Page 205 - S P Setia Annual Report 2016
P. 205

S P Setia Berhad Group                                                                                203
          Annual Report 2016

                                                                                     Independent Auditors’ Report

                                                                       To The Members Of S P Setia Berhad (Incorporated In Malaysia)


          Key Audit Matters (cont’d.)

          (a)   Revenue and cost of sales from property development activities recognised on percentage of completion method (cont’d.)

              In assessing the appropriateness of the extent of costs incurred, total estimated costs of construction and total estimated revenue
              collectively, we have:

              -    Obtained an understanding of the process in deriving the stage of completion which includes verifying the certified work done
                   such as examining the progress claims from contractors and architect certification. We also observed the progress of the property
                   development phases by performing site visits for individually significant ongoing projects.

              -    Verified the project development budgeted costs against the letter of award issued to contractors.

              -    Verified the gross development value against the signed sales and purchase agreement and estimated selling price of the unsold
                   development to the latest transacted selling price.

              -    Considered the stage of completion of individually significant ongoing development projects to the expected handover date to
                   determine the adequacy of provision for late ascertained damages, if any.

              -    Checked the mathematical  accuracy of the revenue and profit based on the percentage of completion calculations and
                   considered the implications of identified errors and changes in estimates.

              The Group’s accounting policies and disclosures on property development activities based on percentage of completion method are
              disclosed in Notes 1(s)(i), 1(c)(ii), 12, 27 and 28 respectively to the financial statements.

          (b)   Capitalisation of borrowing costs

              The Group capitalise borrowing costs during the period in which development activities are being undertaken or there is ongoing
              development activities which benefits the entire township. During the financial year ended 31 December 2016, borrowing costs of
              RM55,582,000, RM74,455,000 and RM21,326,000 were capitalised to property development costs, land held for property development
              and investment properties respectively.

              We identified capitalisation of borrowing costs as an area requiring audit focus as it involves significant management judgement
              in determining whether the development activities meet the criteria of an active development. In addition, there is also significant
              management estimates in determining the apportionment of borrowing cost that is entitled to be capitalised.

              Our procedures in relation to management assessment of the capitalisation of borrowing costs includes:

              -    Reading loan agreements to obtain understanding of the purpose of the loan, as only the borrowing costs that arose from loan
                   that is drawn down for development purposes are allowed to be capitalised.

              -    Checking the calculation of borrowing costs capitalised by verifying the inputs of the calculation such as basis of allocation,
                   interest rates and principal amounts.

              The Group’s accounting policies and disclosures on capitalisation of borrowing costs are disclosed in Notes 1(v), 3, 4 and 12 respectively
              to the financial statements.
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