KEY AUDIT MATTERS

ACCA-AFA-IAI-IAPI Joint Webinar 2020

25th November 2020

Budi Susanto
Chairman of Financial Accounting Standards Implementation Team
Institute of Indonesia Chartered Accountant
 DISCLAIMER

The views expressed in this presentation is the speaker’s

personal views and does not represent IAI’s views.
 Most frequently reported KAMs

•Impairment of goodwill
•Revenue Recognition
•Valuation of PPE
•Acquisition
•Investment
•Investment property

Overall, it is apparent that those audit matters that are judgmental, involve estimates,
uncertain and/or complex, are the most frequently reported KAM.
 Impairment of Goodwill

Example 1: Description of KAM – extract from Report to the Shareholders of Media

Chinese International Limited as at 31 March 2017 (source: 2016/2017 Annual Report)
Key Audit Matter
Refer to Note 4 (Critical accounting estimates and judgements) and Note 17 (Intangible assets) to the
consolidated financial statements.
As at 31 March 2017, the Group had goodwill before impairment of US$35.3 million arising from the
acquisition of certain equity interests of Sin Chew Media Corporation Berhad (“Sin Chew”) in 2008. As
required by IAS 36 “Impairment of assets”, an impairment review is performed on goodwill at least
annually and when there is an indicator of impairment.
In carrying out the impairment assessment of goodwill, management determined the recoverable
amount based on the higher of fair value less cost of disposal (“FVLCD”) and value-inuse (“VIU”)
calculations of the cash-generating unit (“CGU”). In the absence of a market comparable, management
adopted the income approach and prepared discounted cash flow forecast (“DCF”) to determine the
recoverable amount of the CGU under both VIU and FVLCD methods.
 Impairment of Goodwill

Example 1: Description of KAM – extract from Report to the Shareholders of Media

Chinese International Limited as at 31 March 2017 (source: 2016/2017 Annual Report)
Key Audit Matter
Refer to Note 4 (Critical accounting estimates and judgements) and Note 17 (Intangible assets) to the
consolidated financial statements.
Preparation of DCF required the use of many assumptions and management exercised significant
judgements in determining these assumptions. Key assumptions adopted and judgements exercised in
the preparation of the DCF included:
— advertising revenue growth rate; and
— discount rates
The recoverable amount of the CGU determined based on the DCF was lower than its carrying amount,
and therefore, a provision for impairment of US$3.6 million in respect of goodwill was recorded for the
year ended 31 March 2017.
We focused on this area because of the significance of the balance and the significant judgements and
assumptions involved in determining the recoverable amount of the CGU to which the goodwill is
associated.
 Impairment of Goodwill

Example 1: Description of KAM – extract from Report to the Shareholders of Media

Chinese International Limited as at 31 March 2017 (source: 2016/2017 Annual Report)
How The Matter Was Addressed In Our Audit
We tested management’s impairment review of goodwill by assessing the DCF used in the calculations as
set out below:
• Comparing the key input data in management’s DCF to the Board’s approved budget and business
plan.
• Assessing the methodology adopted and the mathematical accuracy of the underlying DCF
calculations.
• Assessing the reasonableness of management’s key assumptions adopted and judgement exercised in
its DCF in relation to:
✔ advertising revenue growth rate by comparing them to historical performance and business plan,
as well as benchmarking against industry forecast; and
✔ discount rates by comparing with the cost of capital of comparable companies.
Based on the above procedures performed, we found the key assumptions adopted and estimates made
by management to be supportable based on the evidence we gathered.
 Revenue Recognition

Example 2: Description of KAM – extract from Report to the members of United Singapore Airlines Limited
as at 31 March 2020 (source: 2019/2020 Annual Report)
Key Audit Matter
Refer to note 2(t) “Revenue” and note 3(c) “Passenger revenue recognition” for the relevant accounting
policy and a discussion of significant accounting estimates.

