Sustainability and Governance Report
Independent Auditor's REPORT
Key audit matters (cont'd)
Valuation of inventories
As of 31 March 2020, the Group's inventories amounted to $11.4 million. An amount of $0.6 million has been provided for inventory write-downs. The Group's inventories comprise
a range of fashion apparel, sports apparel and accessories for sale at its retail stores, wholesale and e-commerce businesses in Taiwan.
The Group records its inventories at the lower of cost and net realisable value. Where necessary, allowance is provided for damaged, obsolete and slow-moving items to adjust
the carrying value of inventories to the lower of cost and net realisable value. The Group's total inventory balance represents a significant portion of the Group's total assets and
inventory write-downs require significant management judgement to estimate the inventories' net realisable value. The net realisable value of the Group's inventories is affected by
their age, prevailing retail market conditions and consumer behaviors in the context of the increased economic uncertainties brought on by the COVID-19 pandemic. Accordingly,
we have determined this to be a key audit matter.
As part of the audit procedures, we checked the sales margins achieved for a sample of inventory items to assess that inventories are stated at the lower of cost and net
realisable values. We reviewed management's basis for making inventory allowances based on their aging, checked that allowance amounts are in line with the Group's policy for
inventory impairment assessment and evaluated management's considerations pertaining to the relevant retail market conditions, consumer behaviors and historical allowance
experience that affected their judgement and estimate. We involved the auditors of the subsidiary in carrying out these procedures and reviewed their working papers to evaluate
the nature and extent of the procedures performed and assessed the evidence obtained as a basis for forming an audit opinion on the consolidated financial statements.
We also reviewed the adequacy of the Group's disclosures related to inventories in Note 11 of the Group's financial statements.
Recoverability of amounts due from related parties
As of 31 March 2020, the Group's amounts due from related parties amounted to $3.6 million and an allowance for expected credit losses ("ECL") of $0.1 million has been
provided for the doubtful recovery of long outstanding receivables.
The Group has assessed the recoverability of these balances and estimated the ECL allowance as at year end using significant judgement by incorporating various factors such
as their assessment of the related parties' credit worthiness based on the aging of the receivables, available credit enhancements, historical repayment, refinancing and credit
loss patterns and the current and forward-looking factors specific to the related parties and the economic environments where they operate in. This estimation is further affected
by the economic uncertainty brought on by the COVID-19 pandemic. Accordingly, we determined that this is a key audit matter.
As part of the audit procedures in evaluating management's assessment of the recoverability of these balances and estimation of the ECL allowance, we reviewed the
management's assessment of the Group's processes relating to extending credit and settling of amounts due from related parties. We requested debtors' confirmations and
reviewed related correspondences between the Group and the related parties. We also reviewed the aging and any refinancing of the receivables, checked to evidence of
repayment histories and subsequent receipts or settlement arrangements after the year end and considered the effects of the available credit enhancements. We evaluated
management's assessment of the credit worthiness of the related parties, including related parties providing the credit enhancements and the forward-looking adjustments made
by reviewing both internal and external information and data used by management. We also checked the arithmetic accuracy of the ECL allowance computation. We involved the
auditors of the subsidiaries in carrying out these procedures and reviewed their working papers to evaluate the nature and extent of the procedures performed and assessed the
evidence obtained as a basis for forming an audit opinion on the consolidated financial statements.
We also reviewed the adequacy of the Group's disclosures related to amounts due from related parties and the related risks such as credit risk and liquidity risk in Notes 28(c)
and 28(d) to the financial statements.
39View entire presentation