Key Audit Matters (cont’d.) Going concern assessment (cont’d.) Our response (cont’d.) The Group and the Company reported loss for the year of RM3,721 million and RM64 million respectively for the financial year ended 31 December 2021, as well as net operating cash outflows of RM678 million and RM966 million respectively. As at 31 December 2021, the Group’s current liabilities exceeded the current assets by RM6,754 million. In addition, as at 31 December 2021, the Group reported negative shareholders’ funds of RM3,382 million. As disclosed in Note 2.1 to the financial statements, the Directors have prepared cash flow forecast as part of the assessment of whether the Group and the Company will be able to continue as a going concern. The going concern assessment was highly subjective as it is largely based on expectations of, and estimates made by the Directors which can be influenced by occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the Group. Critical to the going concern assessment are the Directors’ expectations of recovery in passenger numbers following the re-opening of domestic and international borders, the volatility of major operating costs and the continuous support from the aircraft lessors. Accordingly, we identified going concern assessment as an area requiring audit focus. In addressing this area of audit focus, we performed amongst others, the following procedures: (cont’d.) • As disclosed in Note 2.1 to the financial statements, whilst the successful renegotiation of terms with lessors have significantly improved the cost and cash flow management of the Group, the Group requires the continuous support from its lessors to allow flexibilities in terms of payments of the lease rentals until such time the Group reaches a tenable level of operation. To this end, the lessors have been very supportive of the Group since the onset of the COVID-19 pandemic. On this basis, the Directors believe that the Group will continue to receive support from its lessors. We corroborated this expectation by reviewing the correspondences between the Group and the lessors as well as performing enquiries with the major aircraft lessors. • We evaluated the evidence to corroborate the commitment provided by certain shareholders of the Group to maintain the sustainability of the Group’s operations; • We evaluated the estimates made by the Directors in respect of revenue forecasts against the International Air Transport Association’s forecast trajectory for the recovery in passenger numbers from COVID-19; and • We evaluated the estimates made by the Directors in respect of major operating costs such as fuel costs, salaries and aircraft maintenance against the Group’s business plans, historical results and external data on the expectation of future prices. Impairment assessment of non-financial assets Our response (cont’d.) a) Impairment assessment of right-of-use assets (“ROUA”) and property, plant and equipment (“PPE”) Refer to Note 3.1, Note 11 and Note 29 to the financial statements. At 31 December 2021, the carrying amount of ROUA and PPE of the Group are RM9,751 million and RM933 million, respectively. The Group is required to assess at the end of each reporting period whether there is any indication that an asset may be impaired. If any such indication exists, the entity shall estimate the recoverable amount of the asset. The COVID-19 pandemic has resulted in significant losses and a significant amount of economic uncertainty in the current and future economic environment in which the Group operates. The Group’s current and near-term cashflows have been negatively impacted due to global travel restrictions and the resultant global decrease in travel demand. The duration and severity of the crisis is dependent on events which are continuously unfolding and are beyond the control of the Group. In addressing this area of audit focus, our audit procedures included, amongst others: • Held discussions with senior management to understand the basis of the assumptions used in forming the estimates underpinning the assessment of the recoverable amount of the CGUs. These estimates include those relating to the timing of recovery of the COVID-19 pandemic, future revenues, operating costs, growth rates, projected aircraft usage, aircraft capital expenditure, foreign exchange rates and discount rates; • Assessed the key assumptions on which the cash flow projections are based, including, and where relevant, comparing them against financial and non-financial historical trends. We also referred to publicly available aviation industry reports relating to the impact COVID-19 pandemic has on global passenger demand, as well as local regulatory requirements and developments in the various jurisdictions that the Group operates in to gauge the possible timing of recovery; F I N A N C I A L S T A T E M E N T S A N N U A L R E P O R T 2 0 2 1 2 0 5
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