Annual Report 2021

103 Independent Auditor’s Report Miramar Hotel and Investment Company, Limited Annual Report 2021 Key audit matter (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 2021 totalled HK$15.22 billion 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 2021 was assessed by the board of directors based on valuations prepared by an external firm of surveyors. The net decrease in fair value of investment properties recorded in the consolidated statement of profit or loss for the year ended 31 December 2021 amounted to HK$112 million. 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 report prepared by the external 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; • with the assistance of our internal property valuation specialists and utilising their industry knowledge and experience, discussing with the external surveyors, without the presence of management, their valuation methodologies; and assessing the key estimates and assumptions adopted in the valuations by comparing capitalisation rates and prevailing market rents with available market data; 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.