DESTINI AR 2017

Key Audit Matters (Cont’d) Key Audit Matters Recognition of revenue and cost of long term contract The Group’s revenue and profits are derived from long term contract which span more than one accounting period. As at 31 December 2017, the revenue arising from the long term contracts represents 74% of the total Group’s revenue. 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 judgment and estimates in determining the stage of physical completion in respect of projects and in estimating total estimated project costs. How we addressed the key audit matters Our procedures included: - Obtain 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. - Read all key contracts to obtain an understanding of the specific terms and conditions; - Agreed contract revenue to the original signed customer contracts and/or approved change order; - Reviewed management meeting minutes to obtain an understanding of the performance and status for the projects above our testing threshold; - Assessed the reasonableness of assumptions applied in the determination of percentage-of- completion in light of supporting evidence such as engineers’ reports in relation to projects; and - Considered the historical accuracy of management’s budgeted project margins in assessing the reasonableness of estimated margins of similar projects. Key Audit Matters Impairment of loans and receivables As at 31 December 2017, the Group has trade and other receivables of RM452,375,193. The assessment of recoverability of receivables involved judgments and estimation uncertainty in analysing historical bad debts, customer concentration, customer creditworthiness and customer payment terms. How we addressed the key audit matters Our procedures included: - Obtain an understanding of: - the Group’s control over the receivables collection process; - how the Group identifies and assesses the impairment of receivable. - Reviewing the ageing analysis of receivables and testing the reliability thereof. - Reviewing subsequent cash collections for major receivables and overdue amount. - Making inquiries of management regarding the action plans to recover overdue amounts. - Evaluating the reasonableness and adequacy of the allowance for impairment recognised for identified exposures. 80 DESTINI BERHAD Auditors’ Report Independent to the Members of Destini Berhad