Tropicana Corporation Berhad Annual Report 2017

SEC 1 • SEC 2 • SEC 3 • SEC 4 • SEC 5 > SEC 6 < SEC 1 • SEC 2 • SEC 3 • SEC 4 • SEC 5 > SEC 6 < FINANCIAL STATEMENTS FINANCIAL STATEMENTS 86 87 TROPICANA CORPORATION BERHAD / Annual Report 2017 TROPICANA CORPORATION BERHAD / Annual Report 2017 INDEPENDENT AUDITORS’ REPORT To the members of Tropicana Corporation Berhad (Incorporated in Malaysia) REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS Opinion We have audited the financial statements of Tropicana Corporation Berhad, which comprise the statements of financial position as at 31 December 2017 of the Group and of the Company, and the statements of comprehensive income, statements of changes in equity and statements of cash flows of the Group and of the Company for the year then ended, and notes to the financial statements, including a summary of significant accounting policies, as set out on pages 90 to 184. In our opinion, the accompanying financial statements give a true and fair view of the financial position of the Group and of the Company as at 31 December 2017, and of their financial performance and their cash flows for the year then ended in accordance with Financial Reporting Standards and the requirements of the Companies Act 2016 in Malaysia. Basis for opinion We conducted our audit in accordance with approved standards on auditing in Malaysia and International Standards on Auditing. Our responsibilities under those standards are further described in the Auditors’ responsibilities for the audit of the financial statements section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Independence and other ethical responsibilities We are independent of the Group and of the Company in accordance with the By-Laws (on Professional Ethics, Conduct and Practice) of the Malaysian Institute of Accountants (“By-Laws”) and the International Ethics Standards Board for Accountants’ Code of Ethics for Professional Accountants (“IESBA Code”), and we have fulfilled our other ethical responsibilities in accordance with the By-Laws and the IESBA Code. KEY AUDIT MATTERS Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements of the Group and of the Company for the current year. We have determined that there are no key audit matters to communicate in our report on the financial statements of the Company. The key audit matters for the audit of the financial statements of the Group are described below. These matters were addressed in the context of our audit of the financial statements of the Group as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. For each matter below, our description of how our audit addressed the matter is provided in that context. We have fulfilled the responsibilities described in the Auditors’ responsibilities for the audit of the financial statements section of our report, including in relation to these matters. Accordingly, our audit included the performance of procedures designed to respond to our assessment of the risks of material misstatement of the financial statements. The results of our audit procedures, including the procedures performed to address the matters below, provide the basis of our audit opinion on the accompanying financial statements. Revenue and cost of sales in respect of property development activities (Refer to Note 4 and Note 5 to the financial statements) A significant proportion of the Group’s revenues and profits are derived from property development contracts which span more than one accounting period. For the financial year ended 31 December 2017, property development revenue of RM1,575,467,000 and cost of sales of RM1,071,573,000 accounted for approximately 83% and 77% of the Group’s revenue and cost of sales respectively. The Group uses the stage of completion method in accounting for these property development contracts. We identified revenue and cost of sales in respect of property development activities as areas requiring audit focus as significant management’s judgement and estimates are involved in estimating the total property development costs which include the common infrastructure costs (which is used to determine the stage of completion and gross profit margin of the property development activities undertaken by the Group). How our audit addressed this matter To address these areas of audit focus, we performed, amongst others, the following procedures: • We obtained an understanding of the internal controls over the accuracy and timing of revenue recognised in the financial statements, including controls performed by management in estimating the total property development cost, gross profit margin and stage of completion of the property development activities; INDEPENDENT AUDITORS’ REPORT To the members of Tropicana Corporation Berhad (Incorporated in Malaysia) KEY AUDIT MATTERS (CONT’D.) Revenue and cost of sales in respect of property development activities (cont’d.) (Refer to Note 4 and Note 5 to the financial statements) (cont’d.) How our audit addressed this matter (cont’d.) To address these areas of audit focus, we performed, amongst others, the following procedures: (cont’d.) • For significant property development phase, we read the sale and purchase agreements entered into with the customers to obtain an understanding of the specific terms and conditions; • We evaluated the assumptions applied in estimating the total property development costs for each property development phase by examining documentary evidence such as letters of award issued to contractors to support the total budgeted costs. We also considered the historical accuracy of management’s forecasts for the similar property development projects in evaluating the estimated total property development costs; • We evaluated the determination of stage of completion by examining supporting evidence such as contractors’ progress claims and suppliers’ invoices; and • We observed the progress of the property development phases by performing site visit and examined physical progress reports. We also discussed the status of on-going property development phases with management, finance personnel and project officials. Valuation of investment properties (Refer to Note 17 to the financial statements) The Group adopts fair value model for its investment properties. When estimating the fair value of a property, the objective is to estimate the price that would be received from the sale of the investment property in an orderly transaction between market participants at the reporting date under current market conditions. In addition, the fair value should reflect, among other things, rental income from current leases and other assumptions that market participants would use when pricing the investment property under current market conditions, which are highly judgmental. Accordingly, we consider this to be an area of audit focus. How our audit addressed the matter Our audit procedures focused on the valuations performed by firms of independent valuers, which included amongst others the following procedures: • We considered the objectivity, independence and expertise of the firms of independent valuers; • We obtained an understanding of the methodology adopted by the independent valuers in estimating the fair value of the investment properties and assessed whether such methodology is consistent with those used in the industry; • As part of our evaluations of the fair values of investment properties, we had discussions with the independent valuers to obtain an understanding of the property related data used as input to the valuation models; and • We also assessed whether the discount rate used to determine the present value of the cash flows reflects the return that investors would require if they were to choose an investment that would generate cash flows of amounts, timing and risk profile equivalent to those that the entity expects to derive. 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. In connection with our audit of the financial statements of the Group and of the Company, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements of the Group and of the Company or our knowledge obtained in the audit or otherwise appears to be materially misstated. TROPICANA CORPORATION BERHAD Annual Report 2017 ABOUT TROPICANA STRATEGIC PERFORMANCE LEADERSHIP SUSTAINABILITY GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATION