increase in credit risk (SICR) since initial recognition.

The accounts documented here align to those documented in the library in the KPMG Clara workflow (KCw). It is recomm
Current that engagement Prior Change
teams complete the ISG's ECL estimate component work paper - KPMG % Change
Clara workflow available on th
- -
Global Audit Guidance page. The template provides documentation guidelines - for teams to disaggregate
0.0% the estimate int
estimate components based on the shared credit risk characteristics of the portfolios held by the bank. Once teams have
determined the components of the estimate it is suggested that teams create NEW accounts in KCw, essentially disaggreg
- -
default ECL accounts into the components - in auditing the components of an estimate
of an estimate. This will help teams
separately in the workflow.

See Section 2a. Accounts, disclosures and business processes for further guidance on disaggregating the KCw accounts i
estimate components.

losses (ECL) allowance for

o the accounting estimate

disclosure, document our understanding and their impact on our identification and assessment of the RMM(s).
unting Consider:
- The financial instruments that give rise to the recognition of ECLs:
● financial assets that are debt instruments measured at amortised cost or FVOCI;
● loan commitments issued that are not measured at FVTLP;
● financial guarantee contracts issued that are in the scope of IFRS 9 and are not measured at FVTPL.
- Whether there have been changes in the internal and external environment that may give rise to changes in the ECL estimate, this ma
● new products (e.g. new transactions);
● new markets (e.g. the entity has previously operated only in a single market, but in the current period has entered a new market);
● changes in the macro-economic environment (e.g. downturn in the economy);
● changes in the creditworthiness of counterparties (e.g. changes in the risk of default that may result in a significant increase in credit r
changes in markets in which the entity is exposed; and
● changes in the composition of the underlying portfolio.
See Section 2b. Risk assessment: Entity and its environment of the Guidance for further guidance.

See Chapter 3 of Section 2b. Risk assessment: Entity and it's environment of the Guidance for a listing of supervisory authorities and
publications relating to ECL. The engagement team considers what supervisory guidance is applicable to their entity and engagement.
Supervisory guidance issued by local regulatory bodies is also considered by the team.

e accounting Consider the CERAMIC controls the entity has in place over the oversight and governance of the ECL estimate. The engagement team m
reference to the relevant CERAMIC controls documented in the KPMG Clara workflow. This may include:
- Board or audit committee and/or risk subcommittee that has ultimate oversight over the measurement and assessment of ECLs.
- Management oversight committees (e.g. Credit Risk Committee, Model Risk Committee and Impairment Committee) that oversee the
preparation and development of ECLs.
- IFRS 9 Policies that are reviewed and approved on a periodic basis, this may include:
● credit risk policy: outlines the entity's overall approach to credit risk, including its risk appetite and procedures and standards to mana
risk.
● IFRS 9 accounting policy: outlines the entity's interpretation of accounting standards as it relates to IFRS 9.
● IFRS 9 model development standards: the specifications on which the entity's models have been developed.
● IFRS 9 impairment framework: details the entity's defined methodology to comply with IFRS 9 and its related accounting policy (e.g. k
judgements inherent in its accounting policy).
● Significant increase in credit risk (SICR) policy: details the entity's methodology over SICR in compliance with IFRS 9 and its related acc
policy (e.g. key judgements inherent in its accounting policy).
● IFRS 9 model monitoring standards: outlines the entity's policy and procedures over model monitoring (e.g. details of the entity's mod
monitoring control).
- Model governance framework:
● given the extensive use of models in measuring ECLs, most entities will have a model governance framework in place to ensure that m
are developed, implemented, monitored and validated in line with the requirements of IFRS 9 and the entity's internal policies.
See Chapter 2 of Section 2c: Risk assessment: CERAMIC of the Guidance for further guidance.

counting The engagement team understands how management uses specialists or third parties (other than specialists, e.g. service organisations)
of their walkthrough of the process to develop the ECL estimate. The engagement team documents the management's specialists (if any
involved in the development of the ECL estimate. This may include:
- Economists that develop the macro-economic forecasts;
- Property valuers that value collateral used in the loss given default (LGD);
- External vendors that develop ECL models.
See Chapter 2.1 of Section 2d. Risk assessment: Related activities of the Guidance for further guidance.
 ate and/or Consider the CERAMIC controls in place at the entity over the risk assessment related to the ECL estimate. The engagement team may r
to the relevant CERAMIC controls documented in KPMG Clara workflow. This may include:
- The entity's credit risk assessment process, see Chapter 3.2.1 of Section 2c. Risk assessment: CERAMIC of the Guidance.
- Review and approval of the proportionality framework, see Chapter 3.2.2 of Section 2c. Risk assessment: CERAMIC of the Guidance.
- The entity's fraud risk assessment, see Chapter 3.2.3 of Section 2c. Risk assessment: CERAMIC of the Guidance.

Engagement teams may reference to their documented RAPD in their KPMG Clara workflow file. The engagement team may also note h
matters identified in the RAPD relating to the ECL estimate. Some examples of matters discussed in the RAPD may include:
- Changes to the entity's methods / models, assumptions and data from the prior period.
- Changes in the internal or external environment (e.g. changes in the macro-economic environment).
- Model monitoring or model validation results in the current period.
- Fraud risk relating to the ECL estimate.

by which the accounting estimate is developed.

nding screen in the KPMG Clara workflow. For guidance on performing the walkthrough, engagement teams can refer to Chapter 1.5 in Section 2a. Acco
Guidance.

for accounting estimates they also understand a few additional items, including how management:
are appropriate in the context of the applicable financial reporting framework, including how management:
ssumptions; and

ew (documented at 'Perform and evaluate a retrospective review of the accounting estimate' below);
e measurement outcomes (documented at 'Understand how management understands and addresses estimation uncertainty' below);
inclusion in the financial statements (documented at 'Understand how management understands and addresses estimation uncertainty' below); and
cumented under 'Management's specialist(s) used in the accounting estimate' below).
e as part of their walkthrough. These include the:

alue. Teams obtain an understanding of the elements of an estimate, in sufficient detail so that they are able to identify and assess the differing risks of

s understanding is documented in the relevant business process, refer to that documentation (e.g. flowchart, narrative, walkthrough, and/or
nd either observation or inspection).

criteria, measurement bases, and the related presentation and disclosure requirements 1), and how they apply in the context of the nature and circums
irements for presentation and disclosures of ECLs are in IFRS 7 Financial Instruments: Disclosures and IAS 1 Presentation of Financial Statements. To assi
is available on the IFRS 9 Global Audit Guidance page. The relevant IFRS and Insights references have been included below.

al asset that is measured at amortised cost or fair value through other comprehensive income, a lease receivable, a contract asset or a loan commitmen

loss event to occur before an impairment loss is recognised (Insights into IFRS, 7.8.2.10).

ment. Credit losses are the present value of expected cash shortfalls (Insights into IFRS, 7.8.160.110).
of money; and (c) reasonable and supportable information that is available without undue cost or effort at the reporting date about past events, curren

vary based on the type of financial asset and the information available (Insights into IFRS, 7.8.160.30).

an overview of the presentation and disclosure requirements for ECLs.

cklist may be provided if the disclosure checklist contains the relevant information. Otherwise, document requirements in the above textbox.

The calculation frequency is entity specific. The calculation frequency will typically align to the entity's reporting requirements, this may be monthly,
quarterly or annually.
For ECLs, management's estimation process typically determines a point estimate (i.e. the output of management's process to record or disclose the EC
estimate in the financial statements after all data and assumptions have been selected and applied to the method / model, including any adjustments t
the output).

How it is used Due to it's complex nature and extensive data requirements, in most entities management will use informati
ding for which elements) (IT) in developing the ECL estimate, specifically around the use of models. Therefore controls relevant to the
to include general IT controls (GTICs) and application controls. It is recommended that the engagement team
specific team member with expertise in IRM to assist, see Sections 2c. Risk assessment: CERAMIC and 2d. R
assessment: Related activities of the Guidance.

How it is used
ding for which elements) A significant amount of data may be obtained from service organisations in the measurement of ECLs. The e
identify the use of service organisations as part of their walkthrough to understand the process to develop t
Where a service organisation is used, the engagement team considers how to obtain evidence concerning th
operation of controls performed by them. See KAEG-I, ISA 402 for guidance.

How it is used
ding for which elements) Due to its complex nature, management may use a range of internal and external specialist's to assist in dev
estimate. These may include economists, property valuers and lawyers. Where a management's specialist is
engagement teams apply the guidance in KAEG-I, ISA 500. Additionally, where management uses a specialist
engagement team considers whether to engage a KPMG Specialist or a specific team member.

nty
sidering the Examples of how management have understood the degree of estimation uncertainty associated with the ECL estimate may include the
following:
- Performing a sensitivity analysis to determine the effect of changes in the assumptions and data on the ECL estimate.
- Performing back-testing over the output of the IFRS 9 credit risk models (e.g. PD, LGD or EAD), and responding to the results of back-te
- Performing benchmarking of the modelled output or assumptions to external sources (e.g. macro-economic assumptions benchmarke
central bank forecasts), or other ECL estimates and portfolios within the entity.
- Considering alternative methods / models, assumptions and data in making their selection of the elements to use in developing the EC
estimate.

d related Point estimate:

The engagement understands and documents how management selects its point estimate from a range of possible measurement outco
may include:
- selection of assumptions from a range of possible outcomes.
- assigning probability-weightings to the economic scenarios and stress testing the economic scenarios.
- posting management overlays to adjust the output of the methods / models.
- model validation and model monitoring controls to assess the continued performance and predictability of the IFRS 9 credit risk mode

Disclosures:
The disclosures required by the financial reporting framework that assist management to address estimation uncertainty in the financia
statements include:
• IFRS 7.35F: credit risk management practices;
• IFRS 7.35G: explanation of inputs, assumptions and estimation techniques used to measure the 12-month and lifetime ECLs; and
• IAS 1.125 and IAS 1.129: information about the assumptions that management makes about the future, and other major sources of es
uncertainty at the reporting date, that have a significant risk of resulting in a material adjustment to the carrying amounts of assets and
with the next financial year. This may be presented as the sensitivity of carrying amounts to the methods, assumptions and estimates un
their calculation, including the reasons for the sensitivity.

These disclosures enable management to explain how they determined the point ECL estimate that is disclosed in the financial statemen
certain circumstances where there is more uncertainty around the estimate, such as during a global pandemic, additional disclosures be
those explicitly required by IFRS 7 and IAS 1 may be necessary to achieve fair presentation. See Section 4e. Disclosures of the Guidance

o address it by If based on the evidence obtained and using judgement, the engagement team determines that management has not taken the approp
elating to the steps to understand and address estimation uncertainty of ECLs, then the team asks management to:
1. Perform additional procedures to understand estimation uncertainty or to address it by reconsidering the selection of the ECL estima
Additional procedures may include
• performing a sensitivity analysis to understand the impact on the ECL estimate from changes in the assumptions and/or data;
• performing back-testing over the output of the IFRS 9 credit risk models and responding to the results of back-testing to understand if
methods / models, assumptions and data are appropriate;
• performing benchmarking of the modelled output and/or assumptions to determine whether more appropriate alternatives exist.
2. Consider providing additional disclosures relating to estimation uncertainty in the financial statements (see Section 4e. Disclosures o
Guidance for guidance on disclosures that address estimation uncertainty).
 's point Developing an independent expectation of the accounting estimate is only performed to the extent possible (KAEG-I, ISA 540.13-15 | 1.
mparison to "What if management has not taken appropriate steps to understand or address estimation uncertainty?"). Given the nature of the ECL
developing an independent expectation may be challenging.

Where developing an independent expectation is not possible, the engagement team assess the impact of management not sufficiently
addressing estimation uncertainty on their risk assessment and audit response. Additionally, engagement teams evaluate whether a defi
internal controls exists, and if so, communicates this to those charged with governance in accordance with the applicable communicatio
requirements, this is documented in the row below.

If a control deficiency is identified see KAEG -I, ISA 330.16-17 | 4 Conclude on our assessment of control risk for further guidance.

Yes

mate and how For ECLs, it is not common for management to perform a retrospective review on the overall estimate. Instead, the entity may perform
uate the retrospective review for specific portfolios, ECL components or assumptions. Most banks will have in place a model monitoring control w
typically performs back-testing to compare the modelled output with actual data to assess the predictive capability of the model. This m
performed for the portfolio as a whole or for different stages or segments of the portfolio. For a retail mortgage portfolio, this may inclu
- LGD: comparing the predicted LGDs to historical realised losses.
- PD: comparing the predicted PDs with the observed default rates.
For further details on how this may be performed, see Chapter 1.2.4 in Section 2d. Risk assessment: Related activities of the Guidance
Another area where management may perform back-testing over the ECL estimate is over the macro-economic forecasts. To perform th
retrospective review, management generally observes the actual outcome of the economic forecasts in the historical environment. If th
variances outside the entity's specified tolerance levels, then management challenges the economists and risk managers to understand
there is a flaw in the forecasting process, misalignment of parameters or any bias. For an example of how this may be performed, see C
1.2.4 in Section 2d. Risk assessment: Related activities of the Guidance.
If management has not performed a retrospective review, or their retrospective review is inappropriate, this may impact the engageme
ability to rely on controls and on their assessment of inherent risk related to methods/ models, assumptions and/or data. For example,
entity does not perform a retrospective review over the PD model, then management's risk assessment may be inappropriate because t
no indication of the model's accuracy at predicting results. This may result in the entity using an inaccurate / inappropriate model, resul
inappropriate ECL estimate. See Chapter 1.2.3 in Section 2d. Risk assessment: Related activities of the Guidance.

Due to the nature of the ECL estimate, it is challenging to perform a retrospective review over the ECL estimate as whole. Instead of the
retrospective review typically focuses on the outcomes of individual ECL models (e.g. PD, LGD and EAD) and assumptions.

It is recommended the engagement team leverage management's retrospective review, where appropriate. See 'Leveraging the entity's
retrospective review' in Chapter 1.3.3 of Section 2d. Risk assessment: Related activities for guidance. If the engagement team is unable
leverage management's retrospective review, they may perform their own. See 'Performing your own retrospective review' in Chapter
Section 2d. Risk assessment: Related activities.
ng estimate The retrospective review may assist the engagement team to assess the inherent risk factors related to the ECL elements. For example,
significant variance between the forecasted GDP parameter and the actual GDP parameter due to changes in global trade agreements w
management could not have predicted. As such, the engagement team notes there is a high degree of estimation uncertainty associated
macro-economic forecast. See Chapter 1.4 of Section 2d. Risk assessment: Related activities for further guidance.

In 'Tab 2. Risk Assessment' of this illustrative example, the model 'Retail mortgages - Forced Sale Discount (FSD)' was recalibrated in the
period due to the results of back-testing performed by management in the prior period, which determined the model was underpredicti
FSD. The results of this back-testing have been reflected in the risk assessment for the model, we have noted there is a greater degree o
estimation uncertainty associated with the model as the model was unable to accurately predicted the FSD in the prior period. See Tab
Assessment for further details.

t bias, Document the bias indicators, their impact on our identification and assessment of the RMM(s) and whether the circumsta
producing such bias represent a fraud risk.
If there is a significant variance between the actual outcome and the estimated outcome, or there is consistent variance (e
PD model consistently under-predicts the probability of default), this may indicate management was biased in their judgem
when selecting the methods / models, assumptions and/or data used to develop the ECL estimate. If the engagement team
identifies possible bias on the part of management, they then evaluate whether the circumstances producing such bias rep
an RMM due to fraud and consider the impact on the audit approach.

erence between the outcome of a modelled component

sumption in the current period and the amount
sed in the prior period does not necessarily represent a
ement of the prior-period financial statements. ECLs are
y associated with a high degree of estimation
inty. Due to this, it is expected there are differences
n the prior period modelled output or assumption, and
come of these in the current period. Teams apply
ent to assess these differences.
ortfalls over the expected life of the

workflow (KCw). It is recommended

lara workflow available on the IFRS 9
disaggregate the estimate into
y the bank. Once teams have
s in KCw, essentially disaggregating the
e components of an estimate

gregating the KCw accounts into the

s in the ECL estimate, this may include:
s entered a new market);

significant increase in credit risk); ●

supervisory authorities and

eir entity and engagement.

ate. The engagement team may

nd assessment of ECLs.
Committee) that oversee the

dures and standards to manage credit

9.
ped.
ated accounting policy (e.g. key
with IFRS 9 and its related accounting

e.g. details of the entity's model

work in place to ensure that models

ty's internal policies.

ts, e.g. service organisations) as part

anagement's specialists (if any) that are
The engagement team may reference
f the Guidance.
: CERAMIC of the Guidance.
dance.

gement team may also note here the

PD may include:

hapter 1.5 in Section 2a. Accounts,

inty' below);
on uncertainty' below); and

nd assess the differing risks of

kthrough, and/or

ext of the nature and circumstances of

 Financial Statements. To assist the
w.

ct asset or a loan commitment and a

ate about past events, current

he above textbox.

ents, this may be monthly,

ss to record or disclose the ECL

l, including any adjustments to

anagement will use information technology

efore controls relevant to the audit are likely
ed that the engagement team involves a
essment: CERAMIC and 2d. Risk

measurement of ECLs. The engagement team

tand the process to develop the ECL estimate.
obtain evidence concerning the design or

nal specialist's to assist in developing the ECL

a management's specialist is involved,
management uses a specialist, the
team member.
ECL estimate may include the

CL estimate.
nding to the results of back-testing.
mic assumptions benchmarked to the

ts to use in developing the ECL

possible measurement outcomes. This

of the IFRS 9 credit risk models.

on uncertainty in the financial

h and lifetime ECLs; and

and other major sources of estimation
rrying amounts of assets and liabilities
assumptions and estimates underlying

osed in the financial statements. In

mic, additional disclosures beyond
Disclosures of the Guidance.

ent has not taken the appropriate

e selection of the ECL estimate.

mptions and/or data;

back-testing to understand if the
opriate alternatives exist.
see Section 4e. Disclosures of the
 e (KAEG-I, ISA 540.13-15 | 1.2.3
. Given the nature of the ECL estimate,

management not sufficiently

eams evaluate whether a deficiency in
the applicable communication

k for further guidance.

ead, the entity may perform a

a model monitoring control which
apability of the model. This may be
tgage portfolio, this may include:

ed activities of the Guidance.

omic forecasts. To perform the
e historical environment. If there are
risk managers to understand whether
his may be performed, see Chapter

his may impact the engagement team's

ns and/or data. For example, if the
ay be inappropriate because they have
/ inappropriate model, resulting in an
idance.

mate as whole. Instead of the

d assumptions.

e. See 'Leveraging the entity's

e engagement team is unable to
ospective review' in Chapter 1.3.3 of
 ECL elements. For example, there is a
in global trade agreements which
mation uncertainty associated with the
uidance.

(FSD)' was recalibrated in the current

the model was underpredicting the
ed there is a greater degree of
D in the prior period. See Tab 2. Risk

s) and whether the circumstances

here is consistent variance (e.g. the

ent was biased in their judgements
mate. If the engagement team
ances producing such bias represent
Information in red text will be provided throughout this illustration to assist with further context as to intended use

Assess whether the RM related to the selection of the methods gives rise to a RMM and determine a
Always complete this section.

Please note this is provided as an example only, this is not a complete list of method(s) / model(s) used to de
methods / models used to develop the ECL estimate for a retail mortgages portfolio, however there may be a
engagement specific facts and circumstances (e.g. stage allocation, probability of survival, credit risk rating et
relevant to every ECL estimate for a retail mortgages portfolio. In this example we identify methods / models
segments or sub-sections of the method / model such as regulatory base model and IFRS 9 adaptations.

The inherent risk assessment reflected in this example are based on the facts and circumstances of the illust
circumstances of any particular audit engagement and the engagement team performs their inherent risk ass

Stage 3 ECLs:
Please note for this example, we have assumed that Stage 3 ECLs are measured on a collective basis rather than on an
has not been identified below.

Significant increase in credit risk (SICR):

SICR / staging methodology is a management decision that is made as part of the entity's methods / models. Generally
policy and ECL method, which is applied in the relevant models. For this example, we have assumed SICR criteria is det
As such, the relevant audit procedures over SICR / staging criteria are performed as part of the related method / mode

Definition of default:
The definition of default is a management decision that is made as part of the entity's methods / models. Generally, m
accounting policy and ECL method, which is applied in the relevant models (e.g. the PD model). As such, relevant audit
method / model, see tab 'M1 - PD Model'.

Identify the methods used to develop the estimate and identify risk considerations, if applicable.

Method ID Identify the method/model

M1 Retail mortgages - PD Model
M2 Retail mortgages - LGD Model
M3 Retail mortgages - EAD Model
M4 Economic scenario model
M5 Retail mortgages - ECL Calculation Model (using PD,
EAD, LGD, discount rate and maturity as inputs)
 Retail mortgages - Forced Sale Discount (submodel
M6 to the LGD model)

Due to the complexity of the ECL

estimate, many of the assumptions
used in the ECL models are themselves
model based (i.e. developed using a
model). In these cases the entity uses
models to develop assumptions which
are inputs into the ECL models. Where
an assumption is derived from a
model, it is recommended the
engagement team identifies the
submodel under the Element RMM:
Selection of the methods / models is
inappropriate, as shown in this
example.
 Management Overlay - Late-breaking economic
M7 event

In this example we have identified the management

overlay as a separate method / model, and have
completed an individual response tab for the
management overlay (see Tab M7 - Management
Overlay). This is one approach teams can take to
document management overlays in the work paper. The
reason for documenting the overlay in this way, is due to
the fact that the adjustment is a 'non-modelled overlay'.
Non-modelled overlays are adjustments that may not
have been considered as part of the ECL modelling
process. Such adjustments are usually posted after the
completion of the financial reporting process but before
the financial statements are issued. The overlay included
in this example is due to the discovery of a new COVID-
19 variant between the ECL modelling date and the
reporting date, which has impacted management's
economic outlook. As the overlay is outside the regular
ECL modelling process, it is recorded in the general
ledger as a top-side adjustment (or a non-standard
journal entry) to the ECL estimate.

Identifying the management overlay as a separate

method / model is one approach teams can take to
document management overlays in the Accounting
Estimates - Required Work Paper. Alternatively, teams
can identify the management overlay as part of the
relevant method / model by selecting the inherent risk
factor 'adjustments are made?'. In these cases, the team
assess the inherent risk of the management overlay as
part of the relevant method / model and documents the
response over the management overlay in the same
1. Alternative
response tab asmethods or models
the relevant exist | 2.
method Adjustments
/ model. Thisare made to the output of the model | 3. There is a lag period between the calculation of
approach is typically taken when the adjustment is a
modelled overlay - i.e. where the overlay is incorporated
directly into the ECL model.
Assess whether the RM related to the selection of the assumptions gives rise to a RMM and determin
Always complete this section.

Please note this is provided as an example only, this is not a complete list of assumptions used to develop th
used to develop the ECL estimate for a retail mortgages portfolio, however there may be additional assumpti
and circumstances (e.g. credit risk rating). Additionally, the assumptions identified below may not be relevan

The inherent risk assessment reflected in this example are based on the facts and circumstances of the illust
the circumstances of any particular audit engagement and the engagement team performs their inherent ris
circumstances.
Correctly classifying the information used to develop the ECL estimate as an assumption or data can be an ar
Section 4d. Data of the IFRS 9 Global Audit Guidance - Banks : Impairment. may assist teams to may this det
may assist teams in maying this determination.

Identify the assumptions used to develop the estimate and identify risk considerations, if applicable.

Assumption
ID Identify the assumption
 The period of historical data used to develop the
A1 model contains sufficient variation so that the
correlations established within the model are
appropriate
 Central scenario: Internally developed GDP forecast
A2 (1 year forecast)

Another area where there is inconsistency between teams is the

identification of the macro-economic parameters used in the base case or
central scenario. Our IFRS 9 guidance recommends teams disaggregate the
base case or central scenario and identify each individual macro-economic
parameter as an assumption. This is due to the fact that management
exercises judgement to determine that each individual parameter is
correlated to the credit losses in the portfolio. The alternative scenarios are
not disaggregated as management's assumption relates to what is the
alternative scenario - e.g. there is a trade war between two super powers.

Please see Section 4c: Assumptions of the IFRS 9 Global Audit Guidance -
Banks : Impairment.
A3 Central scenario: Internally developed
unemployment rate forecast (1 year forecast)

Central scenario: Internally generated inflation

A4 forecast (5 year forecast)
 Central scenario: External housing price forecast
A5 adjusted by management (1 year forecast)
A6 Upside scenario 1

A7 Downside scenario 1
A8 Probability weighting for central scenario is 50%

A9 Probability weighting for upside scenario is 30%

A10 Probability weighting for downside scenario is 20%

A11 Collateral valuations
 When a team identifies a management overlay under the Element RM: Selection of the methods / mo
is inappropriate, it is recommended they identify the assumptions used to develop the management ov
under the Element RM: Selection of the assumption is inappropriate.

The management overlay in this example is posted to adjust for a late-breaking event (discovery of a ne
COVID-19 variant between the between the entity establishing and validating its ECL results and the
reporting date). To adjust for this late-breaking event, management has adjusted the previous probabili
weightings for each of the macro-economic scenarios. This is shown in A12, A13 and A14.

Management Overlay 1 - probability weighting for

A12 central scenario is 40%
A13 Management Overlay 1 - probability weighting for
upside scenario is 20%

A14 Management Overlay 1 - probability weighting for

downside scenario is 40%
A15 Recovery rate
A16 The recovery period is 5 years
A17 Forced sale discount (output of the Retail Mortgage
- Forced Sale Discount model)
1. There are alternatives to the assumption that should be considered | 2. The assumption is sensitive to variation such that minor changes can ca
inconsistent with others used to develop the estimate, with similar assumptions used in other estimates, or those used in other areas of the entity

Assess whether the RM related to the selection of the data gives rise to a RMM and determine an ap
Always complete this section.

Under the IFRS 9 Guidance, it is suggested that engagement teams identify and group data into 'ECL data card
estimate. To assist engagement teams with the identification and grouping of data, it is suggested that engag
available on the IFRS 9 Global Audit Guidance page.
The 'Data scoping work paper' is completed ahead of completing the below table, as the grouped 'ECL data c
The data scoping work paper allows engagement teams to group data based on similar risk characteristics. T
― borrower-specific data or macro-economic data;
― internal data or external data;
― historical data, current data or forecast data;
― static data or dynamic data;
― direct data or proxy data; and
― calibrated data or non-calibrated data.

The 'ECL data cards' allow engagement teams to aggregate similar data (based on the above characteristics)
data elements are not required to be documented and instead groups of similar data are risk assessed.
See Section 4d. Data of the IFRS 9 Global Audit Guidance - Banks: Impairment for further guidance on groupi

Please note this is provided as an example only, this is not a complete list of data used to develop the ECL es
the ECL estimate for a retail mortgages portfolio, however there may be additional data teams consider and i
The inherent risk assessment reflected in this example is based on the facts and circumstances of the illustra
circumstances of any particular audit engagement and the engagement team performs their inherent risk ass
circumstances.

Correctly classifying the information used to develop the ECL estimate as an assumption or data can be an ar
Section 4d. Data of the IFRS 9 Global Audit Guidance - Banks: Impairment may assist teams to make this dete
may assist teams in making this determination.

Identify the data used to develop the estimate and identify risk considerations, if applicable.

Data ID Identify the data

DC1 Loan origination data

As noted above, where the engagement team uses the 'Data scoping work paper', they would have
identified various 'ECL Data cards'. Each 'ECL Data card' consists of a number of RDE's.
For example, this card consists of the following RDE's (as can be seen on the 'Data response- Internal'
tab):
- Location
- Product type
- Date of initial recognition
- Maturity Date
- Notional Amount
- Interest payment dates
- Contractual interest rate
- Collateral type
- Currency denomination

The RDE's listed are all borrower-specific, historic, static, internal data and hence can be grouped
together.
DC2 Historical and current macro-economic data

In this example we have grouped both historical and

current macro-economic data into one data card. The
data contains the same inherent risk given the nature
of the data is sufficiently similar. As such, the inherent
risk factors can be assessed together for the data.
DC3 Unadjusted macro-economic forecast data

This information is classified as data as:

(a) The information is from a third party provider,
and the information is:
(i) is suitable for a broad range of users; and
(ii) is made available to the public for free or for a
fee.

Additionally the information is obtained through

direct observation, there is no adjustment by
management to the data. Where there is an
adjustment to the data the information is typically
identified as an assumption as management
judgement involved is generally more significant in
nature (see A5: Central scenario: External housing
price forecast adjusted by management (1 year
forecast)).
DC3 Historical credit loss data

RDEs included in this data card may include:

- historic defaults;
- historic realised losses due to default;
- historic collateral sales value;
- historic recovery rates.
DC4 Credit monitoring data

RDEs included in this data card may include:

- PD comparison (i.e. initial recognition vs reporting
date);
- Days past due;
- Missed payment;
- Percentage of loans with payments in advance;
- Percentage of loans past due;
- Exposures with mortgage insurance.
DC5 Discount rate (i.e. effective interest rate (EIR))

EIR is generally considered derived data under ISA 540 (Revised) - i.e.
Information obtained by applying analytical or interpretive techniques to
data is referred to as derived data when such techniques have a well-
established theoretical basis and therefore less need for management
judgment.

Generally, the EIR calculation is not complex and it does not involve
management judgement. Hence the EIR is considered data.
DC6 Current loan data
DC7 Behavioural life (i.e. period of exposure)

In this example, the behavioural life has been identified as data as it is the contractual period. However,
may be circumstances where the behavioural life is identified as an assumption. These are:
a. for revolving credit facilities, such as credit cards, an entity measures ECLs over the period for which it
exposed to credit risk, even if that period extends beyond the maximum contractual period (Insights into
18th Edition 2021/22, 7.8.205).
b. where the entity measures ECLs over a period less than the contractual period as this reflects the per
over which there is exposure to credit risk. For example, the contractual period for an entity's mortgage
portfolio is 20 years; however due to customers typically making prepayments on their mortgages, repa
is made before the contractual maturity date. As such, the actual period over which the entity is expose
credit risk is less than the contractual period and management exercises judgement to determine the pe
of exposure. See pg.51 of Section 4c. Assumptions of the IFRS 9 Global Audit Guidance - Banks: Impairm
for further guidance.
DC8 Data with no audit response required [See data
scoping WP at <XX>]

1. Alternative data or sources exist | 2. There is a risk that the data may be insufficiently precise and detailed for use in the estimate | 3. The data
used in the prior period

Assess whether the RM related to the application of the methods, assumptions and data is a RMM an
Always complete this section.

The engagement team identifies different aspects of the ECL estimate that warrant separate response levels
methods / models, assumptions and data. This may include the following:
- the calculations within a model, including the model code used
- the model integrity, including maintaining the integrity of assumptions and data.

In this example, we have identified a different aspect for each model identified under the Element RMM: Sel
models is inappropriate. Each aspect relates to the accurate application of the calculations within the model
of the assumptions and data. Engagement teams may break these aspects down further depending on the a
models.

Please note this is provided as an example only, this is not a complete list of aspects used to develop the ECL
have identified key aspects used to develop the ECL estimate for a retail mortgages portfolio, however there
teams consider and identify for their engagement specific facts and circumstances.
The inherent risk assessment reflected in this example is based on the facts and circumstances of the illustra
assessment decisions in this tab do not reflect the circumstances of any particular audit engagement and the
their inherent risk assessment based on their engagement specific facts and circumstances.
 Please note this is provided as an example only, this is not a complete list of aspects used to develop the ECL
have identified key aspects used to develop the ECL estimate for a retail mortgages portfolio, however there
teams consider and identify for their engagement specific facts and circumstances.
The inherent risk assessment reflected in this example is based on the facts and circumstances of the illustra
assessment decisions in this tab do not reflect the circumstances of any particular audit engagement and the
their inherent risk assessment based on their engagement specific facts and circumstances.

Identify the individual aspects of the estimate that pertain to the application of the methods, assumptions and data and identify ri

Identify aspects of the estimate that warrant

Reference separate response levels for the application of the
methods, assumptions and data

AP1 Retail Mortgages - PD model - accurate application

and integrity of model

Retail Mortgages - LGD model - accurate

AP2 application and integrity of the model

Retail Mortgages - EAD model - accurate

AP3 application and integrity of the model

Economic scenario model - accurate application

AP4 and integrity of the model

AP5 Retail Mortgages - ECL Calculation Model - accurate

application and integrity of the model

AP6 Retail mortgages - Forced Sale Discount model -

accurate application and integrity of the model

Perform an aggregate risk assessment

Always complete this section.
Document why there is no risk of material misstatement in the aggregate for the methods, assumptions and data for which we hav
The engagement team has identified only one data card which requires no audit response. This data card represents data element
elements within this data card were wrong this would not result in a material misstatement to the ECL estimate. As such, the enga
response.

This section is not applicable for this example as it is an ISA engagement.

[PCAOB only] Specific requirements for critical accounting estimates

Complete this section if PCAOB was selected for 'Applicable auditing standards and other legislative and regulatory requirements' in

Is the accounting estimate a critical accounting estimate that management is including in MD&A?

Document our understanding of how management analysed the sensitivity of its significant assumptions to change based on other

We have assessed the inherent risk of at least one RMM as significant for the critical accounting estimate.
 out this illustration to assist with further context as to intended use of the Estimates work paper.

ection of the methods gives rise to a RMM and determine an appropriate audit response for the individual methods

nly, this is not a complete list of method(s) / model(s) used to develop the ECL estimate. In this example, we have identified key
stimate for a retail mortgages portfolio, however there may be additional methods / models teams consider and identify for the
(e.g. stage allocation, probability of survival, credit risk rating etc.). Additionally, the methods / models identified below may no
ortgages portfolio. In this example we identify methods / models on a holistic basis (e.g. the entire PD model) rather than identi
odel such as regulatory base model and IFRS 9 adaptations.

s example are based on the facts and circumstances of the illustrative entity. The risk assessment decisions in this tab do not re
ment and the engagement team performs their inherent risk assessment based on their engagement specific facts and circums

hat Stage 3 ECLs are measured on a collective basis rather than on an individual basis for exposures in Stage 3. As such, an individual Stage

cision that is made as part of the entity's methods / models. Generally, management determines the SICR criteria as part of the entity's acc
levant models. For this example, we have assumed SICR criteria is determined and applied within the entity's methods / models (e.g. the P
/ staging criteria are performed as part of the related method / model, see tab 'M1 - PD Model'.

on that is made as part of the entity's methods / models. Generally, management determines the definition of default as part of the entity'
ied in the relevant models (e.g. the PD model). As such, relevant audit procedures over the definition of default are performed as part of th

d identify risk considerations, if applicable.

Identify risk considerations specific to Alternatives

the selection of the method, if applicable exist?1
GOBKRCE109.8b.01: The definition of default is not appropriately determined or
consistently applied.
GOBKRCE109.8b.04: The relevant criteria for significant increases in credit risk ("SICR")
are not sufficiently or appropriately identified and/or inappropriate criteria are
considered when determining what constitutes a SICR. In addition, SICR is Yes
inappropriately assessed or applied, leading to assets being allocated to incorrect stages.

GOBKRCE109.8b.08: The entity's approach to the determination of ECL is not a

probability-weighted estimate of credit losses (i.e. the present value of cash shortfalls)
over the expected life of the financial instrument.
In this example, we have selected
made?' as an inherent risk factor
management has not made an ad
PD model. Where adjustments ar
model as part of the ECL modellin
An area where we have seen inconsistency between teams is in the as 'modelled overlays', as the ove
identification and documentation of risk considerations. directly into the ECL model. If tea
overlay it is recommended they se
Risk considerations for estimates (RCEs) are requirements from the 'adjustments made' inherent risk
applicable financial reporting framework that apply directly to specific overlay as part of the model.
elements of an accounting estimate. For ECLs, the RCEs in accordance
with IFRS 9 are available in the Library Estimates Content Report: IFRS In this example, we have identifie
on Alex. (see M7: Management Overlay - L
event) as a separate method / mo
RCEs are associated with the specific methods / models, assumptions and / the management overlay is a 'non
or data within an accounting estimate that they impact. They are designed
to assist the team in identifying and assessing the RMMs that arise within Non-modelled overlays are adjust
the elements of the accounting estimate. For further guidance on linking been considered as part of the EC
RCEs to methods / models see Section 4b: Methods / Models of the IFRS 9 adjustments are usually posted aft
Global Audit Guidance - Banks : Impairment. financial reporting process but be
statements are issued - e.g. overla
breaking events that change man
the severity of an economic down
(e.g. agricultural drought). These
typically posted as a top-side adju
journal entry) in the general ledge
estimate.
An area where we have seen inconsistency between teams is in the
identification and documentation of risk considerations. directly into the ECL model. If tea
overlay it is recommended they se
Risk considerations for estimates (RCEs) are requirements from the 'adjustments made' inherent risk
applicable financial reporting framework that apply directly to specific overlay as part of the model.
elements of an accounting estimate. For ECLs, the RCEs in accordance
with IFRS 9 are available in the Library Estimates Content Report: IFRS In this example, we have identifie
on Alex. (see M7: Management Overlay - L
event) as a separate method / mo
RCEs are associated with the specific methods / models, assumptions and / the management overlay is a 'non
or data within an accounting estimate that they impact. They are designed
to assist the team in identifying and assessing the RMMs that arise within Non-modelled overlays are adjust
the elements of the accounting estimate. For further guidance on linking been considered as part of the EC
RCEs to methods / models see Section 4b: Methods / Models of the IFRS 9 adjustments are usually posted aft
Global Audit Guidance - Banks : Impairment. financial reporting process but be
statements are issued - e.g. overla
breaking events that change man
the severity of an economic down
(e.g. agricultural drought). These
typically posted as a top-side adju
journal entry) in the general ledge
estimate.
GOBKRCE109.8b.08: The entity's approach to the determination of ECL is not a
probability-weighted estimate of credit losses (i.e. the present value of cash shortfalls)
over the expected life of the financial instrument.
Yes
GOBKRCE109.8b.01: The definition of default is not appropriately determined or
consistently applied.
None No
None Yes

In this example, we have recognise

a separate method / model (see M
Late-breaking economic event).

This is due to the fact the adjustme

modelled overlay'. Non-modelled o
that may not have been considered
modelling process. Such adjustmen
the completion of the financial rep
the financial statements are issued
late breaking events that change m
of the severity of an economic dow
(e.g. agricultural drought). As such,
the 'adjustments are made?' inhere
underlying economic response mod

If the management overlays are ad

part of the ECL modelling process -
data limitations where relevant dat
relevant and reliable data has since
in an overlay adjustment. Then tea
this inherent risk factor as the adju
modelling process.
GOBKRCE109.8b.08: The entity's approach to the determination of ECL is not a
probability-weighted estimate of credit losses (i.e. the present value of cash shortfalls)
over the expected life of the financial instrument.
GOBKRCE109.8b.04: The relevant criteria for significant increases in credit risk ("SICR") No
are not sufficiently or appropriately identified and/or inappropriate criteria are
considered when determining what constitutes a SICR. In addition, SICR is
inappropriately assessed or applied, leading to assets being allocated to incorrect stages.

In this example, we have recognised

a separate method / model (see M7
Late-breaking economic event).

This is due to the fact the adjustmen

modelled overlay'. Non-modelled ov
that may not have been considered
modelling process. Such adjustment
the completion of the financial repo
the financial statements are issued -
late breaking events that change ma
of the severity of an economic down
(e.g. agricultural drought). As such, w
the 'adjustments are made?' inheren
underlying model.

If the management overlays are adju

part of the ECL modelling process - e
data limitations where relevant data
relevant and reliable data has since b
in an overlay adjustment. Then team
this inherent risk factor as the adjust
modelling process. See M1: Retail M
for an example of a modelled over
None Yes
 None Yes

made to the output of the model | 3. There is a lag period between the calculation of an estimate and the measurement date | 4. There have been changes in circumstan
ection of the assumptions gives rise to a RMM and determine an appropriate audit response for the individual assump

only, this is not a complete list of assumptions used to develop the ECL estimate. In this example, we have identified key assump
mortgages portfolio, however there may be additional assumption teams consider and identify for their engagement specific fa
dditionally, the assumptions identified below may not be relevant to every ECL estimate for a retail mortgages portfolio

s example are based on the facts and circumstances of the illustrative entity. The risk assessment decisions in this tab do not re
gagement and the engagement team performs their inherent risk assessment based on their engagement specific facts and

develop the ECL estimate as an assumption or data can be an area of challenge for teams. The information decision tree on pg
Guidance - Banks : Impairment. may assist teams to may this determination. Additionally, the ISG's Examples of IFRS 9 assumpti
on.

e and identify risk considerations, if applicable.

Identify risk considerations specific to Alternatives

the selection of the assumption, if applicable exist?1
None Yes

An area where we have seen inconsistency between teams is in the

identification and documentation of risk considerations.

Risk considerations for estimates (RCEs) are requirements from the

applicable financial reporting framework that apply directly to
specific elements of an accounting estimate. For ECLs, the RCEs in
accordance with IFRS 9 are available in the Library Estimates
Content Report: IFRS on Alex.

RCEs are associated with the specific methods / models,

assumptions and / or data within an accounting estimate that they
impact. They are designed to assist the team in identifying and
assessing the RMMs that arise within the elements of the
accounting estimate. For further guidance on linking RCEs to
assumptions see Section 4c: Assumptions of the IFRS 9 Global Audit
Guidance - Banks : Impairment.
 GOBKCRE109.8b.06: The entity's approach to the determination of the macro-economic
forecast does not generate an unbiased, probability-weighted ECL due to:
(i) inappropriate scenarios identified;
(ii) inappropriate macroeconomic variables identified; Yes
(iii) inappropriate probability weights used in respect of the identified macroeconomic
variables.

sistency between teams is the

mic parameters used in the base case or
nce recommends teams disaggregate the
identify each individual macro-economic
is due to the fact that management
that each individual parameter is
he portfolio. The alternative scenarios are
t's assumption relates to what is the
a trade war between two super powers.

ns of the IFRS 9 Global Audit Guidance -

GOBKCRE109.8b.06: The entity's approach to the determination of the macro-economic
forecast does not generate an unbiased, probability-weighted ECL due to:
(i) inappropriate scenarios identified; Yes
(ii) inappropriate macroeconomic variables identified;
(iii) inappropriate probability weights used in respect of the identified macroeconomic
variables.

GOBKCRE109.8b.06: The entity's approach to the determination of the macro-economic

forecast does not generate an unbiased, probability-weighted ECL due to:
(i) inappropriate scenarios identified;
(ii) inappropriate macroeconomic variables identified; Yes
(iii) inappropriate probability weights used in respect of the identified macroeconomic
variables.
GOBKCRE109.8b.06: The entity's approach to the determination of the macro-economic
forecast does not generate an unbiased, probability-weighted ECL due to:
(i) inappropriate scenarios identified;
(ii) inappropriate macroeconomic variables identified; Yes
(iii) inappropriate probability weights used in respect of the identified macroeconomic
variables.
GOBKCRE109.8b.06: The entity's approach to the determination of the macro-economic
forecast does not generate an unbiased, probability-weighted ECL due to:
(i) inappropriate scenarios identified;
(ii) inappropriate macroeconomic variables identified; Yes
(iii) inappropriate probability weights used in respect of the identified macroeconomic
variables.

GOBKCRE109.8b.06: The entity's approach to the determination of the macro-economic

forecast does not generate an unbiased, probability-weighted ECL due to:
(i) inappropriate scenarios identified;
(ii) inappropriate macroeconomic variables identified; Yes
(iii) inappropriate probability weights used in respect of the identified macroeconomic
variables.
GOBKCRE109.8b.06: The entity's approach to the determination of the macro-economic
forecast does not generate an unbiased, probability-weighted ECL due to:
(i) inappropriate scenarios identified;
(ii) inappropriate macroeconomic variables identified; Yes
(iii) inappropriate probability weights used in respect of the identified macroeconomic
variables.

GOBKCRE109.8b.06: The entity's approach to the determination of the macro-economic

forecast does not generate an unbiased, probability-weighted ECL due to:
(i) inappropriate scenarios identified; Yes
(ii) inappropriate macroeconomic variables identified;
(iii) inappropriate probability weights used in respect of the identified macroeconomic
variables.

GOBKCRE109.8b.06: The entity's approach to the determination of the macro-economic

forecast does not generate an unbiased, probability-weighted ECL due to:
(i) inappropriate scenarios identified; Yes
(ii) inappropriate macroeconomic variables identified;
(iii) inappropriate probability weights used in respect of the identified macroeconomic
variables.
None Yes
ement overlay under the Element RM: Selection of the methods / models
ded they identify the assumptions used to develop the management overlay
n of the assumption is inappropriate.

example is posted to adjust for a late-breaking event (discovery of a new

etween the entity establishing and validating its ECL results and the
late-breaking event, management has adjusted the previous probability
-economic scenarios. This is shown in A12, A13 and A14.

GOBKCRE109.8b.06: The entity's approach to the determination of the macro-economic

forecast does not generate an unbiased, probability-weighted ECL due to:
(i) inappropriate scenarios identified;
(ii) inappropriate macroeconomic variables identified; Yes
(iii) inappropriate probability weights used in respect of the identified macroeconomic
variables.
GOBKCRE109.8b.06: The entity's approach to the determination of the macro-economic
forecast does not generate an unbiased, probability-weighted ECL due to:
(i) inappropriate scenarios identified; Yes
(ii) inappropriate macroeconomic variables identified;
(iii) inappropriate probability weights used in respect of the identified macroeconomic
variables.

GOBKCRE109.8b.06: The entity's approach to the determination of the macro-economic

forecast does not generate an unbiased, probability-weighted ECL due to:
(i) inappropriate scenarios identified; Yes
(ii) inappropriate macroeconomic variables identified;
(iii) inappropriate probability weights used in respect of the identified macroeconomic
variables.
None No
None No
None Yes
onsidered | 2. The assumption is sensitive to variation such that minor changes can cause significant changes in the estimate | 3. The assumption involves unobservable d
similar assumptions used in other estimates, or those used in other areas of the entity’s business activities | 6. There have been changes in circumstances that suggest a n

ection of the data gives rise to a RMM and determine an appropriate audit response for the individual data

at engagement teams identify and group data into 'ECL data cards' given the large volume of data involved in developing the EC
he identification and grouping of data, it is suggested that engagement teams complete the 'Data scoping work paper' which is
e page.
ahead of completing the below table, as the grouped 'ECL data cards' are identified and documented below.
ment teams to group data based on similar risk characteristics. The characteristics outlined in the work paper are as follows:
c data;

ta;

s to aggregate similar data (based on the above characteristics) ahead of including this in the estimate workpaper so that indiv
ented and instead groups of similar data are risk assessed.
dit Guidance - Banks: Impairment for further guidance on grouping data.

nly, this is not a complete list of data used to develop the ECL estimate. In this example, we have identified key data used to dev
olio, however there may be additional data teams consider and identify for their engagement specific facts and circumstances.
s example is based on the facts and circumstances of the illustrative entity. The risk assessment decisions in this tab do not refle
ment and the engagement team performs their inherent risk assessment based on their engagement specific facts and

develop the ECL estimate as an assumption or data can be an area of challenge for teams. The information decision tree on pg.
Guidance - Banks: Impairment may assist teams to make this determination. Additionally, the ISG's Examples of IFRS 9 assumpti
on.

ntify risk considerations, if applicable.

