INDEPENDENT AUDITOR'S REPORT (CONTINUED)
KEY AUDIT MATTERS (Continued)
Assessing the net realisable value of properties under development for sale ("PUD") owned by the Group and a joint venture
Refer to note 1 (accounting policy) and note 17 to the consolidated financial statements
The Key Audit Matter
The PUD projects of the Group are located in Hong Kong and held either directly or through its joint venture, which are stated at lower of cost and net realisable
value.
The determination of the net realisable value of the PUD
projects are performed by management. It involves significant judgement and estimation in preparing and updating project feasibility studies and estimations of the costs to complete the property development projects as well as in assessing the expected future selling prices for the properties and the expected future selling costs.
Changes in government policies in relation to the stamp duty regime, restrictions on residential property mortgage loans and the impact of the global economy on local interest rates could lead to volatility in property prices in Hong Kong.
We identified the assessment of net realisable value of the PUD projects owned by the Group and its joint venture as a key audit matter because of the inherent risks involved in estimating the costs to complete each property development project and in estimating the future selling prices for each property development project.
How the matter was addressed in our audit
Our audit procedures to assess the net realisable value of the PUD projects included the following:
obtaining management's assessment of the net realisable value of each PUD project and discussing with management the development progress of each project;
conducting site visits to the PUD projects to observe the development progress and comparing the observed development progress with management's records;
discussing with management their valuation methodology and challenging the key estimates and assumptions adopted, including expected future selling prices and costs to completion, by comparison with recently transacted prices for similar properties or the prices of comparable properties located in the nearby vicinity of the PUD projects and by comparison with market statistics for estimated construction costs, signed construction contracts and/or unit construction costs of recently completed projects developed by the Group;
performing sensitivity analyses by making adjustments to the key estimates and assumptions adopted by management in the determination of net realisable value to assess the risk of possible management bias
in the net realisable value assessment exercise.
Hong Kong Ferry (Holdings) Company Limited
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Annual Report 2018