FGV Annual Report 2017

FELDA GLOBAL VENTURES HOLDINGS BERHAD FINANCIAL STATEMENTS 118 INDEPENDENT AUDITORS' REPORT TO THE MEMBERS OF FELDA GLOBAL VENTURES HOLDINGS BERHAD REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS (CONTINUED) Key audit matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the Group and of the Company for the current year. These matters were addressed in the context of our audit of the financial statements of the Group and of the Company as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. There is no key audit matter of the Company for the current financial year. Key audit matters How our audit addressed the key audit matters Land Lease Agreement (“LLA”) Liability assessment As at 31 December 2017, the LLA liability for the Group amounted to RM4.4 billion. We focused on this area as the fair value of the LLA liability is determined based on cash flows projections, which require significant estimates made by management on the assumptions used in the calculations, in particular, prices of Crude Palm Oil (“CPO”) and Palm Kernel (“PK”), Fresh Fruit Bunches (“FFB”) yield, mature and immature estate costs. Refer to Note 3(i) in the significant accounting policies, Note 5(i) in the critical accounting estimates and judgments and Note 45 to the financial statements. We have performed the following audit procedures: • We checked the appropriateness of fair value model used. We also assessed the reasonableness of management’s key assumptions used in the cash flows projections comprising prices of CPO and PK, FFB yield and mature and immature estate costs, by comparing against those used in business plans, historical data and industry trend; • We evaluated the reliability of management’s cash flows projections by comparing the actual past financial performance against previous forecasted results; • We examined sensitivity analysis performed by management on the discount rate, prices of CPO and PK, FFB yield, mature and immature estate costs to evaluate the impact on the LLA liability; and • We assessed the adequacy of the disclosures in the financial statements. Based on our procedures, we noted no significant exceptions. Goodwill impairment assessment As at 31 December 2017, the Group’s carrying value of goodwill of RM1,315.9 million comprised goodwill in relation to sugar business in Malaysia of RM576.2 million and palm upstream operations in Malaysia of RM739.7 million. Goodwill is subject to annual impairment testing. We focused on this area as the determination of recoverable amounts of the assets in the two Cash Generating Units (“CGUs”) based on discounted cash flows projections prepared by management, involved a significant degree of judgment in determining the key assumptions in particular selling price and sales volume, raw sugar price and terminal value growth rate for sugar business and prices of CPO and PK, FFB yield and mature and immature estate costs for palm upstream operations. Refer to Note 3(d) in the significant accounting policies, Note 5(ii) in the critical accounting estimates and judgments and Note 20 to the financial statements. We have performed the following audit procedures: • We assessed the reliability of management’s projections through the comparison of actual past financial performances against previous forecasted results; • We assessed the reasonableness of the key assumptions below, which were used by management in developing the discounted cash flows projections, by comparing against historical data and industry trends; Business Key assumptions Sugar business Selling price and sales volume, raw sugar price and terminal value growth rate. Palm upstream operations CPO price, PK price, FFB yield and mature and immature estate costs • We examined sensitivity analysis performed by management on selling price and sales volume, raw sugar price, terminal value growth rate and discount rate for sugar business, and CPO and PK price, FFB yield, mature and immature estate costs, and discount rate for palm upstream operations to evaluate the impact on the impairment assessment; and • We assessed the adequacy and reasonableness of the disclosures in the financial statements. Based on our procedures, we noted no significant exceptions.