Passenger revenue is not recorded immediately on sale of flight tickets but is deferred to be recorded at a
later time as revenue in the profit and loss account when a passenger is flown. Such deferred revenue is
presented on the statement of financial position as sales in advance of carriage and is measured based on
the sales price to the customer, net of ticket breakage (tickets sold but not utilized at flight date),
discounts and rebates.

The global Covid-19 outbreak was declared by the World Health Organization on 11 March 2020 to be a
pandemic and many countries have put in place travel restrictions and passenger requirements in
response. These travel restrictions have resulted in a significant decline in global travel demand, and
consequently, the Group has cancelled a significant number of its passenger flights in the near-term.
 Revenue Recognition

Example 2: Description of KAM – extract from Report to the members of United Singapore Airlines Limited
as at 31 March 2020 (source: 2019/2020 Annual Report)
Key Audit Matter
Refer to note 2(t) “Revenue” and note 3(c) “Passenger revenue recognition” for the relevant accounting policy and
a discussion of significant accounting estimates.
These flight cancellations have caused a significant reduction in passenger revenue and forward bookings and also
necessitated the payment of certain customer refunds. In addition, the Group has initiated changes in ticketing terms
and conditions for certain affected ticket holders which include the extension of the ticket validities, amongst other
measures.
With these measures, historical trend information which has been used in the past, including to assist in our analysis
of the reasonableness of passenger revenue and sales in advance of carriage and estimated ticket breakage rates
requires reexamination.
In addition, flight tickets sold often involve multiple flight sectors and partner airlines. The amount of revenue to be
recognized for each flight as it is flown relies on complex internal IT systems that handle large volumes of transaction
data and includes the exchange of information with industry systems and partner airlines.
As a result of these complexities, this is a key focus area in our audit.
 Revenue Recognition
Example 2: Description of KAM – extract from Report to the members of United Singapore Airlines Limited as
at 31 March 2020 (source: 2019/2020 Annual Report)
How The Matter Was Addressed In Our Audit
We held discussions with senior management to understand the Group’s plans regarding ticket holders impacted by
cancelled flights arising from the Covid-19 pandemic. Through these discussions, and reviews of the Group’s
announcements and documented internal policies and approvals, we understood the Group’s changes to the ticketing
terms for these affected ticket holders.

To analyze the financial impact of cancelled and disrupted flights arising as a result of the Covid-19 pandemic, we
performed data and analytical routines over passenger revenue recognized during the flight cancellation period as
well as an analysis of the impact of flight cancellations on forward bookings that are recorded as sales in advance of
carriage.

We also performed test of details over a sample of passenger revenue to ascertain its appropriate recognition on
flight date. In addition, we recomputed the underlying operating statistics of the Group to enable us to perform an
analytical review of passenger revenue balances given the significant changes witnessed as compared to historical
periods arising from the impact of Covid-19.

We assessed the revised ticket breakage estimates taking into account revisions to ticket terms.
 Revenue Recognition
Example 2: Description of KAM – extract from Report to the members of United Singapore Airlines Limited as
at 31 March 2020 (source: 2019/2020 Annual Report)
How The Matter Was Addressed In Our Audit
To check the accuracy of the revenue recorded by the passenger revenue systems, we tested the relevant computer
system controls, including the user access, program change controls and application controls over internal passenger
revenue systems. Our tests of these controls were designed to determine whether these key computer systems
controls operated as they were designed, and whether they were protected from tampering of data or software logic
that would result in inaccurate accounting information relating to passenger revenue.
Computer system controls were tested selectively; these included those relating to the completeness of transfers of
data between systems, ticket validation to identify data errors and the assignment of ticket prices to each flight. Key
manual controls were also tested to assess the appropriateness of the treatment applied to exceptions, and
reconciliations of the Group’s records with the outputs from shared industry systems and partner airlines.
We obtained direct assistance from the Group’s internal auditors to test the effectiveness of key controls in the
passenger revenue accounting process at various overseas stations. Procedures we performed included planning the
work to be performed by the Group’s internal auditors, identifying the controls to be tested, and reviewing the work
of the Group’s internal auditors.
 Valuation of PPE