Identify risk considerations specific to

the selection of the data, if applicable Type
 None Internal

ses the 'Data scoping work paper', they would have

ta card' consists of a number of RDE's.
RDE's (as can be seen on the 'Data response- Internal'

ic, static, internal data and hence can be grouped

GOBKRCE109.8b.07: The economic information used in the economic forecast does not External
generate an unbiased, probability-weighted ECL due to inaccurate information.
GOBKRCE109.8b.07: The economic information used in the economic forecast does not External
generate an unbiased, probability-weighted ECL due to inaccurate information.
None Internal
None Internal
 GOBKRCE109.8b.09: The discount rate for ECL measurement is not considered or
appropriately determined. Internal

d data under ISA 540 (Revised) - i.e.

analytical or interpretive techniques to
when such techniques have a well-
herefore less need for management

t complex and it does not involve

he EIR is considered data.
None Internal
 GOBKRCE109.8b.02: The period of exposure for non-revolving facilities is not
appropriately determined. Internal

fe has been identified as data as it is the contractual period. However, there

behavioural life is identified as an assumption. These are:
ch as credit cards, an entity measures ECLs over the period for which it is
period extends beyond the maximum contractual period (Insights into IFRS,

s over a period less than the contractual period as this reflects the period
edit risk. For example, the contractual period for an entity's mortgage
to customers typically making prepayments on their mortgages, repayment
aturity date. As such, the actual period over which the entity is exposed to
ual period and management exercises judgement to determine the period
4c. Assumptions of the IFRS 9 Global Audit Guidance - Banks: Impairment
 Per the 'Data scoping work paper' - where teams have assessed and
documented that the data does not require an audit response( as
there is a remote chance of material misstatement occurring) the
team may group and present the data as one line item (i.e. 'Data -
no audit response) in Tab 2. Risk assessment. Teams would still need
to risk assess the data alongside as reflected - however, the Internal
response would be noted as 'none'.

This is in line with KAEG-I (INTL), ISA 540.13–15 l 1.2.4.3.3 l “Do we

evaluate all data used in the entity’s estimation process?” which
states:
Teams only perform audit procedures over data that is important to
an estimate. They wouldn’t necessarily test data where there is a
remote chance of a material misstatement occurring, even if the
data used was completely wrong. In other words, the risk that the
particular data element represents a risk of material misstatement
is, in that case, remote.
e data may be insufficiently precise and detailed for use in the estimate | 3. The data is used in other estimates, significant accounts or disclosures such that there is a ris

plication of the methods, assumptions and data is a RMM and determine an appropriate audit response for the aspec

pects of the ECL estimate that warrant separate response levels for the application of the
his may include the following:
he model code used
he integrity of assumptions and data.

nt aspect for each model identified under the Element RMM: Selection of the methods /
to the accurate application of the calculations within the model and maintaining the integrity
eams may break these aspects down further depending on the application risk within the

nly, this is not a complete list of aspects used to develop the ECL estimate. In this example, we
the ECL estimate for a retail mortgages portfolio, however there may be additional aspects
ment specific facts and circumstances.
s example is based on the facts and circumstances of the illustrative entity. The risk
ct the circumstances of any particular audit engagement and the engagement team performs
r engagement specific facts and circumstances.
nly, this is not a complete list of aspects used to develop the ECL estimate. In this example, we
the ECL estimate for a retail mortgages portfolio, however there may be additional aspects
ment specific facts and circumstances.
s example is based on the facts and circumstances of the illustrative entity. The risk
ct the circumstances of any particular audit engagement and the engagement team performs
r engagement specific facts and circumstances.

tain to the application of the methods, assumptions and data and identify risk considerations, if applicable.
Degree of:

Identify risk considerations specific to the application Complexity

of the methods, assumptions and data, if applicable

High

High

Low

High

Low

Moderate
 nt in the aggregate for the methods, assumptions and data for which we have determined do not require a response.
rd which requires no audit response. This data card represents data elements that the engagement team has assessed as having a remote risk of materi
not result in a material misstatement to the ECL estimate. As such, the engagement team has assessed there is no risk of material misstatement in aggr

example as it is an ISA engagement.

itical accounting estimates

able auditing standards and other legislative and regulatory requirements' in Engagement profile.

te that management is including in MD&A?

alysed the sensitivity of its significant assumptions to change based on other reasonably likely outcomes that would have a material effect in its financia

M as significant for the critical accounting estimate.

se for the individual methods

s example, we have identified key

eams consider and identify for their
/ models identified below may not be
ntire PD model) rather than identifying

ent decisions in this tab do not reflect the

gement specific facts and circumstances.

Stage 3. As such, an individual Stage 3 model

ICR criteria as part of the entity's accounting

entity's methods / models (e.g. the PD model).

nition of default as part of the entity's

of default are performed as part of the related

Adjustments Lag Changes in

are made?2 period?3 circumstances?4
 No Yes Yes

In this example, we have selected 'no' to 'adjustments

made?' as an inherent risk factor to reflect the fact that
management has not made an adjustment directly to the
PD model. Where adjustments are made to a specific
model as part of the ECL modelling process they are known
as 'modelled overlays', as the overlay is incorporated
directly into the ECL model. If teams identify a modelled
overlay it is recommended they select 'yes' to the
'adjustments made' inherent risk factor, and audit the
overlay as part of the model.
In this example, we have identified a management overlay
(see M7: Management Overlay - Late breaking economic
event) as a separate method / model. This is due to the fact
the management overlay is a 'non-modelled overlay'.
Non-modelled overlays are adjustments that may not have
been considered as part of the ECL modelling process. Such
adjustments are usually posted after the completion of the
financial reporting process but before the financial
statements are issued - e.g. overlays related to late
breaking events that change management's assessment of
the severity of an economic downturn or industry factors
(e.g. agricultural drought). These management overlays are
typically posted as a top-side adjustment (or non-standard
journal entry) in the general ledger to the overall ECL
estimate.
directly into the ECL model. If teams identify a modelled
overlay it is recommended they select 'yes' to the
'adjustments made' inherent risk factor, and audit the
overlay as part of the model.
In this example, we have identified a management overlay
(see M7: Management Overlay - Late breaking economic
event) as a separate method / model. This is due to the fact
the management overlay is a 'non-modelled overlay'.
Non-modelled overlays are adjustments that may not have
been considered as part of the ECL modelling process. Such
adjustments are usually posted after the completion of the
financial reporting process but before the financial
statements are issued - e.g. overlays related to late
breaking events that change management's assessment of
the severity of an economic downturn or industry factors
(e.g. agricultural drought). These management overlays are
typically posted as a top-side adjustment (or non-standard
journal entry) in the general ledger to the overall ECL
estimate.
No Yes Yes
No Yes Yes
 No Yes Yes

In this example, we have recognised a management overlay as

a separate method / model (see M7: Management Overlay -
Late-breaking economic event).

This is due to the fact the adjustment in this example is a 'non-

modelled overlay'. Non-modelled overlays are adjustments
that may not have been considered as part of the ECL
modelling process. Such adjustments are usually posted after
the completion of the financial reporting process but before
the financial statements are issued - e.g. overlays related to
late breaking events that change management's assessment
of the severity of an economic downturn or industry factors
(e.g. agricultural drought). As such, we have selected 'no' to
the 'adjustments are made?' inherent risk factor for the
underlying economic response model.

If the management overlays are adjustments accounted for as

part of the ECL modelling process - e.g. a model overlay due to
data limitations where relevant data was not available or more
relevant and reliable data has since become available resulting
in an overlay adjustment. Then teams would select 'yes' to
this inherent risk factor as the adjustment is part of the
modelling process.
 No Yes No

In this example, we have recognised a management overlay as

a separate method / model (see M7: Management Overlay -
Late-breaking economic event).

This is due to the fact the adjustment in this example is a 'non-

modelled overlay'. Non-modelled overlays are adjustments
that may not have been considered as part of the ECL
modelling process. Such adjustments are usually posted after
the completion of the financial reporting process but before
the financial statements are issued - e.g. overlays related to
late breaking events that change management's assessment
of the severity of an economic downturn or industry factors
(e.g. agricultural drought). As such, we have selected 'no' to
the 'adjustments are made?' inherent risk factor for the
underlying model.

If the management overlays are adjustments accounted for as

part of the ECL modelling process - e.g. model overlay due to
data limitations where relevant data was not available or more
relevant and reliable data has since become available resulting
in an overlay adjustment. Then teams would select 'yes' to
this inherent risk factor as the adjustment is part of the
modelling process. See M1: Retail Mortgages - PD Model
for an example of a modelled overlay.
No Yes Yes
 No No Yes

e | 4. There have been changes in circumstances that suggest a need to revise the method | 5. Management made changes from the method used in the prior period
 ponse for the individual assumptions

ple, we have identified key assumptions

fy for their engagement specific facts
retail mortgages portfolio

ment decisions in this tab do not reflect

engagement specific facts and

e information decision tree on pg. 14 of

ISG's Examples of IFRS 9 assumptions

Sensitive to Unobservable Relies on the entity's Internal Changes in

variation?2 data?3 intent or ability?4 inconsistency risk?5 circumstances?6
No Yes No No Yes

Another area where there is inconsistency

between teams is the selection of
unobservable data as an inherent risk
factor when internal historical data has
been used to develop the assumption. Our
IFRS 9 Guidance considers internal
historical data to be unobservable. As such,
it is intended 'unobservable data' is
selected as an inherent risk factor where
internal historical data is used to develop
the assumption.

In many cases, using unobservable data

increases the inherent risk associated with
the assumption; however this isn't
necessarily the case for ECLs. For example,
if the client has a data-rich portfolio
spanning a sufficient period with actual
defaults and recoveries, then this
information is more appropriate than using
external data. The engagement team
assesses the risk of using such data and
documents their rationale. Please see the
rationale text box for an example
assessment.
 rationale text box for an example
assessment.

Yes No No Yes Yes

Yes No No Yes Yes

Yes No No Yes Yes

Yes Yes No Yes Yes
Yes Yes No No Yes

Yes Yes No No Yes

Yes Yes No No Yes

Yes Yes No No Yes

Yes Yes No No Yes

Yes Yes Yes No Yes
Yes Yes No No Yes
Yes Yes No No Yes

Yes Yes No No Yes

Yes Yes No No No
Yes Yes Yes No Yes
Yes Yes Yes Yes Yes
 | 3. The assumption involves unobservable data or adjustments to observable data | 4. The assumption relies on the entity's intent or ability to carry out specific courses
een changes in circumstances that suggest a need to revise the assumption | 7. Management made changes from the assumption used in the prior period

or the individual data

data involved in developing the ECL

Data scoping work paper' which is

mented below.
the work paper are as follows:

estimate workpaper so that individual

ave identified key data used to develop

specific facts and circumstances.
nt decisions in this tab do not reflect the
gement specific facts and

e information decision tree on pg. 14 of

SG's Examples of IFRS 9 assumptions

Alternatives Data may be Internal Changes in

exist?1 insufficiently precise?2 inconsistency risk?3 circumstances?4
No No Yes No
No No Yes No
Yes No Yes Yes
No No No No
No No Yes No
No No Yes No
No No Yes No
No No Yes No
 No No No Yes

ccounts or disclosures such that there is a risk it is internally inconsistent with data used elsewhere | 4. There have been changes in circumstances that suggest a need to

te audit response for the aspects of the application

Application of the methods, assumptions and data is inappropriate:

Inherent risk of error Inherent risk of fraud
Significant None

Assess likelihood and magnitude of the risk of misstatement considering all aspects of the application of the methods,
assumptions and data individually and in the aggregate.
The calculations within the IFRS 9 credit risk models are complex. The models establish complex statistical relationships
between a significant amount of data and assumptions. Additionally, the loan portfolio is significantly greater than materiality,
as such the likelihood of a material misstatement due to error from the inappropriate application of the methods / models,
assumptions and data is significant.
Given the flow of assumptions and data into the models is automated and the calculations within the models themselves are
automated and there is no manual intervention, the engagement team has assessed the inherent risk of fraud as none.
sessed as having a remote risk of material misstatement. As noted above, even if all the data
no risk of material misstatement in aggregate for the elements which do not require an audit

ould have a material effect in its financial condition or operating performance.

 Degree of:

Changes from the Estimation

method Complexity Subjectivity
uncertainty
in prior period?5
No High Moderate High
No High Moderate High
No Low Moderate Moderate
No High High High
No Low Low Low
Yes Moderate Moderate High
 No Moderate High High

ges from the method used in the prior period

 Degree of:

Changes from the

assumption in prior Estimation
Complexity Subjectivity uncertainty
period?7
No High Moderate Moderate
No Moderate Moderate High
No Moderate Moderate High

Yes Moderate Moderate High

No Moderate Moderate High
Yes High High High

Yes High High High

Yes High High High

Yes High High High

Yes High High High

No Moderate Moderate High
Yes Moderate High High
Yes Moderate High High

Yes Moderate High High

No Low Low Low
Yes Low Moderate Moderate
Yes Moderate Moderate High
tity's intent or ability to carry out specific courses of action | 5. There is a risk that the assumption is internally
sumption used in the prior period

Degree of:

Changes from the

data in prior period? Estimation
Complexity Subjectivity uncertainty
5
No Moderate Low Low
No Moderate Low Low
No Low Moderate Moderate
No Moderate Low Low
No Moderate Moderate Low
No Moderate Low Low
No Moderate Low Low
No Low Low Low
 No Low Low Low

changes in circumstances that suggest a need to revise the data | 5. Management made changes from the data

Note: If the inherent risk (either due to error or fraud) for the Element RMM and response level for at least one aspect of the application do not corr
inherent risk for the Element RMM or our response levels for the aspects of the application, as necessary, to be consistent.

ication of the methods,

x statistical relationships
ficantly greater than materiality,
tion of the methods / models,

hin the models themselves are

ent risk of fraud as none.

Generally, the inherent risk of error and the inherent risk of fraud are consistent with the respons
method / model under the Element RM: Selection of the method / model is inappropriate abov
example below.

However, the team assesses the inherent risk of error and the inherent risk of fraud for the Elem
model, assumptions and data is inappropriate independently of their assessment related to the
there may be cases where the inherent risk of error and/or the inherent risk of fraud is different
method / model under the Element RM: Selection of the method / model is inappropriate e.g. '
example below.
 model, assumptions and data is inappropriate independently of their assessment related to the
there may be cases where the inherent risk of error and/or the inherent risk of fraud is different
method / model under the Element RM: Selection of the method / model is inappropriate e.g. '
example below.

For this example, we have documented the justification for each inherent risk factor in the 'Ratio
to document their justification on the inherent risk factors and audit response in accompanying w
work papers.

Identify the individual aspects of application that give rise to base, elevated and significant risk individually and in com
Response level to address the:

Inherent Inherent Controls response

risk of error risk of fraud

The application of the PD model, assumptions an

model code) within the PD model are complex a
Significant None Controls reliance the model utilises large volumes of data and ass
assumptions themselves are model-based and fe
increasing the risk the integrity of assumptions a

The application of the LGD model, assumptions

LGD model are complex using certain economic
collections/recovery process. The model utilises
Significant None Controls reliance This includes complex assumptions which are de
there are a number of model interactions increa
the application of the model.

The application of the EAD model, assumptions

Base None Controls reliance of data elements and assumptions compared to
model are not complex.

The application of the economic scenario model

operates in a number of markets (US, UK, Germa
Significant None Controls reliance a significant number of economic variables whic
complex as they utilise statistical analysis to esta
the entity's portfolios.

The application of the ECL calculation model is a

Base None Controls reliance complex as the model calculates the overall ECL
EAD models and other rules around SICR. Additio
assumptions.

The application of the FSD model is assessed as

Elevated None Controls reliance data points, and assumptions to develop the FSD
region, economic variables). Additionally, the ca
 Selection of the methods is inappropriate:
Inherent risk of error Inherent risk of fraud
Significant Significant

Assess likelihood and magnitude of the risk of misstatement considering the methods individually and in the aggregate.

The calculation of the ECL relies on IFRS 9 credit risk models which are complex due to the large volume of
assumptions and data utilised in the models, and the complex statistical relationships embedded within the
models. Additionally, a number of the models are associated with a higher degree of uncertainity as they are
designed to predict future events and conditions, including outcomes in the external macro-economic
environment, and for lifetime ECLs this is over a period of 20 years. Additionally, the loan portfolio is greater
than performance materiality and the inappropriate selection of a method/model could result in a material
misstatement on the overall ECL estimate. As such, we have assessed the inherent risk of error as Significant.

The inherent risk of fraud has been assessed as Significant driven by the highly subjective management
overlay and the economic scenario model. Both models reflect management's predictions about the external
macro-economic environment which are highly subjective, as such there is a risk that management were bias
in their selection of these models.
 Selection of the assumptions is inappropriate:
Inherent risk of error Inherent risk of fraud
Significant Significant

Assess likelihood and magnitude of the risk of misstatement considering the assumptions individually and in the aggregate.
The inherent risk of error has been assessed as significant driven by the fact that there are a number of
assumptions that are sensitive to variation. As the portfolio is greater than performance materiality, the
potential inappropriate selection of an assumption could result in a material misstatement on the overall ECL
estimate.
Additionally, a number of assumptions are highly complex and subject to greater management judgement and
estimation uncertainty, all which increase the risk of a potential material misstatement. The inherent risk of
fraud has been assessed as significant given there are a number of highly subjective assumptions used to
develop the ECL estimate, as such there is a risk that management were bias in their selection of these
assumptions.
 Selection of the data is inappropriate:
Inherent risk of error Inherent risk of fraud
Elevated None

Assess likelihood and magnitude of the risk of misstatement considering the data individually and in the aggregate.
The inherent risk of error is assessed as Elevated, this is driven by the complexity of the data. There is a
significant volume of data elements used in the IFRS 9 credit risk models and assumptions. Additionally, the
process to capture and process the data is considered complex as it involves data transformations and data
feeds between systems before being captured in the models. Some of the data elements are also associated
with a moderate degree of estimation uncertainty (historical loss data) and subjectivity (unadjusted macro-
economic data and credit monitoring data).

The inherent risk of fraud is assessed as none. Although some of the data has been associated with a
moderate degree of subjectivity (e.g. credit monitoring data and unadjusted macro-economic data), the
engagement team does not believe this provides management with an opportunity to intentionally influence
the measurement of ECLs. While some judgement is exercised to select the source or relevant data elements
to use, this is limited as the data is direct data.
M and response level for at least one aspect of the application do not correspond, we revisit the basis for our initial assessments and revise either our
the application, as necessary, to be consistent.

rent risk of fraud are consistent with the response levels selected for the corresponding
on of the method / model is inappropriate above - e.g. 'Retail Mortgages - PD Model' in the

error and the inherent risk of fraud for the Element RM: Application of the method /
ndependently of their assessment related to the selection of the method / model. As such,
ror and/or the inherent risk of fraud is different from the response levels selected for the
on of the method / model is inappropriate e.g. 'Retail Mortgages - EAD Model' in the
ndependently of their assessment related to the selection of the method / model. As such,
ror and/or the inherent risk of fraud is different from the response levels selected for the
on of the method / model is inappropriate e.g. 'Retail Mortgages - EAD Model' in the

fication for each inherent risk factor in the 'Rationale' textbox. However, teams may decide
isk factors and audit response in accompanying work papers and reference out to these

o base, elevated and significant risk individually and in combination with any other items and determine an audit response for each of the aspects.

Rationale Assignment
audit effo

The application of the PD model, assumptions and data is assessed as significant. The calculations (including the
model code) within the PD model are complex as the model has been built using statistical analysis. Additionally,
the model utilises large volumes of data and assumptions which contain multiple inter-relationships. Some of the Audit led with KPMG sp
assumptions themselves are model-based and feed into the PD model, as such there a number model interactions
increasing the risk the integrity of assumptions are not maintained in the application of the model.

The application of the LGD model, assumptions and data is assessed as Significant. The calculations within the
LGD model are complex using certain economic variables to model the projected cash receipts from the
collections/recovery process. The model utilises large volumes of internal and external inputs to develop the LGD.
This includes complex assumptions which are developed using models which feed into the LGD model, as such Audit led with KPMG sp
there are a number of model interactions increasing the risk the integrity of the assumptions is not maintained in
the application of the model.

The application of the EAD model, assumptions and data is assessed as base. The EAD model uses a lower number
of data elements and assumptions compared to other IFRS 9 credit risk models and the calculations in the EAD Audit led with KPMG sp
model are not complex.

The application of the economic scenario model is assessed as significant. This is due to the fact the bank
operates in a number of markets (US, UK, Germany) and has exposures to different sectors. As a result, there are
a significant number of economic variables which feed into the model. Additionally, the model calculations are Audit led with KPMG sp
complex as they utilise statistical analysis to establish variations between economic variables and credit losses in
the entity's portfolios.

The application of the ECL calculation model is assessed as base. The calculations within the model are not
complex as the model calculates the overall ECL (i.e. PD x LGD x EAD) based on the outputs from the PD, LGD and Audit led with KPMG sp
EAD models and other rules around SICR. Additionally, the model does not utilise large volumes of data or
assumptions.

The application of the FSD model is assessed as elevated. The model utilises a number of internal and external
data points, and assumptions to develop the FSD (this includes market index value, post code size, property type, Audit led with KPMG sp
region, economic variables). Additionally, the calculations contain some level of complexity.
 Note: If the inherent risk (either due to error or fraud) for the Element RMM and response level for at least one method do not correspond, we revisit the basis for our initial ass
and revise either our inherent risk for the Element RMM or our response levels for the methods, as necessary, to be consistent.

in the aggregate.

Identify the individual methods that give rise to base, elevated and
Forsignificant risk individually
this example, we haveand in combination
documented with
the any other items
justification an
for ea
to document their justification on the inherent risk factors and
work papers.
Response level to address the:

Inherent Inherent Controls response

risk of error risk of fraud
Significant None Controls reliance
Significant None Controls reliance
Elevated None Controls reliance
Significant Significant Controls reliance
Base None Controls reliance
Significant None Controls reliance
Significant Significant Controls reliance
 Note: If the inherent risk (either due to error or fraud) for the Element RMM and response level for at least one assumption do not correspond, we revisit the basis for our initia
assessments and revise either our inherent risk for the Element RMM or our response levels for the assumptions, as necessary, to be consistent.

and in the aggregate.

For this example, we have documented the justification fo

to document their justification on the inherent risk factors
papers.
Identify the individual assumptions that give rise to base, elevated and significant risk individually and in combination with any other items
Response level to address the:

Inherent Inherent
risk of error risk of fraud Controls response
Elevated None Controls reliance
Significant None Controls reliance
Significant None Controls reliance

Significant None Controls reliance

Significant None Controls reliance
Significant Significant Controls reliance

Significant Significant Controls reliance

Significant Significant Controls reliance

Significant Significant Controls reliance

Significant Significant Controls reliance

Significant None Controls reliance
Significant Significant Controls reliance
Significant Significant Controls reliance

Significant Significant Controls reliance

Base None Controls reliance
Elevated None Controls reliance
Significant None Controls reliance
 Note: If the inherent risk (either due to error or fraud) for the Element RMM and response level for at least one data do not correspond, we revisit the basis for our initial assess
revise either our inherent risk for the Element RMM or our response levels for the data, as necessary, to be consistent.

he aggregate.

Identify the individual data that give rise to base, elevated and significant risk individually and in combination with any other items and de

For this example, we have documented the justification for ea

to document their justification on the inherent risk factors an
papers.
Response level to address the:

Inherent Inherent
risk of error risk of fraud Controls response
Base None Controls reliance
Base None No controls reliance
Elevated None Controls reliance
Base None Controls reliance
Elevated None Controls reliance
Base None Controls reliance
Base None Controls reliance
Base None Controls reliance
None None
sponse for each of the aspects.

Assignment of
audit effort

Audit led with KPMG specialist support

Audit led with KPMG specialist support

Audit led with KPMG specialist support

Audit led with KPMG specialist support

Audit led with KPMG specialist support

Audit led with KPMG specialist support

RMM and response level for at least one method do not correspond, we revisit the basis for our initial assessments
se levels for the methods, as necessary, to be consistent.

levated and
Forsignificant risk individually
this example, we haveand in combination
documented with
the any other items
justification and determine
for each inherentanrisk
audit response
factor for 'Rationale'
in the each of the methods.
textbox. Howeve
to document their justification on the inherent risk factors and audit response level in accompanying work papers and r
work papers.

Rationale
Rationale for the risk assessment of the Retail Mortgages - PD Model:
Alternatives exist ('Yes'):
IFRS 9 does not specify the method or model to be used to measure ECLs. As such, alternatives exist to the one selected by management. H
engagement team notes the PD model used by the entity is consistent with current industry practice when compared to peer banks that a
method to measure ECLs. As such, it is unlikely there is a more appropriate PD model to the one selected by management, this reduces the
and estimation uncertainty associated with the model.

Adjustments are made ('No'):

Management has not made any adjustments directly in the model (e.g. there are no management overlays due to model or data limitation
adjustments within the model).

Lag period ('Yes'):

The entity generates its ECL estimate one month ahead of the reporting date given the complexity of the ECL modelling environment. Alth
practice in the industry, it does create a degree of uncertainty as there is a risk the model output does not reflect the conditions at the rep
Additionally, there were changes in the macro-economic environment during this period resulting in a management overlay to the overall
top-side adjustment posted in the general ledger) (see M7: Management Overlay - Late-breaking economic event).
Changes in circumstances ('Yes'):
There have been changes in circumstances due to the impacts of COVID-19 on the external economic environment which may result in an
default by home owners. Additionally, loan moratoriums which were granted in the prior year due to the impacts of COVID-19 have now e
impact 12-month PDs.
Changes from model in prior period ('No'):
Management has not made changes to the PD model used in the prior period. Although there have been changes in the external environm
of COVID-19, these have been reflected in the assumptions within the PD model rather than the model design or specifications.
Degree of complexity ('High'):
The calculations within the PD model are complex. The in-house model developers have developed the PD model utilising highly complex
establish variation within the model. Additionally, the model utilises a significant volume of data and assumptions to develop the PD incre
complexity. This includes forward-looking assumptions and historical data which contain many interrelationships. As such the degree of co
assessed as high.

Degree of subjectivity ('Moderate'):

The degree of subjectivity is assessed as moderate. We note management judgement is involved in certain aspects of the model, however
using statistical analysis of historical data which is formulae driven reducing the level of management judgement involved. The model is al
current industry practice.

Degree of estimation uncertainty ('High'):

The degree of estimation uncertainty is assessed as high. The PD predicts the probability of future defaults, as such there is a degree of un
with the PD model given it is forward-looking. For lifetime PDs, there is an even greater degree of uncertainty as PDs are modelled over a 2
retail mortgage portfolio. Additionally, there is still a greater degree of uncertainty associated with the PD model given the impacts of COV
the longer term.

Assessed level of audit response:

Based on the assessment of the inherent risk factors, the engagement team has assessed the inherent risk of error as Significant due to th
complexity and estimation uncertainty associated with the PD model.

The engagement team has assessed the inherent risk of fraud risk as none. There is judgement involved in the design decisions of the mod
management with an opportunity to intentionally influence the measurement of ECLs, however post model implementation there is limite
management to intentionally manipulate the output of the model. This is due to the fact that the entity has a strong internal control envir
models, including a model validation and model monitoring control. Additionally, the model is built using statistical analysis of historical da
judgement that management can exercise in selecting the model methodology.
Rationale for the risk assessment of the Retail Mortgages - LGD Model:
Alternatives exist ('Yes'):
IFRS 9 does not specify the method or model to be used to measure ECLs. As such, alternatives exist to the one selected by management. H
engagement team notes the LGD model used by the entity is consistent with current industry practice when compared to peer banks that
method to measure ECLs. As such, it is unlikely there is a more appropriate LGD model to the one selected by management, this reduces th
subjectivity and estimation uncertainty associated with the model.

Adjustments made ('No'):

Management has not made any adjustments directly in the model (e.g. there are no management overlays due to model or data limitation
adjustments within the model).

Lag period ('Yes'):

The entity generates it's ECL estimate one month ahead of the reporting date given the complexity of the ECL modelling environment. Alth
practice in the industry it does create a degree of uncertainty as there is a risk the model output does not reflect the conditions at the repo
Additionally, there were changes in the macro-economic environment during this period resulting in a management overlay to the output
model (i.e. a top-side adjustment posted in the general ledger) (see M7: Management Overlay - Late-breaking economic event).
Changes in circumstances ('Yes'):
There has been a change in circumstances due to the impacts of COVID-19 on the economic environment. Residential properties are held
entity's retail mortgages. COVID-19 has impacted housing price forecasts, which has an impact on collateral sales value which is a key assu
model.
Changes from model in prior period ('No'):
Management has not made changes to the LGD model from the prior period. Although there have been changes in the external environme
of COVID-19, these have been reflected in the assumptions within the LGD model rather than the model design or specifications.

Degree of complexity ('High'):

The calculations within the LGD model are complex using certain economic variables to model the projected cash receipts from the collecti
The model utilises large volumes of internal and external inputs to develop the LGD. This includes complex assumptions which are develop
feed into the LGD model, as such there are a number of model interactions increasing the degree of complexity.
Degree of subjectivity ('Moderate'):
The degree of subjectivity is assessed as moderate. The LGD is developed using statistical analysis of historical data which is formulae drive
management judgement involved in the model. The model is also consistent with industry practice. Additionally, there have been no adjus
of the LGD model in the current period.

Degree of estimation uncertainty ('High'):

The calculation of LGD for 12 month ECLs is not considered to be associated with a higher degree of uncertainty, as the underlying assump
collateral sales values, rates of repossession, recovery rates etc.) remain relatively stable over a 12 month period. However, the calculation
associated with a high degree of estimation uncertainty as a longer forecast period is considered (the period of exposure for the retail mor
years). To reflect this, the degree of estimation uncertainty is assessed as high.
Assessed level of audit response:
Based on the assessment of the inherent risk factors, the engagement team has assessed the inherent risk of error as Significant due to th
complexity and estimation uncertainty associated with the LGD model.
The engagement team has assessed the inherent risk of fraud risk as none. There is judgement involved in the design decisions of the mod
management with an opportunity to intentionally influence the measurement of ECLs, however post model implementation there is limite
management to intentionally manipulate the output of the model. This is due to the fact that the entity has a strong internal control envir
models, including a model validation and model monitoring control. Additionally, the model is built using statistical analysis of historical da
judgement that management can exercise in selecting the model methodology.
Rationale for the risk assessment of the Retail Mortgages - EAD Model:
Alternatives exist ('No'):
There is limited alternative models for EAD as it is based on contractual cashflows. Additionally, the engagement team notes the EAD mod
consistent with current industry practice when compared to peer banks that use a PD-based method to measure ECLs. As such, a more app
model to the one selected by management does not exist.
Adjustments are made ('No'):
Management has not made any adjustments directly in the model (e.g. there are no management overlays due to model or data limitation
adjustments within the model).

Lag period ('Yes'):

The entity generates it's ECL estimate one month ahead of the reporting date given the complexity of the ECL modelling environment. Alth
practice in the industry it does create a degree of uncertainty as there is a risk the model output does not reflect the conditions at the repo
Additionally, there were changes in the macro-economic environment during this period resulting in a management overlay to the overall
top-side adjustment posted in the general ledger) (see M7: Management overlay - Late-breaking event).

Changes in circumstances ('Yes'):

There have been changes in circumstances due to the impacts of COVID-19 on the external economic environment. There is a degree of un
whether the model's expectations of consumer behaviour around pre-payments and early repayments on lifetime ECLs remains appropria
economic environment.

Changes in the current period ('No'):

Management has not made any changes to the methodology or EAD model in the current period. Although there have been changes in th
environment, this does not indicate management's model or methodology is inappropriate to calculate EAD.

Degree of complexity ('Low'):

The EAD model is built on a lower number of data elements compared to the entity's other IFRS 9 credit models, these are mostly contract
less complex. Additionally, the calculations in the EAD model are less complex. As such, the degree of complexity is assessed as low.
Degree of subjectivity ('Moderate'):
The EAD is based on contractual repayments which reduces the level of management judgement within the model. The one area where m
is exercised in the EAD model is in respect of the application of pre-payments and early repayments for lifetime ECLs. However, managem
of historical data on actual prepayments and repayments of their mortgage portfolio limiting the degree of judgement involved in these de
such, the degree of subjectivity has been assessed as moderate.

Degree of uncertainty ('Moderate'):

The calculation of 12 month EAD has a low degree of uncertainty as repayments typically follow the contractual terms in the short-term. H
longer term for lifetime EAD there is a greater degree of uncertainty due to the effects of pre-payments and early repayment. As such, the
uncertainty has been assessed as moderate.
Assessed level of audit response:
Based on the assessment of the inherent risk factors, the engagement team has assessed the inherent risk of error as Elevated due to the
estimation uncertainty and subjectivity associated with the EAD model.

The engagement team has assessed the inherent risk of fraud as none. There is some judgement involved in the design decisions of the m
management with an opportunity to intentionally influence the measurement of ECLs, however post model implementation there is limite
management to intentionally manipulate the output of the model. This is due to the fact that the entity has a strong internal control envir
models, including a model validation and model monitoring control. Additionally, the model is built using statistical analysis of historical da
judgement that management can exercise in selecting the model methodology.
Rationale for the risk assessment of the Economic scenario model:
Alternatives exist ('Yes'):
IFRS 9 does not specify how macro-economic scenarios are derived for the measurement of ECLs. Additionally, within the industry many d
used to develop the macro-economic scenarios for the measurement of ECLs. As such, the selection of the economic scenario model is jud
may be more appropriate alternatives that exist than the model selected by management.
Adjustments are made ('No'):
Management has not made any adjustments directly in the model (e.g. there are no management overlays due to model or data limitation
adjustments within the model).

Lag period ('Yes'):

There is a one month lag between the generation of ECLs and the reporting date. Although this is common practice within the industry, th
degree of uncertainty associated with the model. Additionally, there were significant changes in the macro-economic forecasts during the
a management overlay being posted to the overall ECL calculation.

Changes in circumstances ('Yes'):

There are changes in circumstances due to the impact of COVID-19 on the external macro-economic environment in the current period.
Changes from the prior period ('No'):
There have been no changes to the economic scenario model in the current period. Management made changes to the economic scenario
period due to the impact of COVID-19 as the data which the model was built upon was unable to reflect the current circumstances. Manag
further changes were required in the current period.

Degree of complexity ('High'):

The degree of complexity of the economic scenario model has been assessed as high. This is due to the fact the bank operates in a numbe
Germany) and has exposures to different sectors. As a result there are a large number of economic variables which feed into the model. A
calculations are complex as they utilise statistical analysis to establish variations between economic variables and credit losses.
Degree of subjectivity ('High'):
The degree of subjectivity has been assessed as high. IFRS 9 requires the entity to measure ECLs on an unbiased forward-looking basis refle
economic conditions. The forward-looking information is determined internally by management using the economic scenario model. Signi
judgement is applied in determining the economic scenarios used and the probability weightings applied to them, especially when conside
uncertain economic environment as a result of COVID-19.

Degree of estimation uncertainty ('High'):

The degree of estimation uncertainty has been assessed as high. The assumptions underlying the model are associated with a greater degr
the assumptions are predictions about future economic conditions and events, over a long forecast period (lifetime ECLs for the retail mor
period of exposure of 20 years). Although there has been strong economic recovery, there is still greater uncertainty in the macro-econom
the impacts of COVID-19, especially over the longer term.
Assessed level of audit response:
Based on the assessment of the inherent risk factors, the engagement team has assessed the inherent risk of error as Significant due to th
complexity, subjectivity and estimation uncertainty associated with the economic scenario model. The inherent risk of fraud is assessed as
the high degree of subjectivity associated with the model, this provides management with an opportunity to intentionally manipulate the
Rationale for the risk assessment of the Retail mortgages - ECL Calculation Model:
Alternatives exist ('No'):
Although IFRS 9 does not specify the method / model used to measure ECLs, the industry standard to calculate the overall ECL amount wh
based method is to use the PD, EAD LGD, discount rate and maturity as inputs. As such, the engagement team determines no alternatives

Adjustments are made ('No'):

Management have not made an adjustment directly in the ECL calculation model. However, due to a late-breaking economic event a mana
posted as top-side adjustment in the general ledger, as this management overlay is outside the ECL modelling process it has been recognis
method / model (see M7: Management Overlay - Late breaking economic event).

Lag period ('Yes'):

The entity generates it's ECL estimate one month ahead of the reporting date given the complexity of the ECL modelling environment. Alth
practice in the industry it does create a degree of uncertainty as there is a risk the model output does not reflect the conditions at the repo
Additionally, there were changes in the macro-economic environment during this period resulting in a management overlay to the overall
top-side adjustment posted in the general ledger). However, this does not indicate greater uncertainty in the ECL calculation model as this
calculation but rather there is greater uncertainty in the underlying PD, LGD and EAD models.
Changes in circumstances ('No'):
Although there are changes in the external environment driven by the impacts of COVID-19, these do not indicate any changes are require
Calculation Model.

Changes from the prior period ('No'):

Management has not made any changes to the ECL calculation model or the model methodology in the current period. This is deemed app
are no changes in circumstances that indicate a need to change the model.

Degree of complexity ('Low'):

The calculations within the model are not complex as the model calculates the overall ECL based on the outputs from the PD, LGD and EAD
rules around SICR. Additionally, the model does not utilise large volumes of data or assumptions. As such, the degree of complexity has be

Degree of subjectivity ('Low'):

As noted under 'alternatives exist?', where a bank applies the PD based method to develop the ECL estimate, there is only one model to ca
amount (PD x LGD x EAD). As such, there is limited management judgement involved in the design of the model and the degree of subjecti
as low.

Degree of estimation uncertainty ('Low'):

The model performs the overall calculation of the ECL estimate using the output of the PD, LGD and EAD models, as such there is a low de
uncertainty.
Assessed level of audit response:
Based on the assessment of the inherent risk factors, the engagement team has assessed the inherent risk of error as Base due to the low
subjectivity and estimation uncertainty associated with the ECL Calculation Model.
The engagement team has assessed the inherent risk of fraud as none. This is due to the fact management exercises limited judgement in
the model, as such there is limited opportunity for management to intentionally influence the measurement of ECLs. Additionally, post m
there is limited opportunity for management to intentionally manipulate the output of the model. This is due to the fact that the entity ha
control environment over their models, including a model validation and model monitoring control.
Rationale for the risk assessment of the Retail mortgages - Forced Sale Discount (submodel to the LGD model):
Alternatives exist ('Yes'):
The forced sale discount (FSD) is the discount on the property value that the entity will receive if the property was to be repossessed and s
the future. There are many different methods to calculate FSD, as such a more appropriate alternative may exist to the one selected by ma

Adjustments are made ('No'):

Management has not made any adjustments directly in the model (e.g. there are no management overlays due to model or data limitation
adjustments within the model).
Lag period ('Yes'):
There is a lag period of one month between the date the ECL is generated and the reporting date. Although this is common practice in the
a degree of uncertainty as there is a risk the model output does not reflect the conditions at the reporting date.
Changes in circumstances ('Yes'):
There are changes in the macro-economic environment due to the impacts of COVID-19, particularly on house price forecasts which are a
model.
Changes from the prior period ('Yes'):
Management re-calibrated the model in the current period as the model monitoring results in the prior period indicated the model was un
for the retail mortgages portfolio. In the prior period, management adjusted the output of the model to account for the model underpredi

Degree of complexity ('Moderate'):

The model utilises a number of internal and external data points, and assumptions to develop the FSD (this includes market index value, p
type, region, economic variables). The calculations contain some level of complexity but are less complex compared to other models withi
credit risk model suite. As such, the degree of complexity has been assessed as moderate.
Degree of subjectivity ('Moderate'):
There is a moderate degree of subjectivity associated with the FSD model. This is due to the fact the model is developed using actual histo
limiting the level of management judgement exercised.

Degree of estimation uncertainty ('High'):

There is a high degree of estimation uncertainty in the model as it is predicting discount values on future property sales, particularly for lif
calculated over a 20 year period. Although the model been built using historical repossession data this data may not be predictive of futur
by the model underpredicting the FSD in the prior year. Additionally, given the recent impacts of COVID-19 in the prior period and current
greater degree of uncertainty around housing prices over the long term, which is a key assumption used in the model.
Assessed level of audit response:
Based on our above assessment of the inherent risk factors, the engagement team has assessed the inherent risk of error as Significant du
estimation uncertainty associated with the FSD model.
The engagement team has assessed the inherent risk of fraud risk as none. There is judgement involved in the design decisions of the mod
management with an opportunity to intentionally influence the measurement of ECLs, however post model implementation there is limite
management to intentionally manipulate the output of the model. This is due to the fact that the entity has a strong internal control envir
models, including a model validation and model monitoring control. Additionally, the model is built using statistical analysis of historical da
judgement that management can exercise in selecting the model methodology.
Rationale for the risk assessment of the Management Overlay - Late-breaking economic event:
Alternatives exist ('Yes'):
IFRS 9 does not prescribe how the impact of forward-looking information is modelled or incorporated into the measurement of ECLs. As su
of a management overlay to reflect the economic impacts of a new COVID-19 variant between the ECL modelling date and the reporting d
there are alternative method(s) / model(s) that exist and potentially may be more appropriate than those selected by management.
Adjustments are made ('No'):
Management has not made any adjustments directly in the model which determines the overlay itself (e.g. there are no management over
data limitations resulting in adjustments within the model).

Lag period ('No'):

The management overlay has been developed at the reporting date in order to account for the discovery of a new COVID-19 variant, as su
period between the modelling date and the reporting date.
Change in circumstances ('Yes'):
There have been changes in the external economic environment due to the impact of a new COVID 19 variant which was discovered betwe
establishing and validating its ECL results and the reporting date.
Changes from the prior period ('No'):
Management have used the same method / model to develop the overlay as used to develop the management overlay in the prior period
the method / model have been identified. The underlying assumptions and data have been adjusted in the current period to reflect the ne
in the current period.

Degree of complexity ('Moderate'):

The overlay has been developed outside of the modelling environment, as such the method to develop the overlay is less complex. Howev
more complex assumptions (e.g. economic scenarios and probability-weightings) which increases the degree of complexity. As such, we ha
of complexity as moderate.

Degree of subjectivity ('High'):

The development of the management overlay is judgemental as there are numerous economic outcomes from the impact of a new COVID
we have assessed the degree of subjectivity as high.

Degree of estimation uncertainty ('High'):

The nature of the overlay is associated with a greater degree of uncertainty. Management is unable to make a precise prediction about the
economic events on the measurement of ECLs. Additionally, the overlay uses forward-looking assumptions which by their nature are assoc
degree of uncertainty. As such, we have assessed the degree of estimation uncertainty as high.
Assessed level of audit response:
Based on the assessment of the inherent risk factors, the engagement team has assessed the inherent risk of error as Significant and has id
risk of fraud due to the high degree of subjectivity which may result in the overlay being susceptible to management bias.
 RMM and response level for at least one assumption do not correspond, we revisit the basis for our initial
or our response levels for the assumptions, as necessary, to be consistent.

For this example, we have documented the justification for each inherent risk factor in the 'Rationale' textbox. How
to document their justification on the inherent risk factors and audit response in accompanying work papers and re
papers.
e, elevated and significant risk individually and in combination with any other items and determine an audit response for each of the assumptions.

Rationale
Rationale for the risk assessment of the period of historical data assumption:
Alternatives exist ('Yes'):
The entity has selected the period 2008 to 2017 to build their models. Alternatives exist as management could have selected a different pe
to build their IFRS 9 credit risk models. However, the period used is not an outlier within the industry and captures a full economic cycle, in
recession, as such it is unlikely there is a more appropriate alternative to the period of data selected by management.
Sensitive to variation ('No'):
The engagement team notes that small changes to the period of historical data selected would not cause significant changes in the ECL esti
adding or removing one month to the dataset would not significantly change the ECL estimate. If the period of historical data did not captu
downturn and full economic cycle, then small changes may cause a significant change in the ECL estimate given the period of historical dat
similar variation to the current environment. However the entity's period captures a full economic cycle, including a global recession, as su
not sensitive to variation in the period of historical data.
Unobservable data ('Yes'):
Management use their own internal historical data which is considered unobservable data, however the entity has a data-rich portfolio sp
period with actual defaults and recoveries, this information is considered to be more appropriate than using external proxy data. As such,
data has been used to develop the assumption, we do not consider this to increase the inherent risk.
Relies on the entity's intent or ability ('No'):
The assumption does not rely on management's intent or ability to carry out a specific course of action.

Internal inconsistency risk ('No'):

The period of historical data selected is consistent across the entity's ECL models as such there is no internal inconsistency risk.

Changes in circumstances ('Yes'):

There are changes in circumstances given the impact of COVID-19. As the impacts of COVID-19 are unprecedented there are limitations in
historical data selected to predict future outcomes. However, we note the period of data used by management is still appropriate as mana
access to data that would be more similar to the current economic environment.
Changes from the prior period ('No'):
There have been no changes to the period of historical data used from the prior period.

Degree of complexity ('High'):

The process to select the period of historical data is complex, the bank has in-house statisticians that perform statistical analysis to determ
enough variation within the data for the correlations that are established within the model to be appropriate. Additionally, this process re
historical data, and maintaining data integrity presents challenges. Additionally, there are significant data transformations indicating a grea
complexity. As such, the degree of complexity has been assessed as high.
Degree of subjectivity ('Moderate'):
The degree of subjectivity has been assessed as moderate. The selection of the period of historical data is driven by the underlying historic
to management, as such this removes some level of management judgement involved. However, management still exercises a degree of ju
choosing which data period is most suitable to build the ECL models.
Degree of estimation uncertainty ('Moderate'):
The degree of estimation uncertainty is assessed as moderate. The period of historical data selected is used to make predictions about fut
past trends. Additionally, management's period of data is for 9 years, whereas the period of exposure for lifetime ECLs is 20 years. This inc
estimation uncertainty as there are limitations within the period of historical data, as it does not cover the period of exposure. However, t
rich portfolio and the period includes a global recession which limits some of the uncertainty.

Assessed level of audit response:

Based on the engagement team' assessment of the inherent risk factors, the inherent risk of error is assessed as Elevated given the high de
and moderate degree of estimation uncertainty.
The inherent risk of fraud is assessed as none. Although there is a degree of judgement involved in the selecting the the period of historica
based on actual historical data and statistical analysis which limits the judgement involved in selecting the assumption, as such there is lim
management to commit fraudulent financial reporting by intentionally selecting a more period.

Rationale for the risk assessment of the Central scenario: Internally developed GDP forecast (1 year forecast) and Central scenario: Inter
unemployment rate forecast (1 year forecast):
Alternatives exist ('Yes'):
IFRS 9 does not specify which macro-economic parameters to use. As such, selection of the parameters is judgemental and there are altern
exist. However, the team notes that management perform a benchmarking exercise against macro-economic parameters provided by the
selected bureaus. This lowers the risk that a more appropriate alternative assumption exists to the one selected by management.

