Page 94 - HRC_Annual_Report_2023

92 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 (continued)

Key audit matters How our audit addressed the key audit matters

Valuation of derivatives

Refer to Note 2 Summary of material accounting policy We tested the valuation of the derivatives by performing the
information: Note 2.9 – Derivatives and hedging activities, following:
Note 3 Critical accounting estimates and judgements: • Obtained confirmation from counterparties to ascertain the
(d) Valuation of derivatives, Note 19 – Derivative financial completeness of the outstanding derivative instruments;
assets/(liabilities)
• On a sampling basis, agreed the underlying data to the term
As at 31 December 2023, the derivative financial assets and sheets to ensure accuracy;
derivative financial liabilities of the Company are RM21.0 million
and RM170.7 million, respectively. • Established a tolerable range for the mark-to-market value
for each type of derivative instrument tested; and
We focused on the valuation of the derivatives as estimates are
required to value these derivative instruments and the balances • On a sampling basis, performed an independent valuation
are significant. of the derivative instruments and compared the valuation
to the mark-to-market value provided by the Company with
Therefore, there is higher risk that the fair value estimation may the assistance of our financial risk management experts.
not be appropriately reflected in the financial statements.
We did not find any material exceptions in the procedures
performed.

Net realisable value (“NRV”) of the hydrocarbon
inventories
Refer to Note 2 Summary of material accounting policy We performed the following audit procedures:
information: Note 2.12 – Inventories, Note 3 – Critical • Agreed the quantity of both the crude and product
accounting estimates and judgements: (c) Net realisable value inventories to supporting documents;
of the hydrocarbon inventories, Note 16 – Inventories
• Observed the tank dipping process during the annual
As at 31 December 2023, the Company’s hydrocarbon physical inventory observation and performed roll-forward
inventories amounted to RM1,357.1 million. Management testing on a sampling basis to reconcile the tank dipping
has performed an assessment to determine the NRV of the results to the inventory system;
hydrocarbon inventories. The NRV was determined based on
selling prices less costs to sell after the financial year end. • Corroborated the selling prices of the hydrocarbon
inventories to the supporting documents after the financial
We focused on this area given the significance of the year end; and
hydrocarbon inventory balances and the volatility of the crude
and product prices which may result in costs being higher than • Computed the differences between inventory costs and the
selling prices less costs to sell. NRV to ascertain the inventories write down adjustments as
at 31 December 2023.
Based on the assessment performed, the Directors have
provided RM105.2 million for inventories write down. We did not find any material exceptions in the procedures
performed.