Annual Report 2019

103 ANNUAL REPORT 2019 KEY AUDIT MATTERS (CONTINUED) Key audit matter How our audit addressed the key audit matter Impairment assessment of goodwill allocated to ports operation in Pearl River Delta (“PRD”) and Brazil We identified the impairment assessment of goodwill allocated to the Group’s ports operation in PRD and Brazil as a key audit matter due to the involvement of significant management judgement and assumptions in this assessment. As disclosed in note 16(b) to the consolidated financial statements, the carrying amount of goodwill allocated to the Group’s ports operation in PRD amounted to HK$2,345 million and that in Brazil amounted to HK$3,959 million as at 31 December 2019. For the purpose of assessing impairment, the recoverable amount of the Group’s ports operation in PRD has been determined by the management of the Group based on value in use calculations using financial budgets based on past performance and expectation for market development, where the key inputs parameters include growth rates and discount rates. The recoverable amount of the Group’s ports operation in Brazil has been determined by the management of the Group based on the fair value less costs of disposal of a recent transaction. Based on the management’s assessment, there is no impairment of goodwill allocated to any of the Group’s ports operation in PRD or Brazil as at 31 December 2019 based on the calculations of value in use and fair value loss costs of disposal, of PRD and Brazil respectively. Our procedures in relation to the impairment assessment of goodwill of the Group’s ports operation in PRD and Brazil included: • Working with our internal valuation specialists to assess the appropriateness of basis of calculation of the value in use and fair value less costs of disposal, prepared by the management; • Evaluating the reasonableness of the management's estimate of growth rates in determining the value in use with reference to the historical performance and the latest budgets of the Group and market data; • Working with our internal valuation specialists to assess the reasonableness of the discount rates used by the management in determining the value in use with reference to the current market risk-free rate of interest and the industry specific risk factor; • Working with our internal valuation specialists to assess the reasonableness of the valuation model used by the management in determining the fair value less costs of disposal by reference to the recent transaction of the operating entity engaging in the Group's ports operation in Brazil; and • Checking the mathematical accuracy of the management's estimates of the value in use calculation of the recoverable amount of the Group's ports operation in PRD and fair value less costs of disposal of the recoverable amount of the Group's ports operation in Brazil.