DONACO INTERNATIONAL LIMITED 2018 ANNUAL REPORT 80 81 DONACO INTERNATIONAL LIMITED 2018 ANNUAL REPORT 81 80 Impairment assessment of intangible assets (Note 14) KEY AUDIT MATTER HOW WE ADDRESSED THE KEY AUDIT MATTER The consolidated entity recorded a casino licence asset of $251.61 million as at 30 June 2018. The licence is classified as an intangible asset with indefinite useful life and is subject to annual impairment assessment. Impairment of $143.86 million was recognised in the statement of profit or loss and other comprehensive income for the year based on the annual impairment assessment made as at 31 December 2017. At 30 June 2018, management performed an impairment indicators assessment and concluded that no further impairment testing was required. The impairment assessment of the intangible asset is a key audit matter because of the complexity and subjectivity involved, specifically in relation to the Fair Value less Cost of Disposal model adopted by management and the key assumptions that are used to determine the inputs to the assessment. Our audit procedures included, amongst others, the following: Annual impairment assessment made as at 31 December 2017 • Assessed management’s determination of the cash generating unit (‘CGU’) and the CGU’s carrying value. • Assessed reasonableness of cash flow forecasts by comparing the base year in the forecast calculation to the current period’s actual results. • Assessed the appropriateness of the currency used in the model. The cash flow forecast is calculated in the Thai baht (THB) and translated to the US dollar (USD) at the valuation date. • Together with our valuation specialists, assessed reasonableness of the key assumptions used, being revenue growth rate, discount rate, terminal growth rate and discount for lack of marketability. • Together with our valuation specialists, tested the mathematical accuracy and components of the model that supports the impairment assessment. • Checked the sensitivity of the impairment assessment by focusing on the discount for lack of marketability and THB/ USD translation rate. • Evaluated the adequacy of the judgements and sources of estimation uncertainty disclosures in the consolidated financial report. Management’s conclusion that there was no further impairment indications as at 30 June 2018 • Held discussions with management and assessed the reasonableness of the management’s impairment indicators assessment. • Assessed the reasonableness of the market inputs used by management in calculating the discount rate as at 30 June 2018. • Reviewed reasonableness of the management’s forecast for the year ending 30 June 2019. INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF DONACO INTERNATIONAL LIMITED INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF DONACO INTERNATIONAL LIMITED Contingent assets and liabilities (Note 39) KEY AUDIT MATTER HOW WE ADDRESSED THE KEY AUDIT MATTER The group is a party to several ongoing legal actions both initiated by and directed against its subsidiaries. Outcomes of these proceedings were uncertain at 30 June 2018. We determined this to be a key audit matter given the materiality of the amounts involved together with the level of judgement required in assessing the developments to ensure they are appropriately reflected in the financial report. Our audit procedures, amongst others, included the following: • obtained a list of litigation matters and held discussions with management on the status and outcome of each matter up to the date of this audit report • reviewed all solicitor’s representation letters, including those received by the component auditors of DNA Star Vegas Co. Limited and Donaco Hong Kong Limited • held discussions with the component auditors of DNA Star Vegas Co. Limited and Donaco Hong Kong Limited to gain understanding of the impact on the consolidated financial report. Reviewed group reporting package received • ensured completeness and accuracy of the disclosures included in the consolidated financial report. Bank loan covenant compliance (Notes 18 and 22) KEY AUDIT MATTER HOW WE ADDRESSED THE KEY AUDIT MATTER The group’s liabilities included a bank loan from Mega International Commercial Bank Co Ltd of $63,195,552 at 30 June 2018, with $41,483,011 classified a non-current. The loan agreement included certain covenants that, if breached by the group, permitted the lender to demand repayment before the loan’s normal maturity date. We determined this to be a key audit matter given the magnitude of the potential impact on the consolidated statement of financial position and the going concern asessment if the covenants were breached and the borrowings were to be reclassified as a current liability. Our procedures included, amongst others: • reviewed bank loan agreements to identify covenants requirements • reviewed a letter from Mega International Commercial Bank Co Ltd that approved an amended covenant ratio to be effective for 30 June 2018 compliance reporting • reviewed the management’s covenant calculation and assessed compliance to the amended covenant ratio • assessed appropriateness of the bank loan classification in the consolidated statement of financial position as at 30 June 2018 and adequacy of the disclosures in Notes 18 and 22. Other information The directors are responsible for the other information. The other information comprises the information included in the consolidated entity’s annual report for the year ended 30 June 2018, but does not include the financial report and our auditor’s report thereon. Our opinion on the financial report does not cover the other information and accordingly we do not express any form of assurance conclusion thereon. In connection with our audit of the financial report, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial report or our knowledge obtained in the audit or otherwise appears to be materially misstated.