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114
PAKISTANOILFIELDS LIMITED
S.No.
Key Audit Matters
How the matter was addressed in our audit
(ii)
Investment in associated company
(Refer note 16 to the financial statements)
The Company has investment in its associated
company National Refinery Limited (NRL).
As at June 30, 2020, the carrying amount
of investment in above referred associated
company amounted to Rs 8,047 million which
carrying value is higher by Rs 5,902 million in
relation to the quoted market value of such
shares. The Company carries out impairment
assessment of the value of Investment where
there are indicators of impairment.
The Company has assessed the recoverable
amount of the investment in associated
companies based on the higher of the value-
in-use (“VIU”) and fair value. VIU is based
on a valuation analysis carried out by an
independent external investment advisor
engaged by the management using a
discounted cash flow model which involves
estimation of future cash flows. This estimation
is inherently uncertain and requires significant
judgement on both future cash flows and the
discount rate applied to the future cash flows.
In view of significant management judgement
involved in the estimation of value in use we
consider this as a key audit matter.
Our audit procedures in relation to assessment
of carrying value of investment in associated
company, amongst others, included the following:
•
Assessed
the
appropriateness
of
management’s accounting for investment in
associated company;
•
Considered management’s process for
identifying the existence of impairment
indicators in respect of investment in
associated company;
•
Evaluated
the
independent
external
investment advisor’s competence, capabilities
and objectivity;
•
Assessed the valuation methodology used by
the independent external investment advisor;
•
Checked, on sample basis the reasonableness
of the inputdataprovidedby themanagement
to the independent external investment
advisor, to supporting evidence;
•
Assessed the reasonableness of cash flow
projection, challenging and performing audit
procedures on assumptions such as growth
rate, future revenue and costs, terminal
growth rate and discount rate by comparing
the assumptions to historical results, budgets
and comparing the current year’s results with
prior forecast and other relevant information;
•
Tested mathematical accuracy of cash flows
projection;
•
Performed independently a sensitivity
analysis in consideration of the potential
impact of reasonably possible upside or
downside changes in key assumptions; and
•
Assessed the appropriateness of disclosures
made in the financial statements.