ST Engineering Annual Report 2020

INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF SINGAPORE TECHNOLOGIES ENGINEERING LTD Our Audit Approach (continued) Key Audit Matter How our audit addressed the Key Audit Matter Impairment assessment of non-financial assets – goodwill Refer to Note C3 to the financial statements. As at 31 December 2020, the carrying value of the Group’s goodwill amounted to $786,379,000. Goodwill is allocated to the Group’s cash generatingunits (“CGU”) - AircraftMaintenance & Modification, Component/Engine Repair & Overhaul, Engineering & Material Services, Communication & Sensor Systems Group, Software Systems Group and Automotive. There is a risk of impairment of a certain CGU in the United States which is operating in a challenging business environment. In accordance with SFRS(I) 1-36, management is required to perform an impairment assessment of goodwill annually by comparing the recoverable amount of the CGU with its carrying amount to determine whether there is any impairment loss. For the purpose of impairment testing, the recoverable amount of the CGU is determined based on the value-in-use calculations, using cash flow projections. In the current financial year, impairment charge of $14,431,000 was recorded to reduce the carrying amount of the CGU to the estimated recoverable amount. We focused on this area because of the significant judgements required in estimating the revenue growth rate, gross profit margins, discount rate and terminal growth rate applied in computing the recoverable amount of the CGU. We have assessed the appropriateness of management’s identification of CGU and critically assessed the key assumptions used in the goodwill impairment assessment. Our audit procedures included the following: • evaluated management’s key assumptions relating to revenue growth rates, gross profit margins, discount rates and terminal growth rates and understood how management has considered the impact of theCOVID-19 pandemic and market uncertainty in their estimates. • reviewed the basis and methodology used to derive the recoverable amount of the CGU. • assessed the appropriateness of management assumptions by comparing to past historical performance and considering the current developments arising from the COVID-19 pandemic. • performed sensitivity analysis on management assumptions relating to revenue growth rates, gross profit margins, discount rates and terminal growth rates. • involved our valuation experts to evaluate the appropriateness of management’s assumptions, relating to terminal growth rates and discount rates, by developing an independent expectation using economic and industry forecasts and rates of comparable companies with consideration for specific jurisdiction factors. • considered the adequacy of the disclosures in the financial statements. Based on the audit procedures performed above, we found management’s judgement and assumptions in relation to the determination of the recoverable amount to be appropriate, and the disclosure in this respect to be adequate. 14 1 ANNUAL REPORT 2 0 2 0 / CORPORATE OVERVI EW PERFORMANCE REVI EW SUSTAINABI L ITY CORPORATE GOVERNANCE F INANCIAL REPORT