Report on the Audit of Financial Statements (Continued) Key Audit Matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements of the current year. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. In addition to the matter described in the Basis for Qualified Opinion section above, we have determined the matter described below to be the key audit matters to be communicated in our report. Key audit matter 1 Audit response Accounting for construction contracts (Refer to Notes 3.2, 4 and 30 to the financial statements) Revenue from construction contracts amounted to approximately $172,597,000 and it represented 100% of the total revenue of the Group for the financial year ended 30 September 2024. As at the financial year end, the Group provided $5,503,000 for the unavoidable costs of fulfilling certain construction contracts with customers, that were in excess of the economic benefits expected to be received under the contract. The provision for the onerous contracts is expected to be utilised throughout the remaining contract period. The Group’s core businesses are those of general and building contractors. Revenue from construction contracts is recognised by applying the cost-based input method that reflects the over-time transfer of control to its customers. The amount of revenue recognised is dependent on the stage of completion of the construction contracts, which is measured based on the proportion of contract costs incurred to date over the estimated total contract costs for each construction contract. The Group’s accounting policy on revenue recognition from construction contracts is set out in Note 2.4 to the financial statements. Significant judgement is required to estimate the total construction contract costs, variations or claims recognised as contract revenue, as well as provision for liquidated damages. These will affect the measure of progress and revenue and profit margins recognised from construction contracts. Accordingly, we have identified this area as a key audit matter. We performed the following audit procedures, amongst others: • Understood and evaluated the Group’s design and implementation of its system of internal controls relating to revenue recognition, with a focus on key controls; • Agreed the variation orders sum to the approved variation orders by customers; • Assessed the adequacy of provision for liquidated damages to be net off against contract revenue recognised (where relevant); • Tested the costs incurred for projects on a sample basis by checking that the costs are properly allocated to their respective contracts and that these costs are directly attributable to costs supported by suppliers’ invoices or other supporting documents; • Reviewed and assessed the estimated costs-to-complete for significant ongoing construction contracts by evaluating the reasonableness of the subcontractors’ expenses, estimated labour hours, estimated labour rates, materials costs, and overhead expenses; • Evaluated the reasonableness of the management’s budgets by comparing budgeted contract costs against actual contract costs for completed projects; • Obtained an understanding of the Group’s consideration of SFRS(I) 1-37 Provisions, Contingent Liabilities and Contingent Assets (“SFRS(I) 1-37”) in their application of the corresponding requirements of the standard and assess the appropriateness thereof; • Checked the arithmetical accuracy of the revenue recognised based on the input method computations; and • Reviewed the completeness and appropriateness of corresponding disclosures made in the financial statements. 54 KEONG HONG HOLDINGS LIMITED INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF KEONG HONG HOLDINGS LIMITED
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