PRG Holdings Berhad Annual Report 2019

PRG HOLDINGS BERHAD 70 Key Audit Matters (continued) b) Recoverability of trade receivables The carrying amount of trade receivables has been disclosed in Note 15 to the financial statements. We determined this to be a 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. The determination of whether trade receivables are recoverable involves significant management judgement and inherent subjectivity given uncertainty regarding the ability of the trade receivables to settle their debts. We focused on the audit risk that the impairment losses on trade receivables may be understated and hence, further impairment losses may be required. Audit response Our audit procedures, with the involvement of component auditors, 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 set by the Group and historical losses to determine the appropriateness of the forward-looking information used by the Group; and (iii) inquired of management to assess the rationale underlying the relationship between the forward-looking information and expected credit losses. c) Valuation of biological assets The carrying amount of biological assets has been disclosed in Note 19 to the financial statements. The Group engaged independent valuers to value its biological assets. The independent valuers had used industry-accepted valuation methodology and approaches to determine the fair value of the underlying asset. We determined this to be a key audit matter as it involves significant judgements and is subject to estimation uncertainty as subjective variables were used to derive the fair value. Audit response Our audit procedures included the following: (i) reviewed the valuation report prepared by the independent valuers for appropriateness of the valuation methodology and for reasonableness of the assumptions used; (ii) assessed the competency, independence and integrity of the independent valuers; and (iii) tested the integrity of the data and inputs used by the independent valuers. d) Impairment assessment of the carrying amount of goodwill The carrying amount of the goodwill of the Group has been disclosed in Note 9 to the financial statements. We determined this to be a key audit matter because the recoverable amount of goodwill requires significant judgement and estimates about the future results and the key assumptions applied to cash flow projections of the cash generating units, including projected growth in future revenues and operating profit margins, as well as determining an appropriate pre-tax discount rate and growth rates. INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF PRG HOLDINGS BERHAD (Incorporated in Malaysia) cont’d