Dagang NeXchange Berhad Annual Report 2018

185 Annual Report 2018 Independent Auditors’ Report TO THE MEMBERS OF DAGANG NEXCHANGE BERHAD (CONTINUED) (INCORPORATED IN MALAYSIA) COMPANY NO. 10039-P FINANCIAL STATEMENTS Key Audit Matters (continued) Key Audit Matters in relation to Ping Petroleum Limited (“Ping”) The Group’s 30% interest in Ping is accounted for under the equity method. The Group’s share of the profit after taxation from Ping for the financial year ended 31 December 2018 was RM22.01 million and the Group’s share of Ping net assets was RM200.91 million as at 31 December 2018. The amounts noted below are those in the Ping financial statements (i.e. on a 100% basis). In the context of our audit of the Group’s financial statements, the key audit matters relating to the Group’s share of the profits and net assets of Ping are summarised below: i. Revenue recognition Ping’s revenue amounted to RM315.30 million for the financial year ended 31 December 2018. Revenue is a presumed fraud risk area in the financial statements. Thus, the risk of material misstatement may be high and a good degree of professional scepticism is necessary. ii. Impairment of intangible assets and equipment (“upstream assets”) The carrying amount of upstream assets as at 31 December 2018 was RM1,166.10 million. These upstream assets relate to the production fields of the Anasuria Cluster. We focused on this area as the recoverability of the carrying amount of the upstream assets is dependent upon the future cash flows of the business. In view of the long-term oil and gas price outlook, significant degree of management judgement is involved. Ping is a significant associate of the Group and their statutory financial year end is 30 June. We have met with the statutory auditors’ (“component auditors”) and have discussed their identified audit risks and audit approach, results of their work and key audit matters identified; and have reviewed their working papers. In addition, we have met with Ping’s management and have discussed with them and evaluated the impact on the Group financial statements of the key audit matters relating to Ping. Hence, we performed an audit for the financial year ended 31 December 2018 to address the audit risk areas:  Obtaining an understanding and evaluating the revenue walkthrough process;  Reviewing the crude oil and natural gas contracts and identifying their distinct performance obligations; and  Performing transaction testing on sampling basis and revenue cut-off to support transfer of control of physical delivery of crude oil and gas sales to the customer and upon its acceptance.  Assessing the indications for impairment by evaluating the financial indicators of Ping such as gross profit, shareholders’ equity and net current position. KEY AUDIT MATTER Investments in associates Refer to Note 7 to the financial statements HOWOUR AUDIT ADDRESSED THE KEY AUDIT MATTER