Grupo Aval Acciones y Valores S A : Auditor’s Report Consolidated Financial Statements December 2022

KPMG S.A.S.

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Nit 860.000.846 - 4

Key audit matter

How our audit approached this matter

As described in Notes 4.1.5 and 11 to the

My audit procedures to assess the assignment of a

consolidated financial statements, the

credit risk qualification and the effect on the provision

Group's provision for credit portfolio

included, among others, the following:

impairment amounted to 9.197.514 million

•

Evaluation of the design and implementation of

Colombian pesos as of December 31, 2022.

certain internal controls on the process

The Group measures credit portfolio

established by the Group to calculate credit

impairment by an amount equal to the

portfolio impairment, including, among others,

Expected Credit Losses (ECL) for each

controls on: (i) the models and assumptions

credit's lifetime, except those credits that

used, (ii) the estimation of the economic

have not had a significative increase in credit

variables, (iii) the integrity and accuracy of the

risk since their initial recognition, for which

data, and (iv) the Group's monitoring on the

the Group calculates a 12-month ECL. The

general provision for impairment losses,

provision for credit portfolio impairment

including the application of the judgment used,

reflects a result weighted by probability that

and operative efficiency tests on selective

considers multiple economic scenarios

samples.

based on forecasts of future economic

•

Involvement of credit risk professionals with

conditions and is determined as a function

specific abilities, knowledge, and industry

of the Group's assessment of the Probability

experience, who assisted me with: (i) the

of Default (PD), Loss Given Default (LGD),

evaluation of the models and key inputs used to

and Exposure Given Default (EGD)

determine the parameters of Probability of

associated with each loan. The Group, in

Default (PD), Loss Given Default (LGD), and

accordance with the requirements of IFRS 9

Exposure Given Default (EGD); (ii) the assessment

and following market practices, uses

of the macroeconomic projections and the

complex models that incorporate data and

weighting of the scenarios' probability, (iii) the

assumptions that require significative

assessment of the qualitative adjustments

judgment to estimate the credit portfolio

applied to the models, (iv) recalculation for a

impairment loss.

sample of collectively-evaluated credits and a

I identified the assessment of credit

sample of significative individually-evaluated

portfolio impairment as a key audit matter

credits, of impairment and analysis of guarantee

since there is a high degree of estimation

values; and (v) verification, for a sample of

inherent to the determination of the

individually significative credits, of the credit risk

expected loss by the credit portfolio

qualification assigned by the Group.

impairment as a result of the judgment

required for prospective assumptions and

involved models.

The assessment of credit portfolio

impairment required significant attention

from the auditor, the involvement of a

Key audit matter

How our audit approached this matter

As detailed in notes 2.20, 5, and 16 to the

My audit procedures to evaluate the recognition of

consolidated financial statements, the Group and

income from concession contracts in construction

its subsidiaries have concession contracts signed

phase and fair value of the related financial assets,

with the government for the construction and

include, among others:

subsequent maintenance of infrastructure for a

•

given period. In exchange, the Group and its

Evaluation of the design and implementation

subsidiaries have a right to receive direct payments

of certain internal controls on the process

from the government and/or fees charges to the

established by the Group and its subsidiaries

final users of the infrastructure.

to determine the fair value of its financial

During the construction phase, the Group and its

assets from concession contracts and establish

the income to be recognized from the

subsidiaries recognize income and a financial asset

contracts in construction phase. These

for the payments unconditionally guaranteed by

controls include those related to: (i) the review

the government and/or an intangible asset for the

of the inputs and assumptions used; (ii) the

payments related to the use of the infrastructure.

review of the termination costs estimation;

The performance obligations related to the

and (iii) the review and approval of the assets'

construction services are satisfied with time and

fair value and the income amount to be

the amount of recognized income depends on the

recognized, and operative efficiency tests on

termination stage of the construction services and

selective samples.

the fair value of the recognized asset. The Group

•

Involvement of valuation professionals with

and its subsidiaries have assigned some of the

specific abilities and industry knowledge, who

financial assets related with concession contracts

assisted me with: (i) the assessment of

to be measured at fair value with changes in

whether the models internally developed are

income after the initial recognition. As of

consistent with the valuation practices

December 31, 2022, the Group and its subsidiaries

generally used for this purpose and the IFRS;

have financial assets from concession contracts for

(ii) the comparison of the WACC discount rate

3.507.231 million Colombian pesos that are

with a determined range using market-verified

measured at fair value and classified on level 3 of

macroeconomic assumptions; (iii) the

fair value hierarchy and intangible assets from

assessment of future inflation rates estimated

concession contracts in construction phase for

by the Group, comparing them with available

7.329.700 million Colombian pesos.

market data; (iv) the assessment of estimated

I identified the assessment of income recognized

costs until finalization, including assumptions

for construction contracts in construction phase

used; (v) the assessment of projected income

from use of infrastructure comparing them