Arohan Financial Services Limited | Annual Report 2021-22

| 133 Annual Report | 2021-2022 Arohan Financial Services Limited Independent Auditors’ Report of even date on the financial statements of Arohan Financial Services Limited for the year ended March 31, 2022. (contd.) Sr. No Key Audit Matter How the Key Audit Matter was addressed in our audit The Expected Credit Loss (“ECL”) is measured at 12-month ECL for Stage 1 loan assets and at lifetime ECL for Stage 2 and Stage 3 loan assets. Significant management judgement and assumptions involved in measuring ECL is required with respect to: • determining the criteria for a significant increase in credit risk • factoring in future economic assumptions • techniques used to determine probability of default, loss given default and exposure at default. These parameters are derived from the Company’s internallydeveloped statistical models and other historical data. In view of the above, the measurement of impairment loss on loans was determined to be a Key Audit Matter in our audit of the financial statements. Information Technology (“IT”) Systems and Controls The Company has a complex IT system to support its recording of customer’s operational data, business processes, ensuring complete and accurate processing of financial transactions and supporting the overall internal control framework. In particular, the IT system is used for recording all disbursements and collections, identification and tagging of pledged loans to customers and calculating interest income and overdue days. • Understood and challenged the aforesaid assumptions adjusted for COVID-19 pandemic through our understanding of the risk profile of the customers of the Company; • Verified the disclosures made in relation to the ECL allowance and fair valuation to confirm compliance with Ind AS provisions. Our audit procedures with respect to this matter include, but were not limited to the following: • Involved IT specialists as part of the audit for the purpose of testing the IT general controls and application controls (automated and semi- automated controls) to determine the accuracy of the information produced by the Company’s IT systems; • Obtained a comprehensive understanding of IT applications landscape implemented at the Company. It was followed by process understanding, mapping of applications to the same and understanding financial risks posed by people-process and technology; 2 Auditor’s Report