2018 UEM Edgenta Annual Report

Report on the audit of the financial statements (cont’d.) Key audit matters (cont’d.) Key audit matters in respect of the audit of the financial statements of the Group (a) Impairment assessment of goodwill ( Refer to Note 16 - Intangible assets, Note 2.4 (f)(i) and (i) - Summary of significant accounting policies: Intangibles assets - Goodwill and Impairment of non-financial assets and Note 2.5 (b)(ii) - Key sources of estimation uncertainty: Impairment of goodwill) As at 31 December 2018, the carrying amount of goodwill amounted to RM534.1 million, representing 47% and 19% of the Group’s total non-current assets and total assets respectively. The Group is required to perform annual impairment assessment on the goodwill by comparing the recoverable amounts of the related cash generating units (“CGUs”) or groups of CGUs to its carrying amount. The Group estimated the recoverable amounts of the CGUs based on value-in-use (“VIU”). Estimating VIU involves the discounting of the estimated future cash inflows and outflows expected to be derived from the CGUs using appropriate discount rates to their present values. This was our area of focus as the impairment assessment was complex and highly judgemental. The estimation of VIU involved the assessment of possible variations in the amounts and timing of future cash flows, particularly the forecasted revenue, profit margins and long-term growth rate, based on assumptions affected by future market and economic conditions in the respective geographical regions. Judgement was also applied in determining the appropriate discount rate. Our audit response In addressing this area of audit focus, we performed, amongst others, the following procedures: • We obtained an understanding of the methodology adopted by the management in estimating the VIU and assessed whether such methodology is consistently applied and with those used in the industry; • We assessed the reasonableness of key assumptions used for each CGU, focusing on forecasted revenue, profit margins and long-term growth rate, taking into consideration the current and expected future economic conditions of the respective business segments, industries and geographical regions of the CGUs. We compared the key assumptions against past actual outcomes; • We involved our internal valuation experts in assessing the reasonableness of the discount rate used and whether the rate used reflects the current market assessments of the time value of money and the risks specific to the asset is 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 from the CGU; • We performed sensitivity analysis on key assumptions that will significantly affect the VIU of each CGU; and • We evaluated the adequacy of disclosures of key assumptions to which the outcome of the impairment test is most sensitive. INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF UEM EDGENTA BERHAD (Incorporated in Malaysia) Management Discussion & Analysis UEM Edgenta Berhad Annual Report 2018 About UEM Edgenta Chairman’s Statement 138