Donaco International Limited / 2017 Annual Report Donaco International Limited / 2017 Annual Report 84 85 85 Donaco International Limited / 2017 Annual Report Donaco International Limited / 2017 Annual Report 84 Independent Auditor’s Report to the Members of Donaco International Limited Independent Auditor’s Report to the Members of Donaco International Limited 63 Decentralised operations Key Audit Matter How we addressed the key audit matter The consolidated entity comprises subsidiaries (components) whose operations are spread across Cambodia, Vietnam and Hong Kong. The decentralised and varied nature of these operations require significant oversight by management to monitor the activities, review financial reporting by the components, and undertake the group consolidation. This matter has been identified as a key audit matter given the following:  number and significance of the subsidiaries to the consolidated entity.  varied nature of the operations and accounting systems and processes.  manual nature of the consolidation process.  multiple foreign currencies involved. Our audit procedures included the following:  Visited the operations in Cambodia and Vietnam, and held discussions with the local management and component auditors in January 2017.  Held discussions with the component auditor of the subsidiaries based in Hong Kong.  Visited the component auditor of DNA Star Vegas Co. Limited in August 2017.  Tailored our group reporting instructions and designed audit procedures based on information obtained during the site visits and our assessment of the consolidated entity’s overall audit risks.  Maintained communication with the component auditors throughout the audit process.  Evaluated the work performed by the component auditors for sufficiency for our overall group audit purpose.  Agreed the financial data used in the consolidation to the component auditors’ group reporting.  Tested the mathematical accuracy of the consolidation workings, including reperforming foreign currency translations and evaluating the completeness and accuracy of the consolidation elimination entries. 64 Revenue recognition for casino revenue (Notes 1 and 4) Key Audit Matter How we addressed the key audit matter The consolidated entity’s revenue is predominantly made up of revenue from gaming. Revenue recognition for casino revenue is a key audit matter because of the high volume of transactions and the relationship with junket operators and joint venture partners that supports a significant portion of the revenue generating capability of the consolidated entity. Our audit procedures included the following:  Visited the casinos in Cambodia and Vietnam, in January 2017 to gain an understanding of the consolidated entity’s revenue recognition processes, including how gaming transactions with customers are initiated and settled, gaining an understanding of the impact of commission arrangements with junket operators, and forming a view about the key drivers and relationships that are used to monitor revenue.  Challenged the adequacy of revenue recognition accounting policies, classification and disclosures in the financial report. Revenue recognition accounting policies and disclosures have been enhanced in the financial report, including the restatement to the presentation of cash flows as disclosed in Note 1.  Considered whether the consolidated entity’s revenue recognition practices are consistent with industry practice, our knowledge of the business, and AASB 118 Revenue. Impairment assessment of intangible assets (Note 14) Key Audit Matter How we addressed the key audit matter The consolidated entity recorded a casino licence asset of $386.68 million as at 30 June 2017. The licence is classified as an intangible asset with indefinite useful life and is subject to annual impairment assessment. The impairment assessment of the intangible asset is a key audit matter because of the complexity and subjectivity involved, specifically in relation to the Fair Value less Cost of Disposal model adopted by management and the key assumptions that are used to determine the inputs to the assessment. Our audit procedures included the following:  Together with our accounting technical specialist, assessed whether the methodology used by management in the impairment assessment met the requirements of AASB 136 Impairment of Assets.  Assessed management’s determination of the cash generating unit (“CGU”) and the CGU’s carrying value.  Assessed reasonableness of cash flow forecasts by comparing the base year in the forecast calculation to the current year’s actual results.