Wah Seong Corporation Berhad Annual Report 2019

79 ANNUAL REPORT 2019 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 Impairment assessment for goodwill of CGU A and CGU B As at 31 December 2019, the Group’s goodwill totalled RM143.8 million which is allocated to the following cash generating units (“CGU”): l Specialised Pipe Coating and Corrosion Protection Services (CGU A); and l 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 estimates about the future cash flows generated and the appropriate discount and growth rates applied. The key assumptions of the VIU calculations are disclosed in Note 8 to the financial statements. We performed the following audit procedures to evaluate management’s methodology and assumptions used in the VIU for each CGU: l Compared forecasted revenues to approved budgets, past performance, current order books and potential contracts; l Compared revenue and terminal growth rates to historical track records and external market trends; and l Compared costs to approved budget and historical performance. We involved valuation specialists to evaluate the appropriateness of the methodology and 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. We also considered the adequacy of the disclosures made in the financial statements on key assumptions and the sensitivity analysis for the respective CGU. 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. Impairment assessment on investment in joint venture As at 31 December 2019, the Group holds investments in Alam-PE Holdings (L) Inc. (“Alam-PE”) which is accounted for as a joint venture. Alam-PE is primarily operating in the offshore support vessels market. Management assessed the carrying amount of the above investment for impairment due to the loss making position of Alam-PE. We focused on this area due to the size of the investment totalling RM75.6 mil and because the recoverable amount of the investment is determined based on VIU calculation which involves estimates about the future cash flows generated and the appropriate discount and growth rates applied. We performed the following audit procedures to evaluate management’s methodology and assumptions used in the VIU for the investment: l Compared forecasted revenue to the secured contracts, historical performance and future market outlook; l Compared current year profit margin to historical profit margins; and l Compared terminal growth rates to external macroeconomic sources of data and industry specific trends. We involved PwC valuation specialists to evaluate the appropriateness of the methodology and discount rate used for Alam-PE. This involved independently assessing the cost of equity using comparable companies in the same territories. INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF WAH SEONG CORPORATION BERHAD