Wah Seong Corporation Berhad Annual Report 2021 93 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 RM66.6 million, which was lower than the carrying value of the investment as at 31 December 2021; • Significant impairment loss of PPE amounting to RM127.8 million recognised at EWPPC entity level for the financial year ended 31 December 2021; and • ALAM-PE was in loss making position of RM49.4 million for financial year ended 31 December 2021. 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 forecasted revenues to past performance records, future market outlook and management’s expectation of market developments; • Compared current year profit margin to historical profit margins; • Compared terminal growth rates to external macroeconomic sources of data and industry specific trends; • Involved valuation specialist 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; • Reviewed the audit deliverables of component auditors. 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 Recognition of deferred tax assets for unutilised tax losses Refer to Note 3(f) for the accounting policy and Note 8 to the financial statements. As at 31 December 2021, the Group recognised deferred tax assets amounted to RM27.7 million from unused tax losses. In order to determine the extent of deferred tax assets to be recognised as at 31 December 2021, management prepared a taxable profit projection, to be utilised against the unused tax losses within the expiry period. We focused on this area because significant judgement is required to determine the amount of deferred tax assets that can be recognised, based upon the likely timing and level of future taxable profits together with future tax planning strategies. Audit procedures performed over this key audit matter were as follows: • Reviewed appropriateness of the key assumptions used by management in the taxable profit projection to support the recoverability of deferred tax assets; • Tested mathematical accuracy of management’s taxable profit projection. We also considered the adequacy of the Group’s disclosures included in Note 8 of the consolidated financial statements. Based on the procedures performed, no material exception was noted. There are no key audit matters to report for the Company. INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF WAH SEONG CORPORATION BERHAD
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