REG - Hon Hai Prec.Ind.Co - 2023 Final Results

Hon Hai Precision Industry CoAnnouncement

06/08/2024 09:30

For best results when printing this announcement, please click on link below:
http://newsfile.refinitiv.com/getnewsfile/v1/story?guid=urn:newsml:reuters.com:20240806:nRSF3643Za&default-theme=true

RNS Number : 3643Z  Hon Hai Precision Industry Co Ld  06 August 2024

 INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Shareholders of Hon Hai Precision Industry Co.,
Ltd.

http://www.rns-pdf.londonstockexchange.com/rns/3643Z_1-2024-8-6.pdf
(http://www.rns-pdf.londonstockexchange.com/rns/3643Z_1-2024-8-6.pdf)

http://www.rns-pdf.londonstockexchange.com/rns/3643Z_2-2024-8-6.pdf
(http://www.rns-pdf.londonstockexchange.com/rns/3643Z_2-2024-8-6.pdf)

Opinion

We have audited the accompanying consolidated balance sheets of Hon Hai
Precision Industry Co., Ltd. and its subsidiaries (the "Group") as of December
31, 2023, and the related consolidated statements of comprehensive income, of
changes in equity and of cash flows for the year then ended, and notes to the
consolidated financial statements, including a summary of significant
accounting policies.

In our opinion, the accompanying consolidated financial statements present
fairly, in all material respects, the consolidated financial position of the
Group as of December 31, 2023, and its consolidated financial performance and
its consolidated cash flows for the year then ended in accordance with the
Regulations Governing the Preparation of Financial Reports by Securities
Issuers and the International Financial Reporting Standards, International
Accounting Standards, IFRIC Interpretations, and SIC Interpretations that came
into effect as endorsed by the Financial Supervisory Commission.

Basis for opinion

We conducted our audit in accordance with International Standards on Auditing
("ISAs"). Our responsibilities under those standards are further described in
the Auditors' Responsibilities for the Audit of the Consolidated Financial
Statements section of our report. We are independent of the Group in
accordance with the International Code of Ethics for Professional Accountants
(including International Independence Standards) issued by the International
Ethics Standards Board for Accountants ("IESBA Code"), and we have fulfilled
our other ethical responsibilities in accordance with the IESBA Code. 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 Group's 2023 consolidated financial
statements. These matters were addressed in the context of our audit of the
consolidated financial statements as a whole and, in forming our opinion
thereon, we do not provide a separate opinion on these matters.

Key audit matters for the Group's 2023 consolidated financial statements are
stated as follows:

 

Cut-off of hub sales revenue

Description

Refer to Note 4(36) for accounting policies on revenue recognition.

The Group recognises revenue upon acceptance of the goods by the customers
(when control of the products is transferred) if picked up from hub. For
pick-ups from hub, the Group recognises sales revenue based on movements of
inventories contained in the statements or other information provided by the
hub custodians. As the hubs are located around the world with numerous
custodians, the frequency and contents of statements provided by custodians
vary, and the process of revenue recognition involves numerous manual
procedures, these factors may potentially result in inaccurate timing of sales
revenue recognition and the discrepancy in inventory quantities between the
physical inventory and accounting records.

As there are numerous daily sales revenue transactions from hubs and the
transaction amounts prior to and after the balance sheet date are significant
to the financial statements, we identified the cut-off of hub sales revenue as
a key audit matter.

How our audit addressed the matter

We performed the following audit procedures in respect of the above key audit
matter:

A.    Assessed and tested the appropriateness of internal controls over the
cut-off of hub sales revenue for a specific period prior to and after the
balance sheet date, including agreeing to respective supporting documents
provided by hub custodians, and validated the proper timing of recognising
movements of inventories and respective transfer of cost of goods sold.

B.    Confirmed or conducted physical count of inventory quantities held at
hubs and agreed to accounting records.

Allowance for inventory valuation losses

Description

Refer to Note 4(14) for accounting policies on inventory valuation, Note 5(2)3
for uncertainty of accounting estimates and assumptions in relation to
inventory valuation losses, and Note 6(7) for details of inventories. As of
December 31, 2023, the Group's inventories and allowance for inventory
valuation losses amounted to NT$753,087,940 thousand and NT$22,322,539
thousand, respectively.

The Group is primarily engaged in manufacturing and sales of 3C electronic
products. Due to rapid technological innovations, short lifespan of electronic
products and fluctuations in market prices, there is a higher risk of
inventory losses arising from market value decline or obsolescence. The Group
recognises inventories at the lower of cost and net realisable value, and the
net realisable value is estimated based on historical experience. An allowance
for inventory valuation losses is provided for those inventories aged over a
certain period and those individually identified as obsolete or damaged.

As the amounts of inventories are material, the types of inventories vary, and
the estimation of net realisable value for individually obsolete or damaged
inventories is subject to management's judgment, we considered the allowance
for inventory valuation losses a key audit matter.

How our audit addressed the matter

We performed the following audit procedures in relation to the provision for
inventory valuation losses for individually obsolete or damaged inventories:

A.    Ensured consistent application of accounting policies in relation to
allowance for inventory valuation losses and assessed the reasonableness of
these policies.

B.    Validated the appropriateness of system logic of inventory aging
report utilised by management to ensure proper classification of inventories
aged over a certain period.

C.    Evaluated the reasonableness of inventories individually identified
as obsolete or damaged by checking the related supporting documents and
comparing with the information obtained from physical inventory count.

D.    Discussed with management the net realisable value of inventories
aged over a certain period and individually identified as obsolete or damaged,
validated respective supporting documents and reperformed the calculation.

Impairment assessment on goodwill arising from the acquisition of Belkin
International Inc.  ("Belkin") and its subsidiaries

Description

Refer to Note 4(21) for accounting policy on impairment assessment of
non-financial assets, Note 5(2)1 for critical accounting estimates and
assumptions in relation to impairment assessment of goodwill, and Note 6(13)
for details of impairment loss.

As of December 31, 2023, the Group had goodwill arising from the acquisition
of Belkin and its subsidiaries amounting to NT$11,684,205 thousand.

Impairment assessment is performed based on the value in use calculation using
the discounted cash flow model to determine the recoverable amounts of the
cash-generating unit ("CGU"). As the key assumptions, including expected
growth rate and discount rate, used in the calculation of expected future cash
flows involve significant judgment and estimation uncertainty and have a
significant impact in assessing goodwill impairment, we considered the
impairment assessment on goodwill arising from the acquisition of Belkin and
its subsidiaries a key audit matter.

How our audit addressed the matter

We performed the following audit procedures in respect of the above key audit
matter:

A.    Obtained an understanding of, and validated the key control
procedures performed by management, including review and approval of financial
budgets and assumptions.

B.    Assessed the appropriateness of the valuation methodology used in
determining the recoverable amount.

C.    Involved valuation specialists to assess the reasonableness of the
key assumptions, including expected growth rate, expected gross margin and
discount rate, used as follows:

(a)  Evaluated the assumptions used, mainly expected growth rate and expected
gross margin used in the impairment assessment by comparing them to historical
results, economic and industry forecast;

(b)  Benchmarked the discount rate range which is used in determining the
recoverable amount against certain market data and industry research; and

(c)  Performed sensitivity analysis over key assumptions used in the model to
evaluate the potential impact on the recoverable amounts.

Other Information

Management is responsible for the other information. The other information
comprises all of the information included in the annual report other than the
consolidated financial statements and our auditor's report thereon, which is
expected to be made available to us after the date of this auditor's report.

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

In connection with our audit of the consolidated financial statements, our
responsibility is to read the other information identified above when it
becomes available 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.

When we read all of the information to be included in the annual report, if we
conclude that there is a material misstatement therein, we are required to
communicate the matter to those charged with governance and take appropriate
action considering our legal rights and obligations.

Responsibilities of management and those charged with governance for the
consolidated financial statements

Management is responsible for the preparation and fair presentation of the
consolidated financial statements in accordance with the Regulations Governing
the Preparation of Financial Reports by Securities Issuers and the
International Financial Reporting Standards, International Accounting
Standards, IFRIC Interpretations, and SIC Interpretations that came into
effect as endorsed by the Financial Supervisory Commission, and for such
internal control as management determines is necessary to enable the
preparation of consolidated financial statements that are free from material
misstatement, whether due to fraud or error.

In preparing the consolidated 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, including the Audit Committee, are responsible
for overseeing the Group's financial reporting process.

Auditor's responsibilities for the audit of the consolidated financial
statements

Our objectives are to obtain reasonable assurance about whether the
consolidated financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an auditors' 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 ISAs 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 consolidated financial
statements.

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

A.    Identify and assess the risks of material misstatement of the
consolidated 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
controls.

B.    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
Group's internal controls.

C.    Evaluate the appropriateness of accounting policies used and the
reasonableness of accounting estimates and related disclosures made by
management.

D.    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 auditors' report to the related disclosures in the consolidated
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 auditors' report. However, future events or conditions may cause
the Group to cease to continue as a going concern.

E.     Evaluate the overall presentation, structure, and content of the
consolidated financial statements, including the disclosures, and whether the
consolidated financial statements represent the underlying transactions and
events in a manner that achieves fair presentation.

F.     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 relevant ethical requirements 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 consolidated
financial statements of the current period and are therefore the key audit
matters. We describe these matters in our auditors' 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.

 

 /s/ Hsu, Sheng-Chung    /s/ Hsu, Chieh-Ju

 For and on Behalf of PricewaterhouseCoopers, Taiwan

 March 14, 2024

 

This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact
rns@lseg.com (mailto:rns@lseg.com)
 or visit
www.rns.com (http://www.rns.com/)
.

RNS may use your IP address to confirm compliance with the terms and conditions, to analyse how you engage with the information contained in this communication, and to share such analysis on an anonymised basis with others as part of our commercial services. For further information about how RNS and the London Stock Exchange use the personal data you provide us, please see our
Privacy Policy (https://www.lseg.com/privacy-and-cookie-policy)
.   END  MSCZZGGRRVKGDZG