140 F INANC IAL Statements 05 Sect ion Ranhi ll Ut i l i t i es Berhad Key Audit Matters (contd.) Revenue recognition on sale of treated water (“water revenue”) (contd.) Our key audit procedures are as follows: • Obtained an understanding of the revenue process, evaluated the design of relevant controls over revenue recognition and assessed the implementation of the said controls and tested operating effectiveness of relevant manual controls on revenue recognition; • Performed substantive analytical procedure on the movement of water revenue year on year and throughout the year under audit against our understanding of the business; • Involved our information technology specialists to test General IT controls of the water billing information system and financial reporting system; • Agreed the revenue amount in the general ledger to water billing information system; • Performed re-computation on the water revenue recognised in the water billing information system based on the consumption and the tariff rate approved by the relevant authority and implemented by management during the current financial year; • Evaluated management’s judgement on revenue impact arising from changes to water tariff during the financial year; and • Evaluated management’s estimation of unbilled revenue at year-end by comparing such amount to the actual billings raised subsequent to the year-end. Recognition of government grant on meeting year 2021 NRW target (Refer Note 8 – Other income, Note 13 – Income tax expenses, Note 24(d) – Trade and other receivables, Note 3 – Government grants, Note 4(a)(v) - Recognition of government grant on meeting year 2021 NRW target) During the year, the Group qualified and applied for a government grant under the National Non-Revenue Water (“NRW”) Rate Reduction Programme announced through the 12th Malaysia Plan (Year 2021-2025). Under this programme, entities that meet the NRW target are entitled to claim for a government grant for the reimbursement of relevant expenses incurred based on the established terms and conditions. The Group has recognised RM142.3 million as other income and other receivables and the related estimated tax expense of RM13.9 million in this respect in the current financial year. On 19 September 2022, the National Water Services Commission (“SPAN”) informed Ranhill SAJ Sdn Bhd (“RanhillSAJ”), a subsidiary of the Company, that the Ministry of Environment and Water (currently known as the Ministry of Natural Resources, Environment and Climate Change (“NRECC”)) has agreed with RanhillSAJ on their achievement of the NRW target for the year 2021. RanhillSAJ then submitted supporting documents relevant to the NRW expenses for SPAN’s review on 29 November 2022. Upon completion of SPAN’s review of the supporting documents, RanhillSAJ received a confirmation letter from SPAN dated 19 January 2023 awarding a government grant amounting to RM142.3 million. On 2 March 2023, RanhillSAJ received a further confirmation letter from SPAN that NRECC has also concurred with the awarding of the grant. The Group determined that the government grant is related to income and also applied judgement that the recognition criteria of the government grant was fulfilled in the current financial year. The management determined that the confirmation letters from SPAN and NRECC that were received after the end of the current financial year were administrative in nature considering, among others, the availability of funds allocated under the 12th Malaysia Plan (Year 2021-2025) by the Government of Malaysia, the accuracy of their estimated grant amount at year end when compared to the final confirmatory letters and that the 2021 NRW target was met. In addition, management had applied significant estimates to determine the related tax expenses arising from this grant according to the nature of the relevant NRW expenses. Accordingly, we have identified recognition of government grant as a key audit matter. INDEPENDENT AUDI TORS ’ REPORT To the Members of Ranhill Utilities Berhad (Incorporated in Malaysia)
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