111 ANNUAL REPORT 2023 Revenue recognition on project contracts The Group recognised project revenue of $322,586,000 for the financial year ended 31 December 2023 and the carrying amounts of contract assets and contract liabilities arising from these projects amounted to $124,765,000 and $96,703,000 respectively. The Group recognised revenue from project contracts using the input method that reflect the overtime transfer of control to its customers, which is measured by reference to the Group’s progress towards completing the performance obligation on the contract. The measure of progress is determined by reference to the contracts costs incurred to date as a percentage of the total estimated costs for each contract. The determination of total budgeted costs, progress towards completion, variation orders and claims, remaining costs to completion as well as project’s status for each contract requires significant management judgement and estimation, and may have an impact on the amounts of project revenue, contract assets and contract liabilities recognised during the year. We therefore identified this to be key audit matter. As part of the audit, we obtained an understanding of the Group’s costing and budgeting processes. In evaluating management’s budgeting process, we compared the budgeted costs to actual costs incurred to date, and assessed reasonableness on the remaining costs to be incurred to complete the projects, taking into consideration the current economic conditions on the project progress and profitability. For significant projects, we reviewed the terms and conditions of the contracts, and cost incurred. For potential disputes or variation claims, we tested their occurrence and measurement via review of correspondence with customers and contractors. We also inquired with the Group finance and operational management regarding the project status, budgeted costs to complete, provision for onerous contracts or liquidated damages, and where applicable, assessed the estimates of costs to complete and reasonableness of the provision for onerous contracts, if any. Further, we assessed the adequacy of the Group’s disclosures on project revenue in Note 19 to the financial statements. Impairment assessment of trade receivables and contract assets Trade receivables and contract assets balances amounted to $110,309,000 and $124,765,000 respectively as of 31 December 2023 and were significant to the Group as they represented 39% of the Group’s total assets. The Group uses a provision matrix to calculate the expected credit losses (ECLs) for trade receivables and contract assets. The provision matrix is based on historical default rates, existing economic conditions, adjusted for forward looking information at each reporting period. The determination of ECL requires the use of management judgement and estimates, and is sensitive to changes in circumstances and economic conditions. Given the magnitude of the amounts and the use of significant management judgement in assessing the ECLs, we have identified impairment on trade receivables and contract assets to be a key audit matter. As part of the audit, we obtained an understanding of the Group’s processes and controls relating to the impairment assessment of trade receivables and contract assets. We performed procedures on existence and assessed post year end receipts for key trade receivables. We tested management’s assumptions used to determine the ECLs on the trade receivables and contract assets, by considering the Group’s historical credit loss experience, ageing analysis of outstanding receivables, customer profile and local jurisdiction risks and comparison to forward-looking macroeconomic information affecting the recoverability of trade receivables and contract assets. Further, we assessed the adequacy of the Group’s disclosures on trade receivables and contract assets, and the related credit risk and liquidity risk in Notes 11 and 9 to the financial statements. INDEPENDENT AUDITOR’S REPORT For the financial year ended 31 December 2023
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