Dagang NeXchange Berhad Annual Report 2019

INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF DAGANG NEXCHANGE BERHAD (CONTINUED) (Incorporated in Malaysia) Company No. 197001000738 (10039-P) DAGANG NeXCHANGE BERHAD 188 Key Audit Matters (contineud) Key Audit Matters in relation to Ping Petroleum Limited (“Ping”) The Group’s 30% interest in Ping is accounted for under the equity method. The Group’s share of the profit after taxation from Ping for the financial year ended 31 December 2019 was RM18.25 million and the Group’s share of Ping net assets was RM216.02 million as at 31 December 2019. The amounts noted below are those in the Ping financial statements (i.e. on a 100% basis). In the context of our audit of the Group’s financial statements, the key audit matters relating to the Group’s share of the profits and net assets of Ping are summarised below: i. Revenue recognition Ping’s revenue amounted to RM298.61 million for the financial year ended 31 December 2019. Revenue is a presumed fraud risk area in the financial statements. Thus, the risk of material misstatement may be high and a good degree of professional scepticism is necessary. Ping is a significant associate of the Group and their statutory financial year end is 30 June. We have met with Ping’s management and have discussed with them and evaluated the impact on the Group financial statements of the key audit matters relating to Ping. Hence, we performed an audit for the financial year ended 31 December 2019 to address the audit risk areas: • Obtaining an understanding and evaluating the revenue walkthrough process; • Reviewing the crude oil and natural gas contracts and identifying their distinct performance obligations; and • Performing transaction testing on sampling basis and revenue cut-off to support transfer of control of physical delivery of crude oil and gas sales to the customer and upon its acceptance. KEY AUDIT MATTER HOWOUR AUDIT ADDRESSED THE KEY AUDIT MATTER Investments in associates Refer to Note 8 to the financial statements As at 31 December 2019, the Group has goodwill of RM60.22 million. This is an area of focus given the materiality of the Group’s goodwill balances and the inherent subjectivity in impairment testing. The judgements in relation to goodwill impairment relate primarily to the assumptions underlying the calculation of the value in use of the business, being the achievability of the long- term business plans. Our procedures included, amongst others:- • Enquiring of and challenging the management on the key assumptions made, including: • the consistent application of management’s methodology; • assumptions in relation to terminal growth in the business at the end of the plan period; and • revenue growth, operating margin and discount rate. • Evaluating the reasonableness of management’s estimate of expected future cash flows by taking into consideration the past performances of their CGUs;  Performing sensitivity analysis to assess the impact on the recoverable amount of the CGUs; and  Reviewing the adequacy of disclosure of goodwill in the financial statements. KEY AUDIT MATTER HOWOUR AUDIT ADDRESSED THE KEY AUDIT MATTER Goodwill impairment Refer to Note 5 to the financial statements