REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS (CONTINUED) Key audit matters (continued) Key audit matters How our audit addressed the key audit matters 3.0 Impairment assessment on investment in associates and joint venture Refer to Note 2.5, Note 2.6 for accounting policies, Note 3(c), Note 10 and Note 11 to the financial statements. As at 31 December 2022, the carrying amounts of investments in associates, Petra Energy Berhad (“PEB”) and Evraz Wasco Pipe Protection Corporation (“EWPPC”), were RM101.5 million and RM39.5 million respectively. The carrying amount of investment in a joint venture, ALAM-PE Holdings (L) Inc (“ALAM-PE”) was RM32.3 million. Impairment indicators exist due to the following: • The fair value of quoted PEB shares was RM74.4 million, which was lower than the carrying value of the investment as at 31 December 2022; • EWPPC was in loss making position of RM26.1 million for financial year ended 31 December 2022; and • ALAM-PE was in loss making position of RM1.3 million for financial year ended 31 Dec 2022. In assessing the recoverable amounts of these investments, the value-in-use (“VIU”) method was used. Subsequently, based on the VIUs performed, management reduced the carrying amount of investment in the joint venture, ALAM-PE by RM9.0 million. Similarly, a reduction of RM39.5 million was also made by management on the carrying amount of its investment in associate, EWPPC. We focused on this area due to the size of the investments and because the recoverable amounts of the investments are determined based on VIU calculations which involved significant judgements in determining key assumptions on future cash flows generated. Audit procedures performed over this key audit matter were as follows: • Involved our valuation specialist to assess the appropriateness of the valuation methodology used by management; • Tested mathematical accuracy of VIU calculations prepared by management; • Compared forecasted revenues to past performance records, 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 our valuation specialist to evaluate the appropriateness of the discount rates used. This involved consideration of inputs from comparable industries and peer companies; and • Assessed reasonableness of probabilities of occurrence assigned to base and worst case scenarios. We also considered the adequacy of disclosures in the financial statements of key assumptions and sensitivity analysis for respective investments. Based on the procedures performed, no material exception was noted. We have determined that there are no key audit matters to report for the Company. Information other than the financial statements and auditors’ report thereon The Directors of the Company are responsible for the other information. The other information comprises the Directors’ Report, Statement on Risk Management and Internal Control and other sections of Annual Report 2022, but does not include the financial statements of the Group and of the Company and our auditors’ report thereon. Our opinion on the financial statements of the Group and of the Company does not cover the other information and we do not express any form of assurance conclusion thereon. INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF WAH SEONG CORPORATION BERHAD Annual Report 2022 Wah Seong Corporation Berhad 97
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