Western India Regional Council of
The Institute of Chartered Accountants of India

(Setup by an Act of Parliament)

Anthology on KAM and other Reporting in Audit Reports (SA 701, 705, 706)


I am proud to state that the Western India Regional Council is publishing an e-publication titled ‘Anthology on KAM & other Reporting in Audit Reports (SA 701,705,706)’.

This digest comprising 1200+ audit reporting across 190+ audit reports of listed companies covering 28 different industries will help our members as well as finance professionals find various Key Audit Matters and reporting at one location. I am sure this publication will help members in quick understanding of the type of reporting required for relevant cases at hand.

I am glad that we, the WIRC of ICAI is publishing this very useful e-publication as through this ‘Anthology’ our 1 lakh plus WIRC members, lakhs of members across India and our cherished students will be benefited at large.

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I appeal to all members and professionals to pay heed to and adopt the KAM reporting in a systematic manner for ease of conducting professional services.

The ‘Anthology’ is an excellent tool for the management of the scarcest resource we professionals have, namely, time. Care has been taken to ensure that this publication provides accurate and contemporary information. In the event of any mistakes coming to light, we seek your pardon and request the readers to bring such mistakes to our attention for improvements.

I am of the considered opinion that all our members getting the benefit of this publication will feel obliged for this very handy book wherein ‘Reporting’ of wide-ranging cases are mentioned in a very precise manner.

CA Vishal P. Doshi, Chairman, Ind AS, Accounting Standard & IFRS Committee, WIRC and the team of 8 contributors associated with this publication deserve our appreciations and heartfelt thanks. We take this opportunity to acknowledge our sincere gratitude to the entire contributing team and all our friends who with their ceaseless efforts and unstinted support made this publication see the light of the day. We shall remain thankful to them forever.

Dear Professional Colleagues,

The goal of an audit is to form and express an opinion on financial statements. The audit is performed to get reasonable assurance on whether the financial statements are free of material misstatement. Reporting is the last procedure of the process of an audit and has to be in accordance with the Standards on Audit Conclusions and Reporting issued by The Institute of Chartered Accountants of India.

The above Standards lay down the requirements of reporting of Key Audit Matters, emphasis of Matters, Other Matters, Material Uncertainty Relating to Going Concern and Audit Qualifications.It is imperative for auditors to know the nature of reporting that would be required under each of the above requirements.

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The Western India Regional Council of ICAI looks forward to equip its members on best reporting practices. We are pleased to release this e-publication on Anthology on KAM & other Reporting in Audit Reports (SA 701, 705, 706). We are also providing the publication on www.wirc-icai.org with search facilities for easy access and referencing. This will help professionals across the country in ensuring consistency in audit reporting. It was a herculean task to prepare a tome consisting of over 1200 audit reporting spread over 190 audit reports of listed companies covering 28 different industries. I thank the team of 8 contributors for their untiring efforts. They have ensured that the users of this publication can reap maximum benefits.

Contributors

  • CA. Gautam Mota
  • CA. Jigita Shah
  • CA. Ketan Samdani
  • CA. Khushbu Morbia
  • CA. Meenakshi Gupta
  • CA. Padmashree Crasto
  • CA. Ravisha Kariya
  • CA. Sankit Porwal

