Page 73 - 86395_CCB - 2024 Annual Report (web)

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• The appropriateness of the ‘staging’ thresholds selected by management when determining the ECL provisions to
management to determine whether a significant increase in derive our own independent view in respect of recovery
credit risk had arisen on customer loans, and hence whether a prospects and the level of provisioning required.
12 month or a lifetime loss provision is recorded; We read the ECL disclosures made by management to
• The application of forward-looking economic assumptions used ensure compliance with accounting standards and to
in the models and the weightings assigned to those scenarios, ensure that there is disclosure of the effect of estimation
particularly in respect of assumptions relating to the hazard rate uncertainty on the reported results.
and undrawn equity since these have the largest impact on the
ECL calculation; and
• Valuation of the provisions for defaulted ‘Stage 3’ exposures
where a significant degree of management judgement is applied.
The Company’s disclosures are given in Note 16. Management’s
associated accounting policies are detailed in Note 30.
Management’s judgements in the application of accounting
policy and material estimates are disclosed in Note 5 and the
considerations of the effect of the future economic environment
are given in Note 30. The Audit Committees’ consideration of the
matter is set out in the Audit Committee Report.
The appropriateness of assumptions used in the accounting for
the effective interest rate of loans and advances to customers
Accounting standards required interest receivable and similar We performed a walkthrough of the EIR model logic,
income to be recognised on an effective interest rate (‘EIR’) methodology and associated calculations and tested their
basis. The EIR approach has the effect of recognising interest at accuracy and validity.
a single constant rate that takes into account integral fees and We confirmed that all fees and charges included within the
charges across the expected life of loans and advances to EIR calculation are in line with accounting standards and
customers. are complete and accurate.
The loans and advances to customers balance is reduced by We critically assessed the assumptions relating to forecast
effective interest rate accounting adjustments of £2,658k at the future early redemption behaviours, particularly because
balance sheet date (2023: reduced by £3,245k). This adjustment the Company writes variable rate real estate finance loans
primarily relates to deferred fees and charges in respect of the and the high interest rate environment in the UK may
Company’s real estate finance loan portfolio. This adjustment is accelerate redemption behaviour.
released to interest income in accordance with the forecast We performed sensitivity analysis on a range of possible
behavioural life of the Company’s loan balance, which is the alternative outcomes to determine whether the overall
main area of estimation uncertainty. estimate lies within a reasonable range of best estimates.
The forecast behavioural life depends on management’s We performed substantive testing over the completeness
estimate of the future early redemption behaviour of loans and and accuracy of the critical data elements from the
advances to customers. This estimate is derived using Company’s lending system to the EIR model and
observable data and management judgement due to the nascent supporting evidence.
nature of the Company’s loan portfolio. As such we focussed our
work on this area. We tested the reconciliation of the accounting model to the
general ledger to ensure accurate recording in the financial
The Company’s disclosures are given in Notes 5 and 6. statements.
Management’s associated accounting policies are detailed in
Note 6. Management’s judgements in the application of We read the disclosures made by management to ensure
accounting policy and material estimates are disclosed in Note 5 that they disclosed the effect of estimation uncertainty on
and the considerations of the effect of the future economic the reported results.
environment are given in Note 30. The Audit Committees’
consideration of the matter is set out in the Audit Committee
Report.

How we tailored the audit scope
We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion
on the financial statements as a whole, taking into account the structure of the Company, the accounting
processes and controls, and the industry in which it operates.

All of the Company's activities are administered in the United Kingdom. The principal activity of the
Company is the provision of SME lending finance and saving products to customers. The Company's
portfolio is predominately real estate finance secured on UK residential and commercial properties and
the provision of asset finance loans to SME's. Based on the Company's materiality we performed audit
procedures over all material account balances and financial information. Our audit procedures provided
us with sufficient audit evidence as a basis for our audit opinion on the financial statements as a whole.