Independent auditor’s report For the financial year ended 31 December 2023 Key audit matters (cont’d) (ii) Impairment assessment of property, plant and equipment SFRS(I) 1-36 Impairment of Assets requires the Group to assess at the end of each reporting period whether there is any indication that an asset may be impaired. If any such indication exists, the entity shall estimate the recoverable amount of the asset. The Group identified the existence of impairment indicators on certain rubber bearer plants included under property, plant and equipment upon consideration of the market environment, conditions of the rubber plantations, production yield and the outlook of these plantation estates and determined the recoverable amount based on fair value less costs of disposal (“FVLCD”), using discounted cash flow method. During the financial year, the Group recorded an impairment loss of Rp183.4 billion to reduce the carrying amount of certain rubber bearer plants to their estimated recoverable amounts. For the remaining rubber bearer plants, management concluded that the recoverable amount was higher than their carrying amounts and hence no impairment loss was required. As at 31 December 2023, the carrying amount of Group’s bearer plants included under property, plant and equipment amounted to Rp10,787.6 billion, net of impairment loss recognised during the financial year. The impairment loss recorded is material to the financial statements and the recoverable amount of the rubber bearer plants is determined using discounted cash flow method, which is complex, highly judgemental and subjective. Accordingly, we identified this as a key audit matter. The recoverable amount of the rubber bearer plants was 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 projected production yield, and predictive assumptions such as projected rubber selling price, inflation rate, exchange rate and terminal growth rate. We reviewed the discounted cash flow model to assess the appropriateness of the methodology adopted by 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 rubber selling price and terminal growth rate) used and determined the recoverable amount of the rubber bearer plants with impairment indicators. We also reviewed the adequacy of the Group’s disclosures in Note 14 to the financial statements. 59 GROUP OVERVIEW OPERATION AND FINANCIAL REVIEW SUSTAINABILITY & GOVERNANCE FINANCIALS OTHER INFORMATION Annual Report 2023
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