Lendlease Annual Report 2021

KPMG, an Australian partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved. The KPMG name and logo are trademarks used under license by the independent member firms of the KPMG global organisation. Liability limited by a scheme approved under Professional Standards Legislation. Independent Auditor’s Report To the members of Lendlease Corporation Limited Report on the audit of the Financial Report Opinion We have audited the Financial Report of Lendlease Corporation Limited as the deemed parent presenting the stapled security arrangement of Lendlease Group (the Financial Report). In our opinion, the accompanying Financial Report is in accordance with the Corporations Act 2001 , including: • giving a true and fair view of Lendlease Group’s financial position as at 30 June 2021 and of its financial performance for the year ended on that date; and • complying with Australian Accounting Standards and the Corporations Regulations 2001 . The Financial Report of Lendlease Group comprises: • Consolidated statement of financial position as at 30 June 2021; • Consolidated income statement, Consolidated statement of comprehensive income, Consolidated statement of changes in equity, and Consolidated statement of cash flows for the year then ended; • Notes including a summary of significant accounting policies; and • Directors' Declaration. The Lendlease Group consists of Lendlease Corporation Limited and the entities it controlled at the year-end or from time to time during the financial year and Lendlease Trust. Shares in Lendlease Corporation Limited and units in Lendlease Trust are jointly traded as a Stapled Security on the Australian Securities Exchange under the name of Lendlease Group. Basis for opinion We conducted our audit in accordance with Australian Auditing Standards . We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the Financial Report section of our report. We are independent of Lendlease Group and Lendlease Corporation Limited in accordance with the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (including Independence Standards) (the Code) that are relevant to our audit of the Financial Report in Australia. We have fulfilled our other ethical responsibilities in accordance with the Code. Key Audit Matters The Key Audit Matters we identified for Lendlease Group are: • Construction Revenue Recognition; • Sale of Development Properties; • Recoverability of Development Property Inventory; and • Asset Valuation. Key Audit Matters are those matters that, in our professional judgement, were of most significance in our audit of the Financial Report of the current period. These matters were addressed in the context of our audit of the Financial Report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Construction Revenue Recognition (A$7,559m) Refer to Note 4 ‘Revenue from Contracts with Customers’ to the Financial Report The key audit matter How the matter was addressed in our audit The Group performs various building, engineering and services construction contract works (projects) for a wide range of customers. The Group contracts in a variety of ways. Each project has a different risk profile based on its individual contractual and delivery characteristics. The COVID-19 pandemic continues to create ongoing challenging operating conditions impacting productivity, expected timing of completion and expected costs to complete. Other impacts include projects being put on hold in some markets, with delays in securing and commencement of new projects. Construction revenue recognition is a key audit matter as judgement is required to assess the timing of recognition determined by the Group. Revenue on construction contracts is earned over time, typically using costs incurred as a proportion of total forecast costs as the measure of progress. Estimating total forecast costs to complete during project life is complex and requires judgement. Typical cost estimates include labour, subcontractors, equipment, materials, and project overheads. Changes to these cost estimates could give rise to variances in the amount of revenue recognised. Our procedures included: • Evaluating and testing management’s review and approval of revenue and cost forecasting; • Selecting a sample of contracts for testing using: - Data Analytic routines based on a number of quantitative and qualitative factors, related to size and risk of projects; and - the Group’s project reporting tool. • For the sample selected, we: - conducted visits to a selection of project sites and used up-to-date site photographs, where site visits were not possible, to evidence physical progress; - inquired with key project personnel to assess the project schedule, forecast costs, risks and opportunities, with involvement from KPMG engineering specialists where appropriate; - read relevant contract terms and conditions to evaluate the inclusion of individual characteristics and project risks in the Group’s estimates; - tested a sample of incurred costs to supplier invoices or other underlying documentation; - tested forecast costs for labour, subcontractors, equipment, materials, and project overheads by comparing to actual incurred spend and committed future contracts, with specific consideration of the impacts of COVID-19; - tested the variations and claims (including COVID- 19 related impacts) recognised within revenue against the criteria for recognition in the accounting standards via inspection and assessment of: 193 192 Lendlease Annual Report 2021 Financial Statements