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 Company (b) Impairment assessment of investment in a subsidiary (Refer to Note 17 - Investment in subsidiaries, Note 2.4 (i) - Summary of significant accounting policies: Impairment of non-financial assets and Note 2.5 (b)(iii) - Key sources of estimation uncertainty: Impairment of investment in subsidiaries) As at 31 December 2018, the carrying amount of the investment in Opus Group Berhad (“OGB”) amounted to approximately RM761.6 million, representing 40% and 37% of the Company’s total non-current assets and total assets respectively. The Company assessed that there was an indication of impairment for its investment in OGB. Accordingly, the Company performed an impairment assessment to determine the recoverable amounts of OGB which was based on its VIU. We identified the impairment review as an area of audit focus as the impairment assessment was complex and highly judgemental. Determining the VIU requires management to make an estimate of the amount and timing of the expected future cash flows based on assumptions affected by future market and economic condition. Judgement is also applied in determining the appropriate discount rate to calculate the present value of those cash flows. Arising from the impairment assessment, the Company recognised an impairment loss of RM129.0 million in relation to its investment in OGB. 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 management in estimating the VIU and assessed whether such methodology is consistent with those used in the industry; • We assessed the reasonableness of key assumptions, focusing on forecasted revenue, profit margins and long-term growth rate, taking into consideration the current and expected future economic conditions of the respective subsidiary. 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 subsidiary; • We performed sensitivity analysis on key assumptions that will significantly affect the recoverable amounts of the investment in the subsidiary; and • We evaluated the adequacy of disclosures relating to impairment of investment in the subsidiary recorded during the financial year. Financial Review Stakeholder Information AGM Information 139 Governance Review of Sustainability Activities