Annual Report 2019

097 Miramar Hotel and Investment Company, Limited Annual Report 2019 Independent Auditor’s Report Key audit matters (Continued) Valuation of investment properties Refer to the accounting policy at note 1(h) and note 10 to the consolidated financial statements The Key Audit Matter How the matter was addressed in our audit The fair value of the Group’s investment properties as at 31 December 2019 totalled HK$15,371 million which represented 72% of the Group’s total assets as at that date. The fair value of the Group’s investment properties as at 31 December 2019 was assessed by the board of directors based on independent valuations prepared by an independent firm of surveyors. The changes in fair value of investment properties recorded in the consolidated statement of profit or loss represented 34% of the Group’s profit before taxation for the year ended 31 December 2019. The Group’s investment properties, which are located in Hong Kong and first tier cities in Mainland China, comprise shopping malls, office premises, residential premises, retail shops and car parking bays. We identified assessing the valuation of investment properties as a key audit matter because of the significance of investment properties to the Group’s total assets and the significance of the changes in fair value of investment properties to the Group’s profit before taxation and because the valuation of investment properties can be inherently subjective and requires the exercise of significant judgement and estimation, in particular in determining the appropriate valuation methodology, capitalisation rates and market rents, which increases the risk of error or management bias. Our audit procedures to assess the valuation of investment properties included the following: • obtaining and inspecting the valuation reports prepared by the independent firm of surveyors engaged by the Group on which the directors’ assessment of valuation of investment properties was based; • assessing the qualifications of the external surveyors and their experience in the properties being valued and considering their objectivity and independence of management; • discussing with the external surveyors their valuation methodology in a separate private session and challenging the key estimates and assumptions adopted in the valuations, including the capitalisation rates and market rents, by comparing assumptions made in prior years with the current year’s assumptions and current publicly available data, with the assistance of our internal property valuation specialists; and • comparing tenancy information, including committed rents and occupancy rates, provided by the Group to the external surveyors with underlying contracts and related documentation, on a sample basis.