Annual Report 2020

INDEPENDENT AUDITOR’S REPORT 34 The United Laboratories International Holdings Limited Annual Report 2020 KEY AUDIT MATTER (Continued) Key audit matter How our audit addressed the key audit matter Impairment assessment of trade receivables, commercial bills receivables and consideration receivables We identified the valuation of the trade receivables, commercial bills receivables and consideration receivables as a key audit matter as the assessment of expected credit loss (“ECL”) is highly subjective and requires significant management judgments and assumptions. The Group estimates the ECL on trade receivables using a provision matrix, and performs individual assessment on commercial bills receivables and consideration receivables. The loss rates are estimated based on historical credit loss experience or with reference to the data from the external credit rating agency, adjusted for forward-looking factors specific to the debtor’s industry and the macro economic environment. At 31 December 2020, the net carrying value of the trade receivables, commercial bills receivables and consideration receivables was approximately RMB 1 , 4 0 0 , 7 5 3 , 0 0 0 , RMB 2 0 8 , 7 2 0 , 0 0 0 a n d RMB263,679,000, with allowances for credit losses of approximately RMB19,697,000, RMB35,390,000 and RMB44,709,000, respectively. Details relating to the Group’s trade receivables, commercial bills receivables and consideration receivables and the ECL assessment are set out in Notes 24 and 39 to the consolidated financial statements, respectively. Our audit procedures in relation to the valuation of the trade receivables, commercial bills receivables and consideration receivables included: • Obtained an understanding of the process relating to the allowance for credit losses of trade receivables, commercial bills receivables and consideration receivables; • Evaluated the reasonableness of the key judgments and assumptions relating to calculation of probabilit y of default and forward-looking factor made in the ECL model; • Evaluated the completeness, accuracy and relevance of data used in the ECL model and checked the arithmetic accuracy of the calculations; • Obt ained the full aging report of trade receivables, commercial bills receivables and consideration receivables and tested the accuracy by checking the aging of select invoices and instalment schedule on a sample basis; and • Reviewing the presentation and disclosure of the trade receivables, commercial bills receivables and consideration receivables to comply with relevant HKFRSs.