Integrated Annual Report 2022/23

Independent Auditors’ Report

 

TO THE SHAREHOLDERS OF EXPOLANKA HOLDINGS PLC

Report on the audit of the Consolidated Financial Statements

Opinion

We have audited the financial statements of Expolanka Holdings PLC (“the Company”) and the consolidated financial statements of the Company and its subsidiaries (“the Group”), which comprise the statement of financial position as at 31 March 2023, and the income statement and the statement of comprehensive income, statement of changes in equity and statement of cash flows for the year then ended, and notes to the financial statements, including a summary of significant accounting policies.

In our opinion, the accompanying financial statements of the Company and the Group give a true and fair view of the financial position of the Company and the Group as at 31 March 2023, and of their financial performance and cash flows for the year then ended in accordance with Sri Lanka Accounting Standards.

Basis for opinion

We conducted our audit in accordance with Sri Lanka Auditing Standards (SLAuSs). Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the financial statements section of our report. We are independent of the Group in accordance with the Code of Ethics issued by CA Sri Lanka (Code of Ethics) and we have fulfilled our other ethical responsibilities in accordance with the Code of Ethics. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Key audit matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current period. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. For each matter below, our description of how our audit addressed the matter is provided in that context.

We have fulfilled the responsibilities described in the Auditor’s responsibilities for the audit of the financial statements section of our report, including in relation to these matters. Accordingly, our audit included the performance of procedures designed to respond to our assessment of the risks of material misstatement of the financial statements. The results of our audit procedures, including the procedures performed to address the matters below, provide the basis for our audit opinion on the accompanying financial statements.

Key audit matter How our audit addressed the key audit matter

Acquisition of significant subsidiaries

During the year the Group has invested Rs. 35,132 Mn. to acquire Trans American Customhouse Brokers, Inc and its subsidiaries (USA) and Locher Evers International (Canada) as further detailed in note 34. The two acquisitions were completed on 28 February and 30 March 2023 respectively. Initial accounting for business combinations in relation to the said investments have been carried out based on the provisional value of assets and liabilities as at acquisition date and the group has recognised provisional goodwill and intangible assets amounting to Rs. 32,827 Mn. as at 31 March 2023.
We considered the acquisition of the subsidiaries as a key audit matter due to:
  • magnitude of the balance, and
  • significant Judgments, assumptions and estimates involved in relation to recognition of provisional goodwill and intangible assets, as more fully described in Note 34 to the financial statements.
 Our audit procedures included the following key procedures;
  • checked related share purchase agreements and other documents to obtain an understanding of the terms and conditions of the acquisition transactions.
  • checked investment value and transactions cost with the supporting documents.
  • checked management consultant’ provisional reports to obtain an understanding of the judgment, assumptions and estimates made to recognise intangible and provisional goodwill.
  • assessed the adequacy of the related disclosures in Note 34 to the financial statements.

Annual impairment assessment of Goodwill

As at 31 March 2023, the Group has accounted Goodwill amounting to Rs. 27,014 Mn. The Goodwill includes Rs. 24,889 Mn. provisional goodwill recognised during the current year and Rs. 2,125 Mn. goodwill recognised in prior periods.
Goodwill is tested annually for impairment based on the recoverable amount determined using Value in Use computations (VIU). Such VIU calculations are based on the discounted cashflow models of each Cash Generating Unit (CGU) to which Goodwill has been allocated. A deficit between the recoverable value and the carrying values of the CGUs including Goodwill would result in an impairment.
The VIU calculations are significant to our audit as it involves significant judgments and estimates of Management such as forecasts of sales, profit margins and appropriate discount rates for each CGU as more fully described in note 5.1.6 to the financial statements.
We considered annual impairment assessment of goodwill as a key audit matter due to:
  • magnitude and significance of the balance, and
  • the degree of judgement and assumptions used in deriving the estimated future cashflows used in Annual impairment assessment of Goodwill.
 Our audit procedures included the following key procedures;
  • involved our internal specialised resources to assist us in evaluating the assumptions and methodology used by the Group, in particular those relating to the forecasted revenue growth and profit margins of each Cash Generating Unit (CGU).
  • assessed the adequacy of the Group’s disclosures about those assumptions to which the outcome of the impairment test is most sensitive, that is, those that have the most significant effect on the determination of the recoverable amount of goodwill.
  • assessed the adequacy of the disclosures made by management in note 5.1.6 to the financial statements relating to approach/methodology and assumptions applied in relation to the impairment test carried out.

Revenue

During the financial year 2023, the Group recognised revenue of Rs. 546,40 Mn. which was generated from several geographical segments. We selected revenue as a key audit matter due to;
  • significance of the amount and,
  • geographical spread of the group operations and,
the accounting policy on revenue recognition and other related disclosures are stated in the notes 2.2.14 and 18. 		Our audit procedures included the following key procedures;
We identified the operating segments that generate significant revenues and performed the following key procedures, with the involvement of component auditors, where relevant,
  • assessed the appropriateness of revenue recorded in respective segments in accordance with the accounting policy for revenue recognition.
  • involved our internal specialised resources to assist us in evaluating the IT general controls and application controls in relation to the revenue process.
  • evaluated the design of internal controls and tested the operating effectiveness of key controls relevant to revenue process of key components of the group.
  • performed analytical review procedures and test of details wherever applicable to assess the reasonableness of the reported revenues.
  • tested the appropriateness of revenue recognised for the period by reviewing the relevant service arrangements and other related supporting documents.
  • assessed the adequacy of the related financial statement disclosures in notes 2.2.14 and note 18.

Other information included in the Group’s 2022/23 Annual Report

Other information consists of the information included in the Annual Report, other than the financial statements and our auditor’s report thereon. Management is responsible for the other information.

Our opinion on the financial statements does not cover the other information and we do not express any form of assurance conclusion thereon.

In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard

Responsibilities of management and those charged with governance

Management is responsible for the preparation of financial statements that give a true and fair view in accordance with Sri Lanka Accounting Standards, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, management is responsible for assessing the Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Group or to cease operations, or has no realistic alternative but to do so.

Those charged with governance are responsible for overseeing the Company’s and the Group’s financial reporting process.

Auditor’s responsibilities for the audit of the financial statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance but is not a guarantee that an audit conducted in accordance with SLAuSs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

As part of an audit in accordance with SLAuSs, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:

  • Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
  • Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the internal controls of the Company and the Group.
  • Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.
  • Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to continue as a going concern.
  • Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation.
  • Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide those charged with governance with a statement that we have complied with ethical requirements in accordance with the Code of Ethics regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

Report on Other Legal and Regulatory Requirements

As required by section 163 (2) of the Companies Act No. 07 of 2007, we have obtained all the information and explanations that were required for the audit and, as far as appears from our examination, proper accounting records have been kept by the Company.

CA Sri Lanka membership number of the engagement partner responsible for signing this independent auditor’s report is 1884.

30 June 2023
Colombo

 

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