Page 76 - HRC_AR2020

74 I 2020 ANNUAL REPORT I financial reports

inDepenDent aUDitors’ report

TO THE MEMBERS OF HENGYUAN REFINING COMPANY BERHAD
(INCORPORATED IN MALAYSIA) (REGISTRATION NO. 196001000259 (3926-U))

report on tHe aUDit of tHe financial stateMents (continued)
Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial
statements of the Company for the current financial year. These matters were addressed in the context of our audit of the financial
statements of the Company as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on
these matters.

Key audit matters How our audit addressed the key audit matters

recoverability of the carrying amount of refinery assets
and deferred tax asset
Refer to Note 2 Significant accounting policies: Note 2.3 We performed the following audit procedures on the FVLCTS
– Property, plant and equipment, Note 2.5 – Intangible calculation which was approved by the Board of Directors:
assets, Note 2.6 – Impairment of non-financial assets, - Discussed with the Board Audit Committee members and
Note 2.19 – Leases, Note 2.21 – Current and Deferred Income the senior management on the FVLCTS calculation to
Tax, Note 3 Critical accounting estimates and judgements: understand the key assumptions which formed the basis
(a) Recoverability of the carrying amount of refinery assets, of the recoverable amount;
(b) Deferred tax assets, Note 13 – Property, plant and
equipment, Note 14 – Intangible assets, Note 15 – Leases, - Evaluated management’s cash flow projections and the
Note 27 – Deferred Taxation process by which they were developed to ensure key
inputs are in line with financial budgets approved by the
As at 31 December 2020, the carrying amount of the Board of Directors;
Company’s property, plant and equipment, intangible
assets and right-of-use assets (collectively the refinery assets - Corroborated supporting evidence underlying the
cash-generating-units (“CGU”)) is RM2,030.1 million, net of projected refining margins provided by management
accumulated impairment losses of RM220.6 million and the to market data taking into consideration the possible
deferred tax liability is RM114.8 million. impact of COVID-19 on global oil prices and through
inquiry of management on the basis used;
We focused on these areas considering the material amount
involved and the significant judgements and estimates made - Agreed the capital expenditure for key projects in the
by the Directors in determining the fair value less costs to sell projections to the Board of Directors final investment
(“FVLCTS”) of the refinery assets for its impairment assessment decision approval, the amount incurred to date and cost
and the projections of taxable profits to assess the extent of to complete based on project plans and enquired with
utilisation of unutilised tax losses. relevant management on the supporting and basis of
deriving the cost estimates;
The key assumptions considered in the FVLCTS calculation
include: - Checked the reasonableness of the discount rate used
with the assistance of our valuation experts; and
- the projected refining margins which fluctuates based on
the oil price, Malaysian and global economic outlook - Checked sensitivity analysis prepared by management on
including the possible impact of COVID-19 pandemic; these key assumptions used in the impairment model.
- the production volume based on existing production
capacity and forecast demand; and
- the discount rate based on the Company’s weighted
average cost of capital.