Section 8 UEM Edgenta Berhad FINANCIAL STATEMENTS 264 REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS (CONTD.) Key audit matters (contd.) Key audit matters in respect of the audit of the financial statements of the Company (b) Impairment assessment of investment in subsidiaries (Refer to Note 18 – Investment in subsidiaries, Note 2.4 (f) – Summary of material accounting policy information: Impairment of non-financial assets and Note 2.5 (b)(iii) - Key sources of estimation uncertainty: Impairment of investment in subsidiaries) As at 31 December 2023, the carrying amount of the investment in subsidiaries of the Company amounted to RM1.7 billion, representing 98% and 88% of the Company’s total non-current assets and total assets respectively. At the reporting date, the Company reviewed its investment in subsidiaries for indications of impairment and where such indications exist, the Company performed an impairment assessment to determine the recoverable amounts of such investments. The Company estimated the recoverable amount of the respective CGUs based on the estimated VIU. We identified the impairment review as an area of focus as the amounts involved are significant and the impairment assessment was complex and highly judgemental. The estimation of VIU involved the assessment of possible variations in the amounts and timing of future cash flows, particularly the forecasted revenue, profit margins and long-term growth rate, based on assumptions affected by future market and economic conditions. Judgement was also applied in determining the appropriate discount rate. Our audit response In addressing this area of audit focus, we performed, amongst others, the following procedures: • We obtained an understanding of the methodology adopted by management in estimating the VIU and assessed whether such methodology is consistent with those used in the industry; • We assessed the reasonableness of key assumptions, focusing on forecasted revenue, profit margins and longterm growth rate, taking into consideration the current and expected future economic conditions of the respective subsidiaries; • We compared the key assumptions against past actual outcomes and where relevant, evaluated the probability of securing significant future contracts by making enquiries with project teams to obtain an understanding of the status of negotiations and the likelihood that such cash flows will materialise; • We involved our internal valuation experts in assessing the reasonableness of the discount rate used and whether the rate used reflects the current market assessments of the time value of money and the risks specific to the asset which is 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 from the subsidiaries; and • We performed sensitivity analysis on key assumptions that will significantly affect the recoverable amounts of the investment in the subsidiaries. INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF UEM EDGENTA BERHAD (INCORPORATED IN MALAYSIA)
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