REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS (CONTD.) Key audit matters (contd.) Key audit matters in respect of the audit of the financial statements of the Company (b) Impairment assessment of investment in a subsidiary (Refer to Note 18 – Investment in subsidiaries, Note 2.4 (i) – Summary of significant accounting policies: Impairment of nonfinancial assets and Note 2.5 (b)(iii) – Key sources of estimation uncertainty: Impairment of investment in subsidiaries) As at 31 December 2022, the carrying amount of the investment in a subsidiary, Edgenta Environmental & Material Testing Sdn. Bhd. (“EEMT”) amounted to approximately RM25.9 million, representing 2% and 1% of the Company’s total non-current assets and total assets respectively. The Company assessed that there was an indication of impairment for its investment in EEMT. Accordingly, the Company performed an impairment assessment to determine the recoverable amounts of EEMT which was based on its VIU. We identified the impairment review as an area of audit focus as the impairment assessment was complex and highly judgemental. Determining the VIU requires management to make an estimate of the amount and timing of the expected future cash flows based on assumptions affected by future market and economic condition. Judgement is also applied in determining the appropriate discount rate to calculate the present value of those cash flows. Arising from the impairment assessment, the Company recognised an impairment loss of RM4.5 million in relation to its investment in EEMT during the year. Our audit response In addressing this area of audit focus, we performed, amongst others, the following procedures: • We obtained an understanding of the methodology adopted by management in estimating the VIU and assessed whether such methodology is consistent with those used in the industry; • We assessed the reasonableness of key assumptions, focusing on forecasted revenue, profit margins and long-term growth rate, taking into consideration the current and expected future economic conditions of the subsidiary; • We compared the key assumptions against past actual outcomes and where relevant, evaluated the probability of securing significant future contracts by making enquiries with project teams to obtain an understanding of the status of negotiations and the likelihood that such cash flows will materialise; • We involved our internal valuation experts in assessing the reasonableness of the discount rate used and whether the rate used reflects the current market assessments of the time value of money and the risks specific to the asset which is the return that investors would require if they were to choose an investment that would generate cash flows of amounts, timing and risk profile equivalent to those that the entity expects to derive from the subsidiary; • We performed sensitivity analysis on key assumptions that will significantly affect the recoverable amounts of the investment in the subsidiary; and • We evaluated the adequacy of disclosures relating to the impairment of investment in the subsidiary recorded during the financial year. REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS (CONTD.) Information other than the financial statements and auditors’ report thereon The directors of the Company are responsible for the other information. The other information comprises the Directors’ Report, but does not include the financial statements of the Group and of the Company and our auditors’ report thereon, which we obtained prior to the date of the auditors’ report, and the annual report, which is expected to be made available to us after the date of this auditors’ report. Our opinion on the financial statements of the Group and of the Company does not cover the other information and we do not express any form of assurance conclusion thereon. In connection with our audit of the financial statements of the Group and of the Company, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements of the Group and of the Company or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed on the other information that we obtained prior to the date of this auditors’ report, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. When we read the annual report, if we conclude that there is a material misstatement therein, we are required to communicate the matter to the directors of the Company and take appropriate action. Responsibilities of the directors for the financial statements The directors of the Company are responsible for the preparation of financial statements of the Group and of the Company that give a true and fair view in accordance with Malaysian Financial Reporting Standards, International Financial Reporting Standards and the requirements of the Companies Act 2016 in Malaysia. The directors are also responsible for such internal control as the directors determine is necessary to enable the preparation of financial statements of the Group and of the Company that are free from material misstatement, whether due to fraud or error. In preparing the financial statements of the Group and of the Company, the directors are responsible for assessing the Group’s and the Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or the Company or to cease operations, or have no realistic alternative but to do so. Auditors’ responsibilities for the audit of the financial statements Our objectives are to obtain reasonable assurance about whether the financial statements of the Group and of the Company as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with approved standards on auditing in Malaysia and International Standards on Auditing will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. p.260 p.261 UEM EDGENTA BERHAD INTEGRATED ANNUAL REPORT 2022 1 2 3 4 5 6 7 8 9 FINANCIAL STATEMENTS Independent auditors’ report to the members of UEM Edgenta Berhad INDEPENDENT AUDITORS’ REPORT to the members of UEM Edgenta Berhad (Incorporated in Malaysia) INDEPENDENT AUDITORS’ REPORT (Incorporated in Malaysia)
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