DESTINI Annual Report 2019

INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF DESTINI BERHAD Key Audit Matters Impairment assessment on goodwill The Group has goodwill amounting to RM105,414,020 as at 31 December 2019. The Company carries out annual impairment test by comparing the recoverable amount of cash generating unit (“CGU”) based on value in use method and the carrying amounts. The impairment tests were significant to our audit due to the complexity of the assessment process involving significant judgements and estimation uncertainty in making key assumptions about future market and economic conditions, growth rates, profit margins, discount rate, etc. for value in use of CGU based on future discounted cash flows. How we addressed the key audit matters Our procedures in relation to management’s impairment assessment included, amongst others: • Examining management’s cash flows forecast that support the impairment assessment; • Assessing the reliability of management’s forecast through the review of past trends of actual financial performances against previous forecasted results; • Assessing the key assumptions on which the cash flows projections are based, by amongst others, comparing them against business plans, contracts with customers, historical results and market data; • Evaluating the reasonableness and consistency of key assumptions and inputs used in cash flow projection to available external industry sources of data; • Performing sensitivity analysis to stress test the key assumptions and inputs used in the impairment assessment; and • Assessing 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 recognises revenue and profits derived from long termcontractwhichspanmore thanoneaccounting period over time using the stage of completion method. As at 31 December 2019, the revenue arising from the long term contracts represents approximately 43% 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. 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; • 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. 06 FINANCIAL STATEMENTS DESTINI BERHAD 092