- 10 - INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF DESTINI BERHAD (CONT’D) [Registration No: 200301030845 (633265-K)] (Incorporated in Malaysia) Key Audit Matters (Cont’d) Key Audit Matters How we addressed the key audit matters Recognition of revenue and cost of long term contract The Group recognises revenue and cost derived from long term contract which span more than one accounting period over time using the stage of completion method. As at 31 December 2021, the revenue arising from the long term contracts represents approximately 31% 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. 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 subcontractors and corroborated key judgement applied by management as to whether provision for liquidated ascertained damages is required; • Agreeing samples 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. 87 ANNUAL REPORT 2021 • DESTINI BERHAD
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