Fraser & Neave Holdings Bhd Annual Report 2021

KEY AUDIT MATTERS #CONTINUED$ B. Purchase price allocation (“PPA”) arising from acquisition of Sri Nona Companies Refer to Note 2(a)(ii) – Significant accounting policies: Business Combination, Note 8 – Investments in subsidiaries. The key audit matter On 15 January 2021, the Group completed the acquisition of the entire equity interest of Sri Nona Food Industries Sdn. Bhd., Sri Nona Industries Sdn. Bhd. and Lee Shun Hing Sauce Industries Sdn. Bhd., collectively known as “Sri Nona Companies”, for a total consideration of RM59.5 million. Based on the PPA performed, the fair value of the net identifiable assets acquired is RM32.5 million. The intangible asset and goodwill recognised amounted to RM15.1 million and RM27.0 million respectively. We have identified this acquisition of business as a key audit matter as the process of purchase price allocation of Sri Nona Companies required significant management judgement and estimation used by the Group. How the matter was addressed in our audit We performed the following audit procedures, among others: • We evaluated the appropriateness of the Group’s assessment on the fair value of identifiable assets and liabilities, with the involvement of KPMG’s valuation specialist. • We evaluated the cash flow projections by performing retrospective assessment of the key assumptions driving the entity’ cash flow projections to the latest internal board approved budget and plan, the historical accuracy of the entities’ estimates in the previous years and our understanding of the future prospects of the business or investments; • We worked with our internal valuation specialists to challenge the revenue growth rate, royalty rate, discount rates and long-term growth rates, and comparing these assumptions to economic and industry forecasts; • We obtained confirmations that the key assumptions were subject to oversight from the Directors; • We evaluated the appropriateness of the discount rate used by comparing it with our expectations based on our knowledge of the industry; • We assessed the appropriateness of the key estimates and assumptions used in the cash flows projection to determine that they were appropriate and supportable; • We recomputed the goodwill and intangible assets arising from the business combination; • We have also assessed the adequacy of the disclosures in respect of the acquisition in the Group’s financial statements We have determined that there is no key audit matter in the audit of the separate financial statements of the Company to communicate in our auditors' report. INFORMATION OTHER THAN THE FINANCIAL STATEMENTS AND AUDITORS’ REPORT THEREON The Directors of the Company are responsible for the other information. The other information comprises the information included in the Directors’ Report and Statement on Risk Management and Internal Control (but does not include the financial statements of the Group and of the Company and our auditors’ report thereon), which we obtained prior to the date of this auditors’ report, and the remaining parts of the annual report, which are expected to be made available to us after that date. Our opinion on the financial statements of the Group and of the Company does not cover the other information and we do not and will not express any form of assurance conclusion thereon. In connection with our audit of the financial statements of the Group and of the Company, our responsibility is to read the other information identified above and, in doing so, consider whether the other information is materially inconsistent with the financial statements of the Group and of the Company or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If, based on the work we have performed on the other information that we obtained prior to the date of this auditors’ report, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. When we read the remaining parts of the annual report, if we conclude that there is a material misstatement therein, we are required to communicate the matter to the Directors of the Company and take appropriate actions in accordance with approved standards on auditing in Malaysia and International Standards on Auditing. Financial Statements 245 Fraser & Neave Holdings Bhd ! Annual Report 2021