Sensitive to variation ('Yes'):

Management has performed stress testing over the ECL estimate based on changes in the external economic environment and we note th
to changes in the economic environment. Although the analysis did not observe the impact on the ECL estimate from the GDP or unemplo
isolation, the engagement team still assessed the assumption as sensitive to variation given that changes in the macro-economic environm
impact across parameters and scenarios resulting in a material impact on the ECL estimate.
Unobservable data ('No'):
The engagement team notes management does not use unobservable data to develop the assumption.

Relies on the entity's intent and ability ('No'):

Macro-economic parameters do not rely on management's intent or ability to carry out a specific course of action.

Internal inconsistency risk ('Yes'):

There is a risk the assumption may be internally inconsistent with macro-economic forecasts used in other areas of the bank such as goodw
and internal budgeting.

Changes in circumstances ('Yes'):

There have been changes in the external economic environment due to the impacts of COVID 19.

Changes from the prior period ('No'):

The engagement team notes GDP and unemployment parameters were relevant parameter used to estimate ECL in the prior period, there
in the assumption. Although the numerical parameter has changed, we do not consider this to be a change in the assumption given that th
one year and therefore relates to a different period compared to the prior period forecast.
Degree of complexity ('Moderate'):
The engagement tem have assessed the degree of complexity as moderate given that the bank uses their own in-house economists to dev
indicating specialised skills are required. However, the process does not involve significant volumes of data or data transformations.

Degree of subjectivity ('Moderate'):

The engagement team have assessed the degree of subjectivity as moderate given the fact the macro-economic parameters are not prescr
IFRS 9 and there could be numerous ways for management to select the relevant parameters. However, there is external data for manage
their parameters against which reduces the degree of subjectivity.
Degree of estimation uncertainty ('High'):
Macro-economic forecasts are associated with a degree of uncertainity as they are predictions about future outcomes, events or condition
economic environment. There is an inherent lack of precision, as management cannot make reliable predictions about the future. As such,
have assessed the degree of estimation uncertainty as high.
Assessed level of audit response:
Based on the assessment of the inherent risk factors, the engagement team have determined the inherent risk of error as Significant due t
estimation uncertainty. The inherent risk of fraud is assessed as None. Although there is a degree of judgement involved in the selecting th
Degree of complexity ('Moderate'):
The engagement tem have assessed the degree of complexity as moderate given that the bank uses their own in-house economists to dev
indicating specialised skills are required. However, the process does not involve significant volumes of data or data transformations.

Degree of subjectivity ('Moderate'):

The engagement team have assessed the degree of subjectivity as moderate given the fact the macro-economic parameters are not prescr
IFRS 9 and there could be numerous ways for management to select the relevant parameters. However, there is external data for manage
their parameters against which reduces the degree of subjectivity.

Degree of estimation uncertainty ('High'):

Macro-economic forecasts are associated with a degree of uncertainity as they are predictions about future outcomes, events or condition
economic environment. There is an inherent lack of precision, as management cannot make reliable predictions about the future. As such,
have assessed the degree of estimation uncertainty as high.
Assessed level of audit response:
Based on the assessment of the inherent risk factors, the engagement team have determined the inherent risk of error as Significant due t
estimation uncertainty. The inherent risk of fraud is assessed as None. Although there is a degree of judgement involved in the selecting th
are external forecasts which management can benchmark against, there is limited opportunity for management to commit fraudulent fina
intentionally selecting a more favourable forecast.

Rationale for the risk assessment of the Central scenario: Internally developed inflation rate forecast (5 year forecast):

See rationale for A2, and:

Changes from the prior period ('Yes'):
The engagement team notes in the prior period the multi-year inflation forecast grew at 1.5% per year over the five year period. However
management has revised the forecast so that inflation grows at 2% per year over the five year period. The engagement team considers thi
assumption as the forecast relates to the same forecast period as the forecast in the prior period. The numerical value of the forecast has
changing conditions in the macro-economic environment.

Assessed level of audit response:

Based on this assessment we have determined the inherent risk of error as Significant due to high degree of estimation uncertainty. The in
assessed as None. Although there is a degree of judgement involved in the selecting the forecast, there are external forecasts which mana
against which limits the degree of judgement involved. As such, there is limited opportunity for management to commit fraudulent financi
Rationale for the risk assessment of the Central scenario: Internally developed inflation rate forecast (5 year forecast):
Alternatives exist ('Yes'):
IFRS 9 does not specify which macro-economic parameters to use. As such, selection of parameters is judgemental and there are alternati
exist. However, the team notes that management perform a benchmarking exercise against macro-economic parameters provided by the
selected bureaus. This lowers the inherent risk that a more appropriate alternative assumption exists to the one selected by management
Sensitive to variation ('Yes'):
Management has performed stress testing over the ECL estimate based on changes in the external economic environment and the engage
estimate is sensitivite to changes in the economic environment. Although the analysis did not observe the impact on the ECL estimate from
parameter in isolation, the engagement team still assess the assumption as sensitive to variation given changes in the economic environm
impact across parameters and scenarios resulting in a material impact on the ECL estimate.

Unobservable data ('Yes'):

The engagement team notes management adjusts observable data to determine the assumption by using unobservable data. The use of u
increases the degree of management judgement, subjectivity and uncertainty associated with the assumption.

Relies on the entity's intent and ability ('No'):

Macro-economic parameters do not rely on management's intent or ability to carry out a specific course of action.

Internal inconsistency risk ('Yes'):

There is a risk the assumption may be internally inconsistent with macro-economic forecasts used in other areas of the bank such as goodw
and internal budgeting.

Changes in circumstances ('Yes'):

There have been changes in the external economic environment due to COVID-19.

Changes from the prior period ('No'):

The engagement team notes housing prices was a relevant parameter used to estimate ECL in the prior period, therefore there is no chang
Although the numerical parameter has changed, the engagement team do not consider this to be a change in the assumption given that th
one year and therefore the current period forecast relates to a different period compared to the prior period forecast.
Degree of complexity ('Moderate'):
The engagement team have assessed the degree of complexity as moderate given that the bank uses their own in-house economists to de
indicating specialised skills is required. However, the process does not involve significant volumes of data or data transformations.
Degree of subjectivity ('Moderate'):
The engagement team have assessed the degree of subjectivity as moderate given the fact the parameters are not prescribed or specified
management uses unobservable data to develop the parameter. However, there is external data for management to benchmark their para
reduces the degree of subjectivity.

Degree of estimation uncertainty ('High'):

Macro-economic forecasts are uncertain as they are predictions about future outcomes, events or conditions in the macro-economic envir
inherent lack of precision, as management cannot make reliable predictions about the future. As such, the engagement team have assesse
estimation uncertainty as high.
Assessed level of audit response:
Based on the assessment of the above inherent risk factors, the engagement team has assessed the inherent risk of error as Significant. Th
degree of estimation uncertainty associated with the assumption. The inherent risk of fraud is assessed as None. Although there is a degre
involved in the selecting the forecast, there are external forecasts which management can benchmark against which limits the degree of ju
such, there is limited opportunity for management to commit fraudulent financial reporting.
Rationale for the risk assessment of the Upside scenario 1 and Downside scenario 1:
Alternatives exist ('Yes'):
IFRS 9 does not specify that types of alternative scenarios to use or the method to develop these. As such, selection of alternative scenario
there are alternative scenarios that exist and potentially may be more appropriate than those selected by management.

Sensitive to variation ('Yes'):

Management has performed stress testing over the ECL estimate based on changes in the external economic environment and we note th
to changes in the alternative economic scenarios. This is evidenced by a material increase in the ECL estimate when using a more detrimen
Unobservable data ('Yes'):
The engagement team note management use unobservable data to develop the alternative scenarios. Using this data increases both the d
and uncertainty associated with the alternative scenarios.
Relies on the entity's intent and ability ('No'):
Macro-economic scenarios do not rely on management's intent or ability to carry out a specific course of action.

Internal inconsistency risk ('No'):

Management develop alternative economic scenarios only for use in the ECL estimate, as such there is no internal inconsistency risk.

Changes in circumstances ('Yes'):

There have been changes in the external economic environment due to the impacts of COVID 19.

Changes from the prior period ('Yes'):

Management has revised their upside and downside scenarios due to the impacts on the economic environment from COVID 19. The dow
prior period previously had an assumption that no COVID 19 vaccine would be discovered and rolled out, however given the successful rol
has now been revised.
Degree of complexity ('High'):
The engagement team have assessed the degree of complexity as high, the process to develop the different scenarios requires complex sta
bank uses in-house economists and statisticians to develop the scenarios and large volumes of data are used indicating increased complex
Degree of subjectivity ('High'):
The development and selection of alternative scenarios is judgemental. There are numerous scenarios management could use and numer
management could use to develop these scenarios. Significant management judgement is exercised indicating the potential risk for manag
the team has assessed that there is an inherent risk of fraud relating to the alternative scenarios.

Degree of estimation uncertainty ('High'):

The nature of economic scenarios is associated with a greater degree of uncertainty. Management is unable to make a precise prediction a
outcome of future events or conditions, or the occurrence of these events or how macro-economic parameters will behave under these ci
Additionally, the life-time ECLs are measured over a period of 20 years for the mortgage portfolio and there is a greater degree of uncerta
economic outcomes for a longer forecast period.

Assessed level of audit response:

Based on the assessment of the above inherent risk factors, the engagement team have assessed the inherent risk of error as Significant. T
high degrees of complexity, subjectivity and estimation uncertainty associated with the assumptions. The inherent risk of fraud is assessed
Management exercises significant judgement in selecting the alternative scenarios which provides management with an opportunity to int
inappropriate alternative scenario.
Rationale for the risk assessment of the Probability weightings for the central scenario is 50%, Probability weighting for upside scenario
weighting for downside scenario is 20%
Alternatives exist ('Yes'):
IFRS 9 does not specify or prescribe the probability weightings assigned to economic scenarios. As such, selection of probability weighting
there are alternatives that exist and potentially may be more appropriate than those selected by management.
Sensitive to variation ('Yes'):
Management has performed stress testing over the ECL estimate based on changes in the external economic environment and the engage
estimate is sensitivite to changes in the probability weightings assigned to each scenario. This is evidenced by an increase in the ECL estima
materiality when the downside scenario was weighted 100%.

Unobservable data ('Yes'):

The engagement team note management use unobservable data to develop the alternative scenarios. Using this data increases both the d
and uncertainty associated with the alternative scenarios.
Relies on the entity's intent or ability ('No'):
This is not relevant for probability-weighted outcomes as these assumptions are impacted by the external macro-economic environment.
Internal inconsistency risk ('No'):
Management develop the probability weightings only for use in the ECL estimate, as such there is no internal inconsistency risk.
Changes in circumstances ('Yes'):
There have been changes in the external economic environment due to the impact of COVID-19.

Changes from the prior period ('Yes'):

The engagement team notes the probability weightings have been revised by management from the prior period to reflect the quicker tha
recovery from the impact of COVID 19.

Degree of complexity ('High'):

To develop the probability weightings, management uses their in-house statisticians who use complex statistical methods and models to d
weighting for each scenario. The data used contains multiple inter-relationships. As such, the engagement team have assessed the degree

Degree of subjectivity ('High'):

The selection of probability-weightings is judgemental as there are numerous probabilities that can be assigned to each scenario. Addition
industry standard or external data that management can use to benchmark against.

Degree of estimation uncertainty ('High'):

The nature of the probability weightings is associated with a higher degree of uncertainty. Management is unable to make a precise predic
occurrence of future economic events. Additionally, the life-time ECLs are measured over a period of 20 years for the mortgage portfolio a
uncertainty in predicting economic outcomes for a longer forecast period. As such, the engagement team have assessed the degree of esti
high.
Assessed level of audit response:
Based on the assessment of the above inherent risk factors, the engagement team has assessed the inherent risk of error as Significant. Th
degrees of complexity, subjectivity and estimation uncertainty associated with the assumptions. The inherent risk of fraud is assessed as S
high degree of subjectivity associated with the assumptions, which provides management with an opportunity to commit fraudulent finan
Rationale for the risk assessment of the collateral valuations:
Alternatives exist ('Yes'):
The future cash flows from recovery of collateral are calculated as the current property value which is either an internal or external proper
current reporting date adjusted for discounts less the costs of recovery. There are different house price indices which can be used to deve
collateral. As such, alternatives do exist. However, the engagement team note the house price indices used by management are widely use
indicates that although there are alternatives the assumption selected by the entity is appropriate.

Sensitive to variation ('Yes'):

The engagement team notes the ECL estimate is sensitive to variation from movements in the sales value from collateral. All loans within t
collateralised, this has a significant impact on the modelling of LGD and small variations in the collateralised balance can have a significant
a key driver of the ECL estimate. The team also reviewed management's stress testing that assumes PDs are increased by 100% which incre
by $4.2m, in comparison increasing exposures by 100% increased the ECL by $13.1m. Whilst neither is a likely scenario, the comparable se
the ECL estimate is more sensitive to variations in the estimated future cash flows from recovery of collateral, rather than the PD.
Unobservable data ('Yes'):
The collateral valuations are are based on external valuations which use unobservable data, along with the house price indexation rate wh
team also consider to be unobservable data.
Relies on the entity's intent and ability ('Yes'):
The assumption relies on the entity's intent and ability to collect collateral when the counterparty defaults. There is a degree of uncertaint
intent to collect collateral from vulnerable customers.
Internal inconsistency risk ('No'):
There is no internal inconsistency risk as the valuation of future cash flows from recovery of collateral is specific to the measurement of th
portfolio.
Changes in circumstances ('Yes'):
There have been changes in the external environment due to the impacts of COVID 19 on housing price forecasts. However, this does not
method or approach to developing the assumption needs to be revised.

Changes from the prior period ('No'):

There have been no changes to the entity's method or approach to developing the assumption from the prior period.
Degree of complexity ('Moderate'):
The engagement team have assessed the degree of complexity as moderate. Management engages external valuation specialists to develo
indicating greater complexity. However, for mortgages management has access to external data sources which lowers the degree of comp

Degree of subjectivity ('Moderate'):

There is no specified valuation approach to use when developing the assumption. This results in a range of valuations for the collateral due
approaches and inputs being used, management exercises judgement to select the most appropriate assumption which introduces subjecti
comparable external data on housing prices which management can benchmark their valuations against which lowers the degree of subjec
engagement have assessed the degree of subjectivity as moderate.

Degree of estimation uncertainty ('High'):

As noted, the valuation of collateral uses unobservable data which indicates a greater degree of estimation uncertainty. Additionally, man
is about the amount of collateral they will recover at a future date, this is associated with a greater degree of uncertainty as it is challengin
make precise predictions about future events, especially as the forecast period increases.

Assessed level of audit response:

Based on the engagement team' assessment of the inherent risk factors, the inherent risk of error is assessed as significant. This is due to t
estimation uncertainty and moderate degrees of subjectivity and complexity associated with the assumption. The inherent risk of fraud is
Although there is a degree of judgement involved in the selecting the collateral valuation, there is comparable external data on housing pr
can use to benchmark their valuations which limits the opportunity for management to intentionally select a more favourable valuation.

Rationale for the risk assessment of the management overlay assumptions (i.e. Management Overlay 1 - probability weighting for centr
Management Overlay 1 - probability weighting for upside scenario is 20% and Management Overlay 1 - probability weighting for down
used to estimate the ECL estimate:
Alternatives exist ('Yes'):
IFRS 9 does not specify or prescribe the probability weightings assigned to economic scenarios. As such, selection of probability weighting
there are alternatives that exist that potentially may be more appropriate than those selected by management.
Sensitive to variation ('Yes'):
Management has performed stress testing over the ECL estimate based on changes in the external economic environment and we note th
to changes in the probability weightings assigned to each scenario. This is evidenced by an increase in the ECL estimate greater than mater
downside scenario was weighted 100%.
Unobservable data ('Yes'):
The engagement team note management use unobservable data to develop the alternative scenarios. Using this data increases both the d
and uncertainty associated with the alternative scenarios.

Relies on the entity's intent or ability ('No'):

This is not relevant for probability-weighted outcomes as these assumptions are impacted by the external macro-economic environment.
Internal inconsistency risk ('No'):
Management develop probability weightings only for use to assign to the alternative scenarios used in the ECL estimate, as such there is n
risk.

Changes in circumstances ('Yes'):

There have been changes in the external economic environment due to the impact of COVID 19.
Changes from the prior period ('Yes'):
The engagement team notes the probability weightings have been revised by management due to the impact of a new COVID 19 variant th
between the ECL modelling date and the reporting date, which has resulted in further lockdowns resulting in negative impacts on the econ
such management has posted an overlay for the impact of these changes.

Degree of complexity ('Moderate'):

The process to develop the probability-weightings is complex as it is based on statistical analysis. However, the management overlay to ad
weightings has been developed outside of the entity's modelling process as it has been posted to adjust for a late-breaking event (discove
variant). As the overlay is developed outside of the modelling process there is less complexity compared to when the probability-weighting
developed. As such, the engagement team have assessed the degree of complexity as moderate.

Degree of subjectivity ('High'):

The selection of probability-weightings for the overlay is judgemental as there are numerous probabilities that can be assigned to each sce
there is no industry standard or external data that management can use to benchmark against.
Degree of estimation uncertainty ('High'):
Management is unable to make a precise prediction about the occurrence of future economic events. Additionally, the life-time ECLs are m
of 20 years for the mortgage portfolio and there is greater uncertainty in predicting economic outcomes for a longer forecast period. As su
the degree of estimation uncertainty as high.

Assessed level of audit response:

Based on the engagement team's assessment of the inherent risk factors, the inherent risk of error is assessed as significant. This is driven
estimation uncertainty and subjectivity associated with the assumptions. The engagement team has identified an inherent risk of fraud. Th
highly subjective and this presents management with an opportunity to intentionally select a more favourable probability-weighting.
Rationale for the risk assessment of the recovery rate:
Alternatives exist ('No'):
The recovery rate is based on actual historical internal data as such no alternatives exist.

Sensitive to variation ('Yes'):

The engagement team reviewed management's sensitivity analysis and note a 2% change in the recovery rate resulted in a significant chan
As such, the engagement team note the assumption is sensitive to variation.

Unobservable data ('Yes'):

The bank uses their own internal historical data to determine when the recovery rate, which is considered unobservable data. Although th
data, the portfolio is data-rich spanning a sufficient period with actual defaults and recoveries, as such this data is more appropriate than u
source of data.
Relies on the entity's intent and ability ('No'):
This assumption does not rely on the entity's intent and ability to carry out a specific course of action.

Internal inconsistency risk ('No'):

Management develop the recovery rate only for use in the LGD model for their mortgage portfolio. As such, there is no internal inconsiste

Changes in circumstances ('No'):

There have been changes in the external economic environment due to the impact of COVID 19, however this has not impacted the recove
Changes from the prior period ('No'):
There have been no changes to the recovery rate from the prior period.

Degree of complexity ('Low'):

The process to develop the recovery rate is non-complex. It is based on historical data of actual recoveries and the calculation is non-comp
engagement team have assessed this as low.

Degree of subjectivity ('Low'):

This has been assessed as low given the assumption is based on historical actual recoveries and does not require significant management j
exercised.

Degree of estimation uncertainty ('Low'):

The assumption is based on historical actual recoveries, as such there is a low degree of estimation uncertainty associated with the assum

Assessed level of audit response:

Based on the above, the engagement team have assessed the inherent risk of error as Base and the inherent risk of fraud as None.
Rationale for the risk assessment of the recovery rate:
Alternatives exist ('No'):
The assumption is developed using internal data on historical recovery times, as such we have assessed no alternatives exist.

Sensitive to variation ('Yes'):

The engagement team reviewed management's sensitivity analysis and note a change in the recovery period of 2 years resulted in a signifi
estimate. As such, we note the assumption is sensitive to variation.

Unobservable data ('Yes'):

The bank uses their own internal historical data to determine the time to recovery. Although this is internal data, the portfolio is data-rich
period with actual defaults and recoveries, as such this data is more appropriate than using an external source of data. The bank also uses
housing prices to develop the recovery period which is also considered unobservable data.
Relies on the entity's intent and ability ('Yes'):
The assumption relies on entity's intent and ability to recover collateral from customers, there is a degree of uncertainty around the entity
collateral from vulnerable customers.
Internal inconsistency risk ('No'):
This assumption is developed only to model LGD for the bank's mortgage portfolio. As such, there is no internal inconsistency risk.

Changes in circumstances ('Yes'):

The impacts of COVID-19 on the external environment have impacted future forecasts about housing prices.

Changes from prior period ('Yes'):

The assumption has changed from the prior year based on subjective assessments on the entity's ability to realise the security.

Degree of complexity ('Low'):

The process to develop the recovery period involves non-complex statistical analysis. The entity has a data-rich portfolio which they are ab
the assumption, as such the engagement team has assessed the degree of complexity as low.
Degree of subjectivity ('Moderate'):
There is a degree of subjectivity relating to the entity's ability and intent to collect the security in the event of default. As such, the engage
assessed this as moderate. However, the assumption is based on historical data which reduces the degree of subjectivity.

Degree of uncertainty ('Moderate'):

This is a prediction about a future outcome as such there is some degree of uncertainty. Additionally, there is uncertainty around managem
ability to collect the security in the event of default. As such we have assessed this as moderate.

Assessed level of audit response:

Based on the assessment of the inherent risk factors we have assessed the inherent risk of error as Elevated and the inherent risk of fraud
Rationale for the risk assessment of the forced sale discount:
Alternatives exist ('Yes'):
The forced sale discount (FSD) is the discount on the property value the that will be received if the property was to be repossessed and sol
future. There are many different methods to calculate FSD, as such a more appropriate alternative may exist to the one selected by manag

Sensitive to variation ('Yes'):

The engagement team notes the ECL estimate is sensitive to variation from movements in the forced sale discount (FSD). All loans within t
collateralised, this has a significant impact on the modelling of LGD and small variations in the FSD can have a significant impact on LGD wh
the ECL estimate. The team also reviewed management's stress testing that assumes PDs increased by 100% which increased the ECL estim
comparison increasing exposures by 100% increased the ECL by $13.1m. Whilst neither is a likely scenario, the comparable sensitivities illu
estimate is more sensitive to variations in the estimated future cash flows from recovery of collateral, rather than the PD.

Unobservable data ('Yes'):

The model to develop the FSD (see M6: Retail mortgages - Forced Sale Discount) has been built using historical internal repossession data.
unobservable. However, the entity has a data-rich portfolio of actual repossessions and using this information is more appropriate than us
data. As such, although unobservable data has been used to develop the assumption, the engagement team do not consider this to increa
Relies on the entity's intent and ability ('Yes'):
The assumption relies on the entity's ability to collect collateral when the counterparty defaults. There is a degree of uncertainty around th
collect collateral from vulnerable customers.

Changes in circumstances ('Yes'):

There are changes in the macro-economic environment due to the impacts of COVID-19, particularly on house price forecasts which are a
the assumption.

Changes from the prior period ('Yes'):

The model that develops the FSD (see M6: Retail mortgages - Forced Sale Discount) was recalibrated in the current period as the model m
indicated the model was underpredicting the FSD. The engagement team have noted this as a change to the assumption from the prior pe

Degree of complexity ('Moderate'):

The assumption is derived from a model that utilises a number of internal and external data points, and assumptions to develop the FSD (t
index value, post code size, property type, region, economic variables). The calculations contain some level of complexity but are less com
models within the IFRS 9 credit risk model suite. As such, the degree of complexity has been assessed as moderate.

Degree of subjectivity ('Moderate'):

There is a moderate degree of subjectivity associated with the FSD assumption. This is due to the fact the assumption is developed using a
repossession data limiting the level of management judgement exercised.
Degree of uncertainty ('High'):
There is a high degree of estimation uncertainty associated with the assumption as it is predicting discount values on future property sales
lifetime ECLs which are calculated over a 20 year period. Although the assumption has been developed using historical repossession data t
predictive of future conditions, as shown by the model underpredicting the FSD in the prior year. Additionally, given the recent impacts of
period and current period there is a greater degree of uncertainty around housing prices over the long term, which is a key input used to d
assumption.

Assessed level of audit response:

Based the engagement team's assessment of the inherent risk factors, the engagement team has assessed the inherent risk of error as Sign
degree of estimation uncertainty associated with the FSD model. The inherent risk of fraud is assessed as none. Although there is a degree
in the selecting the assumption, the assumption has been developed using historical repossession data. As such, there is limited opportuni
commit fraudulent financial reporting by intentionally selecting a more favourable assumption.
RMM and response level for at least one data do not correspond, we revisit the basis for our initial assessments and
vels for the data, as necessary, to be consistent.

ted and significant risk individually and in combination with any other items and determine an audit response for each of the data.

For this example, we have documented the justification for each inherent risk factor in the 'Rationale' textbox. Howev
to document their justification on the inherent risk factors and audit response in accompanying work papers and refere
papers.

Rationale
Rationale for the risk assessment of the loan origination data:
Alternatives exist ('No'):
There are no alternatives that exist as the data is sourced from the underlying contractual agreement between the bank and the customer

Data may be insufficiently precise ('No'):

Loan origination data is sufficiently precise as it is sourced from each individual loan agreement between the bank and the customer.

Internal inconsistency risk ('Yes'):

Loan origination data used in the measurement of the ECL estimate is also used in the measurement of the retail mortgage account balanc
process). As such there is an internal inconsistency risk.

Changes in circumstances ('No'):

Although there are changes in the external environment driven by the impacts of COVID-19, these do not indicate any changes are require
loan origination data.

Changes from the prior period ('No'):

There have been no changes to the data from the prior period.

Degree of complexity ('Moderate'):

The degree of complexity related to the selection of loan origination data has been assessed as moderate. This assessment is driven by the
retail mortgages and number loan origination data elements required to be captured and flow into the IFRS 9 credit risk models. When the
data there is a greater complexity to maintain the integrity of the data.
Degree of subjectivity ('Low'):
The degree of subjectivity related to the selection of loan origination data has been assessed as low. There is limited judgement exercised
data as the loan origination data is sourced from the underlying customer contracts.
Degree of estimation uncertainty ('Low'):
The degree of estimation uncertainty related to the selection of the loan origination data has been assessed as low. The data is sourced fro
as such there is not an inherent lack of precision in the data.
Assessed level of audit response:
Based on the engagement team's assessment of the inherent risk factors, the engagement team has assessed the inherent risk of error as
the low degree of estimation uncertainty. The inherent risk of fraud is assessed as none. There is limited management judgement involved
origination data, as such there is no opportunity for management to commit fraudulent financial reporting by intentionally selecting more
Rationale for the risk assessment of the unadjusted historical and current macro-economic data:
Alternatives exist ('No'):
For current and historic macro-economic data there are no alternatives that exist as the data is based on actuals macro-economic paramet

Data may be insufficiently precise ('No'):

The engagement team notes the macro-economic data is sufficiently precise and detailed for use in the ECL estimate, as there is sufficient
individual parameter. Additionally, management has not utilised any proxy data.

Internal inconsistency risk ('Yes'):

There is an inconsistency risk as the historic macro-economic data is used across the entity's IFRS 9 credit risk models for all portfolios. Add
macro-economic data is also used to develop the entity's business plan and goodwill estimate.

Changes in circumstances ('No'):

Although there has been changes in the external macro-economic environment due to the impacts of COVID-19, these changes in the mac
environment do not indicate a need to revise the macro-economic historical data.

Changes from the prior period ('No'):

The engagement team notes management has not changed the source of the macro-economic data from the prior period. Additionally, m
made any changes to the macro-economic parameters selected (i.e. the same macro-economic parameters are used to develop the ECL es
period).

Degree of complexity ('Moderate'):

The degree of complexity has been assessed as moderate. This assessment is driven by the volume of macro-economic parameters and th
historical period which are required to be captured and flow into the IFRS 9 credit risk models. When there is a high volume of data there
in maintaining the integrity of the data.

Degree of subjectivity ('Low'):

The degree of subjectivity related to the selection of the data has been assessed as low. There is limited judgement in selecting historical a
economic as this is based on actual macro-economic parameters that have occurred.

Degree of estimation uncertainty ('Low'):

In terms of the historic and current macro-economic data the estimation uncertainty associated with the selection of the data is low. This
there is sufficient relevant data available for selected macro-economic parameters and the data is static and observable.

Assessed level of audit response:

Based on the engagement team's assessment of the inherent risk factors, the engagement team has assessed the inherent risk of error as
the low degree of estimation uncertainty. The inherent risk of fraud is assessed as none. There is limited management judgement involved
current and historic macro-economic data, as such there is no opportunity for management to commit fraudulent financial reporting by in
more favourable data.
Rational for the risk assessment of the unadjusted macro-economic forecast data:
Alternatives exist ('Yes'):
There are alternative external information sources that exist that provide macro-economic forecast data to those selected by managemen

Data may be insufficiently precise ('No'):

The engagement team notes the macro-economic data is sufficiently precise and detailed for use in the ECL estimate, as there is sufficient
for each individual parameter.

Internal inconsistency risk ('Yes'):

There is an internal inconsistency risk as the historic macro-economic data is used across the entity's IFRS 9 credit risk models for all portfo
macro-economic forecast data is also used to develop the entity's business plan and goodwill estimate.

Changes in circumstances ('Yes'):

There have been changes in the external macro-economic environment due to the impacts of COVID-19.

Changes from the prior period ('No'):

Management has not made any changes to the external information sources they use to obtain the macro-economic forecast data. Additio
no changes to the macro-economic parameters (i.e. the relevant data elements) selected by management.

Degree of complexity ('Low'):

The degree of complexity related to the selection of the macro-economic forecast data is assessed as low. There is not a significant volume
it is not difficult to capture, access or understand the data.

Degree of subjectivity ('Moderate'):

The degree of subjectivity related to the selection of the macro-economic forecast data is assessed as moderate. This is due to the fact tha
external information sources that management could select (e.g. data published by other financial services companies, data published by i
data published by central banks etc.) and there is some minor variability between these sources. As such, management exercises a degree
the most appropriate forecast data.
Degree of estimation uncertainty ('Moderate'):
The degree of estimation uncertainty related to the selection of macro-economic forecast data is assessed as moderate, as there are multi
information sources available.

Assessed level of audit response:

Based on the engagement team's assessment of the above inherent risk factors, the inherent risk of error is assessed as elevated. This is d
degree of estimation uncertainty and subjectivity related to the selection of the data. The engagement team has assessed there is no fraud
a degree of judgement involved in selecting the appropriate external information source, as the data is from a publicly available source the
opportunity for management to intentionally manipulate the data.
Rationale for the risk assessment of the historical credit loss data:
Alternatives exist ('No'):
For historical credit loss data there are no alternatives that exist as the data is based on actuals credit losses that have occurred.

Data may be insufficiently precise ('No'):

The data is sufficiently precise and detailed for use in the ECL estimate as the credit loss data spans a sufficient period and provides actual
for the entity's retail mortgage portfolio, which is sufficiently more detailed and precise compared to using proxy data (e.g. historical data

Internal inconsistency risk ('No'):

The data is specific to measuring ECLs for the retail mortgage portfolio, as such there is no internal inconsistency risk.

Changes in circumstances ('No'):

There have been no changes in circumstances that indicate the historical loss data is no longer relevant to predict future outcomes. Althou
COVID 19 is unprecedented, we note data selected by management is still appropriate as management does not have access to alternative

Changes from the data in the prior period ('No'):

There have been no changes to the source or the data elements selected by management for use in the ECL estimate from the prior period

Degree of complexity ('Moderate'):

The degree of complexity related to the selection of the historical credit loss data has been assessed as moderate. The entity stores signific
historical loss data in their data warehouses, as such there is a degree of complexity in maintaining the integrity of the data. Additionally, d
are performed prior to the data being used in the IFRS 9 credit risk models which also increases the degree of complexity associated with t
Degree of subjectivity ('Low'):
The degree of subjectivity related to the selection of the historical credit loss data has been assessed as low. As noted above, the entity on
on historical losses for a set period and the entity has used this period to build their IFRS 9 credit risk models. As such, management has ex
judgement in selecting the data.

Degree of estimation uncertainty ('Low'):

The data is historical static data reflecting actual credit losses, as such the degree of estimation uncertainty related to the selection of the
data has been assessed as low.

Assessed level of audit response:

Based on the engagement team's assessment of the above inherent risk factors, the inherent risk of error is assessed as base. This is driven
estimation uncertainty and moderate degree of complexity related to the selection of the data. The inherent risk of fraud is assessed as no
management judgement involved in selecting the current and historic macro-economic data, as such there is no opportunity for managem
fraudulent financial reporting from intentionally selecting more favourable data.
Rationale for the risk assessment of the credit monitoring data:
Alternatives exist ('No'):
The data is internal data from the entity's retail mortgage portfolio. As such, there is no alternative source that management can select for

Data is sufficiently precise ('No'):

Credit monitoring data on loans in arrears and days past due is collected on a facility basis, as such the data is sufficiently precise. Other cr
(e.g. PD comparison) is identified for the entire retail mortgage portfolio, however as the ECL is calculated as a collective provision for the
sufficiently precise.
Internal inconsistency risk ('Yes'):
There is a risk the data may be internally inconsistent with the data in the entity's credit risk management monitoring and reporting.

Changes in circumstances ('No'):

There have been changes in the external environment due to the impact of COVID-19. However, these changes do not indicate that manag
the selection of their credit monitoring data, as the current indicators are still appropriate to identify a significant increase in credit risk (SI

Changes from the prior period ('No'):

There have been no changes to the source of the data or the data elements selected by management for use in ECL estimate.

Degree of complexity ('Moderate'):

The degree of complexity associated with the selection of the credit monitoring data is assessed as moderate. This is due to the fact that m
data for each facility in the portfolio, and there are a significant number of retail mortgages. Some of the data elements (e.g. days past due
however the data is derived from actuals and is calculated automatically by the loans system which reduces the inherent complexity. Addi
dynamic and the data in the loan system is updated based on the data feeds from the payments system (e.g. missed repayments). As such
the data is more complex.

Degree of subjectivity ('Moderate'):

While credit monitoring data is observable and factual data. Management does exercise a degree of judgement in selecting the data that m
reflects the credit quality of the counterparties. As such, the degree of subjectivity associated with the selection of the credit monitoring d
moderate.

Degree of estimation uncertainty ('Low'):

The degree of estimation uncertainty associated with the selection of the credit monitoring data is assessed as low. The data is based on a
behaviour in the retail mortgage portfolio, as such there is sufficient relevant data for the portfolio. As such, the data does not result in an
precision in the measurement of the ECL estimate.
Assessed level of audit response:
Based on the assessment of the inherent risk factors, the engagement team has assessed the inherent risk of error as elevated driven by th
complexity and subjectivity. The inherent risk of fraud is assessed as none as management does not exercise a significant level of judgeme
Rationale for the risk assessment for the discount rate (i.e. effective interest rate (EIR)):
Alternatives exist ('No'):
The method to calculate the EIR is specified in IFRS 9, as such there are no alternatives that exist to the EIR selected by management.

Data may be insufficiently precise ('No'):

The data is considered to be sufficiently precise and detailed for use, the ECL is measured as a collective provision for the retail mortgage p
EIR is consistent across the portfolio.

Internal inconsistency risk ('Yes'):

The EIR is also used to measure the amortised loan balance, as such there is a risk that of inconsistency with the EIR used to measure ECLs

Changes in circumstances ('No'):

There are no changes in circumstances that indicate management needs to revise the EIR.
Changes from the prior period ('No'):
There has been no changes to the EIR from the prior period.
Degree of complexity ('Moderate'):
The degree of complexity associated with the selection of the discount rate is assessed as moderate given management derives the EIR fro
contractual terms using the method outlined in IFRS 9.

Degree of subjectivity ('Low'):

The degree of subjectivity associated with the selection of the discount rate is assessed as low. Management uses the method as specified
derive the EIR. As such, there is little management judgement exercised to determine the EIR.
Degree of estimation uncertainty ('Low'):
The degree of estimation uncertainty associated with the selection of the discount rate is assessed as low, as the EIR is derived from the un
terms, as such there is not an inherent lack of precision in the data.

Assessed level of audit response:

Based on the engagement team's assessment of the above inherent risk factors, the inherent risk of error is assessed as base. This is driven
estimation uncertainty related to the selection of the data. The inherent risk of fraud is assessed as none. There is limited management jud
selecting the effective interest rate as it is specified in IFRS 9, as such there is no opportunity for management to commit fraudulent financ
intentionally selecting more favourable data.
Rationale for the risk assessment for the current loan data:
Alternatives exist ('No'):
The data is based on the retail mortgage exposures as at the measurement date which reflects actual cashflows (i.e. drawdowns and repay
bank and the customer. As such, no alternatives exist.

Data may be insufficiently precise ('No'):

The data is sufficiently precise and detailed for use as the data is captured on a facility basis.

Internal inconsistency risk ('Yes'):

Current financial asset data used in the measurement of the ECL estimate is also used in the measurement of the retail mortgage account
period end. As such, there is an internal inconsistency risk.

Changes in circumstances ('No'):

Although there are changes in the external environment driven by the impacts of COVID-19, these do not indicate any changes are require
the current financial asset data.

Changes from the prior period ('No):

There have been no changes to the source or data elements selected by management for use in the ECL estimate from the prior period.

Degree of complexity ('Moderate'):

The degree of complexity is associated with the selection of the data is assessed as low. This assessment is driven by the significant volume
and number of current financial asset data elements that are captured and flow into the IFRS 9 credit risk models. Additionally, the data is
in the loan system is updated based on the data feeds from the payments system (e.g. repayments). As such, the process to capture the da
Degree of subjectivity ('Low'):
The degree of subjectivity associated with the selection of the data is assessed as low. Current financial asset data is sourced from actual c
bank and the customer (e.g. drawdowns, repayments, prepayments), as such management does not exercise judgement in selecting the d
Degree of estimation uncertainty ('Low'):
The degree of estimation uncertainty associated with the selection of the data is assessed as low. The data is sourced from actual cashflow
and the customer, as such there is not an inherent lack of precision in the data.

Assessed level of audit response:

Based on the engagement team's assessment of the above inherent risk factors, the inherent risk of error is assessed as base. This is driven
estimation uncertainty related to the selection of the data. The inherent risk of fraud is assessed as none. There is limited management jud
selecting the current loan data as it is based on actual cashflows between the bank and customer, as such there is no opportunity for man
fraudulent financial reporting from intentionally selecting more favourable data.
Rationale for the risk assessment for the behavioural life (i.e. period of exposure):
Alternatives exist ('No'):
The data is based on contractual terms between the entity and the customer, as such no alternatives exist.

Data may be insufficiently precise ('No'):

The data is sufficiently precise and detailed for use as the underlying retail mortgage contracts are homogenous, the period of exposure is
portfolio. As the ECL is measured on a collective basis for the portfolio this is appropriate.

Internal inconsistency risk ('Yes'):

There is a risk that the behavioural life is not consistent with the behavioural life used in the entity's credit risk management documents.

Changes in circumstances ('No'):

Although there are changes in the external environment driven by the impacts of COVID-19, these do not impact the behavioural life as th
contractual terms.

Changes from the prior period ('No'):

There have been no changes to the data from the prior period.

Degree of complexity ('Low'):

The degree of complexity related to the selection of the behaviour life is assessed as low. Although the data is derived from the contractua
to determine the period of exposure is simple. Additionally, this is performed once for the portfolio given ECLs are measured on a collectiv

Degree of subjectivity ('Low'):

The degree of subjectivity associated with the selection of the behavioural life is assessed as low. This is due to the fact that IFRS 9.5.5.1.9
maximum period to consider when measuring expected credit losses is the maximum contractual period. As such, little management judge
determine the behavioural life.

Degree of estimation uncertainty ('Low'):

The degree of estimation uncertainty associated with the selection of the behavioural life is assessed as low. The data is sourced from the
such there is not an inherent lack of precision in the ECL estimate from the behavioural life data.
Assessed level of audit response:
Based on the engagement team's assessment of the above inherent risk factors, the inherent risk of error is assessed as base. This is driven
estimation uncertainty, subjectivity and complexity related to the selection of the data. The inherent risk of fraud is assessed as none. The
management judgement involved in selecting the behavioural life as it is based on the contractual maturity, as such there is no opportuni
commit fraudulent financial reporting from intentionally selecting more favourable data.
Within the data scoping work paper at <WP Ref> , it was determined that the risk for the data in this data card has a remote chance of a m
occurring, even if the data used was completely wrong.
In other words, the risk that the particular data element represents a risk of material misstatement is remote.

Although we did identify that there was a change in circumstance due to COVID -19, these considerations do not impact the overall deter
in this data card has a remote chance of misstatement occurring. Therefore the response level for this data card has been selected as 'Non
and determine
each inherentanrisk
audit response
factor for 'Rationale'
in the each of the methods.
textbox. However, teams may decide
nd audit response level in accompanying work papers and reference out to these

Rationale Assignment of
audit effort
del:

e ECLs. As such, alternatives exist to the one selected by management. However, the
ent with current industry practice when compared to peer banks that apply the PD-based
opriate PD model to the one selected by management, this reduces the degree of subjectivity

e.g. there are no management overlays due to model or data limitations resulting in

rting date given the complexity of the ECL modelling environment. Although this is common
ere is a risk the model output does not reflect the conditions at the reporting date.
ent during this period resulting in a management overlay to the overall ECL estimate (i.e. a
ment Overlay - Late-breaking economic event). KPMG specialist led
with audit support
OVID-19 on the external economic environment which may result in an increased risk of
e granted in the prior year due to the impacts of COVID-19 have now ended which may

ior period. Although there have been changes in the external environment due to the impacts
he PD model rather than the model design or specifications.
odel developers have developed the PD model utilising highly complex statistical analysis to
s a significant volume of data and assumptions to develop the PD increasing the associated
al data which contain many interrelationships. As such the degree of complexity has been

ement judgement is involved in certain aspects of the model, however the PD is developed
educing the level of management judgement involved. The model is also consistent with

edicts the probability of future defaults, as such there is a degree of uncertainty associated
e is an even greater degree of uncertainty as PDs are modelled over a 20 year period for the
of uncertainty associated with the PD model given the impacts of COVID-19, particularly over

nt team has assessed the inherent risk of error as Significant due to the high degree of
el.

s none. There is judgement involved in the design decisions of the model which can provide
asurement of ECLs, however post model implementation there is limited opportunity for
This is due to the fact that the entity has a strong internal control environment over their
. Additionally, the model is built using statistical analysis of historical data which limits the
ethodology.
odel:

e ECLs. As such, alternatives exist to the one selected by management. However, the
tent with current industry practice when compared to peer banks that apply the PD-based
opriate LGD model to the one selected by management, this reduces the degree of

e.g. there are no management overlays due to model or data limitations resulting in

rting date given the complexity of the ECL modelling environment. Although this is common
re is a risk the model output does not reflect the conditions at the reporting date.
ent during this period resulting in a management overlay to the output of the ECL calculation
M7: Management Overlay - Late-breaking economic event).
KPMG specialist led
with audit support
VID-19 on the economic environment. Residential properties are held as collateral against the
casts, which has an impact on collateral sales value which is a key assumption in the LGD

or period. Although there have been changes in the external environment due to the impacts
he LGD model rather than the model design or specifications.

onomic variables to model the projected cash receipts from the collections/recovery process.
develop the LGD. This includes complex assumptions which are developed using models which
ractions increasing the degree of complexity.

loped using statistical analysis of historical data which is formulae driven reducing the level of
onsistent with industry practice. Additionally, there have been no adjustments to the output

sociated with a higher degree of uncertainty, as the underlying assumptions to the model (e.g.
main relatively stable over a 12 month period. However, the calculation of lifetime ECLs are
forecast period is considered (the period of exposure for the retail mortgages portfolio is 20
ed as high.

nt team has assessed the inherent risk of error as Significant due to the high degree of
del.
s none. There is judgement involved in the design decisions of the model which can provide
asurement of ECLs, however post model implementation there is limited opportunity for
This is due to the fact that the entity has a strong internal control environment over their
. Additionally, the model is built using statistical analysis of historical data which limits the
ethodology.
Model:

tual cashflows. Additionally, the engagement team notes the EAD model used by the entity is
anks that use a PD-based method to measure ECLs. As such, a more appropriate alternative

e.g. there are no management overlays due to model or data limitations resulting in

rting date given the complexity of the ECL modelling environment. Although this is common
re is a risk the model output does not reflect the conditions at the reporting date.
ent during this period resulting in a management overlay to the overall ECL estimate (i.e. a
ment overlay - Late-breaking event).
KPMG specialist led
with audit support
OVID-19 on the external economic environment. There is a degree of uncertainty around
re-payments and early repayments on lifetime ECLs remains appropriate for the new

D model in the current period. Although there have been changes in the external
dology is inappropriate to calculate EAD.

ed to the entity's other IFRS 9 credit models, these are mostly contractual making the model
s complex. As such, the degree of complexity is assessed as low.

el of management judgement within the model. The one area where management judgement
payments and early repayments for lifetime ECLs. However, management has a rich portfolio
ortgage portfolio limiting the degree of judgement involved in these design decisions. As

repayments typically follow the contractual terms in the short-term. However, over the
y due to the effects of pre-payments and early repayment. As such, the degree of estimation

nt team has assessed the inherent risk of error as Elevated due to the moderate degrees of
del.

ne. There is some judgement involved in the design decisions of the model which can provide
asurement of ECLs, however post model implementation there is limited opportunity for
This is due to the fact that the entity has a strong internal control environment over their
. Additionally, the model is built using statistical analysis of historical data which limits the
ethodology.
for the measurement of ECLs. Additionally, within the industry many different models are
nt of ECLs. As such, the selection of the economic scenario model is judgemental and there
ected by management.

e.g. there are no management overlays due to model or data limitations resulting in

eporting date. Although this is common practice within the industry, this does increase the
e were significant changes in the macro-economic forecasts during the lag period resulting in
KPMG specialist led
with audit support
on the external macro-economic environment in the current period.

current period. Management made changes to the economic scenario model in the prior
was built upon was unable to reflect the current circumstances. Management assessed no

assessed as high. This is due to the fact the bank operates in a number of markets (US, UK,
are a large number of economic variables which feed into the model. Additionally, the model
sh variations between economic variables and credit losses.

s the entity to measure ECLs on an unbiased forward-looking basis reflecting a range of future
d internally by management using the economic scenario model. Significant management
nd the probability weightings applied to them, especially when considering the current

e assumptions underlying the model are associated with a greater degree of uncertainty as
and events, over a long forecast period (lifetime ECLs for the retail mortgage portfolio have a
onomic recovery, there is still greater uncertainty in the macro-economic environment due to

nt team has assessed the inherent risk of error as Significant due to the high degree of
the economic scenario model. The inherent risk of fraud is assessed as Significant driven by
des management with an opportunity to intentionally manipulate the output of the model.
culation Model:

ure ECLs, the industry standard to calculate the overall ECL amount when applying the PD
y as inputs. As such, the engagement team determines no alternatives exist.

ulation model. However, due to a late-breaking economic event a management overlay was
ment overlay is outside the ECL modelling process it has been recognised as a separate
nomic event).

rting date given the complexity of the ECL modelling environment. Although this is common
re is a risk the model output does not reflect the conditions at the reporting date.
ent during this period resulting in a management overlay to the overall ECL estimate (i.e. a
es not indicate greater uncertainty in the ECL calculation model as this is a formulaic KPMG specialist led
PD, LGD and EAD models. with audit support

he impacts of COVID-19, these do not indicate any changes are required to the ECL

el or the model methodology in the current period. This is deemed appropriate given there
model.

culates the overall ECL based on the outputs from the PD, LGD and EAD models and other
umes of data or assumptions. As such, the degree of complexity has been assessed as low.

sed method to develop the ECL estimate, there is only one model to calculate the overall ECL
gement involved in the design of the model and the degree of subjectivity has been assessed

g the output of the PD, LGD and EAD models, as such there is a low degree of estimation

nt team has assessed the inherent risk of error as Base due to the low degree of complexity,
ulation Model.
ne. This is due to the fact management exercises limited judgement in the design decisions of
intentionally influence the measurement of ECLs. Additionally, post model implementation
ulate the output of the model. This is due to the fact that the entity has a strong internal
n and model monitoring control.
 Sale Discount (submodel to the LGD model):

that the entity will receive if the property was to be repossessed and sold at some point in
uch a more appropriate alternative may exist to the one selected by management.

e.g. there are no management overlays due to model or data limitations resulting in

erated and the reporting date. Although this is common practice in the industry it does create
reflect the conditions at the reporting date.
KPMG specialist led
with audit support
mpacts of COVID-19, particularly on house price forecasts which are a key input into the

model monitoring results in the prior period indicated the model was underpredicting the FSD
adjusted the output of the model to account for the model underpredicting the FSD.

nd assumptions to develop the FSD (this includes market index value, post code, property
vel of complexity but are less complex compared to other models within the entity's IFRS 9
assessed as moderate.

model. This is due to the fact the model is developed using actual historical repossession data

s predicting discount values on future property sales, particularly for lifetime ECLs which are
ng historical repossession data this data may not be predictive of future conditions, as shown
y, given the recent impacts of COVID-19 in the prior period and current period there is a
erm, which is a key assumption used in the model.

agement team has assessed the inherent risk of error as Significant due to the high degree of

s none. There is judgement involved in the design decisions of the model which can provide
asurement of ECLs, however post model implementation there is limited opportunity for
This is due to the fact that the entity has a strong internal control environment over their
. Additionally, the model is built using statistical analysis of historical data which limits the
ethodology.
 te-breaking economic event:

mation is modelled or incorporated into the measurement of ECLs. As such, the development
COVID-19 variant between the ECL modelling date and the reporting date is judgemental and
y may be more appropriate than those selected by management.

which determines the overlay itself (e.g. there are no management overlays due to model or

in order to account for the discovery of a new COVID-19 variant, as such there is no lag

KPMG specialist led

with audit support
e to the impact of a new COVID 19 variant which was discovered between between the entity

verlay as used to develop the management overlay in the prior period. As such, no changes to
ons and data have been adjusted in the current period to reflect the new impacts of COVID-19

ent, as such the method to develop the overlay is less complex. However, the overlay uses
y-weightings) which increases the degree of complexity. As such, we have assessed the degree

re are numerous economic outcomes from the impact of a new COVID-19 variant. As such,

ertainty. Management is unable to make a precise prediction about the impact of future
erlay uses forward-looking assumptions which by their nature are associated with a greater
mation uncertainty as high.

nt team has assessed the inherent risk of error as Significant and has identified an inherent
in the overlay being susceptible to management bias.
 for each inherent risk factor in the 'Rationale' textbox. However, teams may decide
ors and audit response in accompanying work papers and reference out to these work
ms and determine an audit response for each of the assumptions.

