GHL System Berhad Annual Report 2018

a n n u a l r e p o r t 2 0 1 8 67 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) d) Assessment of impairment on the carrying amounts of costs of investments of subsidiaries As at 31 December 2018, the Company’s carrying amounts of costs of investments of the subsidiaries amounted to RM88,182,870 as disclosed in Note 15 to the financial statements. We considered this to be a key audit matter because the determination of the recoverable amount of costs of investments of the subsidiaries requires significant judgement and estimates about the future results and key assumptions applied to cash flow projections of the subsidiaries in determining the recoverable amounts. These key assumptions include projected earnings before interest and tax (“EBIT”) margins and growth rates, as well as determining an appropriate pre-tax discount rate used.  Audit response Our audit procedures included the following: (i) Challenge assessment of management that no further impairment losses on investments of the subsidiaries were required based on recoverable amounts of the subsidiaries; (ii) Assessed the historical reliability of management’s projections by comparing prior period projections to actual results; (iii) Verified the pre-tax discount rate by comparison to market data, and relevant risk factors; and (iv) Performed sensitivity analysis to stress test the key assumptions used in the impairment assessment. e) Assessment of impairment on the carrying amounts of amounts owing by subsidiaries Gross amounts owing by subsidiaries of the Company as at 31 December 2018 were RM70,740,872 as disclosed in Note 21 to the financial statements. We determined this to be key audit matter because it requires management to exercise significant judgement in determining the probability of default by subsidiaries, appropriate forward looking information and significant increase in credit risk. Audit response Our audit procedures included the following: (i) Assessed probability of default applied by the Company against external market source of data; (ii) Assessed the appropriateness of the indicators of significant increase in credit risk applied by the management and the resultant basis for classification of exposure into respective stages; and (iii) Challenged management on the basis for determining cash flows recoverable, where applicable. Information Other than the Financial Statements and Auditors’ Report Thereon The Directors of the Company are responsible for the other information. The other information comprises the information included in the annual report, but does not include the financial statements of the Group and of the Company and our auditors’ report thereon. Our opinion on the financial statements of the Group and of the Company does not cover the other information and we do not express any form of assurance conclusion thereon.