CAHYA MATA SARAWAK ANNUAL REPORT 2016

87 Cahya Mata Sarawak Berhad A N N U A L R E P O R T 2 0 1 6 Section 07 Financial StatementS REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS (CONT'D.) Revenue recognition relating to construction and road maintenance contracts Revenue arising from construction and road maintenance contracts involves the application of the percentage of completion method. The amount of revenue and profit skepticism is dependent on the costs incurred to-date over the total estimated costs or the completion of a physical proportion of work to-date for the assessment of the percentage of completion of contracts. The process to measure the revenue, including the determination of the appropriate timing of recognition, involves significant management judgement. In making the judgement and estimation, the management considers past experience and relies on the work of experts. As such, we determined this to be a key audit matter.  Our audit procedures included assessing the management’s assumptions in determining the percentage of completion of projects, estimations to revenue and costs, provisions for foreseeable losses, liquidated and ascertained damages as well as recoverability of billed receivables. We also assessed the reliability of the reports provided by external parties (i.e. architects, quantity surveyors etc.) and the competency of the external experts. Specific additional procedures have been performed over the recording of contract costs and contract revenues and the estimation of costs to be incurred. We also considered the adequacy of the disclosures on revenue recognition included in the summary of significant accounting policies in Note 2.15 and Note 2.16 to the financial statements, as well as in the significant accounting judgements and estimates in Note 3.2(c) to the financial statements. Investments in associates As disclosed in Note 20 to the financial statements, included in investments in associates is the Group’s equity interest in an unquoted entity with a cost of investment amounting to RM244million. As at 31 December 2016, the Group’s carrying amount on the investment stood at RM206 million. In view of the current depressedmarket price for its finished products coupled by the losses incurred, the Group undertook a review to determine whether any impairment is required on the carrying amount of its investment. This area was significant to our audit due to the size of the investment, the entity is still in its start-up phase and the judgement involved in the impairment assessment. The management determined the value-in-use of the investment by estimating its share of the present value of the estimated future cash inflows expected to be generated by the associate, including the proceeds from the ultimate disposal of the investment. Our audit procedures included, among others, evaluating the key assumptions, such as revenue growth, gross margin assumptions, cost inflation and long-term growth rates, used to prepare the cash flow projections against the associate’s latest financial performance. This included comparison of the key assumptions to external data as well as our own assessments in relation to key inputs based on our knowledge of the industry. We also focused on the disclosure on impairment of investment in associates included in the significant accounting judgements and estimates in Note 3.2(f) to the financial statements. 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 information included in the annual report, but does not include the financial statements of the Group and of the Company and our auditors’ report thereon. 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, 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. Independent auditors' Report to the members of Cahya Mata Sarawak Berhad (Incorporated in Malaysia)