Assignment of
Rationale audit effort
ssumption:

ls. Alternatives exist as management could have selected a different period of historical data
not an outlier within the industry and captures a full economic cycle, including a global
ve to the period of data selected by management.

torical data selected would not cause significant changes in the ECL estimate. For example,
y change the ECL estimate. If the period of historical data did not capture an economic
significant change in the ECL estimate given the period of historical data would not contain
period captures a full economic cycle, including a global recession, as such the ECL estimate is

red unobservable data, however the entity has a data-rich portfolio spanning a sufficient KPMG specialist led
dered to be more appropriate than using external proxy data. As such, although unobservable with audit support
this to increase the inherent risk.

carry out a specific course of action.

s ECL models as such there is no internal inconsistency risk.

As the impacts of COVID-19 are unprecedented there are limitations in using the period of
ote the period of data used by management is still appropriate as management does not have
environment.

om the prior period.

ank has in-house statisticians that perform statistical analysis to determine whether there is
ished within the model to be appropriate. Additionally, this process requires large volumes of
Additionally, there are significant data transformations indicating a greater degree of
high.

ction of the period of historical data is driven by the underlying historical data that is available
udgement involved. However, management still exercises a degree of judgement when
.
 period of historical data selected is used to make predictions about future outcomes based on
s, whereas the period of exposure for lifetime ECLs is 20 years. This increases the degree of
historical data, as it does not cover the period of exposure. However, the entity has a data
s some of the uncertainty.

tors, the inherent risk of error is assessed as Elevated given the high degree of complexity

egree of judgement involved in the selecting the the period of historical data, the selection is
he judgement involved in selecting the assumption, as such there is limited opportunity for
ally selecting a more period.

y developed GDP forecast (1 year forecast) and Central scenario: Internally developed

As such, selection of the parameters is judgemental and there are alternative assumptions that
marking exercise against macro-economic parameters provided by the central bank and
native assumption exists to the one selected by management.

ased on changes in the external economic environment and we note the estimate is sensitivite
not observe the impact on the ECL estimate from the GDP or unemployment parameter in
nsitive to variation given that changes in the macro-economic environment typically have an
act on the ECL estimate.

ble data to develop the assumption.

Audit led with KPMG
specialist support
r ability to carry out a specific course of action.

macro-economic forecasts used in other areas of the bank such as goodwill impairment testing

e to the impacts of COVID 19.

were relevant parameter used to estimate ECL in the prior period, therefore there is no change
we do not consider this to be a change in the assumption given that the forecast period is
e prior period forecast.

oderate given that the bank uses their own in-house economists to develop the parameters
not involve significant volumes of data or data transformations.

moderate given the fact the macro-economic parameters are not prescribed or specified by
t the relevant parameters. However, there is external data for management to benchmark

nity as they are predictions about future outcomes, events or conditions in the macro-
anagement cannot make reliable predictions about the future. As such, the engagement team

nt team have determined the inherent risk of error as Significant due to high degree of
ne. Although there is a degree of judgement involved in the selecting the forecast, as there
oderate given that the bank uses their own in-house economists to develop the parameters
not involve significant volumes of data or data transformations.

moderate given the fact the macro-economic parameters are not prescribed or specified by
t the relevant parameters. However, there is external data for management to benchmark

nity as they are predictions about future outcomes, events or conditions in the macro-
anagement cannot make reliable predictions about the future. As such, the engagement team

nt team have determined the inherent risk of error as Significant due to high degree of Audit led with KPMG
ne. Although there is a degree of judgement involved in the selecting the forecast, as there specialist support
here is limited opportunity for management to commit fraudulent financial reporting by

y developed inflation rate forecast (5 year forecast):

tion forecast grew at 1.5% per year over the five year period. However, in the current period
per year over the five year period. The engagement team considers this to be a change in the
he forecast in the prior period. The numerical value of the forecast has changed due to
Audit led with KPMG
specialist support
error as Significant due to high degree of estimation uncertainty. The inherent risk of fraud is
d in the selecting the forecast, there are external forecasts which management can benchmark
re is limited opportunity for management to commit fraudulent financial reporting.
 y developed inflation rate forecast (5 year forecast):

As such, selection of parameters is judgemental and there are alternative assumptions that
marking exercise against macro-economic parameters provided by the central bank and
iate alternative assumption exists to the one selected by management.

ased on changes in the external economic environment and the engagement team note the
hough the analysis did not observe the impact on the ECL estimate from the housing price
ption as sensitive to variation given changes in the economic environment typically have an
act on the ECL estimate.

to determine the assumption by using unobservable data. The use of unobservable data Audit led with KPMG
ncertainty associated with the assumption. specialist support

r ability to carry out a specific course of action.

macro-economic forecasts used in other areas of the bank such as goodwill impairment testing

e to COVID-19.

er used to estimate ECL in the prior period, therefore there is no change in the assumption.
eam do not consider this to be a change in the assumption given that the forecast period is
rent period compared to the prior period forecast.

moderate given that the bank uses their own in-house economists to develop the parameters
ot involve significant volumes of data or data transformations.

moderate given the fact the parameters are not prescribed or specified by IFRS 9, and
wever, there is external data for management to benchmark their parameters against which

out future outcomes, events or conditions in the macro-economic environment. There is an

edictions about the future. As such, the engagement team have assessed the degree of

agement team has assessed the inherent risk of error as Significant. This is driven by the high
he inherent risk of fraud is assessed as None. Although there is a degree of judgement
which management can benchmark against which limits the degree of judgement involved. As
ulent financial reporting.
wnside scenario 1:

the method to develop these. As such, selection of alternative scenarios is judgemental and
ore appropriate than those selected by management.

ased on changes in the external economic environment and we note the estimate is sensitivite
by a material increase in the ECL estimate when using a more detrimental downside scenario.

develop the alternative scenarios. Using this data increases both the degree of subjectivity
KPMG specialist led
with audit support
bility to carry out a specific course of action.

n the ECL estimate, as such there is no internal inconsistency risk.

e to the impacts of COVID 19.

to the impacts on the economic environment from COVID 19. The downside scenario in the
e would be discovered and rolled out, however given the successful roll-out of the vaccine this

igh, the process to develop the different scenarios requires complex statistical methods. The
narios and large volumes of data are used indicating increased complexity.

ntal. There are numerous scenarios management could use and numerous methods
agement judgement is exercised indicating the potential risk for management bias. As such
g to the alternative scenarios.

KPMG specialist led

e of uncertainty. Management is unable to make a precise prediction about the future with audit support
events or how macro-economic parameters will behave under these circumstances.
ars for the mortgage portfolio and there is a greater degree of uncertainty in predicting

agement team have assessed the inherent risk of error as Significant. This is driven by the
associated with the assumptions. The inherent risk of fraud is assessed as Significant.
ative scenarios which provides management with an opportunity to intentionally select an
 the central scenario is 50%, Probability weighting for upside scenario is 30% and Probability

gned to economic scenarios. As such, selection of probability weightings is judgemental and

priate than those selected by management.
KPMG specialist led
with audit support
ased on changes in the external economic environment and the engagement team note the
ned to each scenario. This is evidenced by an increase in the ECL estimate greater than

develop the alternative scenarios. Using this data increases both the degree of subjectivity

umptions are impacted by the external macro-economic environment.

ECL estimate, as such there is no internal inconsistency risk.

KPMG specialist led
e to the impact of COVID-19. with audit support

evised by management from the prior period to reflect the quicker than expected economic

ouse statisticians who use complex statistical methods and models to develop the probability
elationships. As such, the engagement team have assessed the degree of complexity as high.

numerous probabilities that can be assigned to each scenario. Additionally, there is no

chmark against.

degree of uncertainty. Management is unable to make a precise prediction about the

Ls are measured over a period of 20 years for the mortgage portfolio and there is greater
period. As such, the engagement team have assessed the degree of estimation uncertainty as
KPMG specialist led
with audit support
agement team has assessed the inherent risk of error as Significant. This is driven by the high
ciated with the assumptions. The inherent risk of fraud is assessed as Significant driven by the
provides management with an opportunity to commit fraudulent financial reporting.
he current property value which is either an internal or external property valuation as at the
ery. There are different house price indices which can be used to develop the value of the
team note the house price indices used by management are widely used in the industry which
ed by the entity is appropriate.

on from movements in the sales value from collateral. All loans within the portfolio are highly
and small variations in the collateralised balance can have a significant impact on LGD which is
ent's stress testing that assumes PDs are increased by 100% which increased the ECL estimate
he ECL by $13.1m. Whilst neither is a likely scenario, the comparable sensitivities illustrate that
ure cash flows from recovery of collateral, rather than the PD.

use unobservable data, along with the house price indexation rate which the engagement Audit led with KPMG
specialist support

lateral when the counterparty defaults. There is a degree of uncertainty around the entity's

h flows from recovery of collateral is specific to the measurement of the ECL for the mortgage
mpacts of COVID 19 on housing price forecasts. However, this does not indicate the entity's
sed.

developing the assumption from the prior period.

moderate. Management engages external valuation specialists to develop the assumption

t has access to external data sources which lowers the degree of complexity.

e assumption. This results in a range of valuations for the collateral due to different valuation
nt to select the most appropriate assumption which introduces subjectivity. However, there is
n benchmark their valuations against which lowers the degree of subjectivity. As such, the

ndicates a greater degree of estimation uncertainty. Additionally, management's assumption

this is associated with a greater degree of uncertainty as it is challenging for management to
cast period increases.

tors, the inherent risk of error is assessed as significant. This is due to the high degree of
mplexity associated with the assumption. The inherent risk of fraud is assessed as None.
he collateral valuation, there is comparable external data on housing prices that management
for management to intentionally select a more favourable valuation.

mptions (i.e. Management Overlay 1 - probability weighting for central scenario is 40%,
o is 20% and Management Overlay 1 - probability weighting for downside scenario is 40% )

ned to economic scenarios. As such, selection of probability weightings is judgemental and

priate than those selected by management.
Audit led with KPMG
specialist support
ased on changes in the external economic environment and we note the estimate is sensitivite
This is evidenced by an increase in the ECL estimate greater than materiality when the
 develop the alternative scenarios. Using this data increases both the degree of subjectivity

umptions are impacted by the external macro-economic environment.

o the alternative scenarios used in the ECL estimate, as such there is no internal inconsistency

Audit led with KPMG

e to the impact of COVID 19. specialist support

evised by management due to the impact of a new COVID 19 variant that was discovered
resulted in further lockdowns resulting in negative impacts on the economic environment. As
anges.

based on statistical analysis. However, the management overlay to adjust the probability-
ocess as it has been posted to adjust for a late-breaking event (discovery of a new COVID-19
ss there is less complexity compared to when the probability-weightings are originally
e of complexity as moderate.

al as there are numerous probabilities that can be assigned to each scenario. Additionally,
n use to benchmark against.

rrence of future economic events. Additionally, the life-time ECLs are measured over a period
nty in predicting economic outcomes for a longer forecast period. As such, we have assessed Audit led with KPMG
specialist support

ctors, the inherent risk of error is assessed as significant. This is driven by the high degree of
tions. The engagement team has identified an inherent risk of fraud. The assumptions are
y to intentionally select a more favourable probability-weighting.
no alternatives exist.

and note a 2% change in the recovery rate resulted in a significant change in the ECL estimate.
variation.

the recovery rate, which is considered unobservable data. Although this is unobservable
ual defaults and recoveries, as such this data is more appropriate than using an external

rry out a specific course of action.

Audit

del for their mortgage portfolio. As such, there is no internal inconsistency risk.

e to the impact of COVID 19, however this has not impacted the recovery rate.

iod.

d on historical data of actual recoveries and the calculation is non-complex, as such the

orical actual recoveries and does not require significant management judgement to be

re is a low degree of estimation uncertainty associated with the assumption.

ent risk of error as Base and the inherent risk of fraud as None.
ery times, as such we have assessed no alternatives exist.

and note a change in the recovery period of 2 years resulted in a significant change in the ECL

me to recovery. Although this is internal data, the portfolio is data-rich spanning a sufficient
appropriate than using an external source of data. The bank also uses forecasts about
red unobservable data.

eral from customers, there is a degree of uncertainty around the entity's intent on recovering
Audit

tgage portfolio. As such, there is no internal inconsistency risk.

ed future forecasts about housing prices.

e assessments on the entity's ability to realise the security.

tatistical analysis. The entity has a data-rich portfolio which they are able to use to develop
gree of complexity as low.

tent to collect the security in the event of default. As such, the engagement team has
storical data which reduces the degree of subjectivity.

egree of uncertainty. Additionally, there is uncertainty around management's intent and

e assessed this as moderate.

sed the inherent risk of error as Elevated and the inherent risk of fraud as None.
 the that will be received if the property was to be repossessed and sold at some point in the
a more appropriate alternative may exist to the one selected by management.

on from movements in the forced sale discount (FSD). All loans within the portfolio are highly
and small variations in the FSD can have a significant impact on LGD which is a key driver of
ting that assumes PDs increased by 100% which increased the ECL estimate by $4.2m, in
.1m. Whilst neither is a likely scenario, the comparable sensitivities illustrate that the ECL
flows from recovery of collateral, rather than the PD.

ale Discount) has been built using historical internal repossession data. This data is considered
l repossessions and using this information is more appropriate than using external proxy
p the assumption, the engagement team do not consider this to increase the inherent risk. Audit led with KPMG
specialist support
en the counterparty defaults. There is a degree of uncertainty around the entity's intent to

mpacts of COVID-19, particularly on house price forecasts which are a key input to develop

d Sale Discount) was recalibrated in the current period as the model monitoring results
team have noted this as a change to the assumption from the prior period.

ternal and external data points, and assumptions to develop the FSD (this includes market
es). The calculations contain some level of complexity but are less complex compared to other
e of complexity has been assessed as moderate.

assumption. This is due to the fact the assumption is developed using actual historical
rcised.

e assumption as it is predicting discount values on future property sales, particularly for

he assumption has been developed using historical repossession data this data may not be
ting the FSD in the prior year. Additionally, given the recent impacts of COVID-19 in the prior
round housing prices over the long term, which is a key input used to develop the

rs, the engagement team has assessed the inherent risk of error as Significant due to the high
e inherent risk of fraud is assessed as none. Although there is a degree of judgement involved
d using historical repossession data. As such, there is limited opportunity for management to
ore favourable assumption.
determine an audit response for each of the data.

each inherent risk factor in the 'Rationale' textbox. However, teams may decide
and audit response in accompanying work papers and reference out to these work

Assignment of
Rationale audit effort
underlying contractual agreement between the bank and the customer.

h individual loan agreement between the bank and the customer.

is also used in the measurement of the retail mortgage account balance (i.e. the loans

Audit
he impacts of COVID-19, these do not indicate any changes are required to the selection of

n data has been assessed as moderate. This assessment is driven by the significant volume of
ed to be captured and flow into the IFRS 9 credit risk models. When there is a high volume of
ata.

n data has been assessed as low. There is limited judgement exercised when selecting the
tomer contracts.

loan origination data has been assessed as low. The data is sourced from contractual terms,

ctors, the engagement team has assessed the inherent risk of error as base. This is driven by
is assessed as none. There is limited management judgement involved in selecting the loan
o commit fraudulent financial reporting by intentionally selecting more favourable data.
current macro-economic data:

tives that exist as the data is based on actuals macro-economic parameters that have occurred.

y precise and detailed for use in the ECL estimate, as there is sufficient external data for each
y proxy data.

s used across the entity's IFRS 9 credit risk models for all portfolios. Additionally, current
lan and goodwill estimate.

nvironment due to the impacts of COVID-19, these changes in the macro-economic Audit
historical data.

rce of the macro-economic data from the prior period. Additionally, management has not
the same macro-economic parameters are used to develop the ECL estimate as in the prior

ssment is driven by the volume of macro-economic parameters and the length of the
e IFRS 9 credit risk models. When there is a high volume of data there is a greater complexity

een assessed as low. There is limited judgement in selecting historical and current macro-
at have occurred.

ation uncertainty associated with the selection of the data is low. This is due to the fact that
mic parameters and the data is static and observable.

ctors, the engagement team has assessed the inherent risk of error as base. This is driven by
is assessed as none. There is limited management judgement involved in selecting the
rtunity for management to commit fraudulent financial reporting by intentionally selecting
 c forecast data:

ovide macro-economic forecast data to those selected by management.

y precise and detailed for use in the ECL estimate, as there is sufficient external data available

ic data is used across the entity's IFRS 9 credit risk models for all portfolios. Additionally,
usiness plan and goodwill estimate.
Audit led with KPMG
specialist support
ment due to the impacts of COVID-19.

n sources they use to obtain the macro-economic forecast data. Additionally, there has been
ta elements) selected by management.

nomic forecast data is assessed as low. There is not a significant volume of data elements and

nomic forecast data is assessed as moderate. This is due to the fact that there are multiple
ta published by other financial services companies, data published by international bodies,
bility between these sources. As such, management exercises a degree of judgement to select

cro-economic forecast data is assessed as moderate, as there are multiple external

risk factors, the inherent risk of error is assessed as elevated. This is driven by the moderate
ection of the data. The engagement team has assessed there is no fraud risk. Although there is
al information source, as the data is from a publicly available source there is limited
the data is based on actuals credit losses that have occurred.

ate as the credit loss data spans a sufficient period and provides actual default and loss data
detailed and precise compared to using proxy data (e.g. historical data for a similar portfolio).

lio, as such there is no internal inconsistency risk.

Audit led with KPMG
orical loss data is no longer relevant to predict future outcomes. Although the impact of specialist support
is still appropriate as management does not have access to alternative credit loss data.

ected by management for use in the ECL estimate from the prior period.

redit loss data has been assessed as moderate. The entity stores significant volumes of
ee of complexity in maintaining the integrity of the data. Additionally, data transformations
models which also increases the degree of complexity associated with the data.

redit loss data has been assessed as low. As noted above, the entity only has access to data
od to build their IFRS 9 credit risk models. As such, management has exercised little

ch the degree of estimation uncertainty related to the selection of the historical credit loss

risk factors, the inherent risk of error is assessed as base. This is driven by the low degree of
to the selection of the data. The inherent risk of fraud is assessed as none. There is limited
ric macro-economic data, as such there is no opportunity for management to commit
ourable data.
 As such, there is no alternative source that management can select for this data.

cted on a facility basis, as such the data is sufficiently precise. Other credit monitoring data
tfolio, however as the ECL is calculated as a collective provision for the portfolio, this data is

in the entity's credit risk management monitoring and reporting.

Audit led with KPMG
specialist support
mpact of COVID-19. However, these changes do not indicate that management needs to revise
rs are still appropriate to identify a significant increase in credit risk (SICR) and default.

lements selected by management for use in ECL estimate.

monitoring data is assessed as moderate. This is due to the fact that management captures
mber of retail mortgages. Some of the data elements (e.g. days past due) are derived data,
cally by the loans system which reduces the inherent complexity. Additionally, the data is
ata feeds from the payments system (e.g. missed repayments). As such, the process to capture

ement does exercise a degree of judgement in selecting the data that most appropriately
of subjectivity associated with the selection of the credit monitoring data is assessed as

of the credit monitoring data is assessed as low. The data is based on actual customer
t relevant data for the portfolio. As such, the data does not result in an inherent lack of

nt team has assessed the inherent risk of error as elevated driven by the moderate degree of
s none as management does not exercise a significant level of judgement to select the data.
e interest rate (EIR)):

are no alternatives that exist to the EIR selected by management.

e, the ECL is measured as a collective provision for the retail mortgage portfolio therefore the

there is a risk that of inconsistency with the EIR used to measure ECLs.

eeds to revise the EIR.

Audit
unt rate is assessed as moderate given management derives the EIR from the underlying

unt rate is assessed as low. Management uses the method as specified in IFRS 9 in order to
ised to determine the EIR.

of the discount rate is assessed as low, as the EIR is derived from the underlying contractual

risk factors, the inherent risk of error is assessed as base. This is driven by the low degree of
erent risk of fraud is assessed as none. There is limited management judgement involved in
h there is no opportunity for management to commit fraudulent financial reporting from
rement date which reflects actual cashflows (i.e. drawdowns and repayments) between the

ptured on a facility basis.

timate is also used in the measurement of the retail mortgage account balance as at the

Audit
he impacts of COVID-19, these do not indicate any changes are required to the selection of

d by management for use in the ECL estimate from the prior period.

a is assessed as low. This assessment is driven by the significant volume of retail mortgages
red and flow into the IFRS 9 credit risk models. Additionally, the data is dynamic and the data
ments system (e.g. repayments). As such, the process to capture the data is more complex.

is assessed as low. Current financial asset data is sourced from actual cashflows between the
), as such management does not exercise judgement in selecting the data.

of the data is assessed as low. The data is sourced from actual cashflows between the bank
in the data.

risk factors, the inherent risk of error is assessed as base. This is driven by the low degree of
erent risk of fraud is assessed as none. There is limited management judgement involved in
ween the bank and customer, as such there is no opportunity for management to commit
ourable data.
od of exposure):

customer, as such no alternatives exist.

g retail mortgage contracts are homogenous, the period of exposure is consistent across the
lio this is appropriate.

havioural life used in the entity's credit risk management documents.

Audit
he impacts of COVID-19, these do not impact the behavioural life as this is based on

ife is assessed as low. Although the data is derived from the contractual terms, the calculation
erformed once for the portfolio given ECLs are measured on a collective basis.

vioural life is assessed as low. This is due to the fact that IFRS 9.5.5.1.9 specifies that the
s is the maximum contractual period. As such, little management judgement is exercised to

of the behavioural life is assessed as low. The data is sourced from the contractual terms as
om the behavioural life data.

risk factors, the inherent risk of error is assessed as base. This is driven by the low degree of
election of the data. The inherent risk of fraud is assessed as none. There is limited
as it is based on the contractual maturity, as such there is no opportunity for management to
more favourable data.
d that the risk for the data in this data card has a remote chance of a material misstatement

a risk of material misstatement is remote.

ue to COVID -19, these considerations do not impact the overall determination that the data
herefore the response level for this data card has been selected as 'None'.
Information in red text will be provided throughout this illustration to assist with further context as to intended use

Please note, for the purposes of this example we have documented the response for two methods / models only. As su
method / model response tabs (Tab M1 - PD Model and Tab M7 - Management Overlay). However, the team completes
method / model identified under the Element RMM: Selection of the methods / models is inappropriate in Tab 2. Risk A

Risk assessment summary for the method

Always complete this section.
Response level to address th

Method Inherent
risk of error
Retail Mortgages - PD Model Significant

Document the method used to develop the estimate, including the source of the method.
The Retail Mortgage - PD Model estimates the likelihood of default over the period of exposure for the mortgage portfolio. The PD
based on the PD-based method to measure ECLs.
The IFRS 9 Retail Mortgage-PD model uses the regulatory PD calculated by the Capital Models in use in the entity as a starting poin
variables (e.g. the downturn adjustment of the capital PD model), and considering the impact of macro-economic variables (e.g. GD
loans, taking into account macro-economic variables.

The example PRPs and controls in the table below are from Section 4b: Methods / Models of the IFRS 9 Global Audit G
available on the IFRS 9 Global Audit Guidance page. Alternatively, the teams can access these via the 'Example PRPs an
(Impairment - ECL)' document which is also available on the IFRS 9 Global Audit Guidance page.

Please note, the PRPs and controls in the table below are examples only. Controls typically vary between entities based
circumstances. Engagement teams perform walkthroughs and document the process to identify PRPs and controls as ap
process over the ECL estimate. Additionally, the PRPs and controls in the table below are not a complete list of controls
methods / models used to develop the ECL estimate.

Identify PRPs and controls for the method

We have identified a 'Controls reliance' approach and/or a 'Significant' response level for the method. Complete this section.

PRP ID PRP short description Risk co

PRP M1.1 The method used by the bank for estimating ECL is inappropriate. GOBKRCE109.8b.01: The definition o
applied.
GOBKRCE109.8b.04: The relevant crit
sufficiently or appropriately identified
determining what constitutes a SICR.
to assets being allocated to incorrect

GOBKRCE109.8b.08: The entity's app

estimate of credit losses (i.e. the pres
financial instrument.

PRP M1.2 The specification and design decisions included in the Model Development GOBKRCE109.8b.01: The definition o
Standards and the individual Model Development Documents are applied.
inappropriate.
GOBKRCE109.8b.04: The relevant crit
sufficiently or appropriately identified
determining what constitutes a SICR.
to assets being allocated to incorrect

GOBKRCE109.8b.08: The entity's app

estimate of credit losses (i.e. the pres
financial instrument.
PRP M1.3 The design and specification decisions are inappropriately incorporated or GOBKRCE109.8b.01: The definition o
considered when developing a model. applied.
GOBKRCE109.8b.04: The relevant crit
sufficiently or appropriately identified
determining what constitutes a SICR.
to assets being allocated to incorrect

GOBKRCE109.8b.08: The entity's app

estimate of credit losses (i.e. the pres
financial instrument.

PRP M1.4 The definition of default used by the bank is inappropriate. GOBKRCE109.8b.01: The definition o
applied.

GOBKRCE109.8b.04: The relevant crit

sufficiently or appropriately identified
determining what constitutes a SICR.
to assets being allocated to incorrect

GOBKRCE109.8b.08: The entity's app

estimate of credit losses (i.e. the pres
financial instrument.

PRP M1.5 The SICR criteria used by the bank are inappropriate. GOBKRCE109.8b.01: The definition o
applied.

GOBKRCE109.8b.04: The relevant crit

sufficiently or appropriately identified
determining what constitutes a SICR.
to assets being allocated to incorrect

GOBKRCE109.8b.08: The entity's app

estimate of credit losses (i.e. the pres
financial instrument.
PRP M1.6 Models that are no longer relevant or appropriate are used to estimate the GOBKRCE109.8b.01: The definition o
ECL. applied.
GOBKRCE109.8b.04: The relevant crit
sufficiently or appropriately identified
determining what constitutes a SICR.
to assets being allocated to incorrect

GOBKRCE109.8b.08: The entity's app

estimate of credit losses (i.e. the pres
financial instrument.

PRP M1.7 The models selected, including the model techniques selected, implemented GOBKRCE109.8b.01: The definition o
and used by the bank for estimating ECLs are inappropriate applied.

GOBKRCE109.8b.04: The relevant crit

sufficiently or appropriately identified
determining what constitutes a SICR.
to assets being allocated to incorrect
GOBKRCE109.8b.08: The entity's app
estimate of credit losses (i.e. the pres
financial instrument.

Is any control(s) ineffective? No

The below question is not applicable as a 'No controls reliance' approach is used.
Revise control reliance?
Reconsider the nature, timing, and extent of substantive procedures based on the change in our assessment of controls response t
Design and perform procedures for the method
Complete this section in the following two circumstances. Otherwise, leave this section blank.
1. If "Test and evaluate the entity's process" was selected as the substantive approach to test the accounting estimate on 3. Ove
2. If "Develop an independent expectation" was selected as the substantive approach to test the accounting estimate on 3. Over

Did management make changes from the method/model used in the prior period?

Are adjustments made to the output of the model?

The procedures in the table below are from the Estimates - IFRS 9 (Impairment - ECL) excel template on Alex which co
procedures.

Where teams engage a KPMG Credit Risk Specialist, they may use the ISG's KPMG Credit Risk Specialist Work Papers:
on the IFRS 9 Global Audit Guidance page to document:
- Scoping and planning; and
- Findings and conclusions.

Perform procedures to address: ID Procedure

Whether the method/model selected M1.1 1a.1.1: Assess the IFRS 9 accounting policy related to the methods / models
is appropriate in the context of the
financial reporting framework or the Assess the IFRS 9 accounting policy related to the methods / models:
nature of the account or disclosure, 1. Obtain and inspect the entity's IFRS 9 accounting policy.
and the business, industry, and 2. Assess whether the entity's accounting policy for estimating ECLs is in line w
environment in which the entity requirements of IFRS 9.
operates.
This procedure is included as an optional procedure in the 'KPMG Credit Risk
Work Paper: ECLs (IFRS 9) - Scoping and Planning'.
M1.2 1a.1.2: Assess the central credit risk policy documents related to methods /
Assess the central credit risk policy documents related to the methods/mode
1. Obtain the entity's central credit risk policy documents that apply for all EC
within the entity.
2. Inspect these central policy documents to understand the entity's methods
estimating ECLs, and how the methods have been applied in the models.
3. Assess whether the central policy documents are consistent with the entity
accounting policy for IFRS 9, the relevant IFRS 9 requirements, industry practi
appropriate) and appropriate in the circumstances.

The key IFRS 9 requirements evaluated by the engagement team in assessing

central policy documents include the key design decisions related to methods
models, such as the following:
- definition of default;
- significant increase in credit risk (SICR);
- cash shortfalls;
- the period over which to estimate ECLs;
- probability-weighted outcome;
- time value of money;
- collateral;
- individual vs collective basis of measurement.
This procedure is included as an optional procedure in the 'KPMG Credit Risk
Work Paper: ECLs (IFRS 9) - Scoping and Planning'.

M1.3 1a,1.3: Assess the Model Development Document

Assess the Model Development Document:

1. Obtain and inspect the Model Development Document for the PD model an
whether the Model Development Document appropriately considers and doc
the key model elements, such as:
- a description of the PD model (including its intended objective / purpose)
- the PD model's approach (/modelling technique used)
- assumptions and data

2. Compare the Model Development Document for the PD model with the en
Model Development Standards and other relevant central policies.
This procedure is included in the 'KPMG Credit Risk Specialist Work Paper: EC
- Scoping and Planning' for all categories of models.
M1.4 1a.1.4: Assess the model's conceptual soundness
Assess the PD model's conceptual soundness:
1. Obtain and inspect the Model Development Document, as assess the mode
conceptual soundness. This includes an assessment of whether the following
the model are appropriate:
a. the model's methodology, including the modelling approach or technique u
the model.
b. the variables in the model.
c. whether the model is fit for purpose (i.e. is the model suited for its purpose
objective).
d. key judgements made in the model design and development

Procedure is included in the 'KPMG Credit Risk Specialist Work Paper: ECLs (IF
Scoping and Planning' for all categories of models.

M1.5 1a.1.5: Assess the definition of default

Assess the definition of default:
Assess the appropriateness of the definition of default used by the PD model
performing the procedures below.
1. Assess whether the definition of default used in the PD model is consistent
a. the entity's IFRS 9 accounting policy (already assessed as part of the centra
further above); and
b. industry practice.

2. Evaluate and assess whether any rebuttal of the 90 days past due (DPD)
presumption is appropriate.

3. Where there are no differences between the entity's IFRS 9 accounting defi
and the regulatory definition:
a. compare the accounting and regulatory definitions, and document why the
difference and whether this is appropriate; and
b. compare the regulatory data set with the accounting data.

4. Where there are differences between the entity's IFRS 9 accounting definiti
the regulatory definition:
a. compare the entity's accounting and regulatory definitions, and document
are differences and whether it is appropriate to have differences; and
b. compare the regulatory data set with the accounting data set to check whe
there are differences in the obligors / facilities being identified as in defaults /
impaired, and whether the differences arise due to differences between the a
definition and regulatory definition.
This procedure is included in the 'KPMG Credit Risk Specialist Work Paper: EC
- Scoping and Planning' for all categories of models.
 M1.6 1a.1.6: Assess the SICR / staging methodology
1. Assess whether the entity's SICR criteria and staging methodology are cons
with:
a. IFRS 9 requirements; and
b. industry practice.
2. Obtain and inspect management's analysis (e.g. analysis of a portfolio's risk
for the SICR criteria and staging methodology used by the entity, including tri
points to determine SICR.
a. assess whether the SICR criteria are appropriate based on management's a
(this may involve re-performing management's analysis and comparing the
engagement team's results with those of management).
3. For a sample of loans, apply the entity’s documented SICR criteria and stag
methodology to determine their staging. Compare the engagement team’s re
conclusions with those of management.
This procedure is included in the 'KPMG Credit Risk Specialist Work Paper: EC
- Scoping and Planning' for all categories of models.

The following procedures which are documented as part of <Tab: Application

addresses the Element RMM: Selection of the method/model is inappropriate
- AP1: Assess the model validation activities and results
- AP5: Perform model re-performance testing (where the models are interna
developed by the bank)

Whether changes from the

method/model used in prior period
are appropriate.
These sections are greyed out as in this example we did not identify (a) changes t
adjustment made directly to the PD model (i.e. a modelled adjustment). If the en
the model, then they would perform procedures to address these requirements.
IFRS 9 (Impairment - ECL)' excel template on Alex which contains the substantive

Whether adjustments made by the

entity to the output of the model are
consistent with the measurement
objective of the applicable financial
reporting framework and are
appropriate in the circumstances.

Did we identify any contradictory audit evidence as a result of the procedures performed?
Document the contradictory or inconsistent evidence identified and the procedures performed to address it.
 r context as to intended use of the Estimates work paper.

methods / models only. As such, we have completed two

However, the team completes one response tab for each
s inappropriate in Tab 2. Risk Assessment.

Response level to address the: The level of audit response related to the metho
Inherent per Section 4b. Methods / Models of the IFRS 9
Controls response assessed as significant, this aligns to Category 1:
risk of fraud
None Controls reliance Engagement teams can refer to Estimates - IFRS
correspond to each category of testing.

r the mortgage portfolio. The PD model has been developed internally by the model development team using complex statistical analysis to establish va

se in the entity as a starting point to calculate 12-month PD and Lifetime PD for IFRS 9. The 12-month PD is estimated using the regulatory PD which is a
acro-economic variables (e.g. GDP, unemployment, house price forecasts). The Lifetime PD is estimated by calculating the lifetime cumulative distributi

ls of the IFRS 9 Global Audit Guidance - Banks: Impairment which is

ese via the 'Example PRPs and Controls: Estimates - IFRS 9
page.

y vary between entities based on the entity's specific facts and

dentify PRPs and controls as appropriate to their client's specific
not a complete list of controls that entity's may have in place over

od. Complete this section.

Risk consideration(s) addressed by PRP Control(s) addressing PRP

KRCE109.8b.01: The definition of default is not appropriately determined or consistently CM1.1: Review and approval of the ECL method
ed.
On an annual basis, the Credit Risk Management Comm
KRCE109.8b.04: The relevant criteria for significant increases in credit risk ("SICR") are not approves the method used by the bank in estimating EC
iently or appropriately identified and/or inappropriate criteria are considered when confirm that the method continues to be appropriate. T
mining what constitutes a SICR. In addition, SICR is inappropriately assessed or applied, leading
is supported by a white paper prepared by the credit te
sets being allocated to incorrect stages. documents why the method is appropriate for the portf
evaluation of how the method is consistent with IFRS 9
KRCE109.8b.08: The entity's approach to the determination of ECL is not a probability-weighted industry practice, and whether any changes are needed
ate of credit losses (i.e. the present value of cash shortfalls) over the expected life of the
cial instrument. CM1.5: Model Validation Control:

The bank's independent model validation function perf

activities over models as part of the model validation c
models before their implementation. This includes testi
specification and design decisions of the models, such a
whether the models appropriately incorporate the spec
decisions as outlined in the Model Development Standa
Development Document. The results of the model valid
subject to a secondary review by a senior member of th
validation function.

KRCE109.8b.01: The definition of default is not appropriately determined or consistently CM1.2: Review and approval of the Model Developme
ed.
The bank's Model Development Standards are reviewe
KRCE109.8b.04: The relevant criteria for significant increases in credit risk ("SICR") are not annually by the bank's Credit Risk Management Commi
iently or appropriately identified and/or inappropriate criteria are considered when supported by a white paper prepared by the credit team
mining what constitutes a SICR. In addition, SICR is inappropriately assessed or applied, leading documents why the design and specification decisions,
sets being allocated to incorrect stages. across the entity's models are appropriate (including an
these are consistent with IFRS 9 requirements).

KRCE109.8b.08: The entity's approach to the determination of ECL is not a probability-weighted CM1.3: Review and approval of the Model Developme
ate of credit losses (i.e. the present value of cash shortfalls) over the expected life of the
cial instrument. The Model Development Document for an individual m
approved by a senior member of the development team
Management Committee prior to the model's impleme
supported by a white paper prepared by the credit team
documents how an individual model has been develope
model specification and design decisions in the bank's M
Standards.

CM1.4: Review and approval of changes to the Model

Document

All changes to a Model Development Document are ma

owner, and reviewed and approved by the Credit Risk M
Committee.
KRCE109.8b.01: The definition of default is not appropriately determined or consistently CM1.5: Model Validation Control:
ed.
The bank's independent model validation function perf
KRCE109.8b.04: The relevant criteria for significant increases in credit risk ("SICR") are not activities over models as part of the model validation c
iently or appropriately identified and/or inappropriate criteria are considered when models before their implementation. This includes testi
mining what constitutes a SICR. In addition, SICR is inappropriately assessed or applied, leading
specification and design decisions of the models, such a
sets being allocated to incorrect stages. whether the models appropriately incorporate the spec
decisions as outlined in the Model Development Standa
KRCE109.8b.08: The entity's approach to the determination of ECL is not a probability-weighted Development Document. The results of the model valid
ate of credit losses (i.e. the present value of cash shortfalls) over the expected life of the subject to a secondary review by a senior member of th
cial instrument. validation function.

KRCE109.8b.01: The definition of default is not appropriately determined or consistently CM1.6: Review and approval of the bank's definition o
ed.
On an annual basis, the Senior Credit Risk Officer, the D
KRCE109.8b.04: The relevant criteria for significant increases in credit risk ("SICR") are not Accounting and the Credit Risk Management Committe
iently or appropriately identified and/or inappropriate criteria are considered when the bank's definition of default to confirm that it contin
mining what constitutes a SICR. In addition, SICR is inappropriately assessed or applied, leading
Their review is supported by a white paper prepared by
sets being allocated to incorrect stages. evaluates and documents why the bank's definition of
including an evaluate of how the definition is consisten
KRCE109.8b.08: The entity's approach to the determination of ECL is not a probability-weighted requirements and further analysis supporting why the d
ate of credit losses (i.e. the present value of cash shortfalls) over the expected life of the be appropriate.
cial instrument.

KRCE109.8b.01: The definition of default is not appropriately determined or consistently CM1.7: Review and approval of the bank's SICR criteri
ed.
On an annual basis, the Senior Credit Risk officer, the D
KRCE109.8b.04: The relevant criteria for significant increases in credit risk ("SICR") are not Accounting and the Credit Risk Management Committe
iently or appropriately identified and/or inappropriate criteria are considered when the bank's SICR criteria to confirm that they continue to
mining what constitutes a SICR. In addition, SICR is inappropriately assessed or applied, leading
review is supported by a white paper prepared by the fi
sets being allocated to incorrect stages. evaluates and documents why the bank's SICR criteria a
including an evaluation of how the SICR criteria are con
KRCE109.8b.08: The entity's approach to the determination of ECL is not a probability-weighted requirements and further analysis supporting why the S
ate of credit losses (i.e. the present value of cash shortfalls) over the expected life of the be appropriate.
cial instrument.
Note: this is only an example of a control related to the
may be other controls related to SICR at the bank (e.g.
management's back-testing of SICR criteria and monthl
staging movements). The engagement team identifies a
controls here.
KRCE109.8b.01: The definition of default is not appropriately determined or consistently CM1.8: Review and approval of the model validation
ed.
Annually, the bank's model validation plan (which outli
KRCE109.8b.04: The relevant criteria for significant increases in credit risk ("SICR") are not frequency of validation for existing models) is reviewed
iently or appropriately identified and/or inappropriate criteria are considered when bank's Credit Risk Management Committee. The Comm
mining what constitutes a SICR. In addition, SICR is inappropriately assessed or applied, leading
supported by a white paper prepared by the model val
sets being allocated to incorrect stages. includes a risk assessment of the bank's models, and w
frequency of validation outlined in the validation plans
KRCE109.8b.08: The entity's approach to the determination of ECL is not a probability-weighted appropriate model validation plan helps in validating m
ate of credit losses (i.e. the present value of cash shortfalls) over the expected life of the basis, such that models continue to be relevant and ap
cial instrument.
CM1.5: Model Validation Control:
The bank's independent model validation function perf
activities over models as part of the model validation c
models before their implementation. This includes testi
specification and design decisions of the models, such a
whether the models appropriately incorporate the spec
decisions as outlined in the Model Development Standa
Development Document. The results of the model valid
subject to a secondary review by a senior member of th
validation function.

CM1.9: Model monitoring control:

Quarterly, the bank's model monitoring function perfor
activities (e.g. back-testing) as part of the bank's model
approves the models used by the bank. This helps to id
performance issues, which may indicate that the mode
relevant or appropriate for use. The results of the mod
procedures are subject to a secondary review by a seni
bank's model monitoring function.

KRCE109.8b.01: The definition of default is not appropriately determined or consistently CM1.10: Review and approval of the Model Developm
ed.
The Model Development Document for an individual m
KRCE109.8b.04: The relevant criteria for significant increases in credit risk ("SICR") are not approved by a senior member of the development team
iently or appropriately identified and/or inappropriate criteria are considered when Management Committee before the model's implemen
mining what constitutes a SICR. In addition, SICR is inappropriately assessed or applied, leading Development Document provides details of how the m
sets being allocated to incorrect stages. developed in line with the design and specification dec
Development Standards, and details of the model tech
KRCE109.8b.08: The entity's approach to the determination of ECL is not a probability-weighted
ate of credit losses (i.e. the present value of cash shortfalls) over the expected life of the
cial instrument.

ssessment of controls response to either partial or no reliance.

he accounting estimate on 3. Overall approach tab
e accounting estimate on 3. Overall approach tab AND we concluded that we will use the entity's method in our independent expectation on the 3.1 Indep

No The engagement team's response to the two questions noted here aligns
assessment decisions in Tab 2. Risk assessment. For example, we have se
changes from the method / model used in the prior period?', this is cons
No inherent risk factor 'changes from the prior period?' for the PD model in

cel template on Alex which contains the substantive

Risk Specialist Work Papers: ECLs (IFRS 9) available

dure TOD or SAP KPMG specialist involved Risk consideration(s) addressed by procedure
in KCw?

elated to the methods / models TOD KPMG Credit Risk GOBKRCE109.8b.01: The definition of default is not appropriately
Specialist determined or consistently applied.
the methods / models:
unting policy. GOBKRCE109.8b.04: The relevant criteria for significant increases
icy for estimating ECLs is in line with the in credit risk ("SICR") are not sufficiently or appropriately
identified and/or inappropriate criteria are considered when
determining what constitutes a SICR. In addition, SICR is
cedure in the 'KPMG Credit Risk Specialist inappropriately assessed or applied, leading to assets being
ning'. allocated to incorrect stages.
 ocuments related to methods / models TOD KPMG Credit Risk GOBKRCE109.8b.01: The definition of default is not appropriately
Specialist determined or consistently applied.
ts related to the methods/models:
documents that apply for all ECL models GOBKRCE109.8b.04: The relevant criteria for significant increases
in credit risk ("SICR") are not sufficiently or appropriately
understand the entity's methods for identified and/or inappropriate criteria are considered when
been applied in the models. determining what constitutes a SICR. In addition, SICR is
nts are consistent with the entity's inappropriately assessed or applied, leading to assets being
S 9 requirements, industry practice (where allocated to incorrect stages.
ances.

e engagement team in assessing the

ign decisions related to methods /

nt.
cedure in the 'KPMG Credit Risk Specialist
ning'.

ument TOD KPMG Credit Risk GOBKRCE109.8b.01: The definition of default is not appropriately
Specialist determined or consistently applied.
nt Document for the PD model and assess GOBKRCE109.8b.04: The relevant criteria for significant increases
appropriately considers and documents in credit risk ("SICR") are not sufficiently or appropriately
identified and/or inappropriate criteria are considered when
intended objective / purpose) determining what constitutes a SICR. In addition, SICR is
ique used) inappropriately assessed or applied, leading to assets being
allocated to incorrect stages.

ent for the PD model with the entity's

evant central policies.
it Risk Specialist Work Paper: ECLs (IFRS 9)
models.
ness TOD KPMG Credit Risk GOBKRCE109.8b.01: The definition of default is not appropriately
: Specialist determined or consistently applied.
nt Document, as assess the model's
sment of whether the following aspects of GOBKRCE109.8b.04: The relevant criteria for significant increases
in credit risk ("SICR") are not sufficiently or appropriately
odelling approach or technique used in identified and/or inappropriate criteria are considered when
determining what constitutes a SICR. In addition, SICR is
inappropriately assessed or applied, leading to assets being
the model suited for its purpose / allocated to incorrect stages.
and development

k Specialist Work Paper: ECLs (IFRS 9) -

odels.

