Independent auditor’s report For the financial year ended 31 December 2023 Key audit matters (cont’d) We have identified the following matters as key audit matters: (i) Impairment assessment of goodwill SFRS(I) 1-36 Impairment of Assets requires goodwill to be tested for impairment annually or more frequently if events or changes in circumstances indicate that it might be impaired. At the beginning of the financial year, the carrying amount of the Group’s goodwill amounted to Rp3,084.6 billion. During the financial year, the Group recognised an impairment loss of Rp6.1 billion to impair the goodwill allocated to a single cashgenerating unit (“CGU”) as the recoverable amount was lower than the carrying amount of the goodwill and net assets of the CGU. As at 31 December 2023, the carrying amount of the Group’s goodwill amounted to Rp3,078.5 billion. The goodwill impairment assessment is significant to our audit because the goodwill balance of Rp3,078.5 billion, which arose largely from the acquisition of PT Perusahaan Perkebunan London Sumatra Indonesia (“Lonsum”), is material to the consolidated financial statements and the recoverable amount of the goodwill and the underlying assets associated with the acquired entities is determined by a value-in-use calculation using income approach which is complex, highly judgemental and subjective. Management engaged an independent valuer to determine the recoverable amount of the goodwill, only for Lonsum’s integrated plantation estates. The plantation estates under Lonsum are identified as a single cash-generating unit (“CGU”) for impairment testing. The recoverable amount of other goodwill from other acquisitions were determined internally by management. Under the income approach, the expected future cash flows are discounted to the present value by using a discount rate. The estimation of future cash flows requires management to make various key operational assumptions, such as fresh fruit bunch (“FFB”) yield rate, extraction rate, and predictive assumptions such as projected selling price, inflation rate, exchange rate and terminal growth rate. We reviewed the independent valuation report and assessed the expertise, objectivity and competence of the independent valuer. We reviewed the discounted cash flow model to assess the appropriateness of the methodology employed by the valuer and management and the reasonableness of the key assumptions made. We compared the operational assumptions against historical data and trend to assess their reasonableness. We engaged the assistance of our internal valuation specialist to assess the reasonableness of the key predictive assumptions (among others, discount rate, inflation rate, exchange rate, projected crude palm oil selling price, and terminal growth rate) used. We also performed sensitivity analysis on the value-inuse amount based on reasonably possible changes in key assumptions. We also reviewed the adequacy of the note disclosures concerning those key assumptions to which the outcome of the impairment test is most sensitive. The Group’s disclosures about goodwill are in Note 16 to the financial statements, which explain that changes in the key assumptions used could give rise to an impairment of the goodwill balance in the future. 58 GROUP OVERVIEW OPERATION AND FINANCIAL REVIEW SUSTAINABILITY & GOVERNANCE FINANCIALS OTHER INFORMATION Indofood Agri Resources Ltd
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