pwc Key audit matters About this Chairman's Corporate Consolidated Financial Company Financial Report Foreword Management Report Appendices Governance Statements Statements The group engagement team performed the audit work on the group consolidation, IT General Controls, financial statement disclosures and a number of complex items such as impairment allowances on loans and advances to customers, certain accounting matters, such as the legal mergers of FGH and Rabohypotheekbank with Rabobank, income tax on the Dutch Fiscal Unity and the legal provisions at the head office. By performing the procedures above at components, combined with the additional procedures at group level, we have been able to obtain sufficient and appropriate audit evidence on the Group's financial information, as a whole, to provide a basis for our opinion on the financial statements. Key audit matters are those matters that, in our professional judgement, were of most significance to the audit of the financial statements. We have communicated the key audit matters to the Audit Committee and Supervisory Board. The key audit matters are not a comprehensive reflection of all matters that were identified by our audit and that we discussed. In this section we described the key audit matters and included a summary of the audit procedures we performed on those matters. With regards to the comparison of key audit matters in our auditor's report 2018 with 2017, the disclosure on the impact of IFRS 9 'Financial Instruments' (IFRS 9) on the opening balance as of 1 January 2018 is not considered a separate key audit matter anymore due to the fact that IFRS 9 is implemented as of 1 January 2018. We elaborated on the implementation of IFRS 9 hereafter in our key audit matter with respect to the impairment allowances on financial assets. We note that the key audit matters related to 'Impairment allowance on loans and advances to customers', 'valuation of financial instruments at fair value', 'Litigation, regulatory and client care exposures' and 'Design and effectiveness of IT General Controls' are recurring. These relate to the Bank's primary business processes and objectives and did not change significantly compared to prior year. We addressed the key audit matters in the context of our audit of the financial statements as a whole, and in forming our opinion thereon. We do not provide separate opinions on these matters or on specific elements of the financial statements. Any comment or observation we make on the results of our procedures should be read in this context. Key audit matter Our audit work and observations Impairment allowances on loans and advances to customers Refer to note 2.15 'Loans and advances to customers and loans and advances to credit institutions', note 2.16 'Impairment allowances on financial assets', note 4.3.3. 'Credit risk exposure and credit quality' and note 4.3.4 'Impairment allowances on financial and credit related contingent liabilities and note 12 'Loans and advances to customers'. The Bank's portfolio of loans and advances to customers amounts to EUR 429.4 billion as at 1 January 2018 and EUR 436.6 billion as at 31 December 2018. These loans and advances are measured at amortised cost, less a loan impairment allowance of EUR 4.5 billion as at 1 January 2018 and EUR 3.7 billion as at 31 December 2018. Control design and operation effectiveness We evaluated the design and tested the operating effectiveness of key controls per 1 January 2018 and 31 December 2018 over: The internal credit management process to assess the loan quality classification to identify impaired loans; Implementation of the definition of default applied in calculating the modelled loan impairments; Input controls and data lineage testing in respect of the critical data elements applied in the modelled loan impairments; Coöperatieve Rabobank UA. - EH44X5NCPJUJ-1288894667-935 Page 6 of 17

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Annual Reports Rabobank | 2018 | | pagina 248