Lendlease Annual Report 2022

Key Audit Matters The Key Audit Matters we identified for Lendlease Group are: • Construction Revenue Recognition; • Sale of Development Properties; • Recoverability of Development Property Inventory; and • Asset Valuation. Key Audit Matters are those matters that, in our professional judgement, were of most significance in our audit of the Financial Report of the current period. These matters were addressed in the context of our audit of the Financial Report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Construction Revenue Recognition (A$6,997m) Refer to Note 4 ‘Revenue from Contracts with Customers’ to the Financial Report The key audit matter How the matter was addressed in our audit The Group performs various building, engineering and services construction contract works (projects) for a wide range of customers. The Group contracts in a variety of ways. Each project has a different risk profile based on its individual contractual and delivery characteristics. Currently, global market conditions are uncertain with disruption to supply chains and inflationary pressures. These conditions, combined with the ongoing impacts of the pandemic, continue to create a challenging operating environment impacting productivity, expected timing of completion and expected costs to complete. Other impacts include projects being put on hold in some markets, with some delays in securing and commencement of new projects. Construction revenue recognition is a key audit matter as judgement is required to assess the timing of recognition determined by the Group. Revenue on construction contracts is earned over time, typically using costs incurred as a proportion of total forecast costs as the measure of progress. Estimating total forecast costs to complete during project life is complex and requires judgement. Typical cost estimates include labour, subcontractors, equipment, materials, and project Our procedures included: • Evaluating and testing management’s review and approval of revenue and cost forecasting; • Selecting a sample of contracts for testing using: - Data Analytic routines based on a number of quantitative and qualitative factors, related to size and risk of projects; and - the Group’s project reporting tool. • For the sample selected, we: - conducted visits to a selection of project sites to evidence physical progress; - inquired with key project personnel to assess the project schedule, forecast costs, risks and opportunities, with involvement from KPMG engineering specialists where appropriate; - read relevant contract terms and conditions to evaluate the inclusion of individual characteristics and project risks in the Group’s estimates; - tested a sample of incurred costs to supplier invoices or other underlying documentation; - tested forecast costs for labour, subcontractors, equipment, materials, and project overheads by comparing to actual incurred spend, committed future contracts and current market quotes, with specific consideration of inflation in our assessment of contingency; - tested the variations and claims (including COVID-19 related impacts) recognised within revenue against the criteria for recognition in the accounting standards via inspection and assessment of: 176 Lendlease Annual Report 2022