TOD KPMG Credit Risk GOBKRCE109.8b.01: The definition of default is not appropriately
Specialist determined or consistently applied.

of default used by the PD model by

ed in the PD model is consistent with:

dy assessed as part of the central policies

of the 90 days past due (DPD)

he entity's IFRS 9 accounting definition

finitions, and document why there are no

nd
ccounting data.

entity's IFRS 9 accounting definition and

atory definitions, and document why there
to have differences; and
ccounting data set to check whether
s being identified as in defaults / credit-
due to differences between the accounting

it Risk Specialist Work Paper: ECLs (IFRS 9)

models.
 gy TOD KPMG Credit Risk GOBKRCE109.8b.04: The relevant criteria for significant increases
Specialist in credit risk ("SICR") are not sufficiently or appropriately
d staging methodology are consistent identified and/or inappropriate criteria are considered when
determining what constitutes a SICR. In addition, SICR is
inappropriately assessed or applied, leading to assets being
allocated to incorrect stages.
(e.g. analysis of a portfolio's risk profile)
used by the entity, including trigger
priate based on management's analysis
t's analysis and comparing the
nagement).
cumented SICR criteria and staging
mpare the engagement team’s results and

it Risk Specialist Work Paper: ECLs (IFRS 9)

models.

nted as part of <Tab: Application> also TOD KPMG Credit Risk See <Tab: Application>
e method/model is inappropriate: Specialist
nd results
g (where the models are internally

e did not identify (a) changes to the PD model from the prior period and (b) an
odelled adjustment). If the engagement did identify changes or adjustments to
address these requirements. Engagement teams can refer to the 'Estimates -
hich contains the substantive procedures to address these requirements.

No
onse related to the method / model corresponds to the suggested category of testing to address the assessed risk
ds / Models of the IFRS 9 Global Audit Guidance - Banks: Impairment. In this example, the inherent risk of error is
this aligns to Category 1: Enhanced testing per the Guidance.

n refer to Estimates - IFRS 9 (Impairment - ECL) excel template for standardised substantive procedures that
egory of testing.

stical analysis to establish variations within the model, and is

the regulatory PD which is adjusted for any regulatory specific

ifetime cumulative distribution of default events for Stage 2

Control(s) addressing PRP

val of the ECL method
edit Risk Management Committee reviews and
by the bank in estimating ECL for each portfolio to
ontinues to be appropriate. The Committee's review
per prepared by the credit team that evaluates and
d is appropriate for the portfolio, including an
hod is consistent with IFRS 9 requirements and
ther any changes are needed to the method.
Control:

odel validation function performs model validation

art of the model validation control, and approves
mentation. This includes testing over the
cisions of the models, such as testing to verify
priately incorporate the specification and design
Model Development Standards and Model
he results of the model validation procedures are
ew by a senior member of the bank's independent

val of the Model Development Standards

ment Standards are reviewed and approved

dit Risk Management Committee. Their review is
r prepared by the credit team which evaluates and
and specification decisions, which are applicable
are appropriate (including an evaluation of how
FRS 9 requirements).

val of the Model Development Document

ocument for an individual model is reviewed and

ber of the development team and the Credit Risk
rior to the model's implementation. Their review is
r prepared by the credit team which evaluates and
ual model has been developed according to the
sign decisions in the bank's Model Development

val of changes to the Model Development

elopment Document are made by the model

approved by the Credit Risk Management
Control:
odel validation function performs model validation
art of the model validation control, and approves
mentation. This includes testing over the
cisions of the models, such as testing to verify
priately incorporate the specification and design
Model Development Standards and Model
he results of the model validation procedures are
ew by a senior member of the bank's independent

val of the bank's definition of default

nior Credit Risk Officer, the Director of Technical
Risk Management Committee review and approve
ault to confirm that it continues to be appropriate.
by a white paper prepared by the credit team that
why the bank's definition of default is appropriate,
w the definition is consistent with IFRS 9
analysis supporting why the definition continues to

val of the bank's SICR criteria

nior Credit Risk officer, the Director of Technical
Risk Management Committee review and approve
onfirm that they continue to be appropriate. Their
hite paper prepared by the finance team that
why the bank's SICR criteria are appropriate,
how the SICR criteria are consistent with IFRS 9
analysis supporting why the SICR criteria continue to

le of a control related to the SICR criteria. There

ted to SICR at the bank (e.g. controls related to
g of SICR criteria and monthly analysis/ review of
ngagement team identifies and documents these
val of the model validation plan
validation plan (which outlines the timing and
existing models) is reviewed and approved by the
ment Committee. The Committee's review is
r prepared by the model validation function that
of the bank's models, and why the timing and
lined in the validation plans is appropriate. An
on plan helps in validating models on a recurrent
ntinue to be relevant and appropriate.

Control:
odel validation function performs model validation
art of the model validation control, and approves
mentation. This includes testing over the
cisions of the models, such as testing to verify
priately incorporate the specification and design
Model Development Standards and Model
he results of the model validation procedures are
ew by a senior member of the bank's independent

control:
el monitoring function performs model monitoring
) as part of the bank's model monitoring control and
by the bank. This helps to identify any model
may indicate that the models are no longer
use. The results of the model monitoring
a secondary review by a senior member of the
unction.

oval of the Model Development Document

ocument for an individual model is reviewed and

ber of the development team and the Credit Risk
efore the model's implementation. The Model
rovides details of how the model has been
design and specification decisions in the Model
nd details of the model technique used.
 expectation on the 3.1 Independent expectation tab

uestions noted here aligns to their documented risk

. For example, we have selected 'no' to 'Did management make
prior period?', this is consistent with our response to the
iod?' for the PD model in Tab 2.Risk assessment.

d by procedure Results Expected results

obtained?

efault is not appropriately The engagement team assessed the entity's IFRS 9 accounting Yes
policy and notes it is in line with the requirements of IFRS 9 and
industry practice, and appropriate for the current circumstances.
a for significant increases See results at <WP Ref>.
or appropriately
are considered when
addition, SICR is
ding to assets being
efault is not appropriately The engagement team assessed the entity's central credit risk Yes
policy documents related to ECL methods / models. The
engagement team noted the policies are consistent with both the
a for significant increases entity's IFRS 9 accounting policy and relevant IFRS 9
or appropriately requirements. The policies are also in line with industry practice
are considered when and appropriate for the current circumstances. See results at
addition, SICR is <WP Ref>.
ding to assets being

efault is not appropriately The engagement team notes the Model Development Document Yes
for the PD model appropriately documents the key model
elements. These are consistent with the entity's Model
a for significant increases Development Standards and central policy documents. See
or appropriately results at <WP Ref>.
are considered when
addition, SICR is
ding to assets being
efault is not appropriately The engagement team assessed the PD model's conceptual Yes
soundness and note the methodology is appropriate for the PD-
based method to measure ECLs. Additionally, the variables within
a for significant increases the model are appropriate and the model is fit for purpose. Key
or appropriately judgements made in the model design and development are
are considered when appropriate and in line with IFRS 9 requirements and best
addition, SICR is industry practice. See results at <WP Ref>.
ding to assets being

efault is not appropriately The engagement team finds the entity's definition of default used Yes
in the PD model to be appropriate. It is consistent with the
entity's IFRS 9 accounting policy and industry practice. The entity
has not rebutted the 90 DPD presumption, and the engagement
team find this to be appropriate for the entity's retail mortgage
portfolio. There are differences between the entity's accounting
and regulatory definition of default, this is due to the fact the
banking regulator has specific requirements to recognise default
which are not in line with IFRS 9 requirements. As such, these
differences are appropriate. See results at <WP ref>.
 a for significant increases SICR criteria and staging methodology are appropriate, consistent Yes
or appropriately with IFRS requirements and industry practice. For the sample of
are considered when loans tested, there were no exceptions between the engagement
addition, SICR is team's results and management's results. See results at <WP
ding to assets being ref>.

See <Tab: Application> Yes

essed risk
k of error is

hat
Information in red text will be provided throughout this illustration to assist with further context as to intended use

Please note, for the purposes of this example we have documented the response for two methods / models only. As su
method / model response tabs (Tab M1 - PD Model and Tab M7 - Management Overlay). However, teams complete on
model identified under the Element RMM: Selection of the methods / models is inappropriate in Tab 2. Risk Assessm

Risk assessment summary for the method

Always complete this section.
Response level to address the:

Method Inherent
risk of error
Management overlay - late breaking economic event Significant

Document the method used to develop the estimate, including the source of the method.
The management overlay has been developed outside of the ECL modelling environment. This is due to the timing of the late-brea
time to re-run the models to reflect the impact of the late-breaking event. The overlay has been developed using a series of less co

The example PRPs and controls in the table below are from Section 4b: Methods / Models of the IFRS 9 Global Audit G
Impairment which is available on the IFRS 9 Global Audit Guidance page. Alternatively, the teams can access these via t
Controls: Estimates - IFRS 9 (Impairment - ECL)' document which is also available on the IFRS 9 Global Audit Guidance

Please note, the PRPs and controls in the table below are examples only. Controls typically vary between entities base
facts and circumstances. Engagement teams perform walkthroughs and document the process to identify PRPs and con
their client's specific process over the ECL estimate. Additionally, the PRPs and controls in the table below are not a com
entity's may have in place over methods / models used to develop the ECL estimate.

Identify PRPs and controls for the method

We have identified a 'Controls reliance' approach and/or a 'Significant' response level for the method. Complete this section.

Where an element (i.e. a method / model, assumption or data) is associated with an inherent risk of fraud or the
inherent risk of error is assessed as significant, the engagement team is required to evaluate the design and
implementation (D&I) of the entity's controls over the applicable PRPS related to the fraud risk / significant risk.
Given the complexity of the ECL estimate, engagement teams also typically test the operating effectiveness of
these controls.

See KAEG-I, ISA 240 | 2.1 "How do we design and perform procedures to respond to fraud risks?" for further
guidance on identifying anti-fraud controls.

PRP ID PRP short description Risk consid

PRP M1 The management overlays (or adjustments) in models are inappropriate,
which includes the overlays being not accurate or reflective of underlying facts
and circumstances.

PRP M2 Management’s justification/rationale for the management overlays may

suggest that the model design and/or implementation and/or validation is/are
inadequate/inappropriate for calculating the total ECLs.

PRP M3 The management overlays included by the bank in its model are incomplete
(or management overlays are not appropriately identified when there should
be an overlay recognised)
 PRP M4 There are errors in the management overlays recorded in the general ledger /
financial statements.

PRP M5 Example of a PRP related to the inherent risk of fraud:

The management overlays (or adjustments) are inappropriate as management
was intentionally bias in their decisions.

The IFRS 9 Global Audit Guidance - Banks: Impairment does not contain example
PRPs or controls that specifically address the inherent risk of fraud. For the
purposes of this illustrative example, we have included additional PRPs related to
the inherent risk of fraud and identified those controls from the Guidance which
address this risk.

Is any control(s) ineffective? No

The below question is not applicable as a 'No controls reliance' approach is used.
Revise control reliance?
Reconsider the nature, timing, and extent of substantive procedures based on the change in our assessment of controls response t

Design and perform procedures for the method

Complete this section in the following two circumstances. Otherwise, leave this section blank.
1. If "Test and evaluate the entity's process" was selected as the substantive approach to test the accounting estimate on 3. Ove
2. If "Develop an independent expectation" was selected as the substantive approach to test the accounting estimate on 3. Over
Did management make changes from the method/model used in the prior period?

Are adjustments made to the output of the model?

The procedures in the table below are from the Estimates - IFRS 9 (Impairment - ECL) excel template on Alex which co
substantive procedures.
Where teams engage a KPMG Credit Risk Specialist, they may use the ISG's KPMG Credit Risk Specialist Work Papers:
available on the IFRS 9 Global Audit Guidance page to document:
- Scoping and planning; and
- Findings and conclusions.

Perform procedures to address: ID Procedure

Whether the method/model selected M7.1 1a.3.1: Assess whether management have appropriately identified the ECL
is appropriate in the context of the model overlays:
financial reporting framework or the ― Obtain a list of management overlays that have been incorporated in the
nature of the account or disclosure, methods / models for estimating ECLs at the current reporting date and
and the business, industry, and evaluate the relevance and reliability (including completeness and accuracy)
environment in which the entity of the list. This includes checking whether there are errors in the overlays
operates. included in the list (such as double counting of overlays). Procedures over
completeness are outlined below.

1. Assess how management evaluated the completeness of the entity's

management overlays by:
― Making management inquiries to understand how management evaluated
the completeness of management overlays. Consider management's
identification of overlays, including late-breaking events or other conditions
that may result in the need to assess whether a management overlay is
required.
― Obtain and assess management's analysis and related workings to support
their evaluation of completeness.
 2. Assess consistency with relevant internal information.
― Obtain and inspect relevant internal records prepared by the entity and
understand how these are used (i.e. internal records that may indicate other
management overlays that are required). Internal records include:
o Meeting minutes of the Board, Credit Risk Committee and relevant
Oversight Committees (as these may include decisions / discussions that
indicate overlays are required).
o Findings / testing / reports by the independent validation function or unit a
part of the model validation control and / or model monitoring control
(because these may indicate modelling issues / limitations that require
overlays).
o Other management reports that include information about the entity's
overlays.
― Compare the internal information with the entity's list of all overlays to
assess whether the internal information indicate that any other overlays are
required.

3. Consistency with other audit findings: Consider whether there are other
audit findings from the audit that indicate that a management overlay is
required.

M7.2 Example of a substantive procedure to respond to the assessed fraud risk:

1a.3.2: Assess the individual management overlays

1. Assess management's justification/ rationale of the need for the
management overlay.
― Inspect management's documented analysis and related workings to
support their justification / rationale of the need for the management overlay
Assess whether their justification / rationale for the need of the overlay is
appropriate.
― Evaluate and document the relevance and reliability of the information
used in management’s analysis.
― Evaluate why the management overlay was not initially included in the ECL
method / model.

2. Assess the reasonableness of management's estimate of the management

overlay, including its impact on ECLs.
― Inspect management's workings (analysis) behind the ECL estimate of the
overlay and assess whether it has been prepared on an appropriate basis. Thi
includes considering whether the method used by management to estimate
the overlay is appropriate, and in line with IFRS 9 requirements.
― Vouch the inputs in management's workings behind the overlay estimate
to sufficient appropriate audit evidence (or documentation).
― Assess significant assumptions used in management’s workings of the
overlay.
 ― Evaluate and document the relevance and reliability of the information
used in management’s workings
― Re-perform management’s workings of the overlay.
― Apply appropriate sensitivities of changes in factors (or variables)
impacting the overlay amount estimated by management in order to assess:
o How changes to these factors (or variables) impact on the overlay amount
estimated by management and the portfolio’s ECL estimate (where possible
and where deemed necessary by the engagement team).

3. Evaluate whether the management overlay is correctly recorded in the

general ledger and financial statements, as noted below.
(i) vouch the top-side adjustment to the overlay estimate on which the
engagement team has performed work;
(ii) vouch the top-side adjustment to the overlay estimate approved by
appropriate senior management and/or those charged with governance (e.g.
an Oversight Committee); and
(iii) vouch the top-side adjustment to the general ledger and financial
statements.
(iv) check the mathematical accuracy of the ECL estimate to verify whether
the amount of the overlay estimate has been accurately included in
calculating the ECL estimate.

M7.3 1a.3.3: Assess 'non-adjusted' management overlays - if there are any (i.e.
management assessed the adjustment ECL impact as immaterial and did no
adjust for the adjustment)

1. Obtain and evaluate management's analysis and related workings for their
assessment of the 'non-adjusted' management overlay, and its impact on the
financial statements. This includes performing the following:

a. assess whether management's method/approach for determining the ECL

impact and financial statements impact of the overlay is appropriate.

b. evaluate whether management's conclusion is appropriate.

c. vouch the inputs in management's analysis to sufficient appropriate audit
evidence (or documentation).
 M7.4 Example of a substantive audit procedures to address the identified fraud
risk:
Perform reprojections of the late-breaking event

1. Develop an expectation or reprojection of the late-breaking economic

event, where possible. The knowledge, experience and skills of KPMG
Specialists (e.g. economic specialists) may be required for this.

2. Compare to management's overlay and ECL impact. Evaluate differences (o

inconsistencies) by investigating and understanding the reason for the
differences, and evaluating whether the explanations for differences are
appropriate.
4. Assess the impact of the difference on the entity's ECL, which includes
quantifying the ECL impact to evaluate whether there is a material
misstatement and/or whether there is any indication of management bias.

M7.5 Example of a substantive audit procedure to address the identified fraud

risk:
Perform inquiries and inspect relevant documentation to evaluate
management's justification and amount recognised for the management
overlay
1. Perform inquiries with personnel outside of those that prepared the
management overlay (e.g. finance team, economists, modelling team, credit
risk team) to understand the rationale for the management overlay and
evaluate these inquiries to determine whether they are consistent with
management's rationale.

2. Inspect relevant internal and external documentation to evaluate whether

the documentation is consistent with management's justification and the
amount recognised for the management overlay.
- Relevant internal documentation may include: credit risk reports, credit risk
committee minutes, reports / documentation from the modelling team,
reports / documentation from the internal economists.
- Relevant external documentation may include: reports from central banks,
industry or market reports from financial services firms, etc. that outline the
late-breaking event and the expected impact on the economy.

Whether changes from the

method/model used in prior period
are appropriate. These sections are greyed out as in this example we did not identify (a) changes t
prior period and (b) an adjustment made to the management overlay . If the enga
adjustments to the model, then they would perform procedures to address these
refer the 'Estimates - IFRS 9 (Impairment - ECL)' excel template on Alex which co
address these requirements.
Whether adjustments made by the
entity to the output of the model are
consistent with the measurement
objective of the applicable financial
reporting framework and are
appropriate in the circumstances.

Did we identify any contradictory audit evidence as a result of the procedures performed?
Document the contradictory or inconsistent evidence identified and the procedures performed to address it.
urther context as to intended use of the Estimates work paper.

two methods / models only. As such, we have completed two

lay). However, teams complete one response tab for each method /
appropriate in Tab 2. Risk Assessment.

Response level to address the:

Inherent Controls response
risk of fraud
Significant Controls reliance

s is due to the timing of the late-breaking event (discovery of a new COVID-19 variant), this occurred after the entity finalised it's ECL modelling and as s
en developed using a series of less complex equations in an Excel file. Management then posts the overlay as a top side adjustment in the general ledge

Models of the IFRS 9 Global Audit Guidance - Banks:

y, the teams can access these via the 'Example PRPs and
the IFRS 9 Global Audit Guidance page.

pically vary between entities based on the entity's specific

he process to identify PRPs and controls as appropriate to
ols in the table below are not a complete list of controls that

method. Complete this section.

inherent risk of fraud or the

valuate the design and
fraud risk / significant risk.
operating effectiveness of

fraud risks?" for further

Risk consideration(s) addressed by PRP Control(s) addressing PRP

CM7.1: Review and approval of the management overlay
The Credit Risk Management Committee reviews and appro
management overlay, which includes challenging relevant j
appropriate. Items reviewed and approved by the Committ
- management's justification / rationale of the need for the
overlays;
- management's approach for estimating the ECL impact of
overlays;
- the reasonableness of the estimate for the management o
- the basis, assumptions and data used; and
- specific issues relating to the management overlays and th
reasons for these issues.

CM7.1: Review and approval of the management overlay

The Credit Risk Management Committee reviews and appro

management overlay, which includes challenging relevant j
appropriate. Items reviewed and approved by the Committ
- management's justification / rationale of the need for the
overlays;
- specific issues relating to the overlay and the underlying r
issues; and
- management's assessment of whether the overlays are an
ECL model design and/or implementation and/or validation
or inappropriate.

CM7.2: Review of the completeness of the management o

Annually, the Credit Risk Management Committee perform

completeness of model overlays. The Committee's review i
white paper / management analysis prepared by the develo
reviewed and approved by the Committee include:
- a list of all management overlays included in the bank's EC
- an assessment of whether there are events or conditions
an additional overlays;
- an assessment of late-breaking events (e.g. events that ha
the models have been generated but before the reporting d
whether these have been reflected appropriately in the ove
- an assessment of whether the bank's list of management
consistent with other information (e.g. the meeting minute
Risk Management Committee / other relevant Committees,
from the model validation control and the model monitorin
other management reports, which includes information abo
credit risk and models).
 CM7.3: Review and approval of the manual journal entry
The finance manager prepares the manual journal entry rel
adjustment based on the amount of the overlay approved b
Management Committee and supporting analysis of the ove
the model development team. Two authorised senior mana
team review and approve the manual journal entry in the g
part of the review and approval, the senior managers comp
journal entry to the amount approved by the Credit Risk M
Committee and the supporting analysis of the overlay prep
development team.

CM7.1: Review and approval of the management overlay

The Credit Risk Management Committee reviews and appro
management overlay, which includes challenging relevant j
appropriate. Items reviewed and approved by the Committ
- management's justification / rationale of the need for the
overlays;
- specific issues relating to the overlay and the underlying r
issues; and
- management's assessment of whether the overlays are an
ECL model design and/or implementation and/or validation
or inappropriate.

CM7.3: Review and approval of the manual journal entry

The finance manager prepares the manual journal entry rel

adjustment based on the amount of the overlay approved b
Management Committee and supporting analysis of the ove
the model development team. Two authorised senior mana
team review and approve the manual journal entry in the g
part of the review and approval, the senior managers comp
journal entry to the amount approved by the Credit Risk M
Committee and the supporting analysis of the overlay prep
development team.

our assessment of controls response to either partial or no reliance.

est the accounting estimate on 3. Overall approach tab

st the accounting estimate on 3. Overall approach tab AND we concluded that we will use the entity's method in our independent expectation on the 3.1

The engagement team's response to the two questions noted here aligns to
decisions in Tab 2. Risk assessment. For example, we have selected 'no' to 'D
method / model used in the prior period?', this is consistent with our respon
from the prior period?' for the management overlay in Tab 2.Risk assessmen
 No The engagement team's response to the two questions noted here aligns to
decisions in Tab 2. Risk assessment. For example, we have selected 'no' to 'D
method / model used in the prior period?', this is consistent with our respon
No from the prior period?' for the management overlay in Tab 2.Risk assessmen

L) excel template on Alex which contains the

edit Risk Specialist Work Papers: ECLs (IFRS 9)

dure TOD or SAP KPMG specialist involved Risk consideration(s) addressed by procedure
in KCw?
ave appropriately identified the ECL TOD KPMG Credit Risk None
Specialist
that have been incorporated in the
the current reporting date and
cluding completeness and accuracy)
er there are errors in the overlays
ting of overlays). Procedures over

he completeness of the entity's

erstand how management evaluated
ays. Consider management's
breaking events or other conditions
ether a management overlay is
lysis and related workings to support
 nal information.
ecords prepared by the entity and
ernal records that may indicate other
). Internal records include:
Risk Committee and relevant
lude decisions / discussions that
pendent validation function or unit as
/ or model monitoring control
ssues / limitations that require

de information about the entity's

h the entity's list of all overlays to

indicate that any other overlays are

Consider whether there are other

te that a management overlay is

respond to the assessed fraud risk: TOD KPMG Credit Risk None
Specialist
ent overlays
tionale of the need for the KPMG Economic
Specialists
analysis and related workings to
the need for the management overlay.
nale for the need of the overlay is

e and reliability of the information The IFRS 9 Global Audit Guidance - Banks: Impairment does not contain example
ay was not initially included in the ECL substantive audit procedures that specifically address the inherent risk of fraud. For the
purposes of this illustrative example, we have identified existing procedures that may
address the identified risk of fraud and have included additional substantive procedures
ment's estimate of the management (see M7.4 and M7.5) that are designed to address the identified risk of fraud.
lysis) behind the ECL estimate of the Involving a KPMG Economics Specialist and/or a KPMG Credit Risk Specialist to assess
prepared on an appropriate basis. This the appropriateness of management's overlay relating to the late-breaking event
d used by management to estimate addresses the identified fraud risk as they can apply their specialised skills, knowledge
th IFRS 9 requirements. and experience to assess whether there is any management's bias.
orkings behind the overlay estimate
(or documentation).
n management’s workings of the
e and reliability of the information
of the overlay.
nges in factors (or variables)
d by management in order to assess:
bles) impact on the overlay amount
tfolio’s ECL estimate (where possible
gagement team).

verlay is correctly recorded in the

as noted below.
overlay estimate on which the

overlay estimate approved by

those charged with governance (e.g.

e general ledger and financial

the ECL estimate to verify whether
been accurately included in

ent overlays - if there are any (i.e. TOD KPMG Credit Risk None
ECL impact as immaterial and did not Specialist

nalysis and related workings for their

ement overlay, and its impact on the
rming the following:

d/approach for determining the ECL

of the overlay is appropriate.

clusion is appropriate.
alysis to sufficient appropriate audit
 res to address the identified fraud TOD KPMG Economics None
Specialist
ing event
The IFRS 9 Global Audit Guidance - Banks: Impairment does not contain example
n of the late-breaking economic
experience and skills of KPMG substantive audit procedures that specifically address the inherent risk of fraud.
ay be required for this. For the purposes of this illustrative example, we have identified existing
procedures that may address the identified risk of fraud and have included
nd ECL impact. Evaluate differences (or additional substantive procedures (see M7.4 and M7.5) that are designed to
derstanding the reason for the address the identified risk of fraud.
explanations for differences are

n the entity's ECL, which includes

whether there is a material
ny indication of management bias.

re to address the identified fraud TOD KPMG Economics None

Specialist
documentation to evaluate
t recognised for the management

ide of those that prepared the

economists, modelling team, credit
or the management overlay and
hether they are consistent with

documentation to evaluate whether

anagement's justification and the
t overlay.
nclude: credit risk reports, credit risk
ation from the modelling team,
nal economists.
include: reports from central banks,
l services firms, etc. that outline the
mpact on the economy.

e we did not identify (a) changes to the management overlay from the
e management overlay . If the engagement did identify changes or
rform procedures to address these requirements. Engagement teams can
)' excel template on Alex which contains the substantive procedures to
 No
ed to address it.
 alised it's ECL modelling and as such management did not have
e adjustment in the general ledger.

Control(s) addressing PRP

val of the management overlay
nt Committee reviews and approves each
h includes challenging relevant judgements as
d and approved by the Committee include:
n / rationale of the need for the management
for estimating the ECL impact of the management

e estimate for the management overlays;

d data used; and
the management overlays and the underlying

val of the management overlay

nt Committee reviews and approves each

h includes challenging relevant judgements as
d and approved by the Committee include:
n / rationale of the need for the management

the overlay and the underlying reasons for these

nt of whether the overlays are an indication that the
mplementation and/or validation is/are inadequate

pleteness of the management overlays

anagement Committee performs a review of the

erlays. The Committee's review is supported by a
t analysis prepared by the development team. Items
the Committee include:
verlays included in the bank's ECL models;
r there are events or conditions which may indicate

aking events (e.g. events that have occurred after

erated but before the reporting date), including
eflected appropriately in the overlays; and
r the bank's list of management overlays is
mation (e.g. the meeting minutes of Board / Credit
ee / other relevant Committees, findings / reports
control and the model monitoring control, and
s, which includes information about the bank's
val of the manual journal entry
ares the manual journal entry related to the overlay
mount of the overlay approved by the Credit Risk
nd supporting analysis of the overlay prepared by
am. Two authorised senior managers in the finance
he manual journal entry in the general ledger. As
roval, the senior managers compare the manual
t approved by the Credit Risk Management
ting analysis of the overlay prepared by the Model

val of the management overlay

nt Committee reviews and approves each
h includes challenging relevant judgements as
d and approved by the Committee include:
n / rationale of the need for the management
the overlay and the underlying reasons for these

nt of whether the overlays are an indication that the

mplementation and/or validation is/are inadequate

val of the manual journal entry

ares the manual journal entry related to the overlay

mount of the overlay approved by the Credit Risk
nd supporting analysis of the overlay prepared by
am. Two authorised senior managers in the finance
he manual journal entry in the general ledger. As
roval, the senior managers compare the manual
t approved by the Credit Risk Management
ting analysis of the overlay prepared by the Model

ependent expectation on the 3.1 Independent expectation tab

uestions noted here aligns to their documented risk assessment

e, we have selected 'no' to 'Did management make changes from the
s is consistent with our response to the inherent risk factor 'changes
verlay in Tab 2.Risk assessment.
uestions noted here aligns to their documented risk assessment
e, we have selected 'no' to 'Did management make changes from the
s is consistent with our response to the inherent risk factor 'changes
verlay in Tab 2.Risk assessment.

d by procedure Results Expected results

obtained?
See Tab 1. Overlays - Procedures in the Management Overlays Yes
WP attached at <WP ref>.

The results of the procedures are documented in

the IFRS 9 Management overlay work paper
which is available on the IFRS 9 Global Audit
Guidance page. This is then attached to the
relevant KCw screen (either the relevant TOD
screen or estimates landing page).
 See Tab 2. Overlay <Late-breaking event> in the Management Yes
Overlays WP attached at <WP Ref>.

n example
of fraud. For the
ures that may
ntive procedures
fraud.

ialist to assess
king event
ills, knowledge
See Tab 1. Overlays - Procedures in the Management Overlays Yes
WP attached at <WP Ref>.
 The engagement team notes there is not a material impact on Yes
the ECL estimate from the difference between the KPMG
Economic Specialist's reprojection of the late-breaking event and
management's overlay. Additionally, the differences between the
example KPMG Economic Specialist's reprojection and management's
overlay were able to be justified and driven by estimation
of fraud. uncertainty rather than management being bias in their
decisions. See results at <WP ref>.
ed
ed to

The engagement team notes that management's justification and Yes

amount recognised for the management overlay related to the
late-breaking event was consistent with other personnel within
the entity, and both internal and external documentation. See
results at <WP ref>.
Information in red text will be provided throughout this illustration to assist with further context as to intended use

Please note, for the purposes of this example we have documented the response for one assumption grouping. As such
response tab (Tabs AG1 - Central Scenario). However, the team completes one response tab for each assumption group
Assumptions Grouping work paper available on the IFRS 9 Global Audit Guidance page.

Risk assessment summary for the assumption

Always complete this section.
Response level to ad

Assumption Inherent
risk of error
Central scenario: internally developed macro-economic parameters Significant

Document the nature of the assumption and how it's used in each applicable method/model, including the sources of information
IFRS 9.5.5.17(c) requires an entity to measure ECL of a financial instrument in a way that reflects forecasts of future economic cond
parameters that reflect management's expectations for the economy. These parameters are developed by economists engaged by
external information ( central bank forecasts, industry reports, historical economic and market data) to develop the parameters. O
to determine the parameters that are correlated to credit losses within the entity's loan portfolios. It is noted from management's
with the alternative scenarios and probability weightings, is incorporated into the PD, EAD and LGD models. The central scenario is
mortgage portfolio at each reporting date to determine whether there is a SICR.

The example PRPs and controls in the table below are from Section 4c: Assumptions of the IFRS 9 Global Audit Guidan
available on the IFRS 9 Global Audit Guidance page. Alternatively, the teams can access these via the 'Example PRPs an
(Impairment - ECL)' document which is also available on the IFRS 9 Global Audit Guidance page.

Please note, the PRPs and controls in the table below are examples only. Controls typically vary between entities base
circumstances. Engagement teams perform walkthroughs and document the process to identify PRPs and controls as a
process over the ECL estimate. Additionally, the PRPs and controls in the table below are not a complete list of control
assumptions used to develop the ECL estimate.

Identify PRPs and controls for the assumption

We have identified a 'Controls reliance' approach and/or a 'Significant' response level for the assumption. Complete this section.

PRP ID PRP short description

PRP A1 Parameters selected by management are not relevant or predictive of future losses in the
portfolio

PRP A2 Forward-looking information is not be considered in a comparable and consistent manner

for different portfolios that have similar credit risk characteristics
PRP A3 The central scenario contains errors or internal inconsistencies

PRP A4 Macro-economic forecasts do not adequately reflect economic conditions that are relevant
at the reporting date
PRP A5 Macro-economic forecasts are outside a reasonable range as each possible economic risk or
parameter has not been appropriately considered
PRP A6 Forward-looking information used in the measurement of ECL is not consistent with other
forward-looking processes across the organisation
PRP A7 The relationship between macro-economic parameters with ECL are not validated
appropriately as management does not consider a complete set of relevant variables for the
portfolio.
Is any control(s) ineffective? No

The below question is not applicable as a 'No controls reliance' approach is used.
Revise control reliance?
Reconsider the nature, timing, and extent of substantive procedures based on the change in our assessment of controls response t

Design and perform procedures for the assumption

Complete this section in the following two circumstances. Otherwise, leave this section blank.
1. If "Test and evaluate the entity's process" was selected as the substantive approach to test the accounting estimate on 3. Ove
2. If "Develop an independent expectation" was selected as the substantive approach to test the accounting estimate on 3. Over

Was the assumption developed by management's specialist?

Did management make changes from the assumption used in the prior period?

Does the assumption rely on the entity's intent or ability to carry out specific courses of action?

The procedures in the table below are from the Estimates - IFRS 9 (Impairment - ECL) excel template on Alex
which contains the substantive procedures.

Perform procedures to address: ID Procedure

Whether the assumption is reasonable [Custom procedures]
in the context of the applicable
financial reporting framework. This
includes whether management has a
reasonable basis for the assumption
used and, when applicable, for its This section is greyed out in this example as we note the assumption has been de
selection of the assumption within a management's
Insert specialist to develop the ECL estimate as part of their walkthroug
rows as needed
range of reasonable assumptions. involvement of a management's specialist, then they would perform procedures
(Impairment - ECL)' excel template on Alex which contains the substantive proce
Whether the assumption is reasonable A1 1b.1.5.1: Assess management's selection of macroeconomic parameters
in the context of the applicable
financial reporting framework. This (a) Make management inquiries to understand management's basis for selecti
includes whether the assumption is entity's macroeconomic parameters.
consistent with supporting information Document details of:
provided by the specialist and is (i) management's method/ approach, including their criteria of selection appl
consistent with assumptions generally (ii) management's selection of macroeconomic parameters to be used, includ
accepted in the specialist’s field. consideration of alternatives, and identification of significant parameters;
(ii) whether there has been any changes to management's method/approach
period;
(ii) the support (including data) management used to select the parameters; a
(iii) conclusions reached.

(b) Assess whether the macroeconomic parameters selected by management

reflect the portfolio's ECL risk drivers.

(c) Assess whether the macroeconomic parameters selected by management

(d) Evaluate the appropriateness of management's decisions that potential re
economic parameters are not risk driver's of ECL for the portfolio.

(e) If management has selected the macro-economic parameter from a range

(i) Evaluate whether the selection of the point in the range indicates managem
(ii) Evaluate whether changes in the selection of the point in the range, from
period are appropriate.

(f) (i) Reperform management's analysis:

- obtain management's documented methodology (/criteria of selection for
macroeconomic parameters); and
- reperform management's analysis in accordance with management's docum
methodology.
(ii) Compare results / conclusions against those of management. Evaluate diff
inconsistencies) by investigating and understanding the reasons for the differ
challenging whether management's explanations for differences are appropri
(iii) Assess the impact of the difference on the entity's ECL, which includes qu
ECL impact to evaluate whether there is a material misstatement and/or whe
any indication of management bias.

A2 1b.1.5.2: Perform a historical analysis of the relationship between the macr

parameters and credit losses

(i) Obtain appropriate historical data related to credit losses and macroecono
parameters.
(ii) Use the historical data to analyse the relationship between credit losses an
macroeconomic parameters (e.g. perform a statistical analysis or regression a
past periods).
(iii) Test the relevance and reliability of the internal and external data used to
historical analysis.
(iv) Challenge the relevance of the entity's macroeconomics parameters by co
the results of the analysis.
A3 1b.1.5.3: Evaluate whether the macroeconomic parameters are selected in a
and consistent manner
(a) For different portfolios that have similar credit risk characteristics (i.e. sim
drivers), challenge whether the macroeconomic parameters are selected in a
and consistent manner.
(b) Evaluate differences (or inconsistencies) in parameters selected by investi
understanding the reasons for the differences, and challenging whether the e
for the differences are appropriate.
(c) Assess the impact of the differences on the entity's ECL, which includes qu
ECL impact to evaluate whether there is a material misstatement and/or whe
any indication of management bias.

A4 1b.1.5.4: Perform benchmarking of parameters selected

(a) Perform benchmarking of the macro-economic parameters and ECL driver
management against those selected by a comparable entity with a comparab
Alternatively, benchmark against a comparable portfolio within the entity.
(b) Evaluate differences (or inconsistencies) in parameters selected by investi
understanding the reasons for the differences, and challenging whether the e
for the differences are appropriate.
(c) Assess the impact of the difference on the entity's ECL, which includes qua
ECL impact to evaluate whether there is a material misstatement and/or whe
any indication of management bias.

A5 1b.1.5.5: Assess the basis for how management made the assumption

(a) Make management inquiries to understand how management determined

parameter.
Document details of:
(i) management's basis (or method/approach), including any changes from th
and
(ii) the support (including data) management used to estimate the assumptio
(b) Inspect management's workings (/analysis) behind the parameter and ass
has been prepared on an appropriate basis.

(c) Vouch the inputs in management's workings behind the assumption to suffi
appropriate audit evidence (or documentation).

(d) (i) Reperform management's workings of the assumption (or reperform m

calculation of the assumption):
- obtain management's documented methodology for how the assumption is
and
- reperform management's workings in accordance with management's docu
methodology.
(ii) Compare results / conclusions against those of management. Evaluate diff
inconsistencies) by investigating and understanding the reasons for the differ
challenging whether management's explanations for the differences are appr
(iii) Assess the impact of the differences on the entity's ECL, which includes qu
ECL impact to evaluate whether there is a material misstatement and/or whe
any indication of management bias.
A7 1b.1.5.6: Perform reprojections of the assumption
(a) Develop an expectation or reprojection to estimate the assumptions, whe
(b) Compare to management's estimate of the assumption. Evaluate differenc
inconsistencies) by investigating and understanding the reasons for the differ
challenging whether the explanations for differences are appropriate.
(c) Assess the impact of the difference on the entity's ECL, which includes qua
ECL impact to evaluate whether there is a material misstatement and/or whe
any indication of management bias.

A8 1b.1.5.7 Perform back-testing of the individual parameters

1. Back-test the individual macroeconomic assumptions by:

- comparing actual outcomes to the prior period estimate; or
- by reviewing the re-estimation of the parameter in the current period.
2. Determine the impact on ECL when the actual outcome of the assumption
3. Assess whether the results of the back-test indicate possible management

A9 1b.1.5.8: Perform benchmarking of the central scenario

(a) Perform benchmarking of the entity's estimate of the macroeconomic assu
against those of a comparable entity with a comparable portfolio. Alternative
against a comparable portfolio within the same entity.
(b) Evaluate differences (or inconsistencies) in the estimate by investigating a
understanding the reasons for the differences, and challenging whether the e
for differences are appropriate.
(c) Assess the impact of the difference on the entity's ECL, which includes qua
ECL impact to evaluate whether there is a material misstatement and/or whe
any indication of management bias.
A10 1b.1.5.9: Asses the basis for how management determined and generated t
scenario (or base-case scenario)
1. Make management inquiries to understand how management determined
generated the central scenario, including any changes from the prior period.
Document details of management's basis (or method/approach) used to dete
generate the central scenario.
- Include details of whether the central scenario was determined and generat
management or by a management's specialist.
- If a management's specialist was used, document details of how the speciali
and generated the central scenario. You complete the work paper for manag
specialist (tab 6) and document details in the management specialist's sub-m
the KPMG Clara Workflow.
- Include details of any models/tools used to determine and generate the cen
- Document details of the support used to determine the appropriate central
regression analysis of the macroeconomic parameters).

2. Assess whether the entity's basis for determining and generating the centr
appropriate.
Make the assessment by performing the following:
(i) evaluate management's documented methodology (/policy) for determinin
generating the central scenario, including any changes from the prior period;
(ii) evaluate management's evidence to support their selection of the central
regression analysis performed to determine the appropriate central scenario
macroeconomic parameters are combined);
(iii) evaluate the forecast period used in the central scenario; and
(iv) inspect management's workings (/models /calculations) of the central sce
evaluate management's method or approach for determining and generating
scenario.

3. Vouch the inputs in management's workings of the central scenario to app

sufficient evidence (or documentation). E.g. evidence behind their estimate o
macroeconomic parameters.

4 (i). Reperform management's workings of the central scenario:

- obtain management's documented methodology (/policy) over the central
- determine and generate the central scenario in accordance with managem
documented methodology.
This may involve reperforming management's calculations, and reperforming
management's central scenario.

(ii) Compare results/conclusions against those of management. Evaluate diffe

inconsistencies) by investigating and understanding the reasons for the differ
evaluating whether the explanations for differences are appropriate.

(iii) Assess the impact of the difference on the entity's ECL, which includes qu
ECL impact to evaluate whether there is a material misstatement or/and whe
any indication of management bias.
A11 1b.1.5.10: Assess the relationship between each macroeconomic parameter
Assess whether the relationship between each macroeconomic parameter an
correctly reflected in the central scenario.

This includes evaluating whether the correlated macroeconomic parameters

scenario are moving in the correct direction relative to one another.

A12 1b.1.5.11: Evaluate management's sensitivity analysis of the central scenari

1. Apply appropriate sensitivities of changes in the macroeconomic assumptio
central scenario to assess the potential financial impact on the entity's ECL. O
alternatively, obtain the sensitivity table (or sensitivity analysis) that is used a
scenario selectin and assessment of the drivers of ECL.
2. Evaluate whether the central scenario is reasonable, and indicates any man
bias.

A13 1b.1.5.12: Perform reprojections of the central scenario

1. Develop your own expectation or reprojection of the central scenario, whe

2. Compare to management's central scenario and ECL impact. Evaluate differ

inconsistencies) by investigating and understanding the reasons for the differ
evaluating whether the explanations for differences are appropriate.

3. Assess the impact of the difference on the entity's ECL, which includes quan
ECL impact to evaluate whether there is a material misstatement or/and whe
any indication of management bias.

A14 1b.1.5.13: Perform back-testing of the central scenario

(a) Perform a retrospective review of the central scenario by:

- comparing actual outcomes of the central scenario to the prior period estim
- review the subsequent re-estimation of the estimate in the current period.
(b) Determine the ECL impact when the actual amount of the assumption is a
(c) Assess whether the results of the back-test indicate possible management
 A15 1b.1.5.14: Perform benchmarking of the central scenario
1. Perform benchmarking of the entity's central scenario against the central s
comparable entity with a comparable portfolio. Alternatively, you benchmark
comparable portfolio within the same entity.

Areas to benchmark for the central scenarios include:

- method/approach used;
- macroeconomic parameters selected and their estimates; and
- results of the central scenarios (including, ECL impact).

2. Evaluate differences (or inconsistencies) in the central scenario by investiga

understanding the reasons for the differences, and evaluating whether the ex
differences are appropriate.
3. Assess the impact of the difference on the entity's ECL, which includes quan
ECL impact to evaluate whether there is a material misstatement or/and whe
any indication of management bias.

A16 1b.2.5: Assess the appropriateness of the central scenario, where the assum
developed by management's specialist

Perform an evaluation of the management's specialist and their work in line w

requirements in KAEG-I, ISA 500.07-09 | 3.2 Evaluate the work of a managem
specialist.

Whether changes from the assumption

used in prior period are appropriate.
This section is greyed out as in this example we did not identify any c
then they would perform procedures to address this requirements. E
contains the substantive procedures to address this requirement.

Whether the assumption is consistent A17 1b.4.5.1: Assess whether the central scenario is consistent with other data p
with other data points.
1. Obtain and inspect internal records or other relevant forward-looking info
prepared by the entity and understand how these are used. E.g. Decisions /di
Board meeting minutes, budgets, annual business plan and management rep
position about emerging economic landscape.

2. Compare the other forward looking information to the entity's central scen
3. Where there are differences (or inconsistencies), evaluate these difference
investigating and understanding the reasons for the differences, and evaluati
management whether the explanations for differences are appropriate.
4. Assess whether there is an impact on the entity's ECL, which includes quan
impact of the difference on the ECL to evaluate whether there is a material m
or whether there is any indication of management bias.
 A18 1b.4.5.2: Compare to publicly available data or market data
1. Evaluate management's estimate of the assumption by comparing to publi
information (or consensus data) from relevant and reliable external sources.
published by central banks, government bodies, national statistics offices, oth
broker reports) and international bodies (e.g. IMF data, OECD statistics, WTO
2. Evaluate and document the relevance and reliability of the external data.

3. Evaluate differences (or inconsistencies) by investigating and understandin

for the differences, and evaluating whether management's explanations for d
appropriate.

4. Assess the impact of the difference on the entity's ECL, which includes quan
ECL impact to evaluate whether there is a material misstatement or/and whe
any indication of management bias.

Whether management has the intent

and ability to carry out specific courses
of action. This section is greyed out as in this example we did not identify 'relies on the enti
assessment. If the engagement did identify this as an inherent risk factor to the a
teams can refer to the 'Estimates - IFRS 9 (Impairment - ECL)' excel template on

Did we identify any contradictory audit evidence as a result of the procedures performed?
Document the contradictory or inconsistent evidence identified and the procedures performed to address it.
urther context as to intended use of the Estimates work paper.

one assumption grouping. As such, we have completed one assumption

nse tab for each assumption grouping identified in the IFRS 9
e.

In this example, we have grouped the ce

available on the IFRS 9 Global Audit Gui
engagement team may group assumptio
Response level to address the: - follow a sufficiently similar manageme
- have the same relevant control activiti
Inherent Inherent Controls response - have the same inherent risk factors inc
risk of error risk of fraud - have the same audit response (includin
Significant None Controls reliance This allows teams to complete one resp
assumption.

including the sources of information used to develop the assumption.

cts forecasts of future economic conditions . As such, management develops economic scenarios that are incorporated into the measurement of ECLs.
developed by economists engaged by management to develop an entity specific forecast, as such they are considered internally developed. The econo
et data) to develop the parameters. Once the economic parameters have been developed by the in-house economists, management perform statistical
olios. It is noted from management's analysis, credit losses in the retail mortgage portfolio are highly correlated to the unemployment rate, inflation, G
d LGD models. The central scenario is also reflected in the stage allocation, as the forward-looking information in the central scenario is considered by m

s of the IFRS 9 Global Audit Guidance for Banks - Impairment which is

ess these via the 'Example PRPs and Controls: Estimates - IFRS 9
dance page.

pically vary between entities based on the entity's specific facts and
s to identify PRPs and controls as appropriate to their client's specific
w are not a complete list of controls that entity's may have in place over

ssumption. Complete this section.

