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Independent Auditor’s Report

KEY AUDIT MATTERS (CONTINUED)

Key Audit Matter How our audit addressed the Key Audit Matter

Capitalisation of development costs

Refer to note 17 “Intangible assets”, note 2.8 We understood and tested the controls in relation to
“Summary of significant accounting policies – how management determined and measured costs
Intangible assets” and note 4 “Critical accounting that are directly attributable to the development
estimates and judgements” to the consolidated activities.
financial statements.
We evaluated the nature of the development costs
At 31st March 2018, the Group’s intangible incurred that are capitalised into intangible assets.
assets include deferred development cost of Further, we discussed with management regarding
HK$36,652,000 (net of amortisation). their overall business plan for such projects including
planned launch channels and sales forecast for those
During the year, the Group conducted a significant products. Based on the explanations provided by
level of development activities to develop management and our knowledge of the business
new products, such as netbook computers. and industry, we assessed reasonableness of factors
Management applied judgement in identifying considered to support the capitalisation of the
projects and expenditures attributable to the development costs.
projects that met the criteria for capitalisation under
the requirements of accounting standards. Factors For payroll costs incurred by employees that are
taken into account by management included the directly attributable to development activities, we
Group’s intention, availablility of technical, financial obtained listing of hours worked on each individual
and other resources and technical feasibility to project and discussed with project managers to
complete such projects, its ability to sell the understand the nature of work performed by the
relevant products developed from such projects, employees. We also obtained management’s approval
the likelihood of generating sufficient future on such listing of hours for each project.
economic benefits to the Group and its ability to
measure the expenditure incurred on a specific We have also tested the costs capitalised, on a
project reliably. sample basis, by agreeing such costs to contracts,
external invoices and internal payroll records, where
We focused on this area because of the applicable.
significance of the costs capitalised and the
judgement involved in assessing whether the Based on the procedures performed above, we
capitalisation criteria have been met. considered the costs capitalised to be supportable by
available evidence.

48 ALCO HOLDINGS LIMITED ANNUAL REPORT 2018