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 1.0 Revenue recognition of line-pipe insulation services for the East African Crude Oil Pipeline (EACOP) project Refer to Note 2.22 for the accounting policy and Note 29 to the financial statements. During the financial year, the Group entered into a linepipe thermal insulation service contract for the East African Crude Oil Pipeline (EACOP) project. The total contract value is USD271 million (RM1,192.6 million). As at 31 December 2022, the Group recorded revenue from the EACOP project of RM286.5 million in the consolidated statement of comprehensive income. Management identified 2 performance obligations for this contract namely the construction and mobilisation of thermal insulation coatings plant and the provision of linepipe coating services. The performance obligations are satisfied over time, hence revenue is recognised over time using the percentage of completion (“POC”) method. Under the POC method, the contract’s progress over time was determined using the input method by comparing actual costs incurred to date, against total estimated project costs. Management estimated the project cost to completion including estimated material costs, equipments costs, labour costs and other costs based on past experience, as well as obtaining and benchmarking inputs to existing market data. We have given specific audit focus and attention to this area due to the size of the contract, and significant estimation and judgement used by management in determining project costs to completion. Audit procedures performed over this key audit matter were as follows: • Evaluated management’s assessment on the accounting treatment for the contract in accordance with the requirements of MFRS 15 “Revenue from Contracts with Customers”; • Understood and evaluated the design effectiveness of management’s controls over the budgeting process for estimating total project costs to completion; • Assessed the reasonableness of key inputs used by management in estimating the project costs to completion by agreeing to supporting documents; • Recomputed revenue recognised for current financial year based on the respective POC and traced these to accounting records; and • Evaluated the adequacy of the Group’s disclosures. Based on procedures performed, no material exception was noted. INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF WAH SEONG CORPORATION BERHAD Annual Report 2022 Wah Seong Corporation Berhad 95
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