FGV Annual Report 2016

ANNUAL INTEGRATED REPORT 2016 157 FINANCIAL REPORT REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS (CONTINUED) Key audit matters (continued) Key audit matters How our audit addressed the key audit matters Impairment assessments of non-current assets other than goodwill Management performed impairment assessments of certain non-current assets of the Group and Company, other than goodwill, which had impairment indicators. As a result, the following impairment losses were recognised during the financial year ended 31 December 2016: • Impairment of RM102.2 million in respect of PPE, intangible assets other than goodwill and prepaid lease payments of the Group; • Impairment of RM80.2 million in respect of the Company's investment in a subsidiary in China. We focused on this area as the recoverable amounts of the non-current assets are determined based on discounted cash flows projections, which require judgment on the part of management on the future financial performance and the key assumptions used, in particular, revenue growth rate, gross margin and terminal growth rate. Refer to Notes 5(v), 19, 21, 22(d) and 25 to the financial statements. We have performed the following audit procedures: •We evaluated the reliability of management's cash flows projections through the review of past trends of actual financial performances against previous forecasted cash flows; •We assessed the reasonableness of the key assumptions used by management in the discounted cash flows projections, in particular, revenue growth rate, gross margin and terminal value growth rate, by comparing against historical results and market data; and •We assessed the adequacy of the disclosures in the financial statements, including sensitivity analysis based on gross margin, terminal year growth rate and discount rate, to evaluate the impact on the impairment assessment. Based on the above procedures performed, we noted no significant exceptions. Recoverability of deferred tax assets As at 31 December 2016, the Group has deferred tax assets amounted to RM779.4 million which include deferred tax assets recognised in respect of unused tax losses of certain loss making subsidiaries of the Group amounted to RM219.1 million. Deferred tax assets are recognised to the extent that it is probable that future taxable profits will be available against which the temporary differences can be utilised. This involves judgments regarding the future financial performance of the subsidiaries in which the deferred tax assets have been recognised and hence, an area of focus for our audit. Refer to Notes 5(vi) and 50 to the financial statements. We have performed the following audit procedures: •We assessed the reasonableness of the key assumptions used in the future taxable profit in particular, revenue growth rates and contribution margins by comparing against historical results and market data; •We assessed the reliability of management's future taxable profits by comparing past trends of actual financial performances against previous forecasted results; and •We evaluated whether it is probable that the future taxable profits will be available by assessing approved budgets, cost management plans and increase in production to support the progress made by the loss making subsidiaries in improving the profitability of the businesses. Based on our procedures, we noted no significant exceptions. INDEPENDENT AUDITORS' REPORT TO THE MEMBERS OF FELDA GLOBAL VENTURES HOLDINGS BERHAD