MISC Annual Report 2017

315 Financial Statements Key audit matters (cont'd.) KEY AUDIT MATTERS HOWWE 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 value-in-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 2017 of RM810.7 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 2017 and significant judgements were involved in the terminal value and growth rate of the expected cash flows as well as 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) evaluated 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; (b) evaluated the terminal value and growth rate of the expected cash flows; and (c) assessed the sensitivity of the goodwill balance to changes in the discount rate, terminal value and growth rate of cash flows 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. INDEPENDENT AUDITORS ’ REPORT TO THE MEMBERS OF MISC BERHAD