Risk consideration(s) addressed by PRP Control(s) addressi

GOBKCRE109.8b.06: The entity's approach to the determination of the macro-economic CA1: Review and approval of the macro-econ
forecast does not generate, an unbiased, probability-weighted ECL due to: central scenario by the Head Economist.
(i) inappropriate scenarios identified;
(ii) inappropriate macroeconomic variables identified; On a quarterly basis, the Head Economist revi
(iii) inappropriate probability weights used in respect of the identified macroeconomic economic parameters used in the central scen
variables. economists. The Head Economist challenges t
economists in their selection, and assesses th
correlation of the parameters to the underlyin
review, the Head Economist:
- reviews and approves the economist's analy
demonstrating the correlation between the m
reflective of the relevant ECL risk drivers of th
- assesses whether the parameters selected ta
of macro-economic information available.
- compares management's selection of param
challenging management on explanations for
- reviews the impact of sensitivity tests, and c
sensitivity tests to conclude on the reasonable

GOBKCRE109.8b.06: The entity's approach to the determination of the macro-economic CA1: Review and approval of the macro-econ
forecast does not generate, an unbiased, probability-weighted ECL due to: central scenario by the Head Economist.
(i) inappropriate scenarios identified;
(ii) inappropriate macroeconomic variables identified; On a quarterly basis, the Head Economist revi
(iii) inappropriate probability weights used in respect of the identified macroeconomic economic parameters used in the central scen
variables. economists. The Head Economist challenges t
economists in their selection, and assesses th
correlation of the parameters to the underlyin
review, the Head Economist:
- reviews and approves the economist's analy
demonstrating the correlation between the m
reflective of the relevant ECL risk drivers of th
- assesses whether the parameters selected ta
of macro-economic information available.
- compares management's selection of param
challenging management on explanations for
- reviews the impact of sensitivity tests, and c
sensitivity tests to conclude on the reasonable
GOBKCRE109.8b.06: The entity's approach to the determination of the macro-economic CA1: Review and approval of the macro-econ
forecast does not generate, an unbiased, probability-weighted ECL due to: central scenario by the Head Economist.
(i) inappropriate scenarios identified;
(ii) inappropriate macroeconomic variables identified; On a quarterly basis, the Head Economist revi
(iii) inappropriate probability weights used in respect of the identified macroeconomic economic parameters used in the central scen
variables. economists. The Head Economist challenges t
economists in their selection, and assesses th
correlation of the parameters to the underlyin
review, the Head Economist:
- reviews and approves the economist's analy
demonstrating the correlation between the m
reflective of the relevant ECL risk drivers of th
- assesses whether the parameters selected ta
of macro-economic information available.
- compares management's selection of param
challenging management on explanations for
- reviews the impact of sensitivity tests, and c
sensitivity tests to conclude on the reasonable

GOBKCRE109.8b.06: The entity's approach to the determination of the macro-economic CA1: Review and approval of the macro-econ
forecast does not generate, an unbiased, probability-weighted ECL due to: central scenario by the Head Economist.
(i) inappropriate scenarios identified;
(ii) inappropriate macroeconomic variables identified; On a quarterly basis, the Head Economist revi
(iii) inappropriate probability weights used in respect of the identified macroeconomic economic parameters used in the central scen
variables. economists. The Head Economist challenges t
economists in their selection, and assesses th
correlation of the parameters to the underlyin
review, the Head Economist:
- reviews and approves the economist's analy
demonstrating the correlation between the m
reflective of the relevant ECL risk drivers of th
- assesses whether the parameters selected ta
of macro-economic information available.
- compares management's selection of param
challenging management on explanations for
- reviews the impact of sensitivity tests, and c
sensitivity tests to conclude on the reasonable

CA2: Sensitivity analysis performed by the ec

On a periodic basis, the economists perform a

the potential financial impact on the ECL estim
economic parameters. The economist reviews
determine the reasonableness of the macroec
central scenario. The results of the sensitivity
Economists. If changes to the ECL estimate are
then they are investigated and adjusted if req
adjustments made to the macroeconomic par
approved by the Head Economist. The results
presented to the Impairment Committee for a
 CA3: Benchmarking internally generated fore
On a periodic basis, the economists perform b
economic parameters against publicly availab
then reviewed by the Head Economist. If varia
assumptions and the benchmark are greater t
is investigated, and if they are deemed inappr
adjusted to ensure that it is in line with the be
reviewed and approved by the Head Economi

CAP.1: Model monitoring control (back-testin

Quarterly, the bank's model monitoring functi

activities as part of the bank's model monitori
models (e.g. back-testing). This helps to identi
issues. The results of the model monitoring pr
secondary review by a senior member of the b
function.

GOBKCRE109.8b.06: The entity's approach to the determination of the macro-economic CA1: Review and approval of the macro-econ
forecast does not generate, an unbiased, probability-weighted ECL due to: central scenario by the Head Economist.
(i) inappropriate scenarios identified;
(ii) inappropriate macroeconomic variables identified; On a quarterly basis, the Head Economist revi
(iii) inappropriate probability weights used in respect of the identified macroeconomic economic parameters used in the central scen
variables. economists. The Head Economist challenges t
economists in their selection, and assesses th
correlation of the parameters to the underlyin
review, the Head Economist:
- reviews and approves the economist's analy
demonstrating the correlation between the m
reflective of the relevant ECL risk drivers of th
- assesses whether the parameters selected ta
of macro-economic information available.
- compares management's selection of param
challenging management on explanations for
- reviews the impact of sensitivity tests, and c
sensitivity tests to conclude on the reasonable

CA2: Sensitivity analysis performed by the ec

On a periodic basis, the economists perform a
the potential financial impact on the ECL estim
economic parameters. The economist reviews
determine the reasonableness of the macroec
central scenario. The results of the sensitivity
Economists. If changes to the ECL estimate are
then they are investigated and adjusted if req
adjustments made to the macroeconomic par
approved by the Head Economist. The results
presented to the Impairment Committee for a
 CA3: Benchmarking internally generated fore
On a periodic basis, the economists performs
economic parameters against publicly availab
then reviewed by the Head Economist. If varia
assumptions and the benchmark are greater t
is investigated, and if they are deemed inappr
adjusted to ensure that it is in line with the be

CAP.1: Model monitoring control (back-testin

Quarterly, the bank's model monitoring functi
activities as part of the bank's model monitori
models (e.g. back-testing). This helps to identi
issues. The results of the model monitoring pr
secondary review by a senior member of the b
function.

GOBKCRE109.8b.06: The entity's approach to the determination of the macro-economic CA1: Review and approval of the macro-econ
forecast does not generate, an unbiased, probability-weighted ECL due to: central scenario by the Head Economist.
(i) inappropriate scenarios identified;
(ii) inappropriate macroeconomic variables identified; On a quarterly basis, the Head Economist revi
(iii) inappropriate probability weights used in respect of the identified macroeconomic economic parameters used in the central scen
variables. economists. The Head Economist challenges t
economists in their selection, and assesses th
correlation of the parameters to the underlyin
review, the Head Economist:
- reviews and approves the economist's analy
demonstrating the correlation between the m
reflective of the relevant ECL risk drivers of th
- assesses whether the parameters selected ta
of macro-economic information available.
- compares management's selection of param
challenging management on explanations for
- reviews the impact of sensitivity tests, and c
sensitivity tests to conclude on the reasonable
 CM1.5: Model validation control:
The bank's independent validation function p
activities over the models as part of the mode
approves the models before their implementa
model validation procedures are subject to a s
member of the bank's independent validation

Specifically for macro-economic assumptions,

- validation of the consistency of forward-look
and
- where there are variances between models,
the variances and takes corrective action as n

GOBKCRE109.8b.06: The entity's approach to the determination of the macro-economic CA1: Review and approval of the macro-econ
forecast does not generate, an unbiased, probability-weighted ECL due to: central scenario by the Head Economist.
(i) inappropriate scenarios identified;
(ii) inappropriate macroeconomic variables identified; On a quarterly basis, the Head Economist revi
(iii) inappropriate probability weights used in respect of the identified macroeconomic economic parameters used in the central scen
variables. economists. The Head Economist challenges t
economists in their selection, and assesses th
correlation of the parameters to the underlyin
review, the Head Economist:
- reviews and approves the economist's analy
demonstrating the correlation between the m
reflective of the relevant ECL risk drivers of th
- assesses whether the parameters selected ta
of macro-economic information available.
- compares management's selection of param
challenging management on explanations for
- reviews the impact of sensitivity tests, and c
sensitivity tests to conclude on the reasonable

CM1.5: Model validation control.

The bank's independent validation function p

activities over the models as part of the mode
approves the models before their implementa
model validation procedures are subject to a s
member of the bank's independent validation

Specifically for macro-economic assumptions,

- testing the ceilings and floors on variables (e
below 0%);
- determining the sensitivity tests are appropr
of sensitivity tests to conclude on the reasona
information reflected in ECL models; and
- determining whether the regression analysis
the results of regression analysis to conclude
forward-looking information reflected in ECL m
our assessment of controls response to either partial or no reliance.

est the accounting estimate on 3. Overall approach tab

st the accounting estimate on 3. Overall approach tab AND we concluded that we will use the entity's assumption in our independent expectation on the

Yes
The engagement team's response to the three questions noted
documented risk assessment decisions in Tab 2. Risk assessmen
No selected 'no' to 'Did management make changes from the assum
period?', this is consistent with our response to the inherent risk
prior period?' for the central scenario assumptions in Tab 2.Risk
No

) excel template on Alex

Procedure TOD or SAP KPMG specialist involved Risk consideration(s) addressed by procedure
in KCw?
[Yes/No] [Identify specialist or [Identify each risk consideration that was addressed by this
write NONE] procedure or write NONE]

e note the assumption has been developed by a management's specialist. The engagement team identifies the involvement of
timate as part of their walkthrough and documents this in Tab 1. Understanding. If the engagement does not identify the
n they would perform procedures to address this requirement. Engagement teams can refer to the 'Estimates - IFRS 9
ich contains the substantive procedures to address this requirement.
n of macroeconomic parameters TOD KPMG Economics GOBKCRE109.8b.06: The entity's approach to the determin
Specialist of the macro-economic forecast does not generate, an unb
rstand management's basis for selecting the probability-weighted ECL due to:
(i) inappropriate scenarios identified;
(ii) inappropriate macroeconomic variables identified;
cluding their criteria of selection applied; (iii) inappropriate probability weights used in respect of the
onomic parameters to be used, including identified macroeconomic variables.
fication of significant parameters;
to management's method/approach from the prior
ment used to select the parameters; and

parameters selected by management appropriately

parameters selected by management are complete.

agement's decisions that potential relevant macro-
's of ECL for the portfolio.

ro-economic parameter from a range:

point in the range indicates management bias.
ction of the point in the range, from period to

:
thodology (/criteria of selection for

ccordance with management's documented

t those of management. Evaluate differences (or
derstanding the reasons for the differences, and
anations for differences are appropriate.
on the entity's ECL, which includes quantifying the
a material misstatement and/or whether there is

f the relationship between the macroeconomic TOD KPMG Economics The entity's approach to the determination of the macro-
Specialist economic forecast does not generate, an unbiased, probab
weighted ECL due to:
ated to credit losses and macroeconomic (i) inappropriate scenarios identified;
(ii) inappropriate macroeconomic variables identified;
relationship between credit losses and (iii) inappropriate probability weights used in respect of the
m a statistical analysis or regression analysis for identified macroeconomic variables.

he internal and external data used to perform the

y's macroeconomics parameters by comparing with

conomic parameters are selected in a comparable TOD NONE GOBKCRE109.8b.06: The entity's approach to the determin
of the macro-economic forecast does not generate, an unb
probability-weighted ECL due to:
ilar credit risk characteristics (i.e. similar ECL (i) inappropriate scenarios identified;
onomic parameters are selected in a comparable (ii) inappropriate macroeconomic variables identified;
(iii) inappropriate probability weights used in respect of the
ies) in parameters selected by investigating and identified macroeconomic variables.
ences, and challenging whether the explanations

on the entity's ECL, which includes quantifying the

a material misstatement and/or whether there is

ameters selected TOD NONE GOBKCRE109.8b.06: The entity's approach to the determin
of the macro-economic forecast does not generate, an unb
-economic parameters and ECL drivers selected by probability-weighted ECL due to:
a comparable entity with a comparable portfolio. (i) inappropriate scenarios identified;
parable portfolio within the entity. (ii) inappropriate macroeconomic variables identified;
ies) in parameters selected by investigating and (iii) inappropriate probability weights used in respect of the
ences, and challenging whether the explanations identified macroeconomic variables.

n the entity's ECL, which includes quantifying the

a material misstatement and/or whether there is

agement made the assumption TOD KPMG Economics GOBKCRE109.8b.06: The entity's approach to the determin
Specialist of the macro-economic forecast does not generate, an unb
rstand how management determined the probability-weighted ECL due to:
(i) inappropriate scenarios identified;
(ii) inappropriate macroeconomic variables identified;
oach), including any changes from the prior period; (iii) inappropriate probability weights used in respect of the
identified macroeconomic variables.
ment used to estimate the assumption.
alysis) behind the parameter and assess whether it
asis.

orkings behind the assumption to sufficient

ntation).

gs of the assumption (or reperform management's

thodology for how the assumption is estimated;

accordance with management's documented

t those of management. Evaluate differences (or
derstanding the reasons for the differences, and
anations for the differences are appropriate.
on the entity's ECL, which includes quantifying the
a material misstatement and/or whether there is
assumption TOD KPMG Economics The entity's approach to the determination of the macro-
Specialist economic forecast does not generate, an unbiased, probab
on to estimate the assumptions, where possible. weighted ECL due to:
of the assumption. Evaluate differences (or (i) inappropriate scenarios identified;
derstanding the reasons for the differences, and (ii) inappropriate macroeconomic variables identified;
r differences are appropriate. (iii) inappropriate probability weights used in respect of the
n the entity's ECL, which includes quantifying the identified macroeconomic variables.
a material misstatement and/or whether there is

dividual parameters TOD NONE GOBKCRE109.8b.06: The entity's approach to the determin
of the macro-economic forecast does not generate, an unb
mic assumptions by: probability-weighted ECL due to:
r period estimate; or (i) inappropriate scenarios identified;
arameter in the current period. (ii) inappropriate macroeconomic variables identified;
he actual outcome of the assumption is applied. (iii) inappropriate probability weights used in respect of the
k-test indicate possible management bias. identified macroeconomic variables.

central scenario TOD NONE GOBKCRE109.8b.06: The entity's approach to the determin
of the macro-economic forecast does not generate, an unb
s estimate of the macroeconomic assumption probability-weighted ECL due to:
h a comparable portfolio. Alternatively, benchmark (i) inappropriate scenarios identified;
e same entity. (ii) inappropriate macroeconomic variables identified;
ies) in the estimate by investigating and (iii) inappropriate probability weights used in respect of the
ences, and challenging whether the explanations identified macroeconomic variables.

n the entity's ECL, which includes quantifying the

a material misstatement and/or whether there is
 gement determined and generated the central TOD KPMG Economics GOBKCRE109.8b.06: The entity's approach to the determin
Specialist of the macro-economic forecast does not generate, an unb
probability-weighted ECL due to:
stand how management determined and (i) inappropriate scenarios identified;
g any changes from the prior period. (ii) inappropriate macroeconomic variables identified;
is (or method/approach) used to determine and (iii) inappropriate probability weights used in respect of the
identified macroeconomic variables.
cenario was determined and generated by
cialist.
document details of how the specialist determined
u complete the work paper for management's
n the management specialist's sub-module within

d to determine and generate the central scenario.

to determine the appropriate central scenario (e.g.
ic parameters).

determining and generating the central scenario is

following:
methodology (/policy) for determining and
g any changes from the prior period;
support their selection of the central scenario (e.g.
mine the appropriate central scenario when
ed);
the central scenario; and
odels /calculations) of the central scenario, and
oach for determining and generating the central

orkings of the central scenario to appropriate

E.g. evidence behind their estimate of

s of the central scenario:

ethodology (/policy) over the central scenario; and
cenario in accordance with management's

ment's calculations, and reperforming to generate

those of management. Evaluate differences (or

derstanding the reasons for the differences, and
differences are appropriate.

on the entity's ECL, which includes quantifying the

a material misstatement or/and whether there is
een each macroeconomic parameter and ECL TOD KPMG Economics GOBKCRE109.8b.06: The entity's approach to the determin
Specialist of the macro-economic forecast does not generate, an unb
n each macroeconomic parameter and ECL is probability-weighted ECL due to:
o. (i) inappropriate scenarios identified;
(ii) inappropriate macroeconomic variables identified;
related macroeconomic parameters in the central (iii) inappropriate probability weights used in respect of the
tion relative to one another. identified macroeconomic variables.

itivity analysis of the central scenario TOD KPMG Economics GOBKCRE109.8b.06: The entity's approach to the determin
Specialist of the macro-economic forecast does not generate, an unb
nges in the macroeconomic assumptions within the probability-weighted ECL due to:
financial impact on the entity's ECL. Or, (i) inappropriate scenarios identified;
(or sensitivity analysis) that is used as part of the (ii) inappropriate macroeconomic variables identified;
drivers of ECL. (iii) inappropriate probability weights used in respect of the
is reasonable, and indicates any management identified macroeconomic variables.

central scenario TOD KPMG Economics GOBKCRE109.8b.06: The entity's approach to the determin
Specialist of the macro-economic forecast does not generate, an unb
rojection of the central scenario, where possible. probability-weighted ECL due to:
(i) inappropriate scenarios identified;
enario and ECL impact. Evaluate differences (or (ii) inappropriate macroeconomic variables identified;
derstanding the reasons for the differences, and (iii) inappropriate probability weights used in respect of the
differences are appropriate. identified macroeconomic variables.

n the entity's ECL, which includes quantifying the

a material misstatement or/and whether there is

central scenario TOD KPMG Economics GOBKCRE109.8b.06: The entity's approach to the determin
Specialist of the macro-economic forecast does not generate, an unb
e central scenario by: probability-weighted ECL due to:
tral scenario to the prior period estimate; or (i) inappropriate scenarios identified;
f the estimate in the current period. (ii) inappropriate macroeconomic variables identified;
actual amount of the assumption is applied. (iii) inappropriate probability weights used in respect of the
k-test indicate possible management bias. identified macroeconomic variables.
e central scenario TOD NONE GOBKCRE109.8b.06: The entity's approach to the determin
of the macro-economic forecast does not generate, an unb
central scenario against the central scenario of a probability-weighted ECL due to:
ortfolio. Alternatively, you benchmark against a (i) inappropriate scenarios identified;
ntity. (ii) inappropriate macroeconomic variables identified;
(iii) inappropriate probability weights used in respect of the
arios include: identified macroeconomic variables.

nd their estimates; and

ng, ECL impact).

es) in the central scenario by investigating and

ences, and evaluating whether the explanations for

n the entity's ECL, which includes quantifying the

a material misstatement or/and whether there is

he central scenario, where the assumption is TOD NONE GOBKCRE109.8b.06: The entity's approach to the determin
of the macro-economic forecast does not generate, an unb
probability-weighted ECL due to:
ent's specialist and their work in line with the (i) inappropriate scenarios identified;
3.2 Evaluate the work of a management's (ii) inappropriate macroeconomic variables identified;
(iii) inappropriate probability weights used in respect of the
identified macroeconomic variables.

example we did not identify any changes to the assumption in Tab 2. Risk assessment. If the engagement did changes to the assumption,
es to address this requirements. Engagement teams can refer to the 'Estimates - IFRS 9 (Impairment - ECL)' excel template on Alex which
s to address this requirement.

enario is consistent with other data points TOD KPMG Economics GOBKCRE109.8b.06: The entity's approach to the determin
Specialist of the macro-economic forecast does not generate, an unb
r other relevant forward-looking information probability-weighted ECL due to:
how these are used. E.g. Decisions /discussion in (i) inappropriate scenarios identified;
l business plan and management reports on their (ii) inappropriate macroeconomic variables identified;
scape. (iii) inappropriate probability weights used in respect of the
identified macroeconomic variables.
formation to the entity's central scenario.
sistencies), evaluate these differences by
sons for the differences, and evaluating
for differences are appropriate.
the entity's ECL, which includes quantifying the
valuate whether there is a material misstatement
nagement bias.
 data or market data TOD NONE GOBKCRE109.8b.06: The entity's approach to the determin
of the macro-economic forecast does not generate, an unb
he assumption by comparing to publicly available probability-weighted ECL due to:
levant and reliable external sources. E.g. data (i) inappropriate scenarios identified;
bodies, national statistics offices, other banks (e.g. (ii) inappropriate macroeconomic variables identified;
(e.g. IMF data, OECD statistics, WTO statistics). (iii) inappropriate probability weights used in respect of the
identified macroeconomic variables.
and reliability of the external data.

es) by investigating and understanding the reasons

her management's explanations for differences are

n the entity's ECL, which includes quantifying the

a material misstatement or/and whether there is

e did not identify 'relies on the entity's intent and ability?' as an inherent risk factor related to the assumption in Tab 2. Risk
s as an inherent risk factor to the assumption, then they would perform procedures to address this requirements. Engagement
airment - ECL)' excel template on Alex which contains the substantive procedures to address this requirement.

No
ed to address it.
mple, we have grouped the central scenario assumptions using the IFRS 9 Assumptions Grouping work paper which is
n the IFRS 9 Global Audit Guidance page. Given the number of assumptions used to develop the ECL estimate, the
nt team may group assumptions that:
sufficiently similar management process;
same relevant control activities;
same inherent risk factors including degree of complexity, subjectivity and estimation uncertainty; and
same audit response (including control response).
s teams to complete one response tab per grouping of assumptions rather than one response tab per individual
n.

into the measurement of ECLs. The central scenario consists of relevant economic
nternally developed. The economists use both internal (historical internal data) and
management perform statistical analysis through the use of an economic response model,
unemployment rate, inflation, GDP and house price parameters. The central scenario, along
entral scenario is considered by management when assessing the credit risk of the retail

Control(s) addressing PRP

and approval of the macro-economic forecasts used in the
rio by the Head Economist.
y basis, the Head Economist reviews and approves the macro-
ameters used in the central scenario as developed by the
he Head Economist challenges the judgements made by the
their selection, and assesses the appropriateness of the
the parameters to the underlying portfolios. As part of this
ead Economist:
approves the economist's analysis (i.e. regression analysis)
g the correlation between the macro-economic parameters are
he relevant ECL risk drivers of the portfolios.
ether the parameters selected take into account the wide range
nomic information available.
anagement's selection of parameters to consensus forecasts, and
anagement on explanations for variances.
impact of sensitivity tests, and challenges the results of
ts to conclude on the reasonableness of the central scenario.

and approval of the macro-economic forecasts used in the

rio by the Head Economist.

y basis, the Head Economist reviews and approves the macro-

ameters used in the central scenario as developed by the
he Head Economist challenges the judgements made by the
their selection, and assesses the appropriateness of the
the parameters to the underlying portfolios. As part of this
ead Economist:
approves the economist's analysis (i.e. regression analysis)
g the correlation between the macro-economic parameters are
he relevant ECL risk drivers of the portfolios.
ether the parameters selected take into account the wide range
nomic information available.
anagement's selection of parameters to consensus forecasts, and
anagement on explanations for variances.
impact of sensitivity tests, and challenges the results of
ts to conclude on the reasonableness of the central scenario.
and approval of the macro-economic forecasts used in the
rio by the Head Economist.
y basis, the Head Economist reviews and approves the macro-
ameters used in the central scenario as developed by the
he Head Economist challenges the judgements made by the
their selection, and assesses the appropriateness of the
the parameters to the underlying portfolios. As part of this
ead Economist:
approves the economist's analysis (i.e. regression analysis)
g the correlation between the macro-economic parameters are
he relevant ECL risk drivers of the portfolios.
ether the parameters selected take into account the wide range
nomic information available.
anagement's selection of parameters to consensus forecasts, and
anagement on explanations for variances.
impact of sensitivity tests, and challenges the results of
ts to conclude on the reasonableness of the central scenario.

and approval of the macro-economic forecasts used in the

rio by the Head Economist.

y basis, the Head Economist reviews and approves the macro-

ameters used in the central scenario as developed by the
he Head Economist challenges the judgements made by the
their selection, and assesses the appropriateness of the
the parameters to the underlying portfolios. As part of this
ead Economist:
approves the economist's analysis (i.e. regression analysis)
g the correlation between the macro-economic parameters are
he relevant ECL risk drivers of the portfolios.
ether the parameters selected take into account the wide range
nomic information available.
anagement's selection of parameters to consensus forecasts, and
anagement on explanations for variances.
impact of sensitivity tests, and challenges the results of
ts to conclude on the reasonableness of the central scenario.

ty analysis performed by the economists

basis, the economists perform a sensitivity analysis to determine

financial impact on the ECL estimate from a change in the macro-
ameters. The economist reviews the sensitivity analysis to
e reasonableness of the macroeconomic parameters used in the
rio. The results of the sensitivity are reviewed by the Head
f changes to the ECL estimate are outside a certain threshold,
investigated and adjusted if required. Any necessary
made to the macroeconomic parameters are also reviewed and
he Head Economist. The results as well as the adjustments are
the Impairment Committee for approval.
arking internally generated forecasts against external data.
basis, the economists perform benchmarking of the macro-
ameters against publicly available or market information. This is
d by the Head Economist. If variances between the economists'
and the benchmark are greater than a certain tolerance, then this
d, and if they are deemed inappropriate then the assumption is
nsure that it is in line with the benchmark. All adjustments are
approved by the Head Economist.

monitoring control (back-testing)

e bank's model monitoring function performs model monitoring

art of the bank's model monitoring control and approves the
back-testing). This helps to identify any model performance
sults of the model monitoring procedures are subject to a
view by a senior member of the bank's model monitoring

and approval of the macro-economic forecasts used in the

rio by the Head Economist.

y basis, the Head Economist reviews and approves the macro-

ameters used in the central scenario as developed by the
he Head Economist challenges the judgements made by the
their selection, and assesses the appropriateness of the
the parameters to the underlying portfolios. As part of this
ead Economist:
approves the economist's analysis (i.e. regression analysis)
g the correlation between the macro-economic parameters are
he relevant ECL risk drivers of the portfolios.
ether the parameters selected take into account the wide range
nomic information available.
anagement's selection of parameters to consensus forecasts, and
anagement on explanations for variances.
impact of sensitivity tests, and challenges the results of
ts to conclude on the reasonableness of the central scenario.

ty analysis performed by the economists

basis, the economists perform a sensitivity analysis to determine
financial impact on the ECL estimate from a change in the macro-
ameters. The economist reviews the sensitivity analysis to
e reasonableness of the macroeconomic parameters used in the
rio. The results of the sensitivity are reviewed by the Head
f changes to the ECL estimate are outside a certain threshold,
investigated and adjusted if required. Any necessary
made to the macroeconomic parameters are also reviewed and
he Head Economist. The results as well as the adjustments are
the Impairment Committee for approval.
arking internally generated forecasts against external data.
basis, the economists performs benchmarking of the macro-
ameters against publicly available or market information. This is
d by the Head Economist. If variances between the economist's
and the benchmark are greater than a certain tolerance, then this
d, and if they are deemed inappropriate then the assumption is
nsure that it is in line with the benchmark.

monitoring control (back-testing)

e bank's model monitoring function performs model monitoring
art of the bank's model monitoring control and approves the
back-testing). This helps to identify any model performance
sults of the model monitoring procedures are subject to a
view by a senior member of the bank's model monitoring

and approval of the macro-economic forecasts used in the

rio by the Head Economist.

y basis, the Head Economist reviews and approves the macro-

ameters used in the central scenario as developed by the
he Head Economist challenges the judgements made by the
their selection, and assesses the appropriateness of the
the parameters to the underlying portfolios. As part of this
ead Economist:
approves the economist's analysis (i.e. regression analysis)
g the correlation between the macro-economic parameters are
he relevant ECL risk drivers of the portfolios.
ether the parameters selected take into account the wide range
nomic information available.
anagement's selection of parameters to consensus forecasts, and
anagement on explanations for variances.
impact of sensitivity tests, and challenges the results of
ts to conclude on the reasonableness of the central scenario.
 l validation control:
dependent validation function performs model validation
the models as part of the model validation control, and
models before their implementation and use. The results of the
tion procedures are subject to a secondary review by a senior
e bank's independent validation function.

r macro-economic assumptions, model validation includes:

the consistency of forward-looking data used in the ECL models;

are variances between models, the IVU investigated the cause of

and takes corrective action as necessary.

and approval of the macro-economic forecasts used in the

rio by the Head Economist.
y basis, the Head Economist reviews and approves the macro-
ameters used in the central scenario as developed by the
he Head Economist challenges the judgements made by the
their selection, and assesses the appropriateness of the
the parameters to the underlying portfolios. As part of this
ead Economist:
approves the economist's analysis (i.e. regression analysis)
g the correlation between the macro-economic parameters are
he relevant ECL risk drivers of the portfolios.
ether the parameters selected take into account the wide range
nomic information available.
anagement's selection of parameters to consensus forecasts, and
anagement on explanations for variances.
impact of sensitivity tests, and challenges the results of
ts to conclude on the reasonableness of the central scenario.

l validation control.

dependent validation function performs model validation

the models as part of the model validation control, and
models before their implementation and use. The results of the
tion procedures are subject to a secondary review by a senior
e bank's independent validation function.

r macro-economic assumptions, model validation includes:

eilings and floors on variables (e.g. unemployment cannot fall
the sensitivity tests are appropriate, and challenging the results
tests to conclude on the reasonableness of forward-looking
eflected in ECL models; and
whether the regression analysis is appropriate, and challenging
regression analysis to conclude on the reasonableness of
ng information reflected in ECL models.
 independent expectation on the 3.1 Independent expectation tab

to the three questions noted here aligns to their

ions in Tab 2. Risk assessment. For example, we have
make changes from the assumption used in the prior
r response to the inherent risk factor 'changes from the
ario assumptions in Tab 2.Risk assessment.

n(s) addressed by procedure Results Expected results

obtained?
ation that was addressed by this [Document results of procedure performed]

e involvement of
identify the
s - IFRS 9
 ntity's approach to the determination See Tab 2a. Central scenario the IFRS 9 Macroeconomics Yes
ecast does not generate, an unbiased, workpaper attached at <WP Ref> for the results of the procedure
ue to: performed.
identified;
onomic variables identified;
ty weights used in respect of the
variables. The results of the procedures are documented
in the IFRS 9 Macroeconomic work paper
which is available on the IFRS 9 Global Audit
Guidance page. This is then attached to the
relevant KCw screen.

e determination of the macro- See Tab 2a. Central scenario the IFRS 9 Macroeconomics Yes
t generate, an unbiased, probability- workpaper attached at <WP Ref> for the results of the procedure
performed.
identified;
onomic variables identified;
ty weights used in respect of the
variables.
 ntity's approach to the determination See Tab 2a. Central scenario the IFRS 9 Macroeconomics Yes
ecast does not generate, an unbiased, workpaper attached at <WP Ref> for the results of the procedure
ue to: performed.
identified;
onomic variables identified;
ty weights used in respect of the
variables.

ntity's approach to the determination See Tab 2a. Central scenario the IFRS 9 Macroeconomics Yes
ecast does not generate, an unbiased, workpaper attached at <WP Ref> for the results of the procedure
ue to: performed.
identified;
onomic variables identified;
ty weights used in respect of the
variables.

ntity's approach to the determination See Tab 2a. Central scenario the IFRS 9 Macroeconomics Yes
ecast does not generate, an unbiased, workpaper attached at <WP Ref> for the results of the procedure
ue to: performed.
identified;
onomic variables identified;
ty weights used in respect of the
variables.
e determination of the macro- See Tab 2a. Central scenario the IFRS 9 Macroeconomics Yes
t generate, an unbiased, probability- workpaper attached at <WP Ref> for the results of the procedure
performed.
identified;
onomic variables identified;
ty weights used in respect of the
variables.

ntity's approach to the determination See Tab 2a. Central scenario the IFRS 9 Macroeconomics Yes
ecast does not generate, an unbiased, workpaper attached at <WP Ref> for the results of the procedure
ue to: performed.
identified;
onomic variables identified;
ty weights used in respect of the
variables.

ntity's approach to the determination See Tab 2a. Central scenario the IFRS 9 Macroeconomics Yes
ecast does not generate, an unbiased, workpaper attached at <WP Ref> for the results of the procedure
ue to: performed.
identified;
onomic variables identified;
ty weights used in respect of the
variables.
 ntity's approach to the determination See Tab 2a. Central scenario the IFRS 9 Macroeconomics Yes
ecast does not generate, an unbiased, workpaper attached at <WP Ref> for the results of the procedure
ue to: performed.
identified;
onomic variables identified;
ty weights used in respect of the
variables.
 ntity's approach to the determination See Tab 2a. Central scenario the IFRS 9 Macroeconomics Yes
ecast does not generate, an unbiased, workpaper attached at <WP Ref> for the results of the procedure
ue to: performed.
identified;
onomic variables identified;
ty weights used in respect of the
variables.

ntity's approach to the determination See Tab 2a. Central scenario the IFRS 9 Macroeconomics Yes
ecast does not generate, an unbiased, workpaper attached at <WP Ref> for the results of the procedure
ue to: performed.
identified;
onomic variables identified;
ty weights used in respect of the
variables.

ntity's approach to the determination See Tab 2a. Central scenario the IFRS 9 Macroeconomics Yes
ecast does not generate, an unbiased, workpaper attached at <WP Ref> for the results of the procedure
ue to: performed.
identified;
onomic variables identified;
ty weights used in respect of the
variables.

ntity's approach to the determination See Tab 2a. Central scenario the IFRS 9 Macroeconomics Yes
ecast does not generate, an unbiased, workpaper attached at <WP Ref> for the results of the procedure
ue to: performed.
identified;
onomic variables identified;
ty weights used in respect of the
variables.
 ntity's approach to the determination See Tab 2a. Central scenario the IFRS 9 Macroeconomics Yes
ecast does not generate, an unbiased, workpaper attached at <WP Ref> for the results of the procedure
ue to: performed.
identified;
onomic variables identified;
ty weights used in respect of the
variables.

ntity's approach to the determination See Tab 6. Management's specialist of the IFRS 9 Yes
ecast does not generate, an unbiased, Macroeconomics workpaper attached at <WP Ref> for the
ue to: engagement team's assessment of the management's specialist.
identified;
onomic variables identified;
ty weights used in respect of the
variables.

changes to the assumption,

xcel template on Alex which

ntity's approach to the determination See Tab 2a. Central scenario the IFRS 9 Macroeconomics Yes
ecast does not generate, an unbiased, workpaper attached at <WP Ref> for the results of the procedure
ue to: performed.
identified;
onomic variables identified;
ty weights used in respect of the
variables.
 ntity's approach to the determination See Tab 2a. Central scenario the IFRS 9 Macroeconomics Yes
ecast does not generate, an unbiased, workpaper attached at <WP Ref> for the results of the procedure
ue to: performed.
identified;
onomic variables identified;
ty weights used in respect of the
variables.

in Tab 2. Risk
nts. Engagement
t.
paper which is
mate, the

ividual
Information in red text will be provided throughout this illustration to assist with further context as to intended use

Please note, for the purposes of this example we have documented the response for two data cards. As such, we have
origination internal and DC2 - Economic data external). However, the team completes one response tab for each data ca
Selection of the data is inappropriate in Tab 2. Risk Assessment.

Risk assessment summary for the data

Always complete this section.
Response level to address the:

Data Type Inherent

risk of error
Loan origination data Internal Base

Document the data, its source, and how it's used in the accounting estimate.
Loan origination data for the retail mortgage portfolio is input into the loan system by the loan underwriter based on the underlyin
into the IFRS 9 credit risk models, again via an automated feed. Reconciliations are performed between the loans system and sub-l
measure the ECL estimate. Some examples include: (a) product type and geographical location are used to segment the loan portfo
impacts the measurement of LGD.

Relevant data elements

Location
Product type
Date of initial recognition
Maturity Date
Notional Amount
Interest payment dates
Contractual interest rate
Collateral type
Currency denomination

1. How do we test the reliability of internal data?

When performing procedures over the reliability of internal data, the engagement team test
management's controls(s) over internal data AND/ OR direct-test the accuracy and completeness of the
data. When testing the reliability of data used in an estimate, the engagement team consider whether a
controls only approach is sufficient or if they need to perform additional procedures to obtain further
evidence that the data is sufficiently reliable. In this example, we have assumed the engagement team
directly tests the internal data.

1. Where is reliability documented?

The reliability of internal data is tested and documented in the information module in KCw. Where
information is relevant across multiple processes, the engagement team may complete one information
module in KCw and link this information module to multiple process.

2. What are the procedures that are performed over 'reliability'?

Teams can refer to a list of standardized procedures over reliability in Estimates - IFRS 9 (Impairment -
ECL) - Tab 1c. Data (i.e. the excel template on Alex, released as part of Standardization).
 directly tests the internal data.

1. Where is reliability documented?

The reliability of internal data is tested and documented in the information module in KCw. Where
information is relevant across multiple processes, the engagement team may complete one information
module in KCw and link this information module to multiple process.

2. What are the procedures that are performed over 'reliability'?

Teams can refer to a list of standardized procedures over reliability in Estimates - IFRS 9 (Impairment -
ECL) - Tab 1c. Data (i.e. the excel template on Alex, released as part of Standardization).

3. What sampling does the engagement team use if they decide to direct-test the accuracy and
completeness the data?
The engagement team uses the 'attribute sample size tables' at KAEG-I, ISA 530.06-08 | 1.1.6.2 Use
attribute sample size tables for attribute sampling, seeking assistance if relevant. The relevant risk used
to determine the sample size is the assessed level of audit response specific to the data, in this example
it would be 'base'.

Identify a corresponding Information module on the 3.x.6.x.1 Estimates screen.

Information module Did we conclude the

information was reliable?
INF.1 Loan origination data Yes

The example PRPs and controls in the table below are from Section 4d: Data of the IFRS 9 Global Audit Guidance for B
Impairment which is available on the IFRS 9 Global Audit Guidance page. Alternatively, the teams can access these via t
PRPs and Controls: Estimates - IFRS 9 (Impairment - ECL)' document which is also available on the IFRS 9 Global Audit
Please note, the PRPs and controls in the table below are examples only. Controls typically vary between entities base
entity's specific facts and circumstances. Engagement teams perform walkthroughs and document the process to identi
controls as appropriate to their client's specific process over the ECL estimate. Additionally, the PRPs and controls in th
are not a complete list of controls that entity's may have in place over data used to develop the ECL estimate.

Only controls related to testing the relevance of data are documented in the table below. If the engagement team dete
the reliability of internal data by testing management's controls, they document these controls in the Information mod
this example, we have taken the approach of direct-testing the loan origination data.

Identify PRPs and controls for the data

We have identified a 'Controls reliance' approach and/or a 'Significant' response level for the data. Complete this section.

Relevance: Identify PRPs and controls specific to the relevance of data in the table below.

PRP ID PRP short description Risk consideration

PRP D1 The data does not meet the measurement objective for the accounting None
estimate.

PRP D2 The data is not internally consistent with its use in other significant accounts None
and disclosures.
PRP D3 The source of the data has inappropriately changed (including not changed) None
from the prior year

PRP D4 The data is inappropriately understood and interpreted, including with respect None
to contractual terms.

PRP D5 The relevant data elements used in the models and assumptions are not None
appropriate.

PRP D6 The data is not sufficiently detailed or granular None

PRP D7 Changes to models have resulted in data no longer being relevant for the None
calculation

PRP D8 Changes made to assumptions have resulted in data no longer being relevant None
for the calculation.

Reliability: Identify PRPs and controls over the reliability of data within the Information module(s) identified above.

Is any control(s) ineffective? No

The below question is not applicable as a 'No controls reliance' approach is used.
Revise control reliance?
Reconsider the nature, timing, and extent of substantive procedures based on the change in our assessment of controls response t

Design and perform procedures for the data

Complete this section in the following two circumstances. Otherwise, leave this section blank.
1. If "Test and evaluate the entity's process" was selected as the substantive approach to test the accounting estimate on 3. Ove
2. If "Develop an independent expectation" was selected as the substantive approach to test the accounting estimate on 3. Over

Appropriately used by the entity

Is the data appropriate in the context of the requirements of the applicable financial reporting framework, as well as the business,
environment in which the entity operates?
If the source or items of the data have changed from the prior period, was the change appropriate?
Are there indicators that the source or items of data should have changed from the prior period, but did not?
Is the data internally consistent with its use by the entity in other estimates, significant accounts or disclosures that are tested?
Is the data appropriately understood and interpreted by management, including with respect to contractual terms?

Relevance

Document how the data is relevant to the accounting estimate.

The engagement team assessed the relevance of the data by performing the procedures noted above (under 'Appropriately use
The loan origination data is relevant to the ECL estimate as it is used as an input in many of the IFRS 9 credit risk models. These inc
- Product type and geographical region is used to perform segmentation of the portfolios within the models;
- Contractual interest rates, notional amounts and payment dates are used to calculate EAD.
- Payment dates are used to derive days past due (DPD) which is used to identify a SICR.

Reliability

The reliability of internal data is tested through the Information module.

1. How do we test the reliability of internal data?

When performing procedures over the reliability of internal data, the engagement team test
management's controls(s) over internal data AND/ OR direct-test the accuracy and completeness of the
data. When testing the reliability of data used in an estimate, the engagement team consider whether a
controls only approach is sufficient or if they need to perform additional procedures to obtain further
evidence that the data is sufficiently reliable. In this example, we have assumed the engagement team
directly tests the internal data.

1. Where is reliability documented?

The reliability of internal data is tested and documented in the information module in KCw. Where
information is relevant across multiple processes, the engagement team may complete one information
1. How do we test the reliability of internal data?
When performing procedures over the reliability of internal data, the engagement team test
management's controls(s) over internal data AND/ OR direct-test the accuracy and completeness of the
data. When testing the reliability of data used in an estimate, the engagement team consider whether a
controls only approach is sufficient or if they need to perform additional procedures to obtain further
evidence that the data is sufficiently reliable. In this example, we have assumed the engagement team
directly tests the internal data.

1. Where is reliability documented?

The reliability of internal data is tested and documented in the information module in KCw. Where
information is relevant across multiple processes, the engagement team may complete one information
module in KCw and link this information module to multiple process.

2. What are the procedures that are performed over 'reliability'?

Teams can refer to a list of standardized procedures over reliability in Estimates - IFRS 9 (Impairment -
ECL) - Tab 1c. Data (i.e. the excel template on Alex, released as part of Standardization) where the team
performs direct testing.

3. What sampling does the engagement team use if they decide to direct-test the accuracy and
completeness of the data?
The engagement team uses the 'attribute sample size tables' at KAEG-I, ISA 530.06-08 | 1.1.6.2 Use
attribute sample size tables for attribute sampling, seeking assistance if relevant. The relevant risk used
to determine the sample size is the assessed level of audit response specific to the data, in this example
it would be 'base'.
urther context as to intended use of the Estimates work paper.

two data cards. As such, we have completed two data response tabs (DC1 - Loan
s one response tab for each data card identified under the Element RMM:

sponse level to address the:

Inherent Controls response
risk of fraud
None Controls reliance

n underwriter based on the underlying contract between the entity and the customer. The data then flows into the loans sub-ledger system via an auto
d between the loans system and sub-ledger and the sub-ledger and IFRS 9 credit risk models to verify the completeness and accuracy of the data. Loan o
n are used to segment the loan portfolio within the models; (b) the contractual interest rate and contractual repayments amounts and dates are used in

am test
ompleteness of the
consider whether a
to obtain further
engagement team

n KCw. Where
ete one information

S 9 (Impairment -
n).
n KCw. Where
ete one information

S 9 (Impairment -
n).

ccuracy and

8 | 1.1.6.2 Use
e relevant risk used
ata, in this example

we conclude the
ation was reliable?
Yes

FRS 9 Global Audit Guidance for Banks -

y, the teams can access these via the 'Example
ailable on the IFRS 9 Global Audit Guidance page.
pically vary between entities based on the
nd document the process to identify PRPs and
onally, the PRPs and controls in the table below
evelop the ECL estimate.

elow. If the engagement team determines to test

se controls in the Information module in KCw. In

ata. Complete this section.

Risk consideration(s) addressed by PRP Control(s) addressing PRP

None CD1.1: Review and approval of the IFRS 9 Data Policy
On an annual basis, management reviews and approves the IFRS 9 data
the selection and application of relevant data used in the models and as
in line with IFRS 9.

None CD1.2: Comparison of ECL data with other estimates, significant accou
On an annual basis, management compares the ECL data with other esti
accounts, disclosures in the financial statements and with regulatory rep
None CD1.3: Review and approval of adjustments
Management reviews and approves changes or adjustments to internal

None CD1.1: Review and approval of the IFRS 9 Data Policy

On an annual basis, management reviews and approves the IFRS 9 data

the selection and application of relevant data used in the models and as
in line with IFRS 9.

None CD1.4: Review, challenge and approval of data elements

The relevant data elements are challenged, reviewed and approved on a

management as part of their review of the IFRS 9 data policy.

None CD1.5: Review and approval of ECL data

On an annual basis, management reviews the ECL data used in model de
assumptions for relevance and level of granularity. Where changes are m
listing used, management challenges and approves the changes, trackin
document listing.

CM1.5: Model validation control:

- The bank's independent validation function performs model validation
models as part of the model validation control, and approves the model
implementation and use.
- The results of the model validation procedures are subject to a second
senior member of the bank's independent validation function.

Specifically for data, model validation includes:

- validate the relevance and reliability of data as well as the level of gran
model during model validation.

None CD1.6: Review and approval of model changes

Management reviews, challenges and approves changes made to mode
understanding the impacts on assumptions and data within the calculati

None CD1.7: Review and approval of changes to the assumptions

Management reviews, challenges and approves changes made to assum

understanding the impacts on the model as well as the data used for the
assumption.

ule(s) identified above.

our assessment of controls response to either partial or no reliance.

est the accounting estimate on 3. Overall approach tab The procedures in the table below are consistent with the stand
IFRSthe
st the accounting estimate on 3. Overall approach tab AND we concluded we will use 9 (Impairment
entity's data in- our
ECL)independent
- Tab 1c. Data (i.e. theonexcel
expectation template
the 3.1 Indepen
Standardization). The engagement team determines the nature a
perform to address the assessed level of inherent risk.

