MISC Annual Report 2017

MISC BERHAD | Annual Report 2017 318 Key audit matters (cont'd.) KEY AUDIT MATTERS HOWWE ADDRESSED THE KEY AUDIT MATTERS Recognition of revenue and cost of construction and marine projects – (Refer to Note 3 - Revenue and Note 22 - Due from/(to) customers on contracts, to the financial statements) A significant proportion of the Group’s revenues and profits are derived from long-term construction and marine projects which span more than one accounting period. The Group uses the percentage-of-completion method in accounting for these long- term contracts. The stage of completion is measured by reference to the physical completion of the contracts. We focused on this area because management applies significant judgement and estimation uncertainties in determining the stage of physical completion in respect of marine projects and in estimating total estimated project costs. In addressing this area of audit focus, we obtained an understanding of the relevant internal controls over the accuracy and timing of revenue and cost recognised in the financial statements, including controls performed by the management in estimating total project costs, profit margin and percentage-of- completion of projects. In addition, we also performed the following: (a) read all key contracts to obtain an understanding of the specific terms and conditions; (b) agreed contract revenue to the original signed customer contracts and/or approved change orders; (c) reviewed management meeting minutes to obtain an understanding of the performance and status of the key projects; (d) evaluated the assumptions applied in the determination of percentage-of-completion in light of supporting evidence such as engineers’ reports in relation to marine projects; and (e) considered the historical accuracy of management’s budgeted project margins in assessing the estimated margins of similar projects. INDEPENDENT AUDITORS ’ REPORT TO THE MEMBERS OF MISC BERHAD