01 02 03 Financial Statements 04 Risk Our response to the risk Key observations communicated to the Audit Committee Valuation of hospitals and clinics Audit procedures on valuation were performed Based on the results of our audit and land and office buildings by the integrated primary team. procedures, we are satisfied that the (GEL 470m, 2017: GEL 442m) • We obtained and reviewed management’s carrying value of land, hospitals, clinics assessment of changes in the price level in and office buildings is not materially Refer to the Audit Committee Report (page 76); the real estate market in Georgia during 2018; different from its fair value as at Accounting policies (page 133); and Note 11 of • We verified the third party statistical pricing data31 December 2018. the Consolidated Financial Statements (page 153). provided by management to its source; • We engaged our internal real estate valuation We also have reviewed and concur with The Group applies the revaluation model for the specialists to provide their view on the changes the disclosure of significant estimation measurement of the carrying value of its hospitals in the real estate market in Georgia during 2018. uncertainty in relation to valuation of and clinics and land and office buildings. Based on the commercial real estate market land, office buildings, hospitals and analysis prepared by Colliers for the Ministry clinics presented in Note 4 to the Revaluations should be performed with sufficient of Economy, we were able to corroborate that financial statements. regularity to ensure that the carrying amount changes in real estate prices were within a 5% does not differ materially from that which would range as compared to 2017; be determined using fair value at the end of the • We checked the USD/GEL foreign exchange reporting period. rate as it normally has a significant impact on real estate prices in Georgia. We noted there Management performed an assessment with was no significant change in the USD/GEL reference to price and rent indexes of the real estate foreign exchange rate during 2018; market in Georgia and concluded that there were • We considered the operating performance no significant changes in the price level in Georgia’s of hospitals and clinics and inquired of real estate market and accordingly has not revalued management about any specific pair ent the Group’s real estate assets at 31 December 2018. triggers (e.g. destruction due to fire or flood) The latest revaluation of the Group’s real estate was during 2018; and performed at 30 September 2017. • We assessed whether the disclosures in the Group Financial Statements appropriately reflect Real estate valuations are inherently uncertain and the estimation uncertainty. subject to an estimation process. Furthermore, the Group’s real estate properties are located in Georgia, where the market for such assets is relatively illiquid, particularly in respect of hospitals and clinics. There is a risk that the carrying value of land, hospitals, clinics and office buildings is materially different from their fair value as at 31 December 2018. The risk has remained consistent with the prior year. 115