Key audit matters How we addressed the key audit matters Impairment of goodwill – (Refer to Note 14 – Intangible assets, to the financial statements) The Group is required to perform annual impairment test of cash generating units (CGUs) or groups of CGUs to which goodwill has been allocated. The Group estimated the recoverable amount of its CGUs or groups of CGUs to which the goodwill is allocated based on valuein-use (VIU). Estimating the VIU of CGUs or groups of CGUs involves estimating the future cash inflows and outflows and discounting them at an appropriate rate. Included in the Group’s goodwill as at 31 December 2016 of RM896.5 million is goodwill relating to the Petroleum segment. We focused on the impairment review of the goodwill relating to this segment as it represents more than 99% of the Group’s goodwill as at 31 December 2016 and significant judgements were involved in the assessment of future charter hire rates and the determination of an appropriate discount rate, which may cause possible variations in the recoverable amount of the CGU to which the goodwill has been allocated. Our audit procedures included, among others evaluating the assumptions and methodologies used by the Group, in particular the assumptions to which the recoverable amount of the CGUs are most sensitive such as the terminal value of the expected cash flows, the growth rate as well as the discount rate used. We have assessed and tested the key assumptions used by management to estimate the projected cash flows for the CGUs as follows: a) assessed and tested the key assumptions of future charter hire rates by comparing them to the past long-term trends; b) evaluated the appropriateness of the discount rate used to determine the present value of the cash flows and whether the rate used reflects the current market assessments of the time value of money and the risks specific to the asset; and c) assessed the sensitivity of the goodwill balance to changes in the discount rate and long term charter hire rates applied. In addition, we also evaluated the adequacy of the disclosures of each key assumption on which the Group has based its cash flow projections and to which the recoverable amount is most sensitive, as disclosed in Note 14 to the financial statements. Key audit matters (cont’d.) MISC BERHAD • Annual Report 2016 336 independent auditors’ report to the members of MISC Berhad (Incorporated in Malaysia)
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