Lendlease Annual Report 2021

Asset Valuation Refer to Note 12 ‘Equity accounted investments’ (A$3,758m), Note 13 ‘Other Financial Assets’ (A$1,087m) and Note 26 ‘Fair Value Measurement’ to the financial report The key audit matter How the matter was addressed in our audit The Group is required to assess the value of equity accounted investments and other financial assets at each reporting date. The fair value of the properties held by various investment entities directly impacts the Group’s interests in these assets. Valuations of assets are generally performed by the Group using internal valuation methodologies (discounted cash flow or capitalised income approach) or through the use of external valuation experts. External valuations are obtained on a routine basis by the Group each year, with the remaining investments being valued internally. Other financial assets are predominantly investments in entities which in turn own commercial and retail property. Accordingly, the Group’s valuation assumptions are predominantly the capitalisation of earnings rates, discount rates, future rental income, and leasing incentives. Equity accounted investments include the Group’s interest in the retirement living business. The key assumptions used by the Group in determining the value of retirement villages are discount rates, changes in village residents, current units/homes market prices and pricing growth rates. Whilst COVID-19 continues to have significant impact on real estate valuations across the Group’s investments, the market has remained resilient highlighting the ongoing demand for high quality assets by investors. The assessment of the valuations of these assets is a key audit matter as they: • are inherently judgemental, amplified by the impact of COVID-19. There were fewer market transactions as a result, Our procedures included: • Selecting a sample of valuations performed by the Group, based on the significance of the asset to the Group’s financial position and performance; • Assessing the scope, competence and objectivity of external valuation experts engaged by the Group for assets valued by external valuation experts; • Assessing the impact of market uncertainty caveats included in valuations performed by the Group’s external valuation experts on the extent of our testing of key assumptions; • Evaluating and testing management’s review and approval of internal valuations based on the Group’s policies for internally valued assets; • Assessing the valuation methodology for consistency with accounting standards and industry practice for the asset’s class; • Comparing, with market data published by commercial real estate agents, previous external valuations, our knowledge of the industry, and/or our knowledge of the asset and its historical performance, key assumptions such as: - discount rates - changes in village residents - units/home current market prices - pricing growth rates - capitalisation of earnings rates - future rental income - leasing incentives • Assessing disclosures included in the financial report highlighting the estimates and judgements in determining fair values of the Group’s equity accounted investments and other financial assets. We used our understanding obtained from our testing, including considerations of the impacts of COVID-19, against the requirements of the accounting standards. which are ordinarily strong sources of evidence regarding fair value; • contain certain forward looking assumptions, with higher estimation uncertainty as the business is recovering from COVID-19, which are inherently challenging to audit; and • lead to additional audit effort, often due to the high number of differing assumptions and models, across varying asset classes. Other Information Other Information is financial and non-financial information in Lendlease Group’s annual reporting which is provided in addition to the Financial Report and the Auditor’s Report. The Directors of Lendlease Corporation Limited are responsible for the Other Information. Our opinion on the Financial Report does not cover the Other Information and, accordingly, we do not express an audit opinion or any form of assurance conclusion thereon, with the exception of the Remuneration Report and our related assurance opinion. In connection with our audit of the Financial Report, our responsibility is to read the Other Information. In doing so, we consider whether the Other Information is materially inconsistent with the Financial Report or our knowledge obtained in the audit, or otherwise appears to be materially misstated. We are required to report if we conclude that there is a material misstatement of this Other Information, and based on the work we have performed on the Other Information that we obtained prior to the date of this Auditor’s Report we have nothing to report. Responsibilities of the Directors for the Financial Report The Directors of Lendlease Corporation Limited are responsible for: • preparing the Financial Report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001; • implementing necessary internal control to enable the preparation of a Financial Report that gives a true and fair view and is free from material misstatement, whether due to fraud or error; and • assessing Lendlease Group’s ability to continue as a going concern and whether the use of the going concern basis of accounting is appropriate. This includes disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless they either intend to liquidate the Lendlease Group or to cease operations, or have no realistic alternative but to do so. 197 196 Lendlease Annual Report 2021 Financial Statements