Page 178 - Pakistan Oilfields Limited - Annual Report 2021

S.No. Key Audit Matters How the matter was addressed in our audit
(ii) Investment in associated companies
(Refer note 17 to the consolidated financial
statements)
The Group has investment in its associated Our audit procedures in relation to assessment of carrying
companies National Refinery Limited (NRL) value of investment in associated companies, amongst
and Attock Petroleum Limited (APL). As others, included the following:
at June 30, 2021, the carrying amount of
investment in above referred companies
amounted to Rs 10,459 million (net of
recognised impairment loss of Rs 3,809
million) and Rs 2,837 million respectively.
The carrying amount of APL is higher by Rs
595 million in relation to the quoted market
value of its shares.
The Group carries out impairment
assessment at each reporting period end
of the value of investment where there are
indicators of impairment. The Group has
assessed the recoverable amount of the
investment in associated companies based
on the higher of the value-in-use (“VIU”) and
fair value (quoted market price as at June
30, 2021). VIU is based on valuation analysis
carried out by the independent external
investment advisor for NRL and by the
management’s expert for APL. VIU is based
on a discounted cash flow model which
involves estimation of future cash flows.
This estimation is inherently uncertain and
requires significant judgement on both
future cash flows and the discount rate
applied to the future cash flows.
In view of significant management
judgement involved in the determination
of recoverable value i.e. higher of VIU and
fair value, we considered this as a key audit
matter.
176 PAKISTAN OILFIELDS LIMITED
• Assessed the appropriateness of management’s
accounting for investment in associated
companies;
• Understood management’s process for
identifying the existence of impairment
indicators in respect of investment in associated
companies;
• Evaluated the independent external investment
advisor’s and management expert’s competence,
capabilities and objectivity;
• Made inquiries of the independent external
investment advisor/ management expert and
assessed the valuation methodology used;
• Checked, on sample basis, the reasonableness
of the input data provided by the management
to the independent external investment advisor
and the management’s expert, to supporting
evidence;
• Assessed the reasonableness of cash flow
projections, challenging and performing audit
procedures on assumptions such as growth rate,
future revenue and costs, terminal growth rate
and discount rate by comparing the assumptions
to historical results, budgets and comparing the
current year’s results with prior year forecast and
other relevant information;
• Checked mathematical accuracy of cash flows
projections;
• Performed independently a sensitivity analysis
in consideration of the potential impact of
reasonably possible upside or downside changes
in key assumptions; and
• Checked quoted price of investment in NRL and
APL as of June 30, 2021 with publicly available
stock exchange data; and
• Assessed the adequacy of the Company’s
disclosures in the financial statements in this
respect