Example 3: Description of KAM – extract from Report to the Shareholders of Orica Limited as at 30
September 2019 (source: 2019 Annual Report)
Key Audit Matter
Carrying value of property, plant and equipment (“PPE”) associated with the Technical Ammonium Nitrate
plant on the Burrup Peninsula (“Burrup plant”) ($608.3M)
Refer to Note 7 to the Financial Report
A key audit matter was the Group’s carrying value assessment of PPE associated with the Burrup plant. As
described in Note 7 to the financial statements, the Group identified a number of Burrup plant assets
considered to be defective and which required replacement (“defective equipment”).
Accordingly, the Group has recognized a write down charge of $155.0 million during the financial year based on
the estimated cost to replace the defective equipment.
The Group’s carrying value assessment of PPE associated with the Burrup plant is a key audit matter due to:
• The size of the carrying value of the plant.
• The significant judgement we applied in assessing the Group’s quantification of the$155.0 million write
down of defective equipment and therefore the carrying value of the Burrup plant at year end.
 Valuation of PPE

Example 3: Description of KAM – extract from Report to the Shareholders of Orica Limited as at 30
September 2019 (source: 2019 Annual Report)
Key Audit Matter
Carrying value of property, plant and equipment (“PPE”) associated with the Technical Ammonium
Nitrate plant on the Burrup Peninsula (“Burrup plant”) ($608.3M)
Refer to Note 7 to the Financial Report

