MISC Annual Report 2017

317 Financial Statements Key audit matters (cont'd.) KEY AUDIT MATTERS HOWWE ADDRESSED THE KEY AUDIT MATTERS Impairment of non-current assets – (cont'd.) (Refer to Note 12 - Ships, offshore floating assets and other property, plant and equipment, to the financial statements) (cont'd.) (ii) Ships In addition, the significant drop in charter hire rates, certain ships’ contract which have expired or approaching expiry within the next 5 years were also identified by management as indicators that the carrying amount owing of certain ships may be impaired. Accordingly, the Group and the Corporation estimated the recoverable amount of the ships using the higher of fair value less costs of disposal (“FVLCS”) and VIU. For recoverable amount that is based on FVLCS, the Group engaged independent valuers to assess the fair value of the ships. The Group and the Corporation recorded a total impairment loss of RM684.8 million and RM227.4 million respectively during the current financial year. This impairment reviewwas significant to our audit because the assessment process is based on assumptions that are highly judgemental. Our audit procedures to assess management’s impairment testing based on VIU included the following: (a) assessed the assumptions of future charter hire rates by comparing to the terms and conditions stipulated in the time charter party agreements entered into with the lessee, in particular the daily charter hire rates; (b) assessed whether the assumptions on the operating costs are supportable when compared to the past trends; 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. Our audit procedures to assess management’s impairment testing based on FVLCS are as follows: (a) Considered the independence, competence, capabilities and objectivity of the external valuers; and (b) Obtained an understanding of the methodology adopted by the independent valuers in estimating the fair value of the ships and assessed whether such methodology is consistent with those used in the industry. In addition, we also evaluated the adequacy of the Group’s disclosures of each key assumption on which the Group has based its cash flow projections and to which the CGU’s recoverable amount is most sensitive, as disclosed in Note 12 to the financial statements. INDEPENDENT AUDITORS ’ REPORT TO THE MEMBERS OF MISC BERHAD