321 ACCOUNTABILITY INDEPENDENT AUDITORS’ REPORT to the menbers of Yinson Holdings Berhad (Incorporated in Malaysia) Registration No. 199301004410 (259147-A) REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS (CONTINUED) Key audit matters How our audit addressed the key audit matters 1) Estimates and judgements in the EPCIC contracts Refer to Note 5(a), Note 5(b), Note 6, Note 7 and Note 35(b) to the financial statements. The accounting for revenue from Engineering, Procurement, Construction, Installation and Commissioning (“EPCIC”) contracts falls under MFRS 15 Revenue from contracts with customers. These contracts are complex and dependent on the specific arrangements set out in the contracts between the Group and its customer. Given the specialised nature of each project and their respective contracts, management analysed the contracts’ terms and conditions to determine the multiple elements arrangement within these contracts, its applicable accounting and revenue recognition. Based on our risk assessment, the critical judgements and significant estimates include determining allocation of transaction price between EPCIC revenue and finance lease income, ascertaining the number of multiple elements arrangement embedded in the contracts, assessing the satisfaction of the performance obligations over time, completeness of the estimated costs to complete the respective performance obligations and accuracy of construction progress. These include assessing the subjectivity and estimation uncertainty on determining estimated costs for the remaining obligations and contingencies that the projects will face over the contractual period. In the current financial year, the Group continues to face operational challenges in light of the COVID-19 pandemic and continuous global macroeconomic challenges. These include inflationary impacts to commodities, travel restrictions and supply chain constraints causing uncertainties to prices of materials and services. The degree to which these challenges influenced the estimated costs to complete can be significant. During the financial year, the Group recognised EPCIC revenue totalling to RM4,558 million in the consolidated income statement. The revenue recognised relates to the construction of the FPSO Anna Nery, FPSO Maria Quitéria and FPSO Atlanta. Given the magnitude and complexity of the Group’s EPCIC contracts and the significant judgements and estimates, these areas were particularly subject to the risk of misstatements. Based on the considerations above, we have identified this as a key audit matter. For the EPCIC revenue recognised relating from each FPSO, the audit procedures performed over this key audit matter were as follows: • Evaluated management’s assessment paper and considered the critical judgements and significant estimates made by management on the accounting treatment for each of the contracts with the customer; • Read the contracts, and discussed with management the relevant terms and the resultant financial implications. Consequently identified and assessed the multiple elements arrangement and their respective performance obligations; • Gained an understanding of relevant processes, evaluated and tested the relevant controls implemented to record and monitor costs and revenues relating to EPCIC contracts; • Evaluated the measurement of progress towards complete satisfaction of the performance obligation undertaken by the Group’s internal project reviews; • Performed look-back procedures as part of a risk assessment by comparing estimates included in the current year with the past year as this provides insight to management’s ability to provide reliable estimates; • Checked the accuracy of management’s calculations of percentage of completion by recomputing the construction costs incurred against the total estimated construction costs to completion; • Tested the reasonableness of the total estimated budgeted construction costs based on the approved budgets to supporting and corroborating documentations, including management’s evaluation of budget variances and contingencies; • Tested samples of costs incurred to date on significant cost elements to relevant documents such as subcontractors’ reports verified by the Group’s operations team; and • Evaluated the adequacy of the Group’s disclosures included in the consolidated financial statements. Based on our procedures performed, no material exceptions were noted.
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