Page 92 - HRC_Annual_Report_2023

90 About HRC Value Creation Management Discussion Leadership
& Analysis

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 reversal of deferred tax asset
Refer to Note 2 Summary of material accounting policy We performed the following audit procedures on the FVLCTS
information: Note 2.3 – Property, plant and equipment, calculation which was approved by the Board of Directors:
Note 2.5 – Intangible assets, Note 2.6 – Leases, Note 2.7 – • Discussed with the Board Audit Committee members and
Impairment of non-financial assets, Note 2.21 – Current and the senior management on the FVLCTS calculation to
deferred income tax, Note 3 – Critical accounting estimates understand the key assumptions which formed the basis of
and judgements: (a) Recoverability of the carrying amount of the recoverable amount;
refinery assets, (b) Deferred tax assets, Note 13 – Property,
plant and equipment, Note 14 – Intangible assets, • Evaluated management’s cash flow projections and the
Note 15 – Leases, Note 27 – Deferred taxation process by which they were developed to ensure key inputs
are in line with financial budgets approved by the Board of
As at 31 December 2023, the carrying amount of the Directors;
Company’s property, plant and equipment, intangible assets
and right-of-use assets (collectively cash-generating-units • Corroborated supporting evidence underlying the projected
“CGU” or refinery assets) is RM2,204.2 million, net of refining margins provided by management to market data
accumulated impairment losses of RM232.7 million and the taking into account on the volatility of global oil prices and
deferred tax asset is RM138.8 million. through inquiry of management on the basis used;
We focused on these areas considering the material amount • Corroborated projected production volume to the historical
involved and the significant judgements and estimates made results achieved by the Company, taking into consideration
by the Directors in determining the fair value less costs to sell the climate-related risks;
(“FVLCTS”) of the refinery assets for its impairment assessment • Agreed the capital expenditure to the project plans and
and the projections of taxable profits to assess the extent of enquired with management on the supporting and basis of
utilisation of unused tax losses, unabsorbed capital allowances deriving the cost estimates;
and unused reinvestment allowances.
• Checked the reasonableness of the discount rate used with
The key assumptions included in the FVLCTS calculation has the assistance of our valuation experts; and
considered the climate-related risks as set out below:
• Checked sensitivity analysis prepared by management on
• the projected refining margins which fluctuate based on these key assumptions used in the impairment model.
the oil price, Malaysian and global economic outlook;

• the production volume based on existing production
capacity and forecast demand; and
• the discount rate based on the market’s weighted average
cost of capital.