Manulife US REIT - Annual Report 2021

ANNUAL REPORT 2021 133 During FY2021, the ARC reviewed and approved both the internal and external auditors’ plans to ensure that the scope of audit was sufficient for purposes of reviewing the significant internal controls of MUST and the Manager. Such significant controls comprise financial, operational, compliance and information technology controls. All audit findings and recommendations put up by the internal and external auditors were forwarded to the ARC. Significant issues were discussed at these meetings. Taking cognizance that the external auditor should be free from any business or other relationships with MUST that could materially interfere with its ability to act with integrity and objectivity, the ARC undertook a review of the independence of the external auditor and gave careful consideration to MUST’s relationships with them during FY2021. In determining the independence of the external auditor, the ARC reviewed all aspects of MUST’s relationships with it, including the processes, policies and safeguards adopted by MUST and the external auditor relating to audit independence. The ARC also considered the nature of the provision of the non-audit services in FY2021 and the corresponding fees, and ensured that the fees for such non-audit services did not affect the independence of the external auditor. Based on the review, the ARC is of the opinion that the external auditor is, and is perceived to be, independent for the purpose of MUST’s statutory financial audit. In the review of the financial statements, the ARC has discussed with management the accounting principles that were applied and their judgement of items that might affect the integrity of the financial statements. The following significant matters impacting the financial statements was discussed with management and the external auditor. Valuation of Properties The ARC evaluated the qualifications, competence and independence of the valuers, CBRE, Inc. and Jones Lang LaSalle Americas, Inc. The ARC discussed the portfolio property valuation methodologies and assumptions used by the valuers with management. The above is included as a key audit matter in the Auditor’s Report (pages 139 to 140 of the Annual Report). For FY2021, an aggregate amount of US$336,880 comprising non-audit service fees of US$22,274 and audit service fees of US$314,606 was paid/payable to MUST’s external auditor. The non-audit fees were paid to the auditors for services rendered in relation to the acquisitions of Tanasbourne, Park Place and Diablo. In FY2021, changes to accounting standards and accounting issues which had a direct impact on the financial statements were reported to and discussed with the ARC at its meetings. The Manager confirms, on behalf of MUST, that MUST has complied with Rule 712 and Rule 715 of the Listing Manual in relation to the appointment of its auditing firm. The Manager outsourced its internal audit function to the Sponsor. The Sponsor’s internal audit team follows the standards established by the Institute of Internal Auditors (IIA) for the professional practice of internal auditing. The internal audit team is staffed with qualified and competent individuals who are trained, supervised, coached and developed appropriately to be in compliance with the IIA standards. The internal audit function reports directly to the ARC. The internal audit team has unfettered access to the Manager’s documents, records, properties and employees, including access to the ARC, and has appropriate standing within MUST. The ARC, comprising only Independent Directors, exercises oversight over the internal audit activities of the Manager, including reviewing internal audit reports, reviewing the adequacy and effectiveness of the internal audit function, the appointment, reappointment or removal of internal auditors and meeting with internal auditors without the presence of management. The ARC has considered the appropriateness of using the Sponsor’s internal audit team for the internal audit function and with respect to FY2021, the ARC has reviewed and is satisfied as to the independence, adequacy and effectiveness of the internal audit function. The ARC is also of the opinion that the internal audit function is independent, effective and adequately resourced.