Basic HTML Version
184
PAKISTAN OILFIELDS LIMITED
S.No. Key Audit Matters
How the matter was addressed in our audit
(ii)
Investment in associated companies
(Refer note 18 to the consolidated financial
statements)
The Group has investment in its associated
companies National Refinery Limited (NRL)
and Attock Petroleum Limited (APL). As
at June 30, 2020, the carrying amount of
investments in above referred associated
companies amounted to Rs 8,396 million (net
of recognised impairment loss of Rs 5,434
million) and Rs 2,537 million respectively
which carrying values are higher by Rs 6,252
million and Rs 406 million respectively
in relation to the quoted market value of
their respective shares. The Group carries
out impairment assessment of the value of
investment where there are indicators of
impairment.
The Group has assessed the recoverable
amounts of the investments in associated
companies based on the higher of the
value-in-use (“VIU”) and fair value. The VIU
of NRL and APL are based on valuation
analysis carried out by independent
external investment advisor and by the
management’s expert in respective cases.
The VIU analysis are based on 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
VIU we consider this as a key audit matter.
Our audit procedures in relation to assessment of
carryingvalueof investment inassociatedcompanies,
amongst others, included the following:
•
Assessed
the
appropriateness
of
management’s accounting for investment in
associated companies;
•
Considered management’s process for
identifying the existence of impairment
indicators in respect of investment in
associated companies;
•
Evaluated
the
independent
external
investment advisor and management
expert’s competence, capabilities and
objectivity;
•
Assessed the valuation methodology used
by the independent external investment
advisor and management expert;
•
Checked,
on
sample
basis,
the
reasonableness of the input data provided
by the management to the independent
external investment advisor/ used by
the management’s expert, 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 year 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.