Document procedures performed and

Results relevant considerations, as applicable
g framework, as well as the business, industry and Yes 1c.1.1: Assess the appropriateness of data in the context
the business, industry and environment in which the ban

1. Understand how management selects the data on which

This includes performing the following procedures.
a. make inquiries of management to understand the appro
the context of IFRS 9 as well as the business, industry and e
which the bank operates.
b. obtain and inspect the entity's data policy for the ECL es
how management have selected the data for developing it

2. For each data requiring an audit response, assess and do

the data is appropriate given the nature of the ECL estimat
of IFRS 9, and the business, industry and environment in w
operates. This may include performing the following.

a. evaluate whether management has selected the data ap

with the entity's data policy. This includes evaluating whet
sourced the data from an appropriate source as described

b. assess whether management's rationale for the selectio

appropriate. This includes obtaining and inspecting manag
documented analysis (and relevant documentation) for the
selection of data. In making the assessment, consideration
following.
• whether the source of the data is appropriate.
• whether the data has been appropriately understood or
management.
• whether the data is appropriate given the nature and cha
loan portfolio.
• whether the data is appropriate given the nature of the E
requirements of IFRS 9, and the business, industry and env
the entity operate.
• whether the data is appropriate for its purpose.
 c. evaluate whether the data is consistent with industry pr
appropriate). This includes evaluating whether it is consist
practice to use the data in developing the ECL estimate, an
whether management's source of the data is consistent wi
when estimating ECLs.

d. where there are specific IFRS 9 requirements related to

whether the entity has selected the data appropriately in a
9.

e. where determined necessary, involve a KPMG specialist

the data selected by management is appropriate for estim
based on their understanding of the entity's ECL estimate a
knowledge of data/relevant data elements for developing
f. where the data is 'derived data', assess whether the ana
techniques applied are appropriate to be used in the conte
estimate. This may include considering whether the analyti
techniques are consistent with industry practice.

g. where the data has been subject to testing by the indep

validation control during the period, perform the following
i. obtain and inspect the entity’s independent model valida
the report that documents the results of the independent
control’s testing.
ii. where there are findings (or exceptions) noted in the mo
report(s) with respect to the data, assess whether these fin
appropriately considered and addressed by management.
performing the following:
• for closed findings, evaluate the reasoning for the closur
relevant evidence for the closure, and assess whether chan
appropriately implemented in the model; and
• for open findings, assess the resulting audit impact.

h. where there are limitations related to the data, obtain a

management's documented analysis on how they have add
limitations. Assess whether management's approach to ad
is appropriate.
See procedures documented at <WP Ref>.

priate? No change in source of data

od, but did not? No 1c.1.3: Assess whether there are indicators to change the
data from the prior period
1. Identify whether there are indicators that the source or
should have changed from the prior period. This may inclu
following.
a. assess whether there are any changes in circumstances i
which may change the source or items of the data from th
making the assessment, assess and document the followin
the current period:
• amendments to IFRS 9 Financial instruments requiremen
• changes in the business, industry and environment (e.g.
portfolio to different markets),
• limitations in the data (e.g. where data is no longer availa
party source),
• changes in the economic circumstances (e.g. a significant
downturn),
• unforeseen circumstances (e.g. break-out of a pandemic

b. inspect the results of the model validation control and t

control during the period to identify whether the results in
that may be required to the data. E.g. the results may iden
limitations in the data used by management in estimating
not been considered by management when using the data
estimate.

c. perform corroborative inquiries of appropriate managem

within the entity (including the independent model validati
developers, economists, credit risk management team and
to identify any changes.
d. inspect the meeting minutes of the Credit Risk Committe
other relevant meeting minutes of management and those
governance as appropriate) to identify and understand any
the methods / models.

e. inspect other areas of the audit file in the current period

whether there is audit evidence obtained in other areas of
indicate that the source or items of the data should have c
prior period.
2. If there are indicators that the source or items of the da
changed from the prior period but management have not
a. make inquiries of management to understand their ratio
changing the data.
b. obtain and inspect their documented analysis (and relev
that outlines their rationale.
c. assess whether management's rationale is appropriate.
assessment, consider the nature of the ECL estimate, the r
9, and the business, industry and environment in which the
d. assess and document whether there is an impact on the
including whether there is a material misstatement (if any)
there is any indication of management bias.
See procedures documented at <WP Ref>.
nts or disclosures that are tested? Yes 1c.1.4: Assess whether the data is internally consistent w
points
1. Assess whether the data is internally consistent with its
Loan origination data is also relevant other estimates, significant accounts or disclosures that ar
to the loans process. As such, the includes performing the following.
engagement team compares the
loan origination data used in the ECL a. make inquiries of management to understand whether t
estimate to the loan origination data other estimates, significant accounts or disclosures in the e
statements.
in the loans sub-ledger.
b. inspect the audit file and consider whether the data is u
estimates, significant accounts or disclosures. If so, compa
between the ECL estimate and the other estimates, signific
disclosures. In making the comparison, considerations inclu
• comparison of the source of the data;
• comparison of the amounts related to the data (e.g. chec
consistently used in other estimates, significant accounts o
• where the data is derived data, comparison of the analyti
techniques applied;
• comparison of data limitations identified;
• comparison of interpretations applied by management to
interpreting certain terms of a contract for contractual dat
An example of data that may be used in ECL estimate and
significant accounts and disclosures includes: the inflation
developing the macroeconomic forecast within the ECL esti
in other areas such as the goodwill forecast.

c. if there are differences between the data used in the EC

other estimates, significant accounts or disclosures:
i. make inquiries of management to understand their ratio
differences.
ii. obtain and inspect their documented analysis (and relev
that outlines their rationale. Assess whether management
appropriate.
iii. assess and document whether there is an impact on the
including whether there is a material misstatement (if any)
there is any indication of management bias as a result of th
data.
2. For different portfolios having similar credit risk characte
ECL drivers), compare and assess whether the data used is
type and source between the portfolios.
3. Assess whether the data is internally consistent with its
of the entity, including:
• regulatory reporting purposes (e.g. the credit risk details
entity's annual regulatory returns); and
• internal management reporting (e.g. annual business pla
This includes performing the following.
a. make inquiries of management to understand whether t
other areas of the entity, including:
• regulatory reporting purposes (e.g. the credit risk details
entity's annual regulatory returns); and
• internal management reporting (e.g. annual business pla

b. inspect relevant documents related to these areas of the

whether data is used in these areas. Relevant documents i
reports (e.g. the entity's annual regulatory returns) and rel
management reports (e.g. annual business plan or budget)
If so, compare the data used between the ECL estimate an
documents. In making the comparison, considerations incl
• comparison of the source of the data;
• comparison of the amounts related to the data (e.g. chec
consistent with the annual business plan);
• where the data is derived data, comparison of the analyti
techniques applied;
• comparison of data limitations identified;
• comparison of interpretations applied by management to
interpreting certain terms of a contract for contractual dat

c. if there are differences between the data used in the EC

relevant documents:
i. make inquiries of management to understand their ratio
differences.
ii. obtain and inspect their documented analysis (and relev
that outlines their rationale. Assess whether management
appropriate.
iii. assess and document whether there is an impact on the
including whether there is a material misstatement (if any)
there is any indication of management bias as a result of th
data.
See procedures documented at <WP Ref>.
 to contractual terms? Yes 1c.1.5: Assess whether the data is appropriately understo
by management
Assess whether the data is appropriately understood and i
management, including with respect to contractual terms.
performing the following.
1. Where the data relates to contractual terms (e.g. where
management's interpretations of contractual terms) and th
perform the following.

a. make inquiries of the entity's legal counsel regarding com

contractual terms (if any) to understand the contractual te
interpretations made.
b. inspect the underlying contracts to:
• evaluate the underlying business purpose for the transac
and
• consider whether the terms of the contracts are consiste
management's explanations.

2. Where there are specific written limitations (or disclaim

the data, assess whether management have appropriately
interpreted these when using the data for estimating ECL.
report provided by an external third party which contains t
disclose certain limitations (or disclaimers) which may indi
not relevant for use in the ECL estimate.

See procedures documented at <WP Ref>.

ted above (under 'Appropriately used by the entity').

e IFRS 9 credit risk models. These include the following:
hin the models;

m test
mpleteness of the
onsider whether a
o obtain further
ngagement team

KCw. Where
e one information
 m test
mpleteness of the
onsider whether a
o obtain further
ngagement team

KCw. Where
e one information

9 (Impairment -
n) where the team

curacy and

| 1.1.6.2 Use
relevant risk used
ta, in this example
b-ledger system via an automated feed, the sub-ledger data then flows
accuracy of the data. Loan origination data is used in a number models to
ounts and dates are used in the calculation of EAD; (c) the collateral type
ddressing PRP
ta Policy
d approves the IFRS 9 data policy that outlines
used in the models and assumptions, which is

stimates, significant accounts and disclosures

he ECL data with other estimates, significant
nts and with regulatory reporting.
 or adjustments to internal data sources.

ta Policy

d approves the IFRS 9 data policy that outlines

used in the models and assumptions, which is

ta elements

eviewed and approved on an annual by

RS 9 data policy.

e ECL data used in model design decisions and

larity. Where changes are made to the data
proves the changes, tracking the updates in the

performs model validation activities over the

ol, and approves the models before their
res are subject to a secondary review by a
lidation function.

s:
as well as the level of granularity used in the

es
es changes made to models including
nd data within the calculation.

he assumptions

es changes made to assumptions, including

well as the data used for the calculation of the
consistent with the standardized procedures in Estimates -
(i.e. theonexcel
ectation template
the 3.1 on Alex,
Independent releasedtab
expectation as part of
determines the nature and extent of procedures to
f inherent risk.

procedures performed and

onsiderations, as applicable KPMG specialist involved
ess of data in the context of IFRS 9 as well as None
ronment in which the bank operates

nt selects the data on which the ECL is based.

lowing procedures.
nt to understand the appropriateness of data in
he business, industry and environment in

s data policy for the ECL estimate which details

d the data for developing its ECL estimate.

dit response, assess and document whether

e nature of the ECL estimate, the requirements
ustry and environment in which the entity
orming the following.

nt has selected the data appropriately in line

s includes evaluating whether management has
priate source as described in its data policy.

s rationale for the selection of the data is

ning and inspecting management's
ant documentation) for their rationale of the
assessment, considerations include the

a is appropriate.
propriately understood or interpreted by

te given the nature and characteristics of the

te given the nature of the ECL estimate, the
business, industry and environment in which
te for its purpose.
consistent with industry practice (where
uating whether it is consistent with industry
oping the ECL estimate, and evaluating
of the data is consistent with industry practice

9 requirements related to the data, assess

the data appropriately in accordance with IFRS

involve a KPMG specialist to assess whether

nt is appropriate for estimating the entity's ECL
f the entity's ECL estimate and their specialist
ta elements for developing the ECL estimate.
a', assess whether the analytical or interpretive
ate to be used in the context of the ECL
idering whether the analytical or interpretive
ndustry practice.

ect to testing by the independent model

riod, perform the following.
independent model validation report(s) - i.e.
esults of the independent model validation

xceptions) noted in the model validation

ta, assess whether these findings have been
ddressed by management. This includes
he reasoning for the closure, evaluate the
e, and assess whether changes have been
he model; and
esulting audit impact.

elated to the data, obtain and inspect

alysis on how they have addressed the
nagement's approach to address the limitations

<WP Ref>.
 e indicators to change the source or items of None

dicators that the source or items of the data

prior period. This may include performing the

changes in circumstances in the current period

r items of the data from the prior period. In
and document the following types of changes in

al instruments requirements,
try and environment (e.g. expansion of a loan
here data is no longer available from a third

mstances (e.g. a significant economic

g. break-out of a pandemic).

del validation control and the model monitoring

ntify whether the results indicate any changes
a. E.g. the results may identify certain
management in estimating the ECL, which have
ement when using the data for the ECL

es of appropriate management personnel

ndependent model validation team, model
isk management team and the finance team)
of the Credit Risk Committee or equivalent (and
of management and those charged with
dentify and understand any other changes in

dit file in the current period and consider

obtained in other areas of the audit which may
s of the data should have changed from the

e source or items of the data should have

but management have not made the change:
nt to understand their rationale for not
mented analysis (and relevant documentation)

s rationale is appropriate. In making this

e of the ECL estimate, the requirements of IFRS
d environment in which the entity operate.
r there is an impact on the ECL estimate,
terial misstatement (if any) and/or whether
ement bias.
<WP Ref>.
a is internally consistent with other data None

ternally consistent with its use by the entity in

ounts or disclosures that are tested. This
ng.
nt to understand whether the data is used in
ounts or disclosures in the entity's the financial

sider whether the data is used in other

or disclosures. If so, compare the data used
he other estimates, significant accounts or
arison, considerations include:
he data;
lated to the data (e.g. checking inflation rate is
ates, significant accounts or disclosures);
a, comparison of the analytical or interpretive

s identified;
applied by management to the data (e.g. when
ontract for contractual data).
used in ECL estimate and other estimates,
ures includes: the inflation rate which is used in
forecast within the ECL estimate may be used
will forecast.

en the data used in the ECL estimate and the

ounts or disclosures:
t to understand their rationale for the
mented analysis (and relevant documentation)
ess whether management's rationale is

er there is an impact on the ECL estimate,

terial misstatement (if any) and/or whether
ement bias as a result of the differences in the

g similar credit risk characteristics (i.e. similar

s whether the data used is similar in nature,
ortfolios.
ternally consistent with its use for other areas

(e.g. the credit risk details reported within the

ns); and
ng (e.g. annual business plan or budget).
lowing.
nt to understand whether the data is used in
ing:
(e.g. the credit risk details reported within the
ns); and
ng (e.g. annual business plan or budget).

elated to these areas of the entity and consider

eas. Relevant documents include regulatory
regulatory returns) and relevant internal
al business plan or budget).
tween the ECL estimate and the relevant
parison, considerations include:
he data;
lated to the data (e.g. checking inflation rate is
ness plan);
a, comparison of the analytical or interpretive

s identified;
applied by management to the data (e.g. when
ontract for contractual data).

en the data used in the ECL estimate and the

t to understand their rationale for the

mented analysis (and relevant documentation)
ess whether management's rationale is

er there is an impact on the ECL estimate,

terial misstatement (if any) and/or whether
ement bias as a result of the differences in the

<WP Ref>.
a is appropriately understood and interpreted None

opriately understood and interpreted by

pect to contractual terms. This includes

ntractual terms (e.g. where the data is based on

of contractual terms) and the data is complex,

legal counsel regarding complex legal or

derstand the contractual terms and the
cts to:
ess purpose for the transaction and agreement;

f the contracts are consistent with

tten limitations (or disclaimers) with respect to

ement have appropriately understood and
he data for estimating ECL. For example: a
hird party which contains the data may
isclaimers) which may indicate that the data is
stimate.

<WP Ref>.
Information in red text will be provided throughout this illustration to assist with further context as to intended use o
work paper.

Please note, for the purposes of this example we have documented the response for two data cards. As such, we have t
response tabs (DC1 - Loan origination internal and DC2 - Economic data external). However, the team completes one re
each data card identified under the Element RMM: Selection of the data is inappropriate in Tab 2. Risk Assessment.

1. How do we test the reliability of external data?

When performing procedures over the reliability of external data, the engagement team test management's controls(s)
data OR perform substantive procedures to address the reliability of data. When testing the reliability of data used in an
engagement team consider whether a controls only approach is sufficient or if they need to perform additional procedu
further evidence that the data is sufficiently reliable. In this example, we have taken the approach of testing manageme
over the reliability of the external data, and performing substantive procedures to obtain further evidence that the data
reliable.

1. Where is reliability documented?

The reliability of external data used in an estimate, is tested and documented in the 'Data response - External' in the Ac
Estimates - Required Work Paper.
2. What are the procedures that are performed over 'reliability'?
Teams can refer to a list of standardized procedures over reliability in Estimates - IFRS 9 (Impairment - ECL) - Tab 1c. Da
excel template on Alex, released as part of Standardization).

Risk assessment summary for the data

Always complete this section.
Response level to address the:

Data Type Inherent

risk of error
Unadjusted macro-economic forecast data External Elevated

For the external data, identify whether it is: External and not a sou

What is an 'external source document?'

• See KAEG-I, ISA 500.07-09 l 1.2.3.2 "What is an 'external source document'?"
• An external source document is an original document that shows evidence of a financial transaction with a
retained by an entity either physically or electronically as support of the entity's accounting records. This do
date the transaction took place, the amount of the transaction, and any other terms or conditions that perta
transaction.
• An example of an 'external source document' in the ECL estimate is a signed contract from the counterpar
details in the list of loans provided by management.

What are examples of external data that is considered 'not a source document':
• foreign exchange rates,
• interest rates,
• company share prices, and
• market/ industry/ or competitor information, including forecasts.
Document the data, its source, and how it's used in the accounting estimate.
Unadjusted macro-economic forecast data includes forecasts of macro-economic parameters that are used in the entity's the cent
economists developing their own internal forecasts (i.e. assumptions). The final forecasted scenarios are uploaded by the economi
The macro-economic forecast data is obtained from a number of different sources which include financial services firms (e.g. Bloom

Relevant data elements

GDP
Employment rate
Inflation rate
Consumer price index
Average weekly earnings
Household outstanding debt
Average Mortgage Advance
Average Borrower Income
Consumer Confidence Index
Households Disposable Income per Head
Interest rate benchmark

The example PRPs and controls in the table below are from Section 4d: Data of the IFRS 9 Global Audit Guidance for Ba
Guidance page. Alternatively, the teams can access these via the 'Example PRPs and Controls: Estimates - IFRS 9 (Impa
Global Audit Guidance page. In this example, we have only documented controls over the relevance of the data, as we
reliability of the data. However, the 'Examples PRPs and Controls: Estimate - IFRS 9 (Impairment - ECL)' document also

Please note, the PRPs and controls in the table below are examples only. Controls typically vary between entities base
teams perform walkthroughs and document the process to identify PRPs and controls as appropriate to their client's sp
controls in the table below are not a complete list of controls that entity's may have in place over data used to develop

Controls related to testing the relevance and reliability of the data are documented in the table below. This is because
management's controls over the relevance of the external data, and performing substantive procedures to obtain furth

Identify PRPs and controls for the data

We have identified a 'Controls reliance' approach and/or a 'Significant' response level for the data. Complete this section.

Relevance: PRPs and controls over the relevance of data are tested through the Estimates module. The respective relevance PRPs

Reliability: PRPs and controls over the reliability of data are tested through the Estimates module. The respective reliability PRPs a

Relevance/Reliability PRP ID PRP short description

Relevance PRP D1 The data does not meet the measurement objective for the accounting
estimate.

Relevance PRP D2 The data is not internally consistent with its use in other significant accounts
and disclosures.

Relevance PRP D3 The source of the data has inappropriately changed (including not changed)
from the prior year

Relevance PRP D4 The data is inappropriately understood and interpreted, including with respect
to contractual terms

Relevance PRP D5 The relevant data elements used in the models and assumptions are not
appropriate.

Relevance PRP D6 The data is not sufficiently detailed or granular

Relevance PRP D7 Changes to models have resulted in data no longer being relevant for the
calculation
 Relevance PRP D8 Changes made to assumptions have resulted in data no longer being relevant
for the calculation.

Is any control(s) ineffective? No

The below question is not applicable as a 'No controls reliance' approach is used.
Revise control reliance?
Reconsider the nature, timing, and extent of substantive procedures based on the change in our assessment of controls response t

Design and perform procedures for the data

Complete this section in the following two circumstances. Otherwise, leave this section blank.
1. If "Test and evaluate the entity's process" was selected as the substantive approach to test the accounting estimate on 3. Ove
2. If "Develop an independent expectation" was selected as the substantive approach to test the accounting estimate on 3. Over

Appropriately used by the entity

Is the data appropriate in the context of the requirements of the applicable financial reporting framework, as well as the business,
environment in which the entity operates?
If the source or items of the data have changed from the prior period, was the change appropriate?

Are there indicators that the source or items of data should have changed from the prior period, but did not?
Is the data internally consistent with its use by the entity in other estimates, significant accounts or disclosures that are tested?
Is the data appropriately understood and interpreted by management, including with respect to contractual terms?

Relevance

Document how the data is relevant to the accounting estimate.

The engagement team assessed the relevance of the data by performing the procedures noted above (under 'Appropriately use
IFRS 9.5.5.17(c) requires ECLs to be measured in a way that reflects reasonable and supportable information about past events, cu
develop the macro-economic assumptions, including the alternative scenarios and probability-weightings are relevant to the meas

Reliability
Complete the below section to test the reliability of the external data.

Nature of data: Electronic document

Circumstances under which data was obtained: Provided by entity/manage
If other, document the nature of the data.

What are the procedures that are performed over 'reliability'?

Teams can refer to a list of standardized procedures over reliability in Estimates - IFRS 9 (Impairment - ECL) - Tab 1c. D
as part of Standardization) where the team performs direct testing.

Note: When performing procedures over the reliability of external data, the engagement team test management’s con
perform substantive procedures to address the reliability of the data. When testing the reliability of data used in an esti
whether a controls only approach is sufficient or if they need to perform additional procedures to obtain further evide

In this example we have taken the approach of testing management's controls over the reliability of the external data,
obtain further evidence that the data is sufficiently reliable. The extent of procedures performed over the reliability of
engagement team in response to the assessed level of audit response. To address the 'Elevated' risk, the engagement t
information to an alternative independent external source (Procedure 3).

The data is external and not a source document. Determine the approach to evaluate the reliability of the external data and docum
1c.3.2: Evaluate the reliability of external data the is considered 'not a source document':

The engagement team performed the following procedures to evaluate the reliability of the external data:
1. Evaluate the objectivity and competence of the third party source. This included performing the following:
a. obtain and inspect relevant documentation to determine the nature and scope of any relationship that exists between the entity
b. discuss with members of management their relationship with the third party source and inspect evidence management gathere
c. make inquiries of those charged with governance (TCWG) / Audit Committee of whether they are aware of any relationships wit
d. evaluate the results of procedures performed with reference to related party relationships and transactions.
e. if relationships exist, examine them further to determine whether management has the ability to directly or indirectly control or
to provide reasonable assurance that the external information provided is not unduly influenced and remain at arm's length.

2. Evaluate the nature and authority of the third party source.

3. Compare the external information to information obtained from an alternative independent external sources (e.g. compare the

4. Agree the macro-economic data provided by management to the external information source.
Based on the above procedures the engagement team notes the external data is sufficiently reliable. Please refer to the document

IMPORTANT: the procedures above have been documented here assuming the data is considered 'not a source document' and t
Data. However, the procedures documented here may differ based on the type of external data tested and the audit approach t

Is the external data sufficiently reliable? Yes

rther context as to intended use of the Estimates

two data cards. As such, we have two data

wever, the team completes one response tab for
riate in Tab 2. Risk Assessment.

am test management's controls(s) over internal

ng the reliability of data used in an estimate, the
eed to perform additional procedures to obtain
he approach of testing management's controls
tain further evidence that the data is sufficiently

Data response - External' in the Accounting

S 9 (Impairment - ECL) - Tab 1c. Data (i.e. the

sponse level to address the:

Inherent Controls response
risk of fraud
None Controls reliance

External and not a source document

?"
of a financial transaction with a third party and is
ty's accounting records. This document includes the
r terms or conditions that pertain to the financial

d contract from the counterparties that confirm the

ent':
 that are used in the entity's the central economic scenario. The forecast macro-economic data is used by the economists for some of the macro-econo
enarios are uploaded by the economists into the scenario management tool and this then flows via an automated data feed into the IFRS 9 credit risk m
ude financial services firms (e.g. Bloomberg), the International Monetary Fund (IMF) and the central bank.

FRS 9 Global Audit Guidance for Banks - Impairment which is available on the IFRS 9 Global Audit
Controls: Estimates - IFRS 9 (Impairment - ECL)' document which is also available on the IFRS 9
r the relevance of the data, as we have decided to perform substantive procedures over the
Impairment - ECL)' document also contains examples of controls over reliability of external data.

pically vary between entities based on the entity's specific facts and circumstances. Engagement
s as appropriate to their client's specific process over the ECL estimate. Additionally, the PRPs and
n place over data used to develop the ECL estimate.

n the table below. This is because in this example, we have taken the approach of testing
tantive procedures to obtain further evidence that the data is sufficiently reliable.

ata. Complete this section.

odule. The respective relevance PRPs and controls added in the table below will also need to be created on the 3.x.6.x.1. Estimates screen.

odule. The respective reliability PRPs and controls added in the table below will also need to be created on the 3.x.6.x.1. Estimates screen.

Risk consideration(s) addressed by PRP Control(s

or the accounting None CD1.1: Review and approval of data policy
On an annual basis, management reviews and
selection and application of relevant data use
with IFRS 9.

her significant accounts None CD1.2: Comparison of ECL data with other es
On an annual basis, management compares t
accounts, disclosures in the financial stateme

ncluding not changed) None CD2.1: Approval of external information sou

On an annual basis, management approves th

ECL estimate. Any changes made to the appro
rationale and are approved by management.

ed, including with respect None CD1.1: Review and approval of data policy

On an annual basis, management reviews and

selection and application of relevant data use
with IFRS 9.

ssumptions are not None CD1.4: Review, challenge and approval of da

The relevant data elements are challenged, re
as part of their review of the IFRS 9 data polic

None CD1.5: Review and approval of ECL data

On an annual basis, management reviews the

assumptions for relevance and level of granu
used, management challenges and approves
listing.

CM1.5: Model validation control:

The bank's independent validation function p

as part of the model validation control, and a
and use. The results of the model validation p
senior member of the bank's independent va
Specifically for data, model validation include
- validate the relevance and reliability of data
during model validation.

eing relevant for the None CD1.6: Review and approval of model chang

Management reviews, challenges and approv

the impacts on assumptions and data within t
no longer being relevant None CD1.7: Review and approval of changes to th
Management reviews, challenges and approv
understanding the impacts on the model as w
assumption.

our assessment of controls response to either partial or no reliance.

est the accounting estimate on 3. Overall approach tab

The procedures in the table below are consistent with the stan
st the accounting estimate on 3. Overall approach tab AND we concluded we will use the entity's
- IFRS data in our- ECL)
9 (Impairment independent
- Tab 1c.expectation
Data (i.e. on
thethe 3.1 Indepen
excel templa
Standardization).

Results Document procedures performed a

relevant considerations, as applica
g framework, as well as the business, industry and Yes 1c.1.1: Assess the appropriateness of data in the context
business, industry and environment in which the bank op
1. Understand how management selects the data on which
includes performing the following procedures.
a. make inquiries of management to understand the appro
context of IFRS 9 as well as the business, industry and envi
bank operates by performing the following procedures.
b. obtain and inspect the entity's data policy for the ECL es
management have selected the data for developing its ECL
2. For each data requiring an audit response, assess and do
is appropriate given the nature of the ECL estimate, the re
the business, industry and environment in which the entity
include performing the following.

a. evaluate whether management has selected the data ap

the entity's data policy. This includes evaluating whether m
the data from an appropriate source as described in its dat

b. assess whether management's rationale for the selectio

appropriate. This includes obtaining and inspecting manag
analysis (and relevant documentation) for their rationale o
making the assessment, considerations include the followi
• whether the source of the data is appropriate.
• whether the data has been appropriately understood or
management.
• whether the data is appropriate given the nature and cha
portfolio.
• whether the data is appropriate given the nature of the E
requirements of IFRS 9, and the business, industry and env
entity operate.
• whether the data is appropriate for its purpose.

c. evaluate whether the data is consistent with industry pr

appropriate). This includes evaluating whether it is consist
to use the data in developing the ECL estimate, and evalua
management's source of the data is consistent with indust
estimating ECLs.
d. where there are specific IFRS 9 requirements related to
the entity has selected the data appropriately in accordanc
discount rate used for ECL is typically identified and tested
contains specific requirements on the discount rate.

e. where determined necessary, involve a KPMG specialist

data selected by management is appropriate for estimatin
their understanding of the entity's ECL estimate and their s
data/relevant data elements for developing the ECL estima
of KPMG Credit Risk Specialist and KPMG Economic Specia
f. where the data is 'derived data', assess whether the ana
techniques applied are appropriate to be used in the conte
This may include considering whether the analytical or inte
consistent with industry practice.
 g. where the data has been subject to testing by the indep
control during the period, perform the following.
i. obtain and inspect the entity’s independent model valida
report that documents the results of the independent mod
testing.
ii. where there are findings (or exceptions) noted in the mo
with respect to the data, assess whether these findings hav
considered and addressed by management. This includes p
• for closed findings, evaluate the reasoning for the closur
evidence for the closure, and assess whether changes have
implemented in the model; and
• for open findings, assess the resulting audit impact.

h. where there are limitations related to the data, obtain a

documented analysis on how they have addressed the limi
management's approach to address the limitations is appr

Please refer to the audit work performed at <WP Ref>.

priate? No change in source of data

od, but did not? Yes 1c.1.3: Assess whether there are any indicators to change
data from the prior period

1. Identify whether there are indicators that the source or

have changed from the prior period. This may include perf

a. assess whether there are any changes in circumstances i

which may change the source or items of the data from th
the assessment, assess and document the following types
period:
• amendments to IFRS 9 Financial instruments requiremen
• changes in the business, industry and environment (e.g.
portfolio to different markets),
• limitations in the data (e.g. where data is no longer availa
source),
• changes in the economic circumstances (e.g. a significant
• unforeseen circumstances (e.g. break-out of a pandemic
b. inspect the results of the model validation control and t
control during the period to identify whether the results in
may be required to the data. E.g. the results may identify c
data used by management in estimating the ECL, which ha
management when using the data for the ECL estimate.
c. perform corroborative inquiries of appropriate managem
entity (including the independent model validation team, m
economists, credit risk management team and the finance
changes.
 d. inspect the meeting minutes of the Credit Risk Committe
other relevant meeting minutes of management and those
as appropriate) to identify and understand any other chan
models.

e. inspect other areas of the audit file in the current period

there is audit evidence obtained in other areas of the audi
the source or items of the data should have changed from

2. If there are indicators that the source or items of the da

from the prior period but management have not made the
a. make inquiries oft to understand their rationale for not c
b. obtain and inspect their documented analysis (and relev
outlines their rationale.
c. assess whether management's rationale is appropriate.
consider the nature of the ECL estimate, the requirements
business, industry and environment in which the entity op
d. assess and document whether there is an impact on the
whether there is a material misstatement (if any) and/or w
indication of management bias.

Please refer to the audit work performed at <WP Ref>.

nts or disclosures that are tested? Yes 1c.1.4: Assess whether the data is internally consistent w

1. Assess whether the data is internally consistent with its

estimates, significant accounts or disclosures that are teste
performing the following.

a. make inquiries of management to understand whether t

estimates, significant accounts or disclosures in the entity's
b. inspect the audit file and consider whether the data is u
significant accounts or disclosures. If so, compare the data
estimate and the other estimates, significant accounts or d
comparison, considerations include:
• comparison of the source of the data;
• comparison of the amounts related to the data (e.g. chec
consistently used in other estimates, significant accounts o
• where the data is derived data, comparison of the analyti
techniques applied;
• comparison of data limitations identified;
• comparison of interpretations applied by management to
interpreting certain terms of a contract for contractual dat
An example of data that may be used in ECL estimate and
accounts and disclosures includes: the inflation rate which
macroeconomic forecast within the ECL estimate may be u
the goodwill forecast.
c. if there are differences between the data used in the EC
estimates, significant accounts or disclosures:
i. make inquiries of management to understand their ratio
ii. obtain and inspect their documented analysis (and relev
outlines their rationale. Assess whether management's rati
iii. assess and document whether there is an impact on the
whether there is a material misstatement (if any) and/or w
indication of management bias as a result of the difference

2. For different portfolios having similar credit risk characte

drivers), compare and assess whether the data used is sim
source between the portfolios.

3. Assess whether the data is internally consistent with its

entity, including:
• regulatory reporting purposes (e.g. the credit risk details
entity's annual regulatory returns); and
• internal management reporting (e.g. annual business pla
This includes performing the following.

a. make inquiries of management to understand whether t

areas of the entity, including:
• regulatory reporting purposes (e.g. the credit risk details
entity's annual regulatory returns); and
• internal management reporting (e.g. annual business pla

b. inspect relevant documents related to these areas of the

whether data is used in these areas. Relevant documents i
(e.g. the entity's annual regulatory returns) and relevant in
reports (e.g. annual business plan or budget).
If so, compare the data used between the ECL estimate an
In making the comparison, considerations include:
• comparison of the source of the data;
• comparison of the amounts related to the data (e.g. chec
consistent with the annual business plan);
• where the data is derived data, comparison of the analyti
techniques applied;
• comparison of data limitations identified;
• comparison of interpretations applied by management to
interpreting certain terms of a contract for contractual dat

c. if there are differences between the data used in the EC

relevant documents:
i. make inquiries of management to understand their ratio
ii. obtain and inspect their documented analysis (and relev
outlines their rationale. Assess whether management's rati
iii. assess and document whether there is an impact on the
whether there is a material misstatement (if any) and/or w
indication of management bias as a result of the difference

Please refer to the audit work performed at <WP Ref>.

 to contractual terms? Yes Note: this procedure is performed where applicable only
certain data (or relevant data elements) that have been in
management.

1c.1.5: Assess whether the data is appropriately understo

management:
Assess whether the data is appropriately understood and i
management, including with respect to contractual terms.
the following.

1. Where the data relates to contractual terms (e.g. where

management's interpretations of contractual terms) and th
perform the following.
a. make inquiries of the entity's legal counsel regarding com
terms (if any) to understand the contractual terms and the
b. inspect the underlying contracts to:
• evaluate the underlying business purpose for the transac
• consider whether the terms of the contracts are consiste
explanations.

2. Where there are specific written limitations (or disclaim

data, assess whether management have appropriately und
these when using the data for estimating ECL. For example
external third party which contains the data may disclose c
disclaimers) which may indicate that the data is not releva
estimate.

Please refer to the audit work performed at <WP Ref>.

ted above (under 'Appropriately used by the entity').

ble information about past events, current conditions and forecasts of future economic conditions. As such, the macro-economic data used by managem
y-weightings are relevant to the measurement of ECLs.

Per KAEG-I, ISA 500.07-09 | 1.2.1 "What is the 'nature' of information?" the different na
follows:

Electronic document Hard-copy documents: Information obtained in documentary form - e.g. original execut
Provided by entity/management
Electronic documents: Information that has been filmed, digitized or otherwise transfor
form - e.g. a scanned PDF of an executed sales contract.

Electronic data: Data held in the entity's IT systems. Electronic data may originate from
data manually input into the system) or may be electronically generated (e.g. EDI).
 form - e.g. a scanned PDF of an executed sales contract.

Electronic data: Data held in the entity's IT systems. Electronic data may originate from
data manually input into the system) or may be electronically generated (e.g. EDI).

S 9 (Impairment - ECL) - Tab 1c. Data (i.e. the excel template on Alex, released

ment team test management’s control(s) over external data AND/OR design and
he reliability of data used in an estimate, the engagement team considers
procedures to obtain further evidence that the data is sufficiently reliable.

he reliability of the external data, and performing substantive procedures to

s performed over the reliability of the external data is determined by the
e 'Elevated' risk, the engagement team has also compared the external

ability of the external data and document our evaluation.

xternal data:
g the following:
tionship that exists between the entity and the external information source.
spect evidence management gathered regarding their assessment of the third party source, if any, prior to contracting with them.
ey are aware of any relationships with the third party source when they approved the use of the third party source.
and transactions.
ility to directly or indirectly control or significantly influence the third party source. This may include obtaining an understanding of controls (safeguards
ced and remain at arm's length.

nt external sources (e.g. compare the central bank's forecast to a financial services firm's forecast)

rce.
eliable. Please refer to the documented procedures at <WP Ref>.

dered 'not a source document' and the engagement team performs substantive procedures to address reliability. These procedures are consistent w
data tested and the audit approach taken by the engagement team.

Yes
 he economists for some of the macro-economic parameters in central scenario rather than the
omated data feed into the IFRS 9 credit risk models for the measurement of ECLs.

the 3.x.6.x.1. Estimates screen.

he 3.x.6.x.1. Estimates screen.

Control(s) addressing PRP

CD1.1: Review and approval of data policy
On an annual basis, management reviews and approves the IFRS 9 data policy that outlines the
selection and application of relevant data used in the models and assumptions, which is in line
with IFRS 9.

CD1.2: Comparison of ECL data with other estimates, significant accounts and disclosures
On an annual basis, management compares the ECL data with other estimates, significant
accounts, disclosures in the financial statements and with regulatory reporting.

CD2.1: Approval of external information sources used to develop the ECL estimate

On an annual basis, management approves the external information sources used to develop the
ECL estimate. Any changes made to the approved listing of service providers are supported by a
rationale and are approved by management.

CD1.1: Review and approval of data policy

On an annual basis, management reviews and approves the IFRS 9 data policy that outlines the
selection and application of relevant data used in the models and assumptions, which is in line
with IFRS 9.

CD1.4: Review, challenge and approval of data elements

The relevant data elements are challenged, reviewed and approved on an annual by management
as part of their review of the IFRS 9 data policy.

CD1.5: Review and approval of ECL data

On an annual basis, management reviews the ECL data used in model design decisions and
assumptions for relevance and level of granularity. Where changes are made to the data listing
used, management challenges and approves the changes, tracking the updates in the document
isting.

CM1.5: Model validation control:

The bank's independent validation function performs model validation activities over the models
as part of the model validation control, and approves the models before their implementation
and use. The results of the model validation procedures are subject to a secondary review by a
senior member of the bank's independent validation function.
Specifically for data, model validation includes:
- validate the relevance and reliability of data as well as the level of granularity used in the model
during model validation.

CD1.6: Review and approval of model changes

Management reviews, challenges and approves changes made to models including understanding
the impacts on assumptions and data within the calculation.
CD1.7: Review and approval of changes to the assumptions
Management reviews, challenges and approves changes made to assumptions, including
understanding the impacts on the model as well as the data used for the calculation of the
assumption.

e table below are consistent with the standardized procedures in Estimates

-r ECL)
independent
- Tab 1c.expectation
Data (i.e. on
thethe 3.1 Independent
excel template onexpectation tab as part of
Alex, released

Document procedures performed and KPMG specialist involved

relevant considerations, as applicable
s the appropriateness of data in the context of IFRS 9 as well as the None
ustry and environment in which the bank operates
d how management selects the data on which the ECL is based. This
Engagement teams may consider engaging a
orming the following procedures. KPMG Specialist (e.g. a KPMG Economist
ries of management to understand the appropriateness of data in the Specialist) to assist them in determining the
S 9 as well as the business, industry and environment in which the appropriateness of the data.
s by performing the following procedures.
inspect the entity's data policy for the ECL estimate which details how
have selected the data for developing its ECL estimate.
ata requiring an audit response, assess and document whether the data
e given the nature of the ECL estimate, the requirements of IFRS 9, and
industry and environment in which the entity operates. This may
rming the following.

hether management has selected the data appropriately in line with

ata policy. This includes evaluating whether management has sourced
an appropriate source as described in its data policy.

ther management's rationale for the selection of the data is

This includes obtaining and inspecting management's documented
relevant documentation) for their rationale of the selection of data. In
sessment, considerations include the following.
e source of the data is appropriate.
e data has been appropriately understood or interpreted by

e data is appropriate given the nature and characteristics of the loan

e data is appropriate given the nature of the ECL estimate, the
of IFRS 9, and the business, industry and environment in which the
e.
e data is appropriate for its purpose.

hether the data is consistent with industry practice (where

This includes evaluating whether it is consistent with industry practice
a in developing the ECL estimate, and evaluating whether
s source of the data is consistent with industry practice when
Ls.
e are specific IFRS 9 requirements related to the data, assess whether
selected the data appropriately in accordance with IFRS 9. E.g. the
used for ECL is typically identified and tested as data, and IFRS 9
ific requirements on the discount rate.

rmined necessary, involve a KPMG specialist to assess whether the

by management is appropriate for estimating the entity's ECL based on
anding of the entity's ECL estimate and their specialist knowledge of
data elements for developing the ECL estimate. E.g. the involvement
dit Risk Specialist and KPMG Economic Specialists.
data is 'derived data', assess whether the analytical or interpretive
pplied are appropriate to be used in the context of the ECL estimate.
ude considering whether the analytical or interpretive techniques are
th industry practice.
data has been subject to testing by the independent model validation
g the period, perform the following.
nspect the entity’s independent model validation report(s) - i.e. the
ocuments the results of the independent model validation control’s

e are findings (or exceptions) noted in the model validation report(s)

o the data, assess whether these findings have been appropriately
nd addressed by management. This includes performing the following:
ndings, evaluate the reasoning for the closure, evaluate the relevant
he closure, and assess whether changes have been appropriately
in the model; and
dings, assess the resulting audit impact.

e are limitations related to the data, obtain and inspect management's

analysis on how they have addressed the limitations. Assess whether
s approach to address the limitations is appropriate.

o the audit work performed at <WP Ref>.

s whether there are any indicators to change the source or items of None
e prior period

ether there are indicators that the source or items of the data should
from the prior period. This may include performing the following.

ther there are any changes in circumstances in the current period

ange the source or items of the data from the prior period. In making
nt, assess and document the following types of changes in the current

ts to IFRS 9 Financial instruments requirements,

he business, industry and environment (e.g. expansion of a loan
fferent markets),
n the data (e.g. where data is no longer available from a third party

he economic circumstances (e.g. a significant economic downturn),

circumstances (e.g. break-out of a pandemic).
results of the model validation control and the model monitoring
g the period to identify whether the results indicate any changes that
red to the data. E.g. the results may identify certain limitations in the
management in estimating the ECL, which have not been considered by
when using the data for the ECL estimate.
rroborative inquiries of appropriate management personnel within the
ng the independent model validation team, model developers,
redit risk management team and the finance team) to identify any
 meeting minutes of the Credit Risk Committee or equivalent (and
t meeting minutes of management and those charged with governance
e) to identify and understand any other changes in the methods /

er areas of the audit file in the current period and consider whether
evidence obtained in other areas of the audit which may indicate that
items of the data should have changed from the prior period.

indicators that the source or items of the data should have changed
r period but management have not made the change:
ries oft to understand their rationale for not changing the data.
inspect their documented analysis (and relevant documentation) that
rationale.
ther management's rationale is appropriate. In making this assessment,
nature of the ECL estimate, the requirements of IFRS 9, and the
ustry and environment in which the entity operate.
document whether there is an impact on the ECL estimate, including
e is a material misstatement (if any) and/or whether there is any
management bias.

o the audit work performed at <WP Ref>.

s whether the data is internally consistent with other data points None

ther the data is internally consistent with its use by the entity in other
nificant accounts or disclosures that are tested. This includes
he following.

ries of management to understand whether the data is used in other

nificant accounts or disclosures in the entity's the financial statements.
audit file and consider whether the data is used in other estimates,
counts or disclosures. If so, compare the data used between the ECL
the other estimates, significant accounts or disclosures. In making the
considerations include:
of the source of the data;
of the amounts related to the data (e.g. checking inflation rate is
sed in other estimates, significant accounts or disclosures);
data is derived data, comparison of the analytical or interpretive
pplied;
of data limitations identified;
of interpretations applied by management to the data (e.g. when
ertain terms of a contract for contractual data).
f data that may be used in ECL estimate and other estimates, significant
disclosures includes: the inflation rate which is used in developing the
mic forecast within the ECL estimate may be used in other areas such as
orecast.
 differences between the data used in the ECL estimate and the other
nificant accounts or disclosures:
ies of management to understand their rationale for the differences.
inspect their documented analysis (and relevant documentation) that
rationale. Assess whether management's rationale is appropriate.
document whether there is an impact on the ECL estimate, including
e is a material misstatement (if any) and/or whether there is any
management bias as a result of the differences in the data.

nt portfolios having similar credit risk characteristics (i.e. similar ECL

pare and assess whether the data used is similar in nature, type and
en the portfolios.

ther the data is internally consistent with its use for other areas of the
ng:
eporting purposes (e.g. the credit risk details reported within the
al regulatory returns); and
nagement reporting (e.g. annual business plan or budget).
performing the following.

ries of management to understand whether the data is used in other

ntity, including:
eporting purposes (e.g. the credit risk details reported within the
al regulatory returns); and
nagement reporting (e.g. annual business plan or budget).

evant documents related to these areas of the entity and consider

is used in these areas. Relevant documents include regulatory reports
y's annual regulatory returns) and relevant internal management
annual business plan or budget).
e the data used between the ECL estimate and the relevant documents.
comparison, considerations include:
of the source of the data;
of the amounts related to the data (e.g. checking inflation rate is
th the annual business plan);
data is derived data, comparison of the analytical or interpretive
pplied;
of data limitations identified;
of interpretations applied by management to the data (e.g. when
ertain terms of a contract for contractual data).

differences between the data used in the ECL estimate and the
ments:
ies of management to understand their rationale for the differences.
inspect their documented analysis (and relevant documentation) that
rationale. Assess whether management's rationale is appropriate.
document whether there is an impact on the ECL estimate, including
e is a material misstatement (if any) and/or whether there is any
management bias as a result of the differences in the data.

o the audit work performed at <WP Ref>.

ocedure is performed where applicable only (e.g. where there is None
or relevant data elements) that have been interpreted by
.

s whether the data is appropriately understood and interpreted by

:
er the data is appropriately understood and interpreted by
including with respect to contractual terms. This includes performing

data relates to contractual terms (e.g. where the data is based on

s interpretations of contractual terms) and the data is complex,
ollowing.
ries of the entity's legal counsel regarding complex legal or contractual
to understand the contractual terms and the interpretations made.
underlying contracts to:
e underlying business purpose for the transaction and agreement; and
hether the terms of the contracts are consistent with management's

re are specific written limitations (or disclaimers) with respect to the

whether management have appropriately understood and interpreted
sing the data for estimating ECL. For example: a report provided by an
party which contains the data may disclose certain limitations (or
which may indicate that the data is not relevant for use in the ECL

o the audit work performed at <WP Ref>.

, the macro-economic data used by management to (i) build the IFRS 9 credit risk models and (ii)

'nature' of information?" the different nature of data are as

n documentary form - e.g. original executed sales contract.

een filmed, digitized or otherwise transformed into an electronic

contract.

tems. Electronic data may originate from a hard copy source (e.g.
e electronically generated (e.g. EDI).
 contract.

tems. Electronic data may originate from a hard copy source (e.g.
e electronically generated (e.g. EDI).

contracting with them.

y source.

ning an understanding of controls (safeguards) in place at the third party source that are designed

eliability. These procedures are consistent with Estimates - IFRS 9 (Impairment - ECL) - Tab 1c.
gaging a
mist
ing the
Information in red text will be provided throughout this illustration to assist with further context as to intended use
paper.

The engagement team completes one Application response tab for all aspects of the ECL estimate identified under the
Application of the methods / models, assumptions and data is inappropriate in Tab 2. Risk assessment.

