ANNUAL REPORT 2017 | 63 INDEPENDENT AUDITOR’S REPORT 200 George Street Sydney NSW 2000 Australia GPO Box 2646 Sydney NSW 2001 Tel: +61 2 9248 5555 Fax: +61 2 9248 5959 ey.com/au 200 George Street Sydney NSW 2000 Australia GPO Box 2646 Sydney NSW 2001 Tel: +61 2 9248 5555 Fax: +61 2 9248 5959 ey.com/au INDEPENDENT AUDITOR’S REPORT To the unitholders of Aventus Retail Property Fund Report on the Audit of the Financial Report INDEPENDENT AUDITOR’S REPORT Opinion To the unitholders of Aventus Retail Property Fund We have audited the financial report of Aventus Retail Property Fund (the Fund) and its subsidiaries Report on the Audit of the Financial Report (collectively the Group), which comprises the consolidated statement of financial position as at 30 June 2017, the consolidated statement of comprehensive income, the consolidated statement of Opinion changes in equity and the consolidated statement of cash flows for the year then ended, notes We have audited the financial report of Aventus Retail Property Directors’ Declaration. comprising a summary of significant accounting policies and the Fund (the Fund) and its subsidiaries (collectively the Group), which comprises the consolidated statement of financial position as at 30 In our2017, the consolidated statement of comprehensive income, the consolidated statement of June opinion, the accompanying financial report of the Group is in accordance with the Corporations Act 2001, including: the consolidated statement of cash flows for the year then ended, notes changes in equity and comprising a summary of significant accounting policies and the Directors’ Declaration. (i) giving a true and fair view of the consolidated financial position of the Group as at 30 June 2017 and accompanying financial report of the Group the accordance with the Corporations In our opinion, theof its consolidated financial performance for is inyear ended on that date; and Act 2001, including: (ii) complying with Australian Accounting Standards and the Corporations Regulations 2001. (i) giving a true and fair view of the consolidated financial position of the Group as at 30 June 2017 and of its consolidated financial performance for the year ended on that date; and Basis for Opinion (ii) complying with Australian Accounting Standards and the Corporations Regulations 2001. We conducted our audit in accordance with Australian Auditing Standards. 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 the Group in accordance with the Corporations Basis for Opinion Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s We conducted our audit for Professional Accountants (the Code) that are Our responsibilities under APES110 Code of Ethicsin accordance with Australian Auditing Standards.relevant to our audit of the those standards are further and we have fulfilled our Responsibilities for the Audit of the Financial financial report in Australia; described in the Auditor’sother ethical responsibilities in accordance with Report section of our report. We are independent of the Group in accordance with the Corporations the Code. Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s We believe that of Ethics for Professional Accountants (the Code) and appropriate to provide a basis APES110 Code the audit evidence we have obtained is sufficient that are relevant to our audit of the for our opinion. in Australia; and we have fulfilled our other ethical responsibilities in accordance with financial report the Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation A member firm of Ernst & Young Global Limited 64 |  AVENTUS RETAIL PROPERTY FUND INDEPENDENT AUDITOR’S REPORT (continued) Key Audit Matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial report of the current year. These matters were addressed in the context of our audit of the financial report as a whole, and in forming our opinion thereon, but we do not provide a separate opinion on these matters. For each matter below, our description of how our audit addressed the matter is provided in that context. We have fulfilled the responsibilities described in the Auditor’s Responsibilities for the Audit of the Financial Report section of our report, including in relation to these matters. Accordingly, our audit included the performance of procedures designed to respond to our assessment of the risks of material misstatement of the financial report. The results of our audit procedures, including the procedures performed to address the matters below, provide the basis for our audit opinion on the accompanying financial report. Investment Property Portfolio – Determination of fair value Why significant How our audit addressed the key audit matter The Group owns large format retail centres classified as investment property carried at fair value. The carrying value of investment properties at 30 June 2017 amounted to $1,392.4 million and represents 94.3% of total assets. As outlined in note 24 of the financial report, the Group’s basis for determining the carrying value of investment properties is underpinned by external valuations sourced from qualified valuation experts. Fair values are determined by the directors at the end of each reporting period, with changes in fair value recognised in the consolidated statement of comprehensive income. We assessed the extent to which we could use the work of the valuation experts by considering their competence and independence. We also evaluated the suitability of the valuation scope and methodology for the purposes of reporting in the financial report. This is considered a key audit matter due to the number of judgments required in determining fair value. These judgments include assessing the capitalisation rate, discount rate, market rent, re-leasing costs and forecast occupancy levels. Minor changes in certain assumptions can lead to significant changes in the valuation. On a sample basis, we agreed data used in the valuations to the actual and budgeted financial performance of the specific properties. Note 24 of the financial report discloses the sensitivity of these valuations to changes in key assumptions. We involved our real estate valuation specialists in our assessment of the valuation methodology adopted and the assumptions