DESTINI Annual Report 2018

INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF DESTINI BERHAD Key Audit Matters Impairment assessment on goodwill The Group has goodwill amounting to RM192,164,115 as at 31 December 2018. The management is required to perform impairment test on the goodwill annually. There is significant judgement involved in forecasting and discounting of future cash flows, which is the basis of assessment of the recoverability of the goodwill. How we addressed the key audit matters Our procedures in relation to management’s impairment assessment included: · Examined management’s cash flows forecast that support the impairment assessment; · Assessed the reliability of management’s forecast through the review of past trends of actual financial performances against previous forecasted results; · Assessed the key assumptions on which the cash flows projections are based, by amongst others, comparing them against business plans, historical results and market data; · Evaluated the appropriateness of the discount rate used to determine the present value of the cash flows and whether the rate used reflects the current market assessments of the time value of money and the risks specific to the asset; · Performed sensitivity analysis on the key inputs to impairment models, to understand the impact that reasonably possible changes to key assumption would have on the overall carrying value of the goodwill at the end of the reporting period; and · Assessed the adequacy and reasonableness of the disclosures in the financial statements. 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 2018, the revenue arising from the long term contracts represents 49% 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 orders; · 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. DESTINI BERHAD ANNUAL REPORT 2018 96