Risk assessment summary for the application of the methods, assumptions and data
Always complete this section.
Response level to
Aspects of the estimate that warrant separate response levels Inherent
Reference for the application of methods, assumptions and data risk of error

AP1 Retail Mortgages - PD model - accurate application and integrity of model Significant

AP2 Retail Mortgages - LGD model - accurate application and integrity of the model Significant

AP3 Retail Mortgages - EAD model - accurate application and integrity of the model Base

AP4 Economic scenario model - accurate application and integrity of the model Significant

Retail Mortgages - ECL Calculation Model - accurate application and integrity of the
AP5 model Base

AP6 Retail mortgages - Forced Sale Discount model - accurate application and integrity Elevated
of the model

The example PRPs and controls in the table below are from Section 4b: Methods / Models of the IFRS 9 Global Audit G
Impairment, which is available on the IFRS 9 Global Audit Guidance page. Alternatively, the teams can access these via
Controls: Estimates - IFRS 9 (Impairment - ECL)' document which is also available on the IFRS 9 Global Audit Guidance

Please note, the PRPs and controls in the table below are examples only. Controls typically vary between entities base
facts and circumstances. Engagement teams perform walkthroughs and document the process to identify PRPs and con
their client's specific process over the ECL estimate. Additionally, the PRPs and controls in the table below are not a com
entity's may have in place over the application of their methods / models, assumptions and data used to develop the E

Identify PRPs and controls for the application of the methods, assumptions and data
Complete this section if we have identified a 'Controls reliance' approach and/or a 'Significant' response level for at least one aspect

PRP ID PRP short description Risk cons

PRP AP1 Errors in the model that are implemented and in use None

PRP AP2 Performance issues with the model are not identified or monitored, resulting in an None
incorrect or inaccurate model output

PRP AP3 The model does not produce a reasonable and accurate output None

PRP AP4 The model code is inappropriate (or there are errors in the model code) None

PRP AP5 Inappropriate changes are made to a model's code after development, and during None
or after implementation
Is any control(s) ineffective? No

Complete this question only if we had a controls reliance approach for any aspect of the application and the controls failed. Otherwi
Revise control reliance?
Reconsider the nature, timing, and extent of substantive procedures based on the change in our assessment of controls response t

Design and perform procedures for the application of the methods, assumptions and data
Complete this section in the following two circumstances. Otherwise, leave this section blank.
1. If "Test and evaluate the entity's process" was selected as the substantive approach to test the accounting estimate on 3. Ove
2. If "Develop an independent expectation" was selected as the substantive approach to test the accounting estimate on 3. Over

Perform procedures to address: ID Procedure

Whether the application of the AP1 1d.1.1: Assess the model validation activities and results
methods, assumptions and data is
appropriate. Assess whether the validation activities performed as part of the entity's
independent model validation control are appropriate, and assess the
This includes the following: findings contained in the model validation reports by performing the
(a) Whether the calculations made in following.
accordance with the method are
mathematically accurate, and 1. Obtain and inspect the entity's independent model validation reports
(b) Whether the integrity of the during the reporting period (i.e. the reports that document the results of the
relevant assumptions and data has independent model validation testing).
been maintained in applying the
method.

2. Assess whether the validation activities performed and the results and
conclusions (as noted in the independent validation reports) are consistent
with the entity's model validation policy. This includes assessing:
a. whether a complete set of validation activities were performed in line with
the entity's model validation policy (i.e. whether all of the required validation
activities have been performed, and whether these were performed as
described in the policy).
b. whether the results and conclusions reached in the validation reports are
consistent with the entity's model validation policy.
c. whether there is evidence of appropriate challenge of key judgements
consistent with the entity's model validation policy; and
d. whether there is appropriate resolution of issues identified, consistent
with the entity's model validation policy.
 3. Inspect and assess the model validation report results (or findings) for each
model during the reporting period. Where there are findings (or exceptions)
noted in the model validation reports, assess whether there findings have
been appropriately evaluated and addressed by management / model
developers. This includes performing the following:
i. for closed findings, evaluate the reasoning for the closure, evaluate the
relevant evidence for the closure and assess whether changes have been
appropriately implemented in the model; and
ii. for opening findings, assess the resulting audit impact.
This procedure is included in the 'KPMG Credit Risk Specialist Work Paper:
ECLs (IFRS 9) - Scoping and Planning' for all categories of models.

AP2 1.d.1.2: Assess the model monitoring activities and results

Assess whether the monitoring activities performed as part of the entity's
model validation control are appropriate, and assess the findings contained
in the model validation reports by performing the following.
1. Obtain and inspect the entity's model monitoring reports during the
period.

2. Assess whether the model monitoring activities performed and their

results and conclusions (as noted in the model monitoring reports) are
consistent with the entity's model monitoring policy. This includes assessing
the following:

a. whether a complete set of model monitoring activities were performed in

line with the entity's model monitoring policy (i.e. whether all of the required
monitoring activities have been performed, and whether these were
performed as described in the entity's model monitoring policy);

b. whether the results and conclusions reached in the model monitoring

reports are consistent with the entity's model monitoring policy;

c. whether there is evidence of appropriate challenging of key judgements,

consistent with the entity's model monitoring policy; and
d. whether there is appropriate resolution of issues identified consistent with
the entity's model monitoring policy.
 3. Assess the findings contained in the model monitoring reports.
a. where there are findings (or exceptions) noted in the model monitoring
reports, assess whether these findings have been appropriately evaluated
and addressed by management / model developers. This includes performing
the following:
i. for closed findings, evaluate the reasoning for the closure, evaluate the
relevant evidence for the closure, and assess whether changes have been
appropriately implemented in the model; and
ii. where findings have not been addressed by management, evaluate the
resulting audit impact.

This procedure is included in the 'KPMG Credit Risk Specialist Work Paper:
ECLs (IFRS 9) - Scoping and Planning' for all categories of models.

AP3 1d.1.3: Assess the mathematical theory of the model

1. Assess the mathematical theory in the Model Development Document, as
noted below:
a. inspect the mathematical theory described in the Model Development
Document.
b. assess whether the mathematical theory described in the Model
Development Document is consistent with the model's central policy
documents, such as the Model Development Standards.
c. assess whether the mathematical theory described in the Model
Development Document is appropriate to achieve the model's objective.

2. Assess the model instability and performance (where applicable based on

the model tested), as noted below:
a. analyse the proportion of data used between calibration and 'hold out' to
determine whether it has introduced instability into the model.
This procedure is included in the 'KPMG Credit Risk Specialist Work Paper:
ECLs (IFRS 9) - Scoping and Planning' for all categories of models.
AP4 1d.1.4: Assess the mathematical theory of the econometric model
For an econometric model, evaluate evidence that is relevant to the variable
selection process, estimation results and associated tests, calibration, model
logic etc. The procedures may include the following.

1. Assess whether the mathematical assumptions supporting the modelling

technique have been satisfied.

2. Assess the evidence supporting the model's calibration, and whether this is
in line with Model Development Document.

This procedure is included in the 'KPMG Credit Risk Specialist Work Paper:
ECLs (IFRS 9) - Scoping and Planning' for Category 1 (Significant) and 2
(Elevated) models.

AP5 1d.1.5: Perform model re-performance testing (where the models are
internally developed by the bank)

1. Identify management’s activities subject to re-performance which involves

the following (i.e. identify ‘what’ you are re-performing).
a. identity the stage(s) of the Model Risk Management process which will be
subject to re-performance by the engagement team (i.e. the model’s
development, validation, implementation and / or monitoring stages).

b. for the stage(s) identified above, identify the activities performed by

management (‘management’s activities’ or ‘activities’) which will be subject
to re-performance procedures by the engagement team.
 2. For each activity identified in procedure 1 above, re-perform the activity in
line with management’s documented methodology.
The specific details on ‘how’ the engagement team performs this step is
based on the individual activity that is being re-performed. Re-performance
generally involves the following.
a. re-perform the activity by following the steps that are documented in
relevant model development and central policy documents.
Note: this generally involves re-performing the code used by management to
execute the activity. The approach taken by the engagement team when re-
performing the code is generally based on the nature of the activity being re-
performed and the expertise of KPMG Credit Risk Specialists.
b. compare the results / conclusions of the engagement team’s re-
performance procedures to that of management.

This procedure is included in the 'KPMG Credit Risk Specialist Work Paper:
ECLs (IFRS 9) - Scoping and Planning' for Category 1 (Significant) models only.

AP6 1d.1.7: Assess the integrity of the assumptions and data in the model -
completeness
Assess whether management has appropriately identified all assumptions
and data which are relevant to the ECL estimate by performing the following
(i.e. assess the completeness of assumptions and data used in the ECL
estimate).

1. Obtain the entity's list of assumptions and data used in the ECL estimate at
current period-end.

2. Assess how management have evaluated the completeness of assumptions

and data. In doing so, make inquiries of management and inspect relevant
documentation (such as management's analysis over their evaluation of
completeness).

3. Obtain the entity's list of assumptions and data used in the ECL estimate at
prior period-end. Compare to the assumptions and data used in the current
period-end (i.e. the list in Step 1) to evaluate whether the assumptions and
data used in the current period are consistent with the prior period.
4. Assess whether there is any assumptions and data which is relevant to the
ECL estimate at period-end that have not been identified by management.
This includes performing the following
a. perform corroborative inquiries of appropriate management personnel
(e.g. finance team, technical accounting team, independent price verification
team, independent model validation team) to identify if there are any other
assumptions and data.
b. inspect the meeting minutes of the Credit Risk Committee (or equivalent)
and other relevant meeting minutes of management and those charged with
governance (TCWG) as appropriate to identify if there are other assumptions
and data.
c. inspect the results of the independent model validation control during the
period to identify whether the results indicate any other assumptions and
data which should have been considered by management and reflected in
the ECL estimate.

d. inspect other areas of the audit file in the current period and consider
whether there is audit evidence obtained in other areas of the audit which
may indicate other assumptions and data.
e. assess whether there are any changes in circumstances in the current
period which may indicate other assumptions and data. In making the
assessment, the engagement team may consider whether there is
assumptions and data that have not been identified by management
resulting from the following:
• requirements in IFRS 9 Financial instruments;
• the business, industry and environment in which the entity operates;
• model factors (e.g. where a model based valuation approach is used, the
model may require certain data);
• unforeseen circumstances (e.g. break-out of a pandemic).
5. If there is assumptions and data which management have not identified
(i.e. as a result of step 3 above when comparing to the list obtained in step
1):
a. make inquiries of management to understand their rationale for not
identifying the assumptions and data when developing the ECL estimate.
b. obtain and inspect their documented analysis (and relevant
documentation) that outlines their rationale.
c. assess whether management's rationale is appropriate. In making this
assessment, consider the nature of the ECL estimate, the requirements of
IFRS 9, and the business, industry and environment in which the entity
operate.
d. assess and document whether there is an impact on the ECL estimate,
including whether there is a material misstatement (if any) and/or whether
there is any indication of management bias.
AP7 1d.1.8: Assess the integrity of the assumptions and data in the model -
vouch
Vouch the assumptions and data used in the model to relevant
documentation.

AP8 1d.1.9: Perform back-testing of the ECL estimate

1. Obtain and inspect the back-testing performed by management during the
reporting period.
Note: For ECLs, the back-testing is usually performed over certain
components of the ECL estimate, such as the predicted PD vs actual PD.

2. Evaluate whether the back-testing performed by management is

appropriate, including whether the process or approach taken by
management to prepare the back-testing is appropriate.

3. Evaluate and document the relevance and reliability of the information

used in management’s back-testing analysis.
4. Re-perform management’s back-testing (i.e. verify the mathematical
accuracy of management's back-testing).

5. Based on the results of the back-testing, assess and document (a) whether
there is a material misstatement of the ECL estimate; and/or (b) whether
there is any indication of management bias.
This procedure is included in the 'KPMG Credit Risk Specialist Work Paper:
ECLs (IFRS 9) - Scoping and Planning' for Category 1 (Significant) and 2
(Elevated) models.
AP9 1d.1.10: Perform a sensitivity analysis of the ECL estimate
1. Obtain and inspect sensitivity analysis performed by management during
the reporting period (if there are any). Sensitivity analysis is generally
performed by applying appropriate sensitivities of changes in assumptions in
order to assess the potential impact on the entity’s ECL estimate.
2. Assess whether management's sensitivity analysis is appropriate for
purposes of the audit. This includes performing the following:
a. assess whether the sensitivities applied in the model are appropriate
(these are variations to the inputs in the model, generally assumptions)
b. assess whether thresholds used by management to define an outlier/
assess movements in the estimate are appropriate.
c. perform and document appropriate procedures over the relevance and
reliability of the information used in the sensitivity analysis (e.g. vouch the
inputs used in management's sensitivity analysis to relevant documentation).
d. verify the mathematical accuracy of management's sensitivity analysis.
3. Based on the results of the sensitivity analysis, assess and document (a)
whether there is a material misstatement of the ECL estimate; and/or (b)
whether there is any indication of management bias.

This procedure is included in the 'KPMG Credit Risk Specialist Work Paper:
ECLs (IFRS 9) - Scoping and Planning' for Category 1 (Significant) and 2
(Elevated) models.
A10 1d.1.11: Perform benchmarking of the ECL estimate:
1. Compare management’s estimate of the significant assumptions with
publicly available information (or consensus data) from relevant and reliable
external sources. In doing so, evaluate whether management’s estimate is
appropriate or reasonable compared with the external sources.
Note: Such data may include data published by the central bank, government
bodies, national statistics offices, other banks (e.g. broker reports) and
international bodies (e.g. IMF data, OECD data, WTO statistics).
2. Evaluate the differences (or inconsistencies) by investigating and
understanding the reasons for the differences, and evaluating whether
management’s explanations for differences are appropriate. In doing so,
assess whether these results indicate possible management bias and/or a risk
of material misstatement over the ECL estimate.

This procedure is included in the 'KPMG Credit Risk Specialist Work Paper:
ECLs (IFRS 9) - Scoping and Planning' for Category 1 (Significant) and 2
(Elevated) models.

AP11 1d.1.12.1: Perform a reconciliation of the macro-economic forecasts

incorporated into the ECL estimate

1. Obtain management's reconciliation between the final ECL model and the
approved macroeconomic forecasts (including central and alternative
scenarios and late-breaking events).

2. Verify the mathematical accuracy of the reconciliation.

3. Vouch the balances (including inputs and reconciliation items) shown in

the reconciliation to appropriate and sufficient documentation.

4. Vouch the approved macroeconomic forecast to the audit work performed

over central, alternative scenarios and probability-weightings.
5. Evaluate any differences between the final ECL model and the approved
macroeconomic forecasts.
 AP12 1d.1.12.2: Assess the Independent Validation Unit (IVU)'s test results of
how the macro-economic forecasts are incorporate into the ECL estimate
1. Obtain the Independent Validation Units (IVU)'s test results related to
incorporating forward-looking information into ECL models at reporting date.

2. Make inquiries of management to understand the IVU's test results related

to incorporating forward-looking information into ECL models at the
reporting date. Document details of:
• the scope of testing performed by the IVU;
• the method/approach used including any tools applied; and
• analysis of test results and conclusions reached.

3. Assess whether the tests performed by the IVU are appropriate.

4.Inspect the IVU's test results, and assess the results and conclusions
reached by the IVU.
5. Reperform the IVU's testing:
a. obtain the IVU's documented methodology of the testing.
b. reperform the IVU's testing in accordance with the IVU's documented
methodology.
c. compare your results/conclusions against those of the IVU.
d. evaluate differences (or inconsistencies) by investigating and
understanding the reasons for the differences, and evaluating whether the
explanations for differences are appropriate.
e. assess the impact of the difference on the entity's ECL, which includes
quantifying the ECL impact to evaluate whether there is a material
misstatement and/or whether there is any indication of management bias.

AP13 1d.1.12.3: Assess the reliability (including accuracy and completeness) of

the ECL model to test the forward-looking information
1. Assess whether the macro-economic forecasts are appropriately
incorporated into each component of ECL (e.g. EAD/PD/LGD).

2. Assess whether any macro-economic adjustments (e.g. late-breaking

events) are appropriately made to each component of the ECL (e.g.
EAD/PD/LGD).

3. Assess whether the macro-economic forecasts are appropriately

incorporated into the SICR assessment and the staging criteria.

4. Vouch the macroeconomic forecasts (and related inputs) within the final
ECL model to their relevant and appropriate source.

Did we identify any contradictory audit evidence as a result of the procedures performed?
Document the contradictory or inconsistent evidence identified and the procedures performed to address it.
ontext as to intended use of the Estimates work

timate identified under the Element RMM:

sessment.

d data

Response level to address the:

Inherent Inherent
risk of error risk of fraud Controls response

Significant None Controls reliance

Significant None Controls reliance

Base None Controls reliance

Significant None Controls reliance

Base None Controls reliance

Elevated None Controls reliance

of the IFRS 9 Global Audit Guidance for Banks -

teams can access these via the 'Example PRPs and
RS 9 Global Audit Guidance page.

vary between entities based on the entity's specific

ess to identify PRPs and controls as appropriate to
he table below are not a complete list of controls that
data used to develop the ECL estimate.

d data
se level for at least one aspect of the application. Otherwise, leave this section blank.

Risk consideration(s) addressed by PRP Control(s) addressing PRP

ne CM1.5: Model validation control:
The bank's independent validation function performs model validati
activities over the models as part of the model validation control, a
approves the models before their implementation and use. The res
model validation procedures are subject to a secondary review by a
member of the bank's independent validation function.

ne CAP.1: Model monitoring control:

Quarterly, the bank's model monitoring function performs model m
activities as part of the bank's model monitoring control and approv
models (e.g. back-testing). This helps to identify any model perform
issues. The results of the model monitoring procedures are subject
secondary review by a senior member of the bank's model monitor
function.

ne CAP.1: Model monitoring control:

Quarterly, the bank's model monitoring function performs model m

activities as part of the bank's model monitoring control and approv
models (e.g. back-testing). This helps to identify any model perform
issues. The results of the model monitoring procedures are subject
secondary review by a senior member of the bank's model monitor
function.

ne CM1.5: Model validation control:

The bank's independent validation function performs model validati
activities over the models as part of the model validation control, a
approves the models. This takes place for all new models (before be
implemented) and on a recurrent basis in line with the frequency a
the bank's model validation plan. Validation activities include testin
no errors in the model code. The results of the model validation pro
are subject to a secondary review by a senior member of the bank's
independent validation function.

CAP.2: Review of the model code

The model code is reviewed and authorised by two appropriate sen

management personnel within the model development team (who
independent of the personnel involved in writing the model code).
place before implementation of the model.

CAP.3: User access control over access to model code

Access to the model code (including the ability to change the mode
restricted to authorised personnel only.

ne CAP.4: User access control over access to model code

Access to the model code (including the ability to change the mode
restricted to authorised personnel only.
 CAP.5: Review and approval of changes to the model code
Changes to model code are reviewed and authorised by two approp
senior management personnel within the model development team
independent to the personnel involved in writing the model code).
place prior to implementation of the model.

nd the controls failed. Otherwise, select N/A.

ssment of controls response to either partial or no reliance.

The procedures in the table below are from the Estimates - IFRS 9 (Impairment - ECL) excel
ons and data contains the substantive procedures.

Where teams engage a KPMG Credit Risk Specialist, they may use the ISG's KPMG Credit Ris
accounting estimate on 3. Overall approach tab (IFRS 9) available on the IFRS 9 Global Audit Guidance page to document:
- Scoping
ccounting estimate on 3. Overall approach tab AND we andthat
concluded planning.
we will use at least one of the entity's method in our independent expectation on
- Findings and conclusions.

TOD or SAP KPMG specialist involved Risk consideration(s) addressed by procedure

in KCw?

nd results TOD KPMG Credit Risk None

Specialist
med as part of the entity's
opriate, and assess the
rts by performing the

model validation reports

t document the results of the

rmed and the results and

tion reports) are consistent
cludes assessing:
s were performed in line with
r all of the required validation
ese were performed as
in the validation reports are
licy.
lenge of key judgements
licy; and
ues identified, consistent
rt results (or findings) for each
e are findings (or exceptions)
hether there findings have
management / model
ing:
the closure, evaluate the
hether changes have been

t impact.
Risk Specialist Work Paper:
gories of models.

and results TOD KPMG Credit Risk None

Specialist
med as part of the entity's
ssess the findings contained
he following.
ring reports during the

es performed and their

monitoring reports) are
olicy. This includes assessing

activities were performed in

e. whether all of the required
whether these were
onitoring policy);

in the model monitoring

monitoring policy;

lenging of key judgements,

olicy; and
ues identified consistent with
onitoring reports.
d in the model monitoring
n appropriately evaluated
pers. This includes performing

the closure, evaluate the

hether changes have been

management, evaluate the

Risk Specialist Work Paper:

gories of models.

model TOD KPMG Credit Risk None

Specialist
Development Document, as

the Model Development

cribed in the Model
model's central policy
andards.
ribed in the Model
ve the model's objective.

(where applicable based on

calibration and 'hold out' to

into the model.
Risk Specialist Work Paper:
gories of models.
econometric model TOD KPMG Credit Risk None
Specialist
hat is relevant to the variable
ated tests, calibration, model
wing.

ns supporting the modelling

alibration, and whether this is

Risk Specialist Work Paper:

ry 1 (Significant) and 2

(where the models are TOD KPMG Credit Risk None

Specialist

-performance which involves

forming).
ement process which will be Model re-performance involves the engagement team re-performing the activity
eam (i.e. the model’s performed by management (such as calculation or an analysis) during a model's
or monitoring stages).
development, validation, implementation and /or monitoring in accordance with its
activities performed by documented methodology. This generally involves evaluating or re-performing the code to
vities’) which will be subject assess it is in line with the logic documented by management (within model development,
ent team. implementation and/or monitoring documentation). However, this does not necessarily
involve the engagement team independently writing a model code based on the
engagement team's own logic or methodology. See Section 4b: Methods / Models of the
IFRS 9 Global Audit Guidance - Banks: Impairment for further guidance.
ove, re-perform the activity in
ogy.
am performs this step is
performed. Re-performance

that are documented in

documents.
code used by management to
engagement team when re-
ature of the activity being re-
sk Specialists.
agement team’s re-
t.

Risk Specialist Work Paper:

ry 1 (Significant) models only.

and data in the model - TOD KPMG Credit Risk None

Specialist
identified all assumptions
by performing the following
d data used in the ECL

ta used in the ECL estimate at

completeness of assumptions
ment and inspect relevant
over their evaluation of

ta used in the ECL estimate at

and data used in the current
hether the assumptions and
with the prior period.
 data which is relevant to the
dentified by management.
e management personnel
ndependent price verification
dentify if there are any other
k Committee (or equivalent)
ment and those charged with
there are other assumptions

validation control during the

ny other assumptions and
nagement and reflected in

rent period and consider

er areas of the audit which
umstances in the current
nd data. In making the
r whether there is
fied by management

ich the entity operates;

ation approach is used, the

pandemic).
gement have not identified
to the list obtained in step

d their rationale for not

eloping the ECL estimate.
s (and relevant

propriate. In making this

mate, the requirements of
ent in which the entity
pact on the ECL estimate,
ent (if any) and/or whether
 and data in the model - TOD None

odel to relevant

te TOD KPMG Credit Risk None

Specialist
d by management during the

rmed over certain

edicted PD vs actual PD.

d by management is
pproach taken by
ropriate.

iability of the information

verify the mathematical

ss and document (a) whether

mate; and/or (b) whether

Risk Specialist Work Paper:

ry 1 (Significant) and 2
CL estimate TOD KPMG Credit Risk None
Specialist
med by management during
y analysis is generally
of changes in assumptions in
ty’s ECL estimate.
alysis is appropriate for
the following:
model are appropriate
generally assumptions)
ent to define an outlier/
ate.
es over the relevance and
ity analysis (e.g. vouch the
s to relevant documentation).
ment's sensitivity analysis.
s, assess and document (a)
e ECL estimate; and/or (b)
bias.

Risk Specialist Work Paper:

ry 1 (Significant) and 2
mate:
ficant assumptions with
a) from relevant and reliable
management’s estimate is
xternal sources.
the central bank, government
.g. broker reports) and
WTO statistics).
by investigating and
and evaluating whether
appropriate. In doing so,
management bias and/or a risk
.

Risk Specialist Work Paper:

ry 1 (Significant) and 2

o-economic forecasts TOD KPMG Credit Risk None

Specialist

n the final ECL model and the

entral and alternative

nciliation.

onciliation items) shown in

documentation.

t to the audit work performed

ty-weightings.
CL model and the approved
Unit (IVU)'s test results of TOD KPMG Credit Risk None
orate into the ECL estimate Specialist
)'s test results related to
ECL models at reporting date.

d the IVU's test results related

to ECL models at the

s applied; and
d.

U are appropriate.
esults and conclusions

f the testing.
h the IVU's documented

se of the IVU.
vestigating and
and evaluating whether the
tity's ECL, which includes
there is a material
ation of management bias.

racy and completeness) of TOD KPMG Credit Risk None

rmation Specialist
s are appropriately
EAD/PD/LGD).

ments (e.g. late-breaking

nent of the ECL (e.g.

s are appropriately
staging criteria.

ated inputs) within the final

urce.

No
 Reference of the aspect of the
dressing PRP estimate the controls address
 AP1, AP2, AP3, AP4, AP5, AP6
tion performs model validation
model validation control, and
mentation and use. The results of the
to a secondary review by a senior
dation function.

AP1, AP2, AP3, AP4, AP5, AP6

function performs model monitoring
nitoring control and approves the
identify any model performance
ing procedures are subject to a
f the bank's model monitoring

AP1, AP2, AP3, AP4, AP5, AP6

function performs model monitoring

nitoring control and approves the
identify any model performance
ing procedures are subject to a
f the bank's model monitoring

AP1, AP2, AP3, AP4, AP5, AP6

tion performs model validation
model validation control, and
or all new models (before being
n line with the frequency as noted in
tion activities include testing there are
of the model validation procedures
enior member of the bank's

AP1, AP2, AP3, AP4, AP5, AP6

sed by two appropriate senior

el development team (who are
n writing the model code). This takes
del.

to model code AP1, AP2, AP3, AP4, AP5, AP6

ability to change the model code) is

to model code AP1, AP2, AP3, AP4, AP5, AP6

ability to change the model code) is

 to the model code AP1, AP2, AP3, AP4, AP5, AP6
d authorised by two appropriate
e model development team (who are
n writing the model code). This takes
del.

(Impairment - ECL) excel template on Alex which

the ISG's KPMG Credit Risk Specialist Work Papers: ECLs

ument:
ndependent expectation on the 3.1 Independent expectation tab

Results Expected results

obtained?

The engagement team notes the model validation activities over Yes
the IFRS 9 Credit Risk models were performed in line with the
model validation policy, and there was evidence of appropriate
challenge by the model validator. See results at <WP Ref>.
There were no findings noted in the model validation reports
during the current period which is appropriate based on the
results on the model validation activities. See results at <WP
Ref>.
The engagement team notes the model monitoring activities over Yes
the IFRS 9 Credit Risk models were performed in line with the
model monitoring policy, and there was evidence of appropriate
challenge by the control operator. See results at <WP Ref>.

The back-testing results noted that the PD model under-

predicted the number of defaults driven by the impacts of
COVID-19 in the prior period. However, based on management's
analysis this does not have a material impact on the ECL estimate
and no adjustment or re-calibration was made to the model in
the current period. The engagement team finds this to be
appropriate given the impact on the ECL estimate is not material.
See <WP ref> for the engagement team's detailed analysis.
The engagement team assessed the mathematical theory in the Yes
Model Development Documents for each IFRS 9 Credit Risk
Model and note it is appropriate to achieve the model's objective
and consistent with the Model Development Standards. See
results at <WP Ref>.
The engagement team assessed the mathematical assumptions Yes
supporting the economic scenario model and noted they have
been satisfied. Additionally, the engagement team reviewed
relevant documentation and noted the model's calibration is in
line with the Model Development Document. See results at <WP
Ref>.

See the KPMG Credit Risk Specialists Work Paper: ECL - Findings Yes
and Conclusions memo at <WP Ref>.
The engagement team notes that a complete population of Yes
assumptions and data inputs has been used in management's
models. See results at <WP Ref>.
The engagement team vouched a sample of assumptions and
data used in the model to relevant documentation (e.g. loan
contracts, central bank macro-economic forecasts, historical data
etc.) and noted there were no exceptions. See results at <WP
Ref>.

The engagement team inspected the model monitoring reports Yes

for all of the in-scope IFRS 9 Credit Risk models for the current
period. The engagement team noted management's back-testing
is appropriate, including the thresholds that management applies
to assess variances between actual outcomes and the model
outcomes. The engagement team re-performed management's
back-testing and found it to be accurate.

The back-testing results noted that the PD model under-

predicted the number of defaults driven by the impacts of
COVID-19 in the prior period. However, based on management's
analysis this does not have a material impact on the ECL estimate
and no adjustment or re-calibration was made to the model in
the current period. The engagement team finds this to be
appropriate given the impact on the ECL estimate is not material.
See <WP ref> for the engagement team's detailed analysis.
The engagement team obtained the model monitoring reports Yes
for all in-scope IFRS 9 Credit Risk models for the current period.
The engagement team notes the sensitivities applied by
management to the inputs and the thresholds used to assess
outliers are appropriate. Management's analysis was also found
to be accurate. See results at <WP Ref>.
See Tab 5. Incorporating into ECL in the IFRS 9 Macroeconomics
workpaper attached at <WP Ref> for the results of the procedure
performed.

See Tab 5. Incorporating into ECL in the IFRS 9 Macroeconomics Yes

workpaper attached at <WP Ref> for the results of the procedure
performed.
See Tab 5. Incorporating into ECL in the IFRS 9 Macroeconomics Yes
workpaper attached at <XX> for the results of the procedure
performed.

See Tab 5. Incorporating into ECL in the IFRS 9 Macroeconomics Yes

workpaper attached at <WP Ref> for the results of the procedure
performed.
Information in red text will be provided throughout this illustration to assist with further context as to intended use
Estimates work paper.

NOTE: This tab has not been completed as an illustrative example, instead this tab includes guidance and documentation con
assist teams when completing this tab for the ECL estimate.

Complete all sections on this tab.

Summary of results

Results of testing the entity's methods, assumptions and data

Control deficiency(is) identified

If control deficiencies are identified, and the enga
None the identified RMMs, then this will impact the tea
were identified as ineffective in the relevant Resp

Based on the results of the team's

procedures in the Response tabs,
teams conclude on whether the
element is appropriate.
Insert methods, assumptions and data identified on 2. Risk assessment. 1 2 3
Appropriateness of the element

Element Conclusion

Retail mortgages - PD Model Appropriate

Management overlay - late breaking economic event Appropriate
Central scenario: internally developed macro-economic parameters Appropriate
Loan origination data Appropriate
Unadjusted macro-economic data Appropriate
Application Appropriate
1
If "Test and evaluate the entity's process" was selected as the substantive approach, insert all methods, assumptions and data wit
If an element is not appropriate or not appropriately applied, then it may
2
If "Develop an independent expectation" was beselected as for
necessary theteams
substantive approach,
to reassess insert allrisk
the inherent methods, assumptions
and planned level of and data tha
3 audit response. This may include requesting the entity to revise its
If "Evaluate audit evidence from events or transactions occurring after the measurement date" was selected as the substantive ap
method/model, assumption or data.

If any element was determined to be 'Not appropriate,' document how we've appropriately considered the impact on internal con

It is recommended teams complete the Evaluation of ECL estimate component work paper - KPMG Clara workflow available on t
page to assist them to conclude on the overall ECL estimate. This work paper assists teams to:
- document risk assessment decisions that changed as the teams assessed the ECL estimate over the course of the audit; and
- re-aggregate the individual estimate components to evaluate the ECL at the financial statement caption level.
Conclusions for the risks of material misstatement for the estimate

Risk assessment summary for the element RMMs

Selection of the methods Selection of the assumptions

Inherent risk of error Inherent risk of fraud Inherent risk of error Inherent risk of fraud

Significant Significant Significant Significant

RMM Conclusion

Is the selection of the methods appropriate?

Is the selection of the assumptions appropriate?
Is the selection of the data appropriate?
Is the application of the methods, assumption(s) and data correct?

For guidance on auditing disclosures related to the ECL estimate, see Section 4e. Disclosures of the IFRS 9 Global Audit Guidance -

To evaluate whether sufficient and appropriate audit evidence has been obtained over disclosures, teams assess whether:
- disclosures comply with the requirements of IFRS 7 and IAS 1;
- the information contained in the disclosures is complete and accurate;
- disclosures are reasonable and relevant to users of the financial statements;
- disclosures are sufficiently granular to show users useful and specific information, but they are not so extensive that they obscure
- disclosures are free from management bias;
- management includes disclosures, beyond those that are specifically required by IFRS 7 and IAS 1, necessary to achieve the fair p
- identified misstatements, either individually or in combination, do not have a material effect on the relevant disclosures, or the o
To conclude on whether management have appropriately described how they have understood and addressed estimation uncerta
- a broad range of users (e.g. investors, analysts and other stakeholders) would be able to understand the estimation uncertainty a
uncertainty, including an appropriate description of:
• the ECL estimate and an explanation of the nature and limitations of the estimation process, including the variability in reasonab
• significant accounting policies related to the ECL estimate, which may include matters such as the specific principles, bases, conv
financial statements; and
• significant or critical judgements (e.g. those that had the most significant effect on the ECL amount recognised in the financial sta
scenarios) or other sources of estimation uncertainty.

Conclusions for disclosures, if applicable

While audit procedures over all disclosures are performed and documented in the 3.1 Financial reporting module, summarize here

Disclosure Sufficient appropriate audit evidence is

obtained for all disclosure RMMs?

[Identify each disclosure or write NONE]

Insert rows as needed

Evaluate management bias in the preparation of the accounting estimate

 Evaluate management bias for the ECL estimate component by:
1. Considering all elements in aggregate, to determine whether the ECL estimate component prepared by management was prepa
- Management bias may be difficult to detect at the individual element level and may only be identified by the auditor when consi
over a number of accounting periods. If there is an indicator of management bias in the method/model, assumption or data, then
- Once teams have information for each indicator of bias, they make an overall determination of whether, based on their judgeme
estimate component as a whole. See pg. 23 of Section 5. Evaluation and Reporting of the IFRS 9 Global Audit Guidance - Banks: Im

2. Where teams believe that management prepared the component of the ECL estimate in an optimistic or cautious manner, this i
document why this is the case (e.g. why many or all elements are cautious or optimistic, making the estimate as a whole cautious
determine whether there is, or they believe there is, management bias. The fact that management prepared an accounting estima

3. Last, teams consider whether the estimate appears to have been prepared in a way that results in a specific benefit to managem
document in what way the estimate is favourable to management or the entity. This question provides another indicator to teams
point out the contrary.

Indicators of management bias, if any

Considering all elements in the aggregate, is the estimate prepared by management in a cautious,
neutral, or optimistic manner?

Investigate and document why management prepared the estimate in a cautious or optimistic manner
(e.g. why many or all elements are cautious or optimistic making the estimate as a whole cautious or
optimistic).

Does the estimate appear to be prepared in a way that results in a specific benefit to management or the
entity (e.g. it may affect bonuses, analyst expectations or debt covenants)?

PCAOB & US GAAS ONLY | Can an estimate that is best supported by the audit evidence be calculated
(i.e. amount calculated using the most appropriate method, data and assumptions based on the entity’s
circumstances)?

If teams identify management bias, then the effect of that bias may cause the financial statements to be materially misstated. In ad
intention to mislead, management bias is fraudulent in nature. Fraudulent financial reporting is often accomplished through intenti
accounting estimates).
- Where teams determine an audit misstatement due to management bias, document the audit misstatement identified and the re
- Where management bias is determined to be the result of fraud (i.e. intentional bias) teams identify the illegal acts and evaluate t
suspected non-compliance, including illegal acts' for additional information.

Conclude on management bias

Based on the information above, have we identified, or do we believe that there is, management bias (either intentional or uninte
preparation of the accounting estimate?
Document our considerations.

Can we determine an audit misstatement?

 Audit misstatement(s) identified
[Ref] [Identify each audit misstatement]
Insert rows as needed

Were one or more control deficiency(is) identified?

Control deficiency(is) identified

[Ref] [Identify each control deficiency]
Insert rows as needed

Document our rationale for not identifying a related control deficiency.

Is management bias the result of fraud (i.e. intentional bias)?

Illegal act(s) identified

[Ref] [Identify each illegal act]
Insert rows as needed

Evaluate the implications on the integrity of management or employees and the possible effect on other aspects of
the audit, particularly the reliability of management representations.
Evaluate whether the circumstances indicate possible collusion and, if so, its effect on the reliability of evidence
obtained.

Evaluate audit results for the accounting estimate

Conclusion for the estimate 0 0

To evaluate whether management have selected an appropriate point estimate, teams may consider:
- the methods / models and data used in the ECL estimate were selected appropriately, including when alternative methods / mod
- valuation attributes used were appropriate and complete (e.g. the macro-economic assumptions used by management are reaso
- the ECL assumptions used were selected from a range of reasonably possible amounts and were supported by appropriate data
- the data used was appropriate, relevant and reliable, and the integrity of that data was maintained.
- the calculations were applied in accordance with the method and were mathematically accurate.
- management's point estimate is appropriately chosen from the reasonably possible measurement outcomes (e.g. the ECL has be
- the related ECL disclosures appropriately describe the amount as an estimate and explain the nature and limitations of the estim

Has management taken the appropriate steps to understand and address estimation uncertainty by selecting an appropriate point
by sufficiently and appropriately describing the estimation uncertainty in disclosure(s)?

Perform each of the following procedures to address the risk:

Request management to perform additional procedures to understand estimation uncertainty or to address it by reconsidering
the selection of their point estimate or considering providing additional disclosures relating to the estimation uncertainty.
Document and evaluate management's response.
 If management's response does not sufficiently address estimation uncertainty, develop an auditor's point estimate or range, t
the extent possible, by selecting "Develop an independent expectation for comparison to the entity's estimate" as the
substantive approach to test the accounting estimate.

Evaluate whether a control deficiency exists.

Do our assessments of the RMMs, fraud risks, response levels and control responses remain appropriate (including our
considerations around management bias)?
Do our audit procedures need to be modified or do additional procedures need to be performed because of changes in the RMMs
fraud risks, response levels or control responses?

Describe the change in the RMMs, fraud risks, response levels and/or control responses and the modified or additional audit proce
Refer to 'Tab 2. Risk assessment changes' in the 'Evaluation of ECL estimate component work paper - KCw' attached at <WP Ref>
RMM, fraud risk, response levels and control responses remain appropriate (including the considerations around management bia

The above questions require the team to confirm whether at the evaluation stage they can conclude that their assessment remains
changes in the 'Evaluation of the ECL estimate components work paper - KCw' allows teams to document any risk assessment chan
culminates in the response to the above highlighted questions.
Where the audit team answers 'Yes' to 'Do our assessments of the RMMs, fraud risks, response levels and controls responses remai
grey out. It is suggested that teams cross reference to the 'Evaluation of ECL estimate components workpaper - KCw' in the greyed
supports the team's rationale that their assessments of RMMs, fraud risks, response levels and control responses remain appropria

Is the estimate, including disclosures, reasonable in the circumstances and in conformity with the applicable financial reporting fra

Document significant judgments relating to our determination that the accounting estimate, including disclosures, is reasonable in

Audit misstatement(s) identified

[Ref] [Identify each audit misstatement]
Insert rows as needed

Control deficiency(is) identified

[Ref] [Identify each control deficiency or write NONE]
Insert rows as needed

Teams determine whether the estimate component, including disclosures, is reasonable in the circumstances and in conformity w
based on the audit team's results and responses throughout the audit of the ECL estimate.

As a starting point for evaluating misstatements, teams understand the reason for the audit misstatement (including considering w
management bias or a control deficiency). Once teams have considered this, they consider the impact on the audit. In some cases
result of a combination of factual, judgemental and projected misstatements, making separate misstatement identifications difficu
- accumulate misstatements and consider whether they indicate undetected misstatements;
- communicate accumulated misstatements to management and request their correction;
- where there are offsetting errors across different components, consider the impacts of such errors on financial statement presen
- accumulate misstatements and evaluate the impact of the uncorrected misstatements on the auditor's opinion;
- assess whether misstatements are indicative of deficiencies in controls and/or weaknesses in the bank's control environment; an
- consider potential indicators of management bias related to misstatements. For example, if management identified additional ad
team, then the team evaluates the implications for the integrity of management and their risk assessments, including fraud risk.
 - accumulate misstatements and evaluate the impact of the uncorrected misstatements on the auditor's opinion;
- assess whether misstatements are indicative of deficiencies in controls and/or weaknesses in the bank's control environment; an
- consider potential indicators of management bias related to misstatements. For example, if management identified additional ad
team, then the team evaluates the implications for the integrity of management and their risk assessments, including fraud risk.

Have we obtained sufficient appropriate audit evidence for every RMM and relevant financial statement assertion related to the e

Describe the audit procedures performed to obtain further audit evidence.

Based on the additional audit procedures performed, have we obtained sufficient appropriate audit evidence for every RMM and r
financial statement assertion related to the estimate?
 rther context as to intended use of the

es guidance and documentation considerations to

ficiencies are identified, and the engagement team cannot identify compensating controls or perform tests of operating effectiveness (TOEs) of process-
d RMMs, then this will impact the team's audit approach. As such, teams would have already reconsidered the nature, timing and extent of substantive
fied as ineffective in the relevant Response tab. See pg.14 of Section 5. Evaluate and reporting of the IFRS 9 Global Audit Guidance - Banks: Impairment

To evaluate indicators of possible management bias for each element, the team completes three steps:
1. Teams evaluate the individual judgements and decisions made by management with regards to the method/
whether the element is cautious, neutral or optimistic.
he results of the team's 2. To identify indicators of management bias, teams evaluate whether management selected the most appropr
in the Response tabs, 3. Document and investigate the indicators of management bias. Teams may begin their investigation by inquiri
clude on whether the bias or actual bias in management's judgements, then they evaluate whether their risk assessments, including i
appropriate. related audit response remain appropriate.

teness of the element Management bias considerations

Did we identify an indicator of

Conclusion Is element management bias in the selection or Document the indicator(s) of bia
cautious, neutral or optimistic? chose the m
application of the element?
Appropriate
Appropriate
Appropriate
Appropriate
Appropriate
Appropriate
l methods, assumptions and data with a response level of "Base" or higher.
tely applied, then it may
methods,
isk assumptions
and planned level of and data that we concluded we will use in our independent expectation.
entity to revise its
e" was selected as the substantive approach, do not insert any methods, assumptions or data (i.e. leave table blank).

onsidered the impact on internal controls (i.e. control deficiencies identified). If all elements were determined to be 'Appropriate,' document N/A.

KPMG Clara workflow available on the IFRS 9 Global Audit Guidance

:
over the course of the audit; and
ment caption level.
 Selection of the data Application of the methods, assumptions, and data

Inherent risk of error Inherent risk of fraud Inherent risk of error Inherent risk of fraud

Elevated None Significant None

Document our considerations

Conclusion (if No is concluded)

of the IFRS 9 Global Audit Guidance - Banks: Impairment.

osures, teams assess whether:

are not so extensive that they obscure material items from users of the financial statements;

IAS 1, necessary to achieve the fair presentation of financial statements as a whole; and
t on the relevant disclosures, or the overall financial statements as a whole.
od and addressed estimation uncertainty, assess whether:
derstand the estimation uncertainty associated with the ECL estimate and how management has addressed estimation
, including the variability in reasonably possible measurement outcomes;
as the specific principles, bases, conventions, rules and practices applied in preparing and presenting the ECL estimate in the

amount recognised in the financial statements) as well as significant forward-looking assumptions (e.g. macro-economic

al reporting module, summarize here the results for those disclosures that relate to the accounting estimate.

ropriate audit evidence is Estimation uncertainty is appropriately

or all disclosure RMMs? described in disclosure?

e
 prepared by management was prepared in a cautious, neutral or optimistic manner.
e identified by the auditor when considering the elements in aggregate, or when observing management's selection of elements
hod/model, assumption or data, then this fact probably makes the estimate cautious or optimistic.
n of whether, based on their judgement, they believe management was cautious, neutral or optimistic in preparing the accounting
RS 9 Global Audit Guidance - Banks: Impairment for considerations.

n optimistic or cautious manner, this is an indicator of management bias at the estimate component level. Teams investigate and
king the estimate as a whole cautious or optimistic) and this information, together with other indicators, will help the team
ement prepared an accounting estimate in a cautious or optimistic manner does not necessarily mean there is bias.

esults in a specific benefit to management or the entity (e.g. it may affect bonuses, analyst expectations or debt covenants). Teams
n provides another indicator to teams. This type of indicator may further point out that there may be management bias or may

Document our rationale for cautious, neutral or optimistic.

Document in what way the estimate is favourable to management or the entity.

Calculate the difference between the amount best supported by the audit evidence and the estimate
recorded in the financial statements.
-

ents to be materially misstated. In addition, if the bias represents fraud there are additional implications for the audit (i.e. where there is
is often accomplished through intentional misstatement of accounting estimates, which may include intentionally understating or overstating

it misstatement identified and the related control deficiency (where no control deficiency is identified, teams document the rationale).
identify the illegal acts and evaluate the implications on the audit. See 'KAEG-I, ISA 250.19-22 | 3 Evaluate the possible effect of actual or

ent bias (either intentional or unintentional) in the

ct on other aspects of

ability of evidence

consider:
ding when alternative methods / models for making the accounting estimate and alternative sources of data were available.
ptions used by management are reasonable).
were supported by appropriate data that is relevant reliable.
ntained.
urate.
rement outcomes (e.g. the ECL has been measured in line with IFRS 9 and the adjustments made by management were appropriate).
he nature and limitations of the estimation process, including the variability of reasonably possible measurement outcomes.

nty by selecting an appropriate point estimate and

ainty or to address it by reconsidering

ng to the estimation uncertainty.
 n auditor's point estimate or range, to
the entity's estimate" as the

appropriate (including our Yes

med because of changes in the RMMs,

he modified or additional audit procedures performed.

k paper - KCw' attached at <WP Ref>. This tab reflects changes made to risk assessment decisions throughout the audit and reflects how the audit team
nsiderations around management bias) as the audit progressed.

nclude that their assessment remains appropriate. Tab 2. Risk assessment

o document any risk assessment changes as the audit evolved, which

e levels and controls responses remain appropriate?', the remaining sections

nents workpaper - KCw' in the greyed out row above (see row 177) as this
d control responses remain appropriate.

the applicable financial reporting framework? Document conclusion on 3.x.6.x.1. Estimates screen.

ncluding disclosures, is reasonable in the circumstances and in conformity with the applicable financial reporting framework.

he circumstances and in conformity with the applicable financial reporting framework. This decision is

misstatement (including considering whether the misstatement is indicative of fraud, possible

he impact on the audit. In some cases involving accounting estimates, a misstatement could arise as a
te misstatement identifications difficult or impossible. Teams also consider the following:

h errors on financial statement presentation

he auditor's opinion;
n the bank's control environment; and
management identified additional adjusting entries that offset misstatements accumulated by the
k assessments, including fraud risk.
he auditor's opinion;
n the bank's control environment; and
management identified additional adjusting entries that offset misstatements accumulated by the
k assessments, including fraud risk.

statement assertion related to the estimate? If Yes to this question, document conclusion on 3.x.6.x.1. Estimates scree

e audit evidence for every RMM and relevant If Yes or No to this question, document conclusion on 3.x.6.x.1. Estimates
effectiveness (TOEs) of process-level controls that address
ming and extent of substantive procedures where controls
Guidance - Banks: Impairment for further guidance.

completes three steps:

nt with regards to the method/model, assumptions and data to determine
ment selected the most appropriate element.
gin their investigation by inquiring of management. If teams identify indicators of
heir risk assessments, including in particular, the assessment of fraud risks, and the

ias considerations

Document the indicator(s) of bias and investigate and document why management
chose the method, assumption or data used.

propriate,' document N/A.

 Document conclusion on 3.x.6.x.1. Estimates screen.

nce and the estimate

e. where there is
stating or overstating

the rationale).
ffect of actual or
ble.

ppropriate).
mes.
and reflects how the audit team assessed that the
ion on 3.x.6.x.1. Estimates screen.

onclusion on 3.x.6.x.1. Estimates screen.