Ni Hsin Berhad Annual Report 2018

Key Audit Matters (continued) The key audit matter of the Group Valuation of inventories Refer to Note 2(h) - Significant accounting policy: Inventories and Note 8 Inventories The key audit matter How the matter was addressed in our audit The Group has RM20.6 million of inventories as at 31 December 2018. Inventories are measured at the lower of cost and net realisable value. Valuation of inventories is a key audit matter due to: � Significant amount of inventories of the Group are slow moving. � Significant level of judgement required in: - assessing the Group’s assessment that inventories are stated at the lower of cost and net realisable values as the transaction price that could be referenced may not be current and readily available. - assessing the adequacy of the Group’s provision for slow- moving inventories. We performed the following audit procedures, among others, around the valuation of inventories: � We tested the accuracy of the aging of inventories by testing the age profile of the inventory balances to the respective Goods Received Notes, Work Orders, and Handover documents; � We evaluated the Group’s inventory net realisable values for finished goods as at 31 December 2018 by comparing the carrying value of the inventories to sales made to external customers subsequent to year end to test whether these exceeded the carrying value of inventory at year end; � For those inventories without sales subsequent to year end, we evaluated the Group’s basis of provisioning for slow- moving inventories as at 31 December 2018 based on our understanding of the utilisation and scrap sales of each components of these inventories; and � Based on the inventory aging, we assessed the Group’s adequacy of provision for slow-moving inventories as at 31 December 2018 by comparing the Group’s provision amount to provision computed by us based on our work performed above. Valuation of investment in subsidiaries Refer to Note 2(a)(i) - Significant accounting policy: Subsidiaries and Note 6 Investments in subsidiaries The key audit matter How the matter was addressed in our audit The carrying value of subsidiaries amounted to RM56.5million, which accounted for more than 70% of the Company’s total assets as at 31 December 2018. Management determines at the end of each reporting period the existence of an objective evidence through which the Company’s investment in subsidiaries may be impaired. If there are indicators of impairment, the deficit between recoverable amount of the subsidiary and its carrying value would be recognised in profit or loss. This is a key audit matter because of the significant judgement required from us to evaluate management assumptions and estimates used in determining the recoverable amount of the subsidiary especially when value in use is applicable. We performed the following audit procedures, among others, around the impairment of subsidiaries: � We compared the carrying amount of all of the investment in subsidiaries with the respective subsidiaries’ net assets value to identify whether the net assets values, being an approximation of their maximum recoverable amount, were in excess of the carrying amount for indication whether the investment cost may be impaired. � We reviewed the basis and assumptions used by the management in the preparation of 5 years cash flow projections. � We challenged the assumptions used in deriving the value- in-use models based on our knowledge of the subsidiaries’ operations, and compared them against historical forecast and performance. � We used sensitivity analysis to determine those factors that were most sensitive within the valuation model. Independent auditors’ report to the members of Ni Hsin Resources Berhad (continued) Annual Report 2018 102