FINANCIAL STATEMENTS
Axiata Group Berhad | Annual Report 2016
253
REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS (CONTINUED)
Key audit matter
How our audit addressed the key audit matter
Impairment assessment of goodwill in Indonesia
Refer to Note 3(b)(i) - Significant Accounting Policies – Goodwill, Note 4(b)(i)
Critical accounting estimates and assumptions – Impairment assessment of
goodwill and Note 25 - Intangible assets
As at 31 December 2016, the Group’s goodwill arising from its acquisitions in
Indonesia was RM5,439.7 million.
The Group is required to at least annually, test goodwill for impairment.
This area is important to our audit as the related CGU is experiencing
continued losses. Additionally the carrying amount of net assets of the
Indonesia subsidiary is higher than its market capitalisation.
Management’s assessment of the ‘value-in-use’ of this CGU involves
significant judgement about the future cash flows of the CGU.
We performed the following audit procedures:
•
We were assisted by our valuation expert in assessing the
appropriateness of the methodology adopted by management for
impairment assessment in accordance with MFRS 136 “Impairment
of Assets”. We found that the methodology used is acceptable;
•
We assessed discount rate, terminal growth rate and revenue growth
rate by reference to the comparable companies and the industries
in the same territory. We found that these assumptions used were
not materially different from our expectations based on comparable
industry data.
•
We compared the revenue growth rate to the historical performance
of the CGU and found this assumption to be materially consistent
with historical performance.
•
We re-performed on the sensitivity analysis performed by
management by stress-testing the discount rate, terminal growth
rate and revenue growth rate. We found no shortfall between the
stress-tested value in use calculations and the carrying value of the
CGU in the financial statements.
As indicated in Note 25, the impairment assessment is not sensitive to a range
of reasonable changes in assumptions which we found to be consistent with
the results of our stress test.
Impairment assessment of investment in an associate, Idea Cellular
Limited (“Idea”)
Refer to Note 3(e) - Significant Accounting Policies – Impairment of non-
financial assets (excluding goodwill), Note 4(b)(ii) Critical accounting
estimates and assumptions - Impairment assessment on non-financial
assets (excluding goodwill) and Note 29 - Associates
The Group has an investment in Idea, a listed associate, with a carrying
amount of RM6,711.6 million.
As of 31 December 2016, the carrying amount of the investment in
associate is higher than its fair value. The fair value was based on its share
price adjusted for block discount in accordance with its accounting policy as
stated in Note 3(e) to the financial statements. Accordingly, the Group had
tested the carrying amount of the investment in associate for impairment.
We focused on this area as management’s assessment of the recoverable
amount of the investment in associate involves significant judgement in
estimating the future cash flows.
We performed the following audit procedures:
•
We were assisted by our valuation expert in assessing the
appropriateness of the methodology adopted by management for
impairment assessment in accordance with MFRS 136 “Impairment of
Assets”. We found that the methodology used is acceptable;
•
We assessed discount rate, terminal growth rate and EBITDAmargin by
reference to the comparable companies and the industries in the same
territory. We found that these assumptions used were not materially
different from our expectations based on comparable industry data.
•
We compared the EBITDA margin to the historical performance of the
associate and found this assumption to be materially consistent with
the historical performance.
•
We re-performed on the sensitivity analysis performed by
management by stress-testing the discount rate, terminal growth rate
and EBITDA margin. We found no shortfall between the stress-tested
value in use calculations and the carrying amount of the investment in
associate in the financial statements.
As indicated in Note 29, the impairment assessment is not sensitive to a range
of reasonable changes in assumptions which we found to be consistent with
the results of our stress test.