We focused on the significant assumptions the Group applied in their assessment including:
• The appropriateness of the approach used by the Group to determine the write down required to the
defective equipment.
• Costs to replace the defective equipment such as labour, contractors and materials. These are complex
for the Group to estimate given the scale and nature of the project. The Group engaged external
engineering experts to supplement its internal experts in assessing the cost estimate.
• The timing and extent of the rectification works needed in line with the Group’s strategy.
 Valuation of PPE
Example 3: Description of KAM – extract from Report to the Shareholders of Orica Limited as at 30
September 2019 (source: 2019 Annual Report)
How The Matter Was Addressed In Our Audit
Our procedures included:
• We considered the appropriateness of the approach applied by the Group to determine the write down
required to the defective equipment, with reference to the requirements of the accounting standards.
• We tested key controls in the Group’s process for estimating the cost to replace the defective
equipment, including Steering Committee and Board review and approval of management’s estimates.
• We assessed the scope, competence and objectivity of the Group’s internal and external engineering
experts to assist in quantifying the cost to replace the defective equipment.
• We tested the accuracy of the cost to replace the defective equipment determined by the Group on a
sample basis by checking costs to underlying quotations from suppliers and for consistency to the
reports issued by the Group’s external engineering experts.
 Valuation of PPE
Example 3: Description of KAM – extract from Report to the Shareholders of Orica Limited as at 30
September 2019 (source: 2019 Annual Report)
How The Matter Was Addressed In Our Audit
Our procedures included:
• We checked consistency of the Group’s internal and external engineering expert’s cost estimates to
replace the defective equipment to the Group’s model used to calculate the write down of the
defective equipment.
• We challenged the Group’s significant assumptions in estimating the cost to replace the defective
equipment, including the timing and extent of rectification works needed, by considering the Group’s
strategy and plans for the Burrup plant and performing inquiries of the members of management with
responsibility for the project to replace the defective equipment.
• We tested the mathematical accuracy of the Group’s model to calculate the write down of the
defective equipment.
• We assessed the disclosures in the financial report using our understanding of the matter obtained
from our testing against the requirements of the accounting standards.
 Acquisition
Example 4: Description of KAM – extract from Report to the Shareholders of HomeServe plc as
at 31 March 2020 (source: 2019/2020 Annual Report)
Key Audit Matter
Refer to Note 2 (significant accounting policies), Note 3 (key judgements involved are set out in the
critical accounting judgements and key sources of estimation uncertainty) and Note 16 (transaction
overview) 16 to the financial statements.
On 26 November 2019, the Group acquired a 79% shareholding in eLocal Holdings LLC for £98.8m. In
addition, the Group entered into a put and call option agreement which means they will be required to
purchase the remaining 21% equity interest over the next five years.
As part of the transaction a number of acquisition intangibles have been identified in relation to
customer relationships, technology and domains. A high level of judgement is required in order to
determine the fair value of these assets at the point of acquisition, as well as the fair value of the put
option for the remaining 21% equity interest.
Given this is a technically complex area with high levels of judgement, we identified a new key audit
matter in relation to:
• the valuation of acquisition intangibles; and
• the valuation of the put and call options over the remaining 21% equity interest.
 Acquisition
Example 4: Description of KAM – extract from Report to the Shareholders of HomeServe plc as
at 31 March 2020 (source: 2019/2020 Annual Report)
How The Matter Was Addressed In Our Audit
We understood the key controls the Group has in place to manage the risk of inappropriate conclusions
being reached within the acquisition accounting assessment.
We challenged the key accounting assumptions, most notably whether the presence of the put and call
option over the remaining 21% equity interest constitutes a present ownership interest, as well as the
judgement required to identify the split of potential cash payments under the put option between
those which should be recognised at the transaction date and those which relate to post combination
employee benefit expenses.
We worked with our valuation specialists in order to:
• challenge the methodology used by management in order to identify and fair value the intangibles
including the appropriateness of the discount rate used; and
• independently recalculate the fair value of the put and call options.
We also assessed the key assumptions within management’s forecasts for reasonableness, including
assessing whether the forecasts did not include post-acquisition events such as the COVID-19
pandemic.
 Investment
Example 5: Description of KAM – extract from Report to the Shareholders of Zeder Investment
Limited at 29 February 2020 (source: 2020 Annual Financial Statement)
Key Audit Matter
Accounting for the investment in Pioneer Food Group Limited (Pioneer Foods), an associate, as held
for sale
Refer to Note 24 and 28.11 of the accounting policies, and Note 13 to the consolidated financial
statements.
During the year under review, Pepsico made an offer to the Pioneer Foods ordinary shareholders
(including the Group) to acquire all issued ordinary shares in Pioneer Foods for a cash consideration of
R110 per share.
The Group disposed of its investment in Pioneer Foods subsequent to year-end in terms of the
aforementioned offer.
 Investment
Example 5: Description of KAM – extract from Report to the Shareholders of Zeder Investment
Limited at 29 February 2020 (source: 2020 Annual Financial Statement)
Key Audit Matter
Accounting for the investment in Pioneer Food Group Limited (Pioneer Foods), an associate, as held
for sale
Refer to Note 24 and 28.11 of the accounting policies, and Note 13 to the consolidated financial
statements.
The investment in Pioneer Foods has been presented in accordance with IFRS 5 – Non-Current Assets
Classified as Held for Sale and Discontinued Operations (“IFRS 5”). As Pioneer Foods represents a
separate major line of business, their results are presented as a discontinued operation in the
consolidated income statement and related notes, including the restatement of the comparative
financial information. The investment in Pioneer Foods in the consolidated statement of financial
position is presented as non-current assets held for sale as at 29 February 2020.
The accounting for the Group’s investment in Pioneer Foods as held for sale was considered to be a
matter of most significance to our current year audit due to the judgement applied in determining the
timing of recognition and classification of the associate as held for sale.
 Investment
Example 5: Description of KAM – extract from Report to the Shareholders of Zeder Investment
Limited at 29 February 2020 (source: 2020 Annual Financial Statement)
How The Matter Was Addressed In Our Audit
Our audit procedures included the following:
• We evaluated the presentation of the investment in Pioneer Foods in the consolidated financial
statements as a non-current asset held for sale against the requirements of IFRS 5 in order to assess
whether the requirements of IFRS 5 had been met. This included obtaining an in-depth
understanding of the status of the sale as at 29 February 2020, and inspecting underlying
documentation received from the directors in respect of the timing of recognition and classification
as held for sale;
• Making use of our accounting expertise, we evaluated the directors’ analysis provided in relation to
whether there is a high probability of sale of the investment in Pioneer Foods to assess whether the
requirements of IFRS 5 had been met;
• We assessed whether the investment in Pioneer Limited was measured at the lower of carrying
value and fair value less costs to sell as required by IFRS 5 by performing an independent
recalculation of the fair value less costs to sell. No material exceptions were noted.
 Investment Properties
Example 6: Description of KAM – extract from Annual Report 2020 of Stenprop

Key Audit Matter

Refer to Note 4 (estimation uncertainty) and Note 16 (Investment porperties)

The group’s investment property portfolio, as disclosed in note 16, is valued at £387.8 million as at 31
March 2020 (2019: £562.8 million). In addition, the group’s share of investment property held by joint
ventures is valued at £35.9 million (2019: £33.9 million) and property assets classified as held for sale
are valued at £109.1 million (2019: £16.2 million).
The portfolio is independently valued by professionally qualified valuers in each geographic location
using an income capitalisation model.
Management is required to make a number of significant assumptions and judgements in determining
the fair value and therefore we have identified this as a potential fraud risk.
The key inputs into the fair value model which are subject to significant management estimates include
market rents, market yields , vacancy rates, the credit-worthiness of tenants, as well as discount and
capitalisation rates used in the discounted cash flows. Unreasonable assumptions could give rise to a
material misstatement.
 Investment Properties
Example 6: Description of KAM – extract from Annual Report 2020 of Stenprop

Key Audit Matter

As detailed in note 16, in applying the Royal Institution of Chartered Surveyors (RICS) Valuation Global
Standards 2020 (‘Red Book’), the valuer has declared a ‘material valuation uncertainty’ in their
valuation report. This is on the basis that market activity is being impacted in many sectors such that as
at the valuation date they consider that they can attach less weight to previous market evidence for
comparison purposes to inform opinions of value, and that a higher degree of caution should be
attached to their valuation.
In addition to this, and consistent with the market conditions observed in the prior year, we note there
continued to be a higher level of judgement associated with certain asset valuations, notably those with
a significant leisure or retail elements. Covid-19 further increased judgement in relation to assumptions
around:
• occupier demand and solvency;
• asset liquidity; and
• the relative impact on the different sectors including leisure and retail units within the portfolio.
 Investment Properties
Example 6: Description of KAM – extract from Annual Report 2020 of Stenprop
How The Matter Was Addressed In Our Audit
To respond to the key audit matter, we have performed the following audit procedures:
• Obtained and documented an understanding of relevant controls in relation to the valuation
process;
• Selected a sample of properties which we considered to be of most audit interest and with the
assistance of our Real Estate Valuations specialists to audit the valuations in detail;
• Alongside our valuation specialists, discussed and challenged key inputs and assumptions with the
valuers and management with reference to independent market data including Brexit and Covid-19
considerations;
• Assessed whether the valuers are independent of the Group and considered the reliability and
competency of the valuers;
• Assessed the accuracy of the tenancy schedules and reconciled the rental values used in the
valuations to the tenancy schedules including tracing a sample back to underlying lease agreements;
• Assessed whether the disclosures in the financial statements are appropriate and in accordance
with IFRS 13 Fair Value Measurement; and
• Assessed whether all property valuations have been correctly included in the financial statements.
 Terima Kasih

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