MISC Annual Report 2017

MISC BERHAD | Annual Report 2017 316 Key audit matters (cont'd.) KEY AUDIT MATTERS HOWWE ADDRESSED THE KEY AUDIT MATTERS Impairment of non-current assets – (Refer to Note 12 - Ships, offshore floating assets and other property, plant and equipment, to the financial statements) The Group is required to perform impairment test of CGU whenever there is an indication that the CGU may be impaired by comparing the carrying amount with its recoverable amount. (i) Other property, plant and equipment The carrying amount of the Malaysia Marine and Heavy Engineering Holdings Berhad (“MHB”) Group's net assets exceeds its market capitalisation, thereby indicating potential impairment of MHB Group's non-current assets. Accordingly, the Group estimated the recoverable amount of the property, plant and equipment and land use rights of MHB Group using VIU based on cash flow projections covering a five year period including terminal value. Estimating the VIU involves estimating the future cash inflows and outflows that will be derived from the CGU, and discounting them at an appropriate discount rate. This impairment review was significant to our audit because the assessment process is complex and is based on assumptions that are highly judgemental. Our audit procedures included, among others evaluating the assumptions and methodologies used by the Group, in particular those relating to the discount rate and projected cash flows for the CGU. The areas that involved significant audit effort and judgement were the assessment of the probability of securing the future revenue contracts, possible variations in the amount and timing of cash flows and the determination of an appropriate discount rate. Our procedures to assess management’s impairment testing included the following: (a) enquired with business development teams to obtain an understanding of the status of negotiations and the likelihood of securing the revenue contracts for contracts above our testing threshold, including timing of commencement and expected value of revenue contracts; (b) evaluated the estimated profits to be derived from those revenue contracts above our testing threshold by comparing the estimated profits with the actual margins achieved by MHB Group in previous years; and (c) 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. INDEPENDENT AUDITORS ’ REPORT TO THE MEMBERS OF MISC BERHAD