Annual Report 2021

INDEPENDENT AUDITOR’S REPORT 36 The United Laboratories International Holdings Limited Annual Report 2021 KEY AUDIT MATTER (Continued) Key audit matter How our audit addressed the key audit matter Impairment assessment of trade receivables and consideration receivables We identified the valuation of the trade 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 consideration receivables. The loss rates are estimated based on recoverable amount of the underlying assets, the potential transaction cost of recovering the consideration receivables as well as the financial position and credit risk of the debtor. At 31 December 2021, the net carrying value of the trade receivables and consideration receivables was approximately RMB1,601,889,000 and nil, with allowance for credit losses of approximately RMB22,309,000 and RMB339,574,000, respectively. Details relating to the Group’s trade receivables and consideration receivables and the ECL assessment are set out in Notes 23 and 38 to the consolidated financial statements, respectively. Our audit procedures in relation to the valuation of the trade receivables and consideration receivables included: • Obtained an understanding of the process relating to the allowance for credit losses o f t r ade r ece i vab l es and cons i de r a t i on 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 and consideration receivables and tested the accuracy by checking the aging of selected invoices and instalment schedule on a sample basis; and • Reviewed the presentation and disclosure of the trade receivables and consideration receivables for the compliance with relevant HKFRSs.