Frontken Berhad Annual Report 2019

47 Frontken Corporation Berhad (651020-T) ANNUAL REPORT 2019 Key Audit Matters (Cont’d) We have determined the matters described below to be the key audit matters to be communicated in our report. Impairment of Goodwill on Consolidation Refer to Note 15 to the financial statements. Key Audit Matter How our audit address the Key Audit Matter The Group has goodwill of approximately RM33.8 million comprised within the 3 cash-generating units (“CGU”). For theCGUswhich comprised goodwill, the determination of recoverable amount, being the higher of fair value less costs to sell and value-in-use, requires judgement on the part of management in identifying and then valuing the relevant CGUs. The value-in-use models used to assess the risk of impairment are based on assumptions including revenue forecasts, gross and operating margins and discount rates, all of which are country-specific. We focused on this area because of the inherent judgement involved in determining key assumptions such as future sales growth, profit margins, discount rates and terminal value. Our procedures included, amongst others:- a) Making enquiries of and challenging the management on the key assumptions made, including:- i. the achievement of the business plan; and ii. sales growth, operating margin, discount rates and long-term growth rates; b) Performing sensitivity analysis on key assumptions and agreeing with management’s conclusion to ascertain the extent of change that individually, or in combination, would be required for the goodwill to be impaired; and c) Assessing the adequacy of disclosure of goodwill in the financial statements. Recoverability of Trade Receivables Refer to Note 19 to the financial statements. Key Audit Matter How our audit address the Key Audit Matter The trade receivables of the Group amounted to approximately RM86 million and it constituted 26% of the total current assets of the Group. We focused on this area due to the outstanding receivable balances which exceeded the credit term of 90 days granted by the Group. The total outstanding balances which exceeded the credit term amounted to approximately RM13.3 million is considered to be of a major credit risk. The assessment of recoverability of these outstanding receivables involved judgement and estimation of uncertainty by Management. Our procedures included, amongst others:- a) Testing the adequacy of the Group’s allowance for impairment losses on trade receivables by assessing the Group’s policy and historical data from the Group’s previous collection experience; b) Reviewing the Group’s subsequent collection after the financial year for major receivables; c) Reviewing the expected credit loss assessment by challenging whether the historic experience is representative of the current circumstances and of recent losses incurred in the receivables and assessing the reasonableness of forward-looking adjustments; and d) Assessing the adequacy of disclosure in the financial statements. Independent Auditors’ Report To The Members Of Frontken Corporation Berhad (cont’d)