Wah Seong Corporation Berhad Annual Report 2020

82 WAH SEONG CORPORATION BERHAD INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF WAH SEONG CORPORATION BERHAD REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS (CONTINUED) Key audit matters (continued) Key audit matters How our audit addressed the key audit matters Impairment indicators exist due to the following: • The fair value of quoted PEB shares was RM91.7 million, which was lower than the carrying value of the investment as at 31 December 2020; and • ALAM-PE was loss making at RM31.6 million for the financial year ended 31 December 2020 In assessing the recoverable amount of these investments, value-in-use (“VIU”) method was used. We focused on this area due to the size of the carrying amount of the investments and because the recoverable amounts of the investments are determined based on value in use (“VIU”) calculations, which involve significant judgements in determining key assumptions on the future cash flows generated. • Compared terminal growth rates to external macroeconomic sources of data and industry specific trends; • Involved valuat ion special ist to evaluate the appropriateness of the discount rates used. This involved consideration of inputs from comparable industries and peer companies; • 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 investments. We considered the sensitivity of the recoverable amount of the investments by varying the key assumptions within reasonably possible ranges. Based on the procedures performed, no material exception was noted. 3.0 Impairment of property, plant and equipment Refer to Note 2.7 for the accounting policy and Note 4 to the financial statements. The Group has RM172.0 million of building, plant and equipment (“PPE”) in Europe related to a pipe coatings project. The end of the project during the financial year and no secured project to utilise the building, plant and equipment were impairment indicators. Accordingly, management performed impairment assessments on the building, plant and equipment. In assessing the recoverable amount of plant and equipment, management engaged an independent expert, where the valuation methodology used was fair value less costs to disposal. Management has recognised an impairment loss of RM130.1 million in relation to the above plant and equipment. The recoverable amount of a building was determined using the fair value less cost to disposal in a sales and purchase agreement. Management recognised an impairment loss of RM3.4 million. Management also assessed the recoverable amount of other plant and equipment with carrying value of RM28.0 million of which no future projects were available to utilise these plant and equipment and there was no resale value. Management recognised an impairment loss of RM28.0 million. We focused on this area due to the carrying amount of the building, plant and equipment. The valuation of the recoverable amount involves significant judgment in determining the appropriate valuation methodology to be used, and its underlying assumptions. Audit procedures performed over this key audit matter were as follows: • Evaluated management’s assessment of impairment indicators for the building, plant and equipment; • Evaluated the competence and objectivity of the independent expert engaged by management; • Assessed the appropriateness of the valuation methodology used by the independent expert in relation to the plant and equipment that were examined; • Evaluated the reasonableness of the valuation by checking the assumptions used by the independent expert; • Reviewed the sales and purchase agreement of the building; • Reviewed management’s impairment assessment on other plant and equipment; and We also considered the adequacy of the disclosures made in the financial statements. Based on the procedures performed, no material exception was noted.