Guide: The user can apply filters / search to get the requisite results


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Sr. No Name of Company Industry Type Nature Of Reporting Period Year Ended Reporting How Key Audit Matter Auditor Name Audit Report
1 Abott India Ltd. Pharmaceuticals & Chemicals Key Audit Matters 31st March, 2019 The Company makes sales to stockists who further sells products in the market. Stockists have a right of return in case goods are not sold further during shelf lives of the products. Return of these expired goods, result in deductions to gross amounts invoiced in arriving at revenue and creation of obligations for the Company to give credit for sales returns. The amounts pertaining to such sales return are estimated at the time of sale and deducted from gross sales and recorded as provisions for sales returns. These estimates are based on analysis of historical trends of sales return and shelf life of the products. The management has determined provision for sales returns amounting to Rs. 129,17.77 Lakhs which have been recorded at March 31, 2019 (including reimbursable provision for sales return amounting to Rs. 60,09.65 Lakhs) Obtained an understanding of management process for making provision for non-saleable returns including related controls. Tested the Companys key controls relating to the deductions made to gross sales for sales returns, including those controls over booking of sales and sales return process. We obtained managements calculations for provisions, recalculated the amounts and validated the assumptions used by reference to historical sales returns levels and current trends. We considered the managements estimates in previous years by comparing historical accrued provisions and revenue deductions recorded to the actual amounts. We tested the working of discounting of non-current provisions for sales return prepared by the management. We understood and assessed the Companys revenue recognition accounting policies, including the recognition and measurement of deductions to gross sales relating to sales returns and related disclosures. SRBC & Co LLP Standalone
2 Adani Enterprises Ltd. Diversified Emphasis of Matter 31st March, 2019 the fact that some of the subsidiary companies are incurring continuous losses and have a negative net current assets position. Shah Dhandharia & Co. Consolidated
3 Adani Enterprises Ltd. Diversified Emphasis of Matter 31st March, 2019 the note 36(b) of the Consolidated Financial Statements wherein the Holding Company has divested its investment in Thermal energy Entities. The management of these entities have assessed the carrying values of its assets including expenditure incurred during project development period on account of delay / temporary suspension in setting up the project and have recorded an impairment provision amounting to H 464.63 crores based on the best estimates by the management and concurrence by the auditors of these subsidiaries and relied upon by us. Shah Dhandharia & Co. Consolidated
4 Adani Enterprises Ltd. Diversified Emphasis of Matter 31st March, 2019 the note 36(c) of the Consolidated financial Statements wherein the management of two Australian subsidiaries have assessed the carrying values of its assets including expenditure incurred during project development period on account of delay in setting up the project and have recorded an impairment provision amounting to H 670.80 crores based on the independent valuers report and concurrence by the auditors of these subsidiaries and relied upon by us. Shah Dhandharia & Co. Consolidated
5 Adani Enterprises Ltd. Diversified Emphasis of Matter 31st March, 2019 the fact that investment in some of the subsidiaries and jointly controlled entities (refer note 38 and 43(b)) were disposed off/ demerged during the year. Financials in respect of these subsidiaries and jointly controlled entities are considered till the date of disposal/ demerger. Shah Dhandharia & Co. Consolidated
6 Adani Enterprises Ltd. Diversified Key Audit Matters 31st March, 2019 The application of the new revenue accounting standard involves identifying accounting and reporting differences in revenue recognition principles between Ind AS 18 and Ind AS 115, taking certain key judgements relating to identification of distinct performance obligations, determination of transaction price of the identified performance obligations, the appropriateness of the basis used to measure revenue recognized over a period. We have assessed the Companys process to identify the impact of adoption of the new revenue accounting standard. The Company has taken the help of industry experts to assess the impact of Ind AS 115 and the accounting and reporting differences in revenue recognition principles between Ind AS 18 and Ind AS 115.We have reviewed the exhaustive reports issued by the experts covering all material revenue transactions done by the Company and have relied upon the same. The reports state that there is no material impact of the new revenue accounting standard and the company can continue with the existing accounting practices. Shah Dhandharia & Co. Standalone
7 Adani Enterprises Ltd. Diversified Key Audit Matters 31st March, 2019 The Company has pending litigation for demand in dispute under various tax statutes which involves significant judgment to determine the possible outcome of these disputes We have obtained details of tax litigations under various statutes for the year ended 31st March, 2019 from the management. We have reviewed the managements underlying assumptions in estimating the tax provision and the possible outcome of the disputes. We have also reviewed the legal precedence and other rulings provided for review by the management in evaluating its position in various matters. We have also reviewed the assumptions made by the management as at 31st March, 2018 and evaluated whether any change was required on account of information and updates made available during the year Shah Dhandharia & Co. Standalone
8 Adani Enterprises Ltd. Diversified Key Audit Matters 31st March, 2019 The Company has pending litigation with various parties pending under arbitration and various forums of court which involves significant judgment to determine the possible outcome of these disputes. We have obtained details of litigations pending under arbitration and various forums of court for the year ended 31st March, 2019 from the management. We have reviewed basis of assumptions made by the management in relation to the ongoing proceedings. We have had verbal discussions with internal and external legal experts of the Company and evaluated whether the stands taken by the management required any change Shah Dhandharia & Co. Standalone
9 Adani Enterprises Ltd. Diversified Key Audit Matters 31st March, 2019 Appropriateness of Current- Non-current classification For the purpose of current/non-current classification of assets and liabilities, the Company has ascertained its normal operating cycle as twