117 | Annual Report | 2025-2026 Arohan Financial Services Limited Independent Auditor’s Report of even date on the financial statements of Arohan Financial Services Limited for the year ended March 31, 2026 (cont’d) The key audit matter How the matter was addressed in our audit d) Post model adjustments / additional provision: Adjustments to the model-driven ECL results as additional provision are recorded by the Company to address risks not captured by models for specific exposures. Significant judgement is involved in estimating additional provision. The underlying forecasts and assumptions used in the estimates of impairment loss allowance are subject to uncertainties which are often outside the control of the Company. Disclosure The disclosures regarding the Company’s application of Ind AS 109 are key to explaining the key estimates, judgements and inputs used in Impairment loss allowance on loans. Given the size of loan portfolio relative to the balance sheet and the impact of impairment loss allowance on the financial statements. we have considered this as a key audit matter. Test of details: Key aspects of our testing includes: a) Assessing the Company’ rationale for determination of criteria for significant increase in credit risk. b) Testing of sample over key inputs, data and assumptions impacting ECL model to assess relevance of data, economic forecasts, weights, and model assumptions applied. c) Testing computation of model driven impairment loss allowance on loans through re-performance on a sample basis. d) Testing details of post model adjustments/additional provision recorded considering the size and complexity involved. e) Assessing adequacy of disclosures included in the financial statements in respect of expected credit losses. Involvement of specialists We involved financial risk modelling specialists for the following: a) Evaluating the Company’s Ind AS 109 impairment methodologies and assumptions used. b) Evaluating the relevance of inputs used in the model for computation of impairment loss allowance on loans. c) For models which were updated during the year, evaluating the changes by assessing the updated model methodology.
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