Key Audit Matters (cont’d.) Impairment assessment of non-financial assets (cont’d.) Our response (cont’d.) a) Impairment assessment of right-of-use assets (“ROUA”) and property, plant and equipment (“PPE”) (cont’d.) As a result, there is a high degree of estimation uncertainty inherent in estimating the duration and severity of the economic downturn caused by the COVID-19 pandemic, and the pattern of any expected recovery. The estimates and assumptions used in the cash flow projections which form the basis of the recoverable amounts attributable to the CGUs require significant judgement. These judgements require estimates to be made over areas including 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. As the impairment assessment involves estimation and judgement arising from the above factors, this is a key area of focus for our audit. In addressing this area of audit focus, our audit procedures included, amongst others: • Assessed the arithmetical accuracy of the computations used in assessing the recoverable amount of the CGUs; • Involved internal specialists to assess the appropriateness of the discount rates applied in the respective discounted cash flow projections; and • Evaluated the adequacy of the Group’s disclosures of key assumptions used in estimations. Impairment assessment of non-financial assets (cont’d.) Our response (cont’d.) b) Impairment assessment of intangible assets Refer to Note 3.5 and Note 16 to the financial statements. The Group is required to perform annual impairment test of cash generating units (CGUs) to which intangible assets have been allocated. The Group estimated the recoverable amount of its CGUs based on the value-inuse (“VIU”) model. Estimating the VIU of CGUs involves estimating the future cash inflows and outflows that will be derived from the CGUs, and discounting them at an appropriate rate. Included in the Group’s intangible assets as at 31 December 2021 are: (a) goodwill amounted to RM103 million arising from step-up acquisition of BIGLIFE Sdn Bhd; (b) goodwill arising from consolidation of PT Indonesia AirAsia (“IAA”) amounted to RM38 million; (c) provisional goodwill arising from consolidation of Velox Technology (Thailand) Company Limited (“Velox”) amounted to RM161 million; and (d) landing rights arising from consolidation of IAA and AirAsia Inc (“PAA”) amounted to RM375 million and RM69 million, respectively. We focused on the impairment assessment of the intangible assets due to the magnitude of the balance and the subjectivity involved. Specifically, we focused on the assumptions applied in respect of revenue growth, cost escalation rates, terminal value and discount rates. 2 0 6 C A P I T A L A B E R H A D Independent Auditors’ Report (cont’d.) to the members of Capital A Berhad (formely known as AirAsia Group Berhad) (Incorporated in Malaysia)
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