70 GHL SYSTEMS BERHAD 199401007361 (293040-D) ANNUAL REPORT 2021 Report on the Audit of the Financial Statements (Cont’d) Key Audit Matters (Cont’d) b) Assessment of impairment of trade receivables As at 31 December 2021, gross trade receivables of the Group and of the Company were RM73,699,596 and RM4,698,893 respectively as disclosed in Note 20 to the nancial statements. We determined this to be key audit matter because it requires management to exercise significant judgement in determining the probability of default by trade receivables and appropriate forward-looking information. Audit response Our audit procedures included the following: (i) Recomputed the probability of default using historical data and forward-looking information adjustment, incorporating the impact of the COVID-19 pandemic applied by the Group; (ii) Recomputed the correlation coefficient between the macroeconomic indicators used by the Group and historical losses to determine the appropriateness of the forward-looking information used by the Group; (iii) Inquiries of management to assess the rationale underlying the relationship between the forward-looking information and expected credit losses; and (iv) Challenged management on the basis for determining loss given default in worst-case scenarios arising from the impact of the COVID-19 pandemic. c) Assessment of impairment on the carrying amounts of costs of investments of subsidiaries As at 31 December 2021, the Company’s carrying amounts of costs of investments of the subsidiaries amounted to RM157,361,962 as disclosed in Note 16 to the financial statements. We considered this to be a key audit matter because the determination of the recoverable amount of costs of investments of the subsidiaries requires significant judgement and estimates about the future results and key assumptions applied to cash flow projections of the subsidiaries in determining the recoverable amounts. These key assumptions include operating profit margins and growth rates, as well as determining an appropriate pretax discount rate used. Audit response Our audit procedures included the following: (i) Challenged assessment of management that no further impairment losses on investments of the subsidiaries were required based on recoverable amounts of the subsidiaries; (ii) Assessed the historical reliability of management’s projections by comparing prior period projections to actual cash flows; (iii) Verified the pre-tax discount rate by comparison to market data, and relevant risk factors; and (iv) Performed sensitivity analysis to stress test the key assumptions used in the impairment assessment, incorporating the impact of the COVID-19 pandemic. INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF GHL SYSTEMS BERHAD (Incorporated in Malaysia) CONT’D
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