Annual Report 2019

INDEPENDENT AUDITOR’S REPORT 37 The United Laboratories International Holdings Limited Annual Report 2019 KEY AUDIT MATTER (Continued) Key audit matter How our audit addressed the key audit matter Valuation of embedded derivative components of convertible bonds We identified the valuation of the embedded derivative components of the convertible bonds issued by the Group as a key audit matter as the valuation model is sensitive to changes in certain key inputs including volatility of share prices and dividend yield that require significant management estimates. As at 31 December 2019, the carrying value of the embedded derivative components of the convertible bond s wa s a pp r ox ima t e l y RMB297, 471 , 0 0 0 , with a loss on fair value change of approximately RMB110,117,000 for the year then ended recorded in the consolidated statement of profit or loss and other comprehensive income. Details relating to the Group’s embedded derivative components of the convertible bonds are set out in Note 32 to the consolidated financial statements. Our audit procedures in relation to the valuation of the embedded derivative components of the convertible bonds included: • Read i ng t he t e rms o f t he subsc r i p t i on ag r eemen t s t ha t cons t i tu t e embedded derivatives and reviewing the accounting treatment to assess if there were any current year’s changes that needed to be taken into account in our assessment of the valuation of the convertible bonds; • Evaluating an independent professional va l ue r ’ s compe t ence , c apab i l i t i es and objectivity; • Involving our internal valuation specialists to review and assess whether the valuation model used by the independent professional valuer was appropriate and whether the key assumptions used in the valuation model including volatility of share prices and dividend yield were reasonable; and • Reviewing the presentation and disclosure of the convertible bond to comply with relevant HKFRSs.