Wah Seong Corporation Berhad Annual Report 2020

81 ANNUAL REPORT 2020 INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF WAH SEONG CORPORATION BERHAD REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS (CONTINUED) 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 financial year. These matters were addressed in the context of our audit of the financial statements of the Group and of the Company as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Key audit matters How our audit addressed the key audit matters 1.0 Impairment assessment for goodwill of CGU A and CGU B Refer to Note 2.10(a) for the accounting policy and Note 7 to the financial statements. As at 31 December 2020, the Group’s goodwill totalled RM142.1 million which is allocated to the following cash generating units (“CGU”): • Special ised Pipe Coating and Corrosion Protection Services (CGU A); and • EPC, Fabrication and Rental of Gas Compressors and Process Equipment (CGU B). We focused on this area due to the size of the goodwill and because the recoverable amounts of the CGUs are determined based on value in use (“VIU”) calculations which involve significant judgements in determining key assumptions on the future cash flows generated. Audit procedures performed over this key audit matter were as follows: • Involved valuation specialist to assess the appropriateness of the valuation methodology used by management; • Tested the mathematical accuracy of the VIU calculations prepared by management; • Compared forecasted revenues to past performance records, future market outlook and management’s expectation of market developments; • Compared terminal growth rates to external macroeconomic sources of data and industry specific trends; • Compared costs to approved budget and historical performance; • Involved valuation specialist to evaluate the appropriateness of the discount rates used for CGU A and CGU B. This involved consideration of inputs from comparable industries and peer companies, adjusted for business risk and marketability; • Assessed the reasonableness of probabilities of occurrence assigned to base and worst case scenario; and We also considered the adequacy of the disclosures made in the financial statements on key assumptions and the sensitivity analysis for the respective CGUs. We considered the sensitivity of the recoverable amounts of CGU A and B by varying the key assumptions within reasonably possible ranges. Based on the procedures performed, no material exception was noted. 2.0 Impairment assessment on investment in associate and joint venture Refer to Note 2.5 and Note 2.6 for the accounting policies as well as Note 10 and Note 11 to the financial statements. As at 31 December 2020, the carrying amount of investments in Petra Energy Berhad (“PEB”) and ALAM-PE Holdings (L) Inc (“ALAM-PE”) were RM102.9 million and RM60.1 million respectively. PEB is accounted for as an investment in associate, and ALAM-PE is accounted for as an investment in joint venture. Audit procedures performed over this key audit matter were as follows: • Involved valuation specialist to assess the appropriateness of the valuation methodology used by management; • Tested the mathematical accuracy of the VIU calculations prepared by management; • Compared forecasted revenues and average utilisation rate to past performance records, future market outlook and management’s expectation of market developments; • Compared current year profit margin to historical profit margins;