ENRA Group Berhad Annual Report 2020

ENRA Group Berhad - Annual Report 2020 65 Key Audit Matters (Cont’d) 3. Impairment assessment of inventories As at 31 March 2020, inventories of the Group and Company were RM49.48 million and RM4.56 million respectively, as disclosed in Note 12 to the financial statements. We determined this as a key audit matter because of the judgement made by the Directors in determining an appropriate inventory valuation which involved predicting the amount of future demand from customers. Besides that, judgements are also required to identify slow moving and obsolete inventories which need to be written down to their net realisable value. Audit response Our audit procedures included the following: a. assessed the unsold units based on enquiries with management including corroborative enquiries with the key management personnel on the plans to address slow moving inventories; b. for those unsold completed units which have recent sale transactions, we tested the carrying amount of these unsold completed units, by comparing to the recent selling prices for similar units stated in the signed sale and purchase agreements, net of discounts given; and c. for those unsold completed units which did not have recent sale transactions, we obtained the recent transacted prices of comparable development units in similar or nearby locations, and adjusted for the size of the units. 4. Impairment assessment of the carrying amounts of costs of investments in subsidiaries As at 31 March 2020, costs of investments in subsidiaries of the Company were RM79.48 million as disclosed in Note 7 to the financial statements. Management used a value in use model to compute the present value of forecasted future cash flows for the subsidiaries to determine if there is any impairment loss required on the costs of investments in subsidiaries. We determined this to be a key audit matter because the determination of whether or not an impairment loss is necessary involved significant judgements and estimates by the Directors about the future results and key assumptions applied to cash flow projections of the subsidiaries in determining their recoverable amounts. These key assumptions include forecast growth in future revenue, as well as determining an appropriate pre-tax discount rate. Audit response Our audit procedures included the following: a. compared cash flow projections against recent performance and assessed the reasonableness of the key assumptions used by management in the cashflow forecast and projections by comparing to actual growth rates; b. compared prior period budgets and forecasts to current period’s actual results to assess the historical accuracy of the forecasts; c. assessed the suitability of the pre-tax discount rate used by each subsidiary by comparing to the weighted average cost of capital of the Group and relevant risk factor; and d. performed sensitivity analysis to stress test the key assumptions used by management in the impairment model. INDEPENDENT AUDITORS’ REPORT To the Members of ENRA Group Berhad (Incorporated in Malaysia)