PRG Holdings Berhad Annual Report 2017

• PRG HOLDINGS BERHAD 68 I N D E P E N D E N T A U D I T O R S ’ R E P O R T T O T H E M E M B E R S O F P R G H O L D I N G S B E R H A D ( c o n t ’ d ) ( I n c o r p o r a t e d i n M a l a y s i a ) Key Audit Matters (cont’d) Key Audit Matters of the Group (cont’d) a) Recognition of property development revenue, costs estimates and profit recognition (cont’d) Audit response (cont’d) Our audit procedures included the following (cont’d): (iv) recomputed the percentage of completion determined by management for revenue recognition based on verified actual costs incurred to-date and budgeted costs; (v) assessed the saleability and selling prices of the development to determine the potential revenue of the project; and (vi) assessed the likelihood of cash buyers paying upon billing. b) Revenue recognition of manufacturing division Sale of goods in manufacturing division is recognised as revenue when the significant risks and rewards of ownership of the goods have been transferred to the Group’s customers in manufacturing division and where the Group retains no continuing managerial involvement over the goods, which coincides with the delivery of goods and acceptance by customers. We identified revenue recognition of manufacturing division as a key audit matter because revenue is one of the key performance indicators of the Group which could create an incentive for management to record revenue inappropriately to meet targets or expectations and because the large transaction volume increases the possibility of errors in recognising revenue. Audit response Our audit procedures, with the involvement of component auditors, included the following: (i) obtained an understanding of and assessed the design, implementation and operating effectiveness of key internal controls over the completeness, existence and accuracy and timing of revenue recognition in manufacturing division; (ii) tested sales transactions recorded during the year in manufacturing division to relevant underlying documentation, which included sales invoices and goods delivery notes, with evidence of the customers’ receipt of the goods and the date of receipt of the goods by the customers in manufacturing division; and (iii) performed sales cut-off tests to ensure that sales revenue in manufacturing division was recognised in the correct accounting period. c) Recoverability of trade receivables As at 31 December 2017, trade receivables amounted to RM74,606,000. The details of trade receivables and their credit risks have been disclosed in Note 13 to the financial statements. Management recognises allowances for impairment losses on trade receivables based on specific known facts or circumstances or customers’ abilities to pay. The determination of whether trade receivables are recoverable involves significant management judgement and inherent subjectivity given uncertainty regarding the ability of the trade receivables to settle their debts. We focused on the audit risk that the impairment losses on trade receivables may be understated and hence, further impairment losses may be required. Audit response Our audit procedures, with the involvement of component auditors, included the following: (i) obtained an understanding of the credit process operated by management over the recoverability of trade receivables of the Group; (ii) assessed recoverability of trade receivables by reference to their historical bad debt expense, ageing profiles of the counter parties and past historical repayment trends; (iii) assessed cash receipts subsequent to the end of the reporting period for its effect in reducing amounts outstanding as at the end of the reporting period; and (iv) assessed the likelihood of cash buyers paying upon billing for property development.