KEY AUDIT MATTERS (CONT’D.) Valuation of investment properties (cont’d.) (Refer to Note 17 to the financial statements) (cont’d.) How have our audit addressed the matter Our audit procedures focused on the valuations performed by firms of independent valuers, which included amongst others the following procedures: • Considered the objectivity, competence and capabilities of the firms of independent valuers; • Obtained an understanding of the methodology adopted by the independent valuers in estimating the fair values of the investment properties and assessed whether such methodology is consistent with those used in the industry; • As part of our evaluations of the fair values of investment properties, we had discussions with the independent valuers to obtain an understanding of their valuation process which included assessment of the comparability of historical transactions used and property related data used as input to the valuation models; • Obtained an understanding of the adjustments factors made by the valuers to account for differences in, amongst others, the occupancy rate, property’s location, property’s size and tenure between the subject property and the comparable properties; and • Assessed whether the capitalisation rate used in the valuation models reflects 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. Valuation of land held for sale (Refer to Note 16(c) to the financial statements) As of 31 December 2022, the Group’s land held for sale, which is classified as inventories, had a carrying amount of RM743,574,000, representing 6% of the Group’s total assets. The Group recognized an inventory write-down to its net realizable value, amounting to RM370,066,000, which represents 78% of the Group’s loss before tax during the financial year. The estimates of net realizable values are based on the estimated selling price at the time the estimate is made, as well as the estimated costs of completion and costs necessary to make the sale. These estimates involve some degree of subjectivity, so we consider this area to be an audit focus. How have our audit addressed the matter Our audit procedures in evaluating management’s assessment of net realizable values of land held for sale included, among others, the following procedures: • We obtained an understanding of the management process in estimating the net realizable value of the land held for sale; • We evaluated the assumption applied in the estimated selling price by comparing the selling price stated in the sale and purchase agreement; and • We evaluated the key assumptions applied in estimating the estimated costs of completion by examining documentary evidence, such as letters of awards issued to contractors, to support the estimated costs of completion. We also evaluated the reasonableness of the key assumptions used by comparing to the Group’s historical experience and relevant market data. 153 FINANCIAL STATEMENTS & OTHER INFORMATION
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