Fraser & Neave Holdings Bhd Annual Report 2019

A N N U A L R E P O R T 2 0 1 9 06 Financial Statements 213 KEY AUDIT MATTERS (CONTINUED) HOW THE MATTER WAS ADDRESSED IN OUR AUDIT We performed the following audit procedures, among others: • obtained the Group’s impairment assessment based on the discounted cash flows projections of the operating units which the goodwill and brand were allocated to, and assessed the value-in-use method used in determining the recoverable amount of the goodwill and brand; • assessed the discount rates used by the Group by benchmarking it against other companies in the industry and external source data; • assessed those key assumptions used in the cash flows projections, such as the future prices for products and raw materials, gross profit margin, and growth rates by comparing them with internal and external sources; and • considered the adequacy of the Group’s disclosures in respect of the key assumptions that reflected the risks inherent in the valuation of goodwill and brand, and the sensitivity of the outcome of the impairment assessment to changes in key assumptions used in the cash flows projections. ADVERTISING AND PROMOTION EXPENSES, AND DISTRIBUTOR INCENTIVES, DISCOUNTS AND REBATES Refer to Note 19 – Trade and other payables and Note 24 – Profit for the year of the financial statements. THE KEY AUDIT MATTER During the financial year, the Group incurred advertising and promotion expenses, and distributor incentives, discounts and rebates of approximately RM209 million and RM744 million respectively of which approximately RM72 million and RM40 million respectively were included as accruals and approximately RM1 million and RM50 million respectively were included as contract liabilities as at financial year end. The advertising and promotion expenses, and distributor incentives, discounts and rebates are relating to food and beverages business, to support, promote and develop the Group’s brands. With the adoption of MFRS 15, Revenue from Contracts with Customers , some of these costs are consideration payable to customers which were previously recognised as expenses, would be required to be recognised as part of the transaction price and hence to be reclassified to net off against revenue as disclosed in Note 34. The correspondence entries were recorded as accruals or contract liabilities. This was one of the areas that our audit focused on because of the high volume of transactions incurred during the financial year and estimation involved in determining the appropriate amount of contract liabilities and accruals as at financial year end and especially in relation to those promotion and brand support campaigns that were still ongoing subsequent to financial year end. HOW THE MATTER WAS ADDRESSED IN OUR AUDIT We performed the following audit procedures, among others: • obtained an understanding of the process, evaluated the design and implementation and tested the operating effectiveness of controls over the payment and accrual process; • performed substantive procedures and checked samples of expenses to supplier’s and customer’s claim; and • checked accruals and contract liabilities to samples of supporting contracts and documents with the suppliers and customers to assess adequacy of the accruals and contract liabilities. We have determined that there are no key audit matters in the audit of the separate financial statements of the Company to communicate in our auditors’ report. INDEPENDENT AUDITORS’ REPORT to the members of Fraser & Neave Holdings Bhd (Company No. 196101000155 (4205-V)) (Incorporated in Malaysia)