41061 Unite AR22 HI-RES WEB-READY - Flipbook - Page 173
STRATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
OTHER INFORMATION
5. Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the
financial statements of the current period and include the most significant assessed risks of material misstatement
(whether or not due to fraud) that we identified. These matters included those which had the greatest effect on: the
overall audit strategy, the allocation of resources in the audit; and directing the efforts of the engagement team.
These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our
opinion thereon, and we do not provide a separate opinion on these matters.
5.1. Investment property and investment property under development valuations
Key audit
matter
description
The Group’s principal assets are investment properties (2022: £3,713.7m; 2021: £3,192.8m) and investment
properties under development (2022: £202.7m; 2021: £324.1m). The Group also holds investments in its
joint ventures, USAF and LSAV, with their principal assets also being investment properties. The investment
properties are carried at fair value based on an appraisal by the Group’s external valuers. Valuations are
carried out at six-monthly intervals for the Group and quarterly for the joint ventures in accordance with
the Royal Institution of Chartered Surveyors (RICS) Valuation – Professional Standards (the Red Book),
taking into account transactional evidence during the year.
The valuation is underpinned by a number of estimates and assumptions as it requires the estimation of
property yields, occupancy and property management costs. A small change in these assumptions could
have a significant impact on the valuation of the properties and there is an associated fraud risk due to the
risk of management override of controls relating to the valuation process. With regards to the valuation of
the USAF and LSAV properties, small changes could also have a significant impact on a key input to the
calculation of a performance fee if the payout hurdle rate is achieved as this is based on the net asset values
of the funds. Valuations are also impacted by cladding remediation requirements and expectations relating
to climate change legislative requirements.
With regards to the investment properties under development, additional estimation is required to forecast
discounted cash flows with a deduction for construction costs to complete.
Refer to page 119 (Audit & Risk Committee Statement), section 3.1: Wholly owned property assets and
section 3.4: Investments in joint ventures. Critical accounting judgements and key sources of estimation
uncertainty disclosures relating to investment property and development property valuation are set out in
Sections 1 and 3.1.
How the scope
of our audit
responded to
the key audit
matter
We carried out the following audit procedures in response to the identified key audit matter:
Understanding the properties and relevant controls:
• Obtained an understanding of and tested the relevant controls over the investment property and
development property valuation processes.
• Met with key management to enhance our knowledge of the portfolio and to understand their internal
valuation process, the development appraisal process and to identify any key properties of interest.
Data provided to the valuer
• Challenged the accuracy, completeness and consistency of the information provided to the external
valuers; this work included testing a sample of income and tenancy data back to Group management
information which we had tested for accuracy and completeness.
• Tested on a sample basis the forecast cost to complete against budget and costs incurred to date.
External valuation
• Assessed the objectivity, competence and capability of the Group’s valuers and read their terms of
engagement with the Group to determine whether there were any matters that might have affected their
objectivity or may have imposed scope limitations on their work.
• We obtained the external valuation reports and, along with our valuation specialists within our Deloitte
Real Assets Advisory team, met with the external valuer to discuss the results of their work on a sample
of properties, as well as their views of the broader market.
• Understood and challenged the assumptions used in relation to key drivers such as rental income and
growth, occupancy, yields and property management costs including comparing them to the trends at the
end of the year and the following year’s budget.
• With the assistance of our valuation specialists, benchmarked the assumptions used against market data,
including relevant transactions.
• Specifically challenged the valuers as to whether any special assumptions had been made and how they
approach the impact of climate change in the valuations.
• Assessed the valuation methodology used and considered compliance with the Red Book guidance. We
also tested the integrity of the model used by the external valuer.
171