used in the valuations. We assessed the appropriateness of the key assumptions used by reference to external market data. Refer to note 2(k) of the financial report for a description of the accounting policy treatment for these assets. A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation We considered the adequacy of the key inputs and assumptions used in the valuations by comparing this information to external market data. ANNUAL REPORT 2017 | 65 Related Party Transactions Why significant How our audit addressed the key audit matter The Group is an externally managed property fund. The responsible entity, Aventus Capital Limited, and the property manager of the fund, entities collectively controlled by Aventus Property Group, are deemed to be related parties under Australian Accounting Standards. We evaluated the Group’s process for identifying and recording related party transactions. Aventus incurred a total of $21.8 million in investment, asset & property, development management fees and independent director fees and $0.5 million in expense reimbursements to these related parties. A further $6.3 million was accrued as at 30 June 2017 as an estimate of the future performance fee liability (refer below). We assessed related party transactions recorded and disclosed against our understanding of the contracts and agreements in place and our understanding of the business, including significant transactions which have occurred during the period. The property manager is entitled to a performance fee in the event that the Group exceeds a predetermined level of return over a 3 year period. Determining if the performance fee will be payable at a future date is subject to uncertainty. This is considered a key audit matter due to the significance of the transactions and judgment involved in determining the performance fee. Disclosure of related party transactions, including the nature of the arrangements and amounts paid by Group, is included in note 23 to the financial report. In obtaining sufficient audit evidence we assessed contracts and agreements with related parties to understand the nature of the transactions. We compared the consistency in the recording and disclosure of related party transactions in the financial report against agreements in place, minutes of directors’ meetings and market announcements. Our related party procedures included an assessment of the Group’s judgment on the probability of the performance fee becoming payable in the future. Our procedures also considered if, at balance sheet date, the performance fee met the recognition criteria, of being probable and reliably measurable, and the disclosure requirements under Australian Accounting Standards. Information Other than the Financial Report and Auditor’s Report The Directors of Aventus Capital Limited are responsible for the other information. The other information comprises the information in the Group’s Annual Report for the year ended 30 June 2017, but does not include the financial report and the auditor’s report thereon. Our opinion on the financial report does not cover the other information and we do not express any form of assurance conclusion thereon. In connection with our audit of the financial report, our responsibility is to read the other information and, in doing so, 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. If, A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation 66 |  AVENTUS RETAIL PROPERTY FUND INDEPENDENT AUDITOR’S REPORT (continued) based upon the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Directors’ Responsibilities for the Financial Report The Directors of Aventus Capital Limited are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the Directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error. In preparing the financial report, the Directors of Aventus Capital Limited are responsible for assessing the Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Directors either intend to liquidate the Group or cease operations, or have no realistic alternative but to do so. Auditor’s Responsibilities for the Audit of the Financial Report Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of this financial report. As part of an audit in accordance with Australian Auditing Standards, we exercise professional judgment and maintain professional scepticism throughout the audit. We also:  Identify and assess the risks of material misstatement of the financial report, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.  Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control.  Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the Directors.  Conclude on the appropriateness of the Directors’ use of the going concern basis of accounting in the preparation of the financial report. We also conclude, based on the audit evidence obtained, whether a material uncertainty exists related to events and conditions that may cast significant doubt on the entity’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in the auditor’s report to the disclosures in the financial report about the material uncertainty or, if such disclosures are inadequate, to modify the opinion on the financial report. However, future events or conditions may cause an entity to cease to continue as a going concern. A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation ANNUAL REPORT 2017 | 67  Evaluate the overall presentation, structure and content of the financial report, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation.  Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the financial report. We are responsible for the direction, supervision and performance of the Group audit. We remain solely responsible for our audit opinion. We communicate with the Directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide the Directors with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. From the matters communicated to the Directors, we determine those matters that were of most significance in the audit of the financial report of the current year and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. Ernst & Young Mark Conroy Partner Sydney 10 August 2017 A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation