The ARC also receives regular reports, briefings and updates from the RMC, the Chief Technology Officer, the internal and external auditors and Management team during its meetings to help the ARC review the adequacy and effectiveness of the Group’s material internal controls that address the Group’s financial, operational, compliance and IT controls. Assurances from the KMP (Provision 9.2) In relation to Provision 9.2 of the CG Code and Listing Rule 1207(10), the ARC received: (i) written assurance from the Group CEO and the Group CFO that the Group’s financial records have been properly maintained and the financial statements give a true and fair view of the Group’s operations and finances; and (ii) written assurance from the KMP that the Group’s risk management and internal control systems in place were adequate and effective to address the principal risks (including financial, operational, compliance and IT risks) within the current scope of the Group’s business operations for FY 2023. The above written assurances on the Group’s internal controls and risk management systems are provided halfyearly and are supported by similar written assurances provided by the heads of the Group’s key operating divisions/functions and key operating subsidiaries. The process of reviewing and strengthening the Group’s control environment is an evolving process. When controls should be enhanced, the Board and Management take actions to rectify and strengthen the internal controls and risk management systems. The Board and Management will continue to devote resources and expertise towards improving the internal policies and procedures to maintain a high level of governance and internal controls. However, the Board also notes that no system of internal controls and risk management can provide absolute assurance against poor judgement in decision-making, human errors, losses, frauds and other irregularities. Based on the work performed by internal auditors, the external auditors and the periodic reports from the RMC and Management, as well as the written assurances from the KMP to support the opinion to be given by the ARC and the Board, the Board with the concurrence of the ARC, is of the opinion that the internal controls and risk management systems in place as at 31 December 2023 are adequate and effective to address principal risks (including financial, operational, compliance and IT risks) within the current scope of the Group’s business operations. Further details on the Group’s Risk Management can be found on pages 64 to 72 of this annual report. CORPORATE GOVERNANCE Principle 10: Audit & Risk Committee Composition of the ARC (Provisions 10.2 and 10.3) The ARC comprises four NEDs, all of whom including the chairman of the ARC are independent. The chairman of the ARC, Mr Lee Jee Cheng Philip, possesses the relevant audit, accounting and related financial management and risk management expertise and experience. Mr Tan Kian Seng has accounting, financial and business management experience whilst the other members of the ARC, Mr Chong Yoon Chou and Ms Chan Swee Liang Carolina each has financial and risk management experience as well as experience in investment banking and the financial markets respectively. With the current composition, the ARC is of the opinion that it has the relevant accounting and related financial management expertise and experience to discharge its functions within its written terms of reference which have been approved by the Board. Based on the terms of reference of the ARC, a former partner or director of the Company’s existing auditing firm or auditing corporation should not act as a member of the ARC: (a) within a period of two years commencing on the date of his/her ceasing to be a partner of the auditing firm or director of the auditing corporation; and in any case, (b) for as long as he/she has any financial interest in the auditing firm or auditing corporation. Mr Lee ceased as a partner of KPMG LLP (“KPMG”), the Company’s existing auditors, in September 2018 and does not have any financial interest in KPMG. The other ARC members do not have any relationship with KPMG. Powers and Duties of the ARC (Provision 10.1) The ARC is authorised by the Board to review or investigate any matters it deems appropriate within its terms of reference and has direct and unrestricted access to the external and internal auditors. It may invite any Director, Management, officer or employee of the Company to attend its meetings. It is also authorised to engage any firm of accountants, lawyers or other professionals as it sees fit to provide independent counsel and advice to assist in the review or investigation on such matters within its terms of reference as it deems appropriate at the Company’s expense. The principal responsibility of the ARC is to assist the Board in maintaining a high standard of corporate governance, particularly by providing an independent review of the adequacy and effectiveness of the Group’s financial reporting process (including reviewing the accounting policies and practices of the Company and the Group on a consolidated basis) and key internal controls, including financial, operational, compliance, IT and risk management controls. Other duties within its written terms of reference include: Significant Matters How the ARC reviewed these matters and what decisions were made Valuation of Development Properties The ARC considered the approach and methodology applied in assessing the net realisable values of development properties especially those with low margins. Where appropriate, the ARC had inquired of Management on its basis and its strategy to sell the unsold units. The ARC reviewed either Management’s or the valuers’ underlying assumptions on estimated future selling prices by comparing them to recently transacted prices of comparable properties located in the vicinity of the Group’s development projects. The ARC also noted the historical accuracy of Management’s estimate of future selling prices in assessing the reasonableness of the estimated future selling prices. The ARC was satisfied with the approach and assessment adopted by Management in arriving at the net realisable values of the development properties as at 31 December 2023. The valuation of the development properties was also an area of focus for the external auditors. The external auditors have included this item as a key audit matter in their audit report for the financial year ended 31 December 2023. Refer to page 119 of this annual report. Valuation of Hotel Assets Classified as Property, Plant and Equipment The ARC considered the approach and methodology applied in assessing the valuation of the hotel assets. The ARC reviewed Management’s approach and methodology in respect of the valuations of the hotel properties conducted by both internal and external valuers, including the review of the methodologies and key assumptions applied in the valuation of hotel properties such as forecasted cashflows, future market growth, occupancy rates, average room rate growth, discount rates, terminal rates and capitalisation rates in the valuation model. The ARC was satisfied with the valuation process and the valuers are members of recognised professional bodies for valuers and have considered their independence in carrying out their work. The valuation methodologies used are in line with generally accepted market practices and the key assumptions used are generally comparable to currently observable market data. The valuation of the hotel assets was also an area of focus for the external auditors. The external auditors have included this item as a key audit matter in their audit report for the financial year ended 31 December 2023. Refer to pages 118 to 119 of this annual report. • to review with Management and, where appropriate, with the external auditors the significant financial reporting issues and judgements to ensure the integrity of the halfyear and full year financial statements of the Group to be issued by the Company before their submission to the Board and any other announcements relating to the Group’s financial performance; • to review the scope annually and results of the external audit and the independence and objectivity of the external auditors, and in this regard to also review the nature and extent of any non-audit services provided by the external auditors to the Group; • to make recommendations to the Board on the nomination for the appointment, re-appointment and removal of external auditors, and to approve the remuneration and terms of engagement of the external auditors; • to assess the role and effectiveness of the internal audit (“IA”) function in the overall context of the Group’s internal controls and risk management systems, and to consider the results of their review and evaluation of the Group’s internal controls, including financial, operational, compliance and IT controls, and risk management policies and systems; • to approve the appointment, resignation or dismissal of the Head of IA; • to review interested person transactions falling within the scope of Chapter 9 of the Listing Manual; and • to oversee the establishment and operation of the Company’s whistle-blowing policy and arrangements put in place for raising concerns about possible improprieties on matters of financial reporting or any other matters. In the review of the financial statements for the year ended 31 December 2023, the ARC has discussed with both Management and the external auditors, the accounting principles that were applied and their judgement of items that might affect the integrity of the financial statements. The following significant matters impacting the financial statements were discussed with Management and the external auditors: CORPORATE GOVERNANCE 53 52 CORPORATE GOVERNANCE ANNUAL REPORT 2023 CITY DEVELOPMENTS LIMITED
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