MISC Annual Report 2018

Internal Audit • Reviewed internal audit reports issued by GIA based on the approved Annual Internal Audit Plan (AIAP) and ensured that appropriate agreed corrective actions are taken by the Management on the gaps in con- trols as identified by GIA. • Reviewed and approved GIA’s AIAP for the financial year ending 31 December 2019 as guided by the approved Enhanced Risk Based Internal Audit Framework of MISC in order to ensure adequacy of coverage on auditable entities and resources allocated. • Reviewed the responses and action plans provided by Management on the deliberated audit reports. • Reviewed the adequacy and effectiveness of agreed corrective actions taken by Management on all significant and secondary issues raised in the audit reports. • Reviewed the adequacy of resources and competencies of GIA’s staff to execute the audit plan. • Conducted half-yearly and yearly assessment on the performance of GIA. • Reviewed the results and issues arising from the External Auditors’ audit, including the Key Audit Matters and the resolution of issues highlighted in their report to the BARC and Management’s responses thereto. • The BARC had 2 private meetings with the External Auditors without the presence of Management during the year under review (i.e. on 8 February 2018 and 14 November 2018) to discuss any matters the External Auditors may wish to present and to ensure that there were no restrictions in the scope and discharge of their audit activities. • Reviewed and approved the External Auditors’ terms of engagement, audit plan, nature, scope and proposed fees for FY2018. • Reviewed and recommended the External Auditors’ re-appointment to the Board to be proposed for shareholders’ approval at the last AGM. The Company also engages the External Auditors for other non-audit works as and when required. For FY2018, the amount of non-audit fees incurred for services rendered by the External Auditors or their affiliates to MISC Group is RM1.47 million, which includes limited review of quarterly financial results and tax advisory. To ensure that the External Auditors’ independence is not impaired, the Audit Engagement Partner in charge of the Company will be rotated every 7 years and is required to observe a cooling-off period of 5 years before being reappointed, as per the Malaysian Institute of Accountants requirements. Internally, the External Auditors conduct an Independent Partner Review in order to preserve their independence. The External Auditors had also provided written assurance to the BARC that in accordance with the terms of all relevant professional and regulatory requirements, they had been independent throughout the audit engagement. The Company has also adopted a Policy on the Assessment of External Auditors. With this policy, the BARC had carried out an assessment on the performance, suitability and independence of the External Auditors based on the following criteria, and will continue to do so on an annual basis: • Quality of engagement team (including sufficiency of resources); • Quality of communication and interaction; and • Independence, objectivity and professional scepticism. Corporate Governance and Regulatory Compliance • Reviewed and deliberated on the Related Party Transactions (RPTs) and Recurrent Related Party Transactions (RRPTs) reports on a quarterly basis. • Reviewed and recommended to the Board the SORMIC, BARC Re- port and Additional Compliance Information for inclusion in the 2018 Annual Report. • Reviewed the Directors’ Conflict of Interest report for MISC Group. • Reviewed the Whistleblowing quarterly reports of the Company. • Reviewed the Group Health, Safety, Security and Environment (GHSSE) Audit & Assurance Bi-Annual Reports. • Reviewed the initiatives by Management in relation to Compliance and Ethics focusing on Anti-Bribery and Corruption, including the progress of ISO 37001:2016 Anti-Bribery Management System certification, which was awarded to MISC in January 2019. Ship Management Audit (SMA) • Reviewed the SMA’s semi-annual and annual audit reports focusing on the efficiency and effectiveness of the maintenance of the Group’s vessels and floating assets. BOARD AUDIT & RISK COMMITTEE REPORT • Reviewed the minutes of meetings of the Audit Committee of Malaysia Marine and Heavy Engineering Holdings Berhad and minutes of meet- ings of the Audit and Risk Management Committee of AET Tanker Holdings Sdn. Bhd. for overview of the state of risk management and internal control systems of the subsidiaries. • Discussed GIA’s proposed action plans following a quality assessment by the Institute of Internal Auditors Malaysia (IIAM). • Prior to BARC meetings, the Chairman of the BARC held private meetings and discussions with the Head and senior auditors of GIA on internal audit reports and any related matters. External Audit FY2018 Key Audit Matters (KAM) addressed by the BARC KAM Matters Considered BARC Comments Impairment of assets • The Group’s assets under review included ships, offshore floating assets, property, plant and equipment and prepaid land lease payments that had indication of impairment and goodwill. • Management has carried out impairment review on its assets based on value-in-use (VIU) analysis and market values by engaging ship valuers. The BARC concurred with Management’s assessment on the impairment of assets. Contingent liability - Material litigation • Recoverability of existing trade receivables and sufficiency of provision of claims for material adjudication/arbitrations involving the Group. The BARC concurred with Management’s assessment on the recoverability of the lease receivables and sufficiency of provision of claims. Recognition of revenue and cost for construction projects • A significant proportion of the Group’s revenues and profits are derived from long-term construction and marine proj- ects which span more than one accounting period. • The Group uses the percentage-of-completion method in accounting for these long-term contracts. • Management applies significant judgement and estimation in determining the stage of physical completion in respect of marine projects and in estimating total estimated project costs. The BARC concurred with Management’s assessment on the percentage-of-completion of projects and estimated total project costs. For more information on the KAM, please refer to the Independent Auditors’ Report on pages 359 to 364 of this Annual Report. HIGHLIGHTS OF THE YEAR OUR BUSINESS OUR LEADERSHIP OUR PERFORMANCE OUR COMMITMENT TO SUSTAINABILITY OUR GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATION 50 TH ANNUAL GENERAL MEETING 189 MISC BERHAD ANNUAL REPORT 2018 188