DESTINI Annual Report 2020

Key Audit Matters (Cont’d) Recognition of revenue and cost of long term contract The Group recognises revenue and cost derived from long termcontractwhich spanmore thanoneaccounting period over time using the stage of completion method. As at 31 December 2020, the revenue arising from the long term contracts represents approximately 49% of the total Group’s revenue. The stage of completion is measured based on input method, which is to recognise revenue on the basis of the Group’s efforts or inputs to the satisfaction of a performance obligation (i.e. contracts costs incurred for works performed to date) relative to the total expected inputs to the satisfaction of that performance obligation (i.e. total estimated contract cost). We focused on this area because the management applies significant judgement and estimates in determining the stage of completion, the extent of costs incurred and contract costs yet to be incurred, the estimated total revenue and cost for contract. Impairment on receivables and contract assets The Group’s receivables and contract assets amounting to RM264,673,868 representing approximately 50% of the Group’s total assets as at 31 December 2020. The assessment of recoverability of receivables involved judgements and estimation uncertainty in analysing historical trend in bad payment, customer concentration, customer creditworthiness and customer payment terms and adjusted for forward looking macro economic factors. How we addressed the key audit matters Our audit procedures included, amongst others: • Reading all key contracts to obtain an understanding of the specific terms and conditions; • Reviewing management’s workings on the computation of percentage-of-completion and compared the engineers’ reports and contractors’ claims and certificates against stage of completion to ascertain the reasonableness of the amounts of revenue and cost recognised in the profit or loss; • Evaluating the reasonableness of the estimated total cost and cost allocation for contract in light of supporting evidence such as letters of award, approved purchase orders, quotations, tender documents and variation orders, if any; • With regards to projects whereby actual progress is behind planned progress, we understand the cause of the delays, inspected correspondences with customers and sub-contractors and corroborated key judgement applied by management as to whether provision for liquidated ascertained damages is required; • Agreeing a sample of costs incurred to date to invoice and/ or progress claim and assessing the adequacy of accruals of costs made; and • Assessing the adequacy and reasonableness of the disclosures in the financial statements. Our audit procedures included, amongst others, the following: • Understanding on the procedures of the Group:- • the Group’s identification, monitoring and assessment on the impairment of receivables; and • the Group’s basis and justification in making accounting estimates for impairment; • Reviewing the ageing analysis of receivables and testing the reliability thereof; • Reviewing subsequent collections for major receivables and overdue amount; • Making inquiries of management regarding the action plans to recover overdue amounts; • Understanding of receivables with significant credit exposures which were significantly overdue or deemed to be in default; and • Evaluating the reasonableness and adequacy of the allowance for impairment recognised for identified exposures. Independent Auditors’ Report to theMembers of Destini Berhad ANNUAL REPORT 2020 DESTINI BERHAD 86