GHL System Berhad Annual Report 2018

G H L S y s t e m S B e r h a d ( 2 9 3 0 4 0 - D ) 66 I NDEPENDENT AUD I TORS ’ REPORT T O T H E M E M B E R S O F G H L S Y S T E M S B E R H A D C O N T ’ D Key Audit Matters (cont’d) b) Assessment of the fair value of contingent consideration On 26 June 2018, the Group acquired 100% of the shares in Paysys (M) Sdn. Bhd. for a consideration of RM90,904,209. As at 31 December 2018, the fair values of contingent consideration of the Group amounted to RM29,803,840 as disclosed in Note 28 to the financial statements. We considered this to be a key audit matter because the determination of the fair value of contingent consideration requires significant judgement and estimates that are required to determine the value of consideration transferred and identification and measurement of fair values of the assets acquired and liabilities assumed, the future results and cash flows of the business, including forecast growth in future revenues and operating profit margins, as well as determining an appropriate discount factor. Audit response Our audit procedures included the following: (i) Assessed the historical reliability of management’s projections by comparing current period projections to actual results since acquisition date; (ii) Verified the pre-tax discount rate by comparison to market data, and relevant risk factors; (iii) Determined the expected payment by considering the possible scenarios of forecast revenue and profit after tax (“PAT”), amount to be paid under each scenario and the probability of each scenario; (iv) Compared projected growth rates of each revenue segment, operating profit margins and terminal values to historical results as well as market and industry data; and (v) Performed sensitivity analysis to stress test the key assumptions used in the impairment assessment. c) Assessment of impairment of trade receivables Gross trade receivables of the Group and the Company as at 31 December 2018 were RM73,397,896 and RM4,625,679 as disclosed in Note 21 to the nancial statements. We determined this to be key audit matter because it requires management to exercise significant judgement in determining the probability of default by trade receivables and appropriate forward looking information. Audit response Our audit procedures included the following: (i) Recomputed the probability of default using historical data and forward looking information adjustment applied by the Group; (ii) Recomputed the correlation coefficient between the macroeconomic indicators used by the Group and historical losses to determine the appropriateness of the forward-looking information used by the Group; and (iii) Inquiries of management to assess the rationale underlying the relationship between the forward-looking information and expected credit losses.