Independent auditor’s report to the shareholders of Depa PLC (continued)

Key audit matter

How our audit addressed the key audit matter Recoverability of contract balances

The consolidated statement of financial position has an aggregate contract balance amounting to AED 648.2 million as at 31 December 2022, before loss allowance of AED 298.2 million (net AED 350.0 million).

Recoverability of contract balances is a key mat ter for our audit. Although contract balances have been agreed with customers through original contracts and formal agreements in the form of variations and claims, uncertainty remains around the customers’ ability to settle their dues to the Group.

Furthermore, the Group has long overdue balances from certain customers for completed projects for which the Group is currently in discussions with the customers for the settlement of these balances.

Associated with the recoverability of contract balances, the Group commenced legal cases against certain customers in order to recover outstanding balances .

Please refer to Note 3, Note 13 and Note 14 to the consolidated financial statements for further disclosures.

We focused on those contract balances with significant uncertainty around recoverability, based on the age, possible expected losses and materiality of the outstanding debt, known disputes and the existence of arbitration proceedings.

We discussed the judgements applied by management in relation to their assessment of the required provision for impairment of these individual receivables, and we have corroborated management’s assertions through various sources including as appropriate, the correspondence between the Group and the customers concerned, the individual circumstances of each contract and our knowledge of the industry We also considered historical impairment provisions recognised by the Group and the related subsequent outcomes.

In respect of contracts that are subject to legal cases, we evaluated recovery of outstanding amounts by reference to the status of negotiations and legal proceedings along with other supporting documentation. We received legal confirmations and also made inquiries of management’s legal counsel in respect of the current status of proceedings.

We also assessed the appropriateness of the accounting policies and disclosures made in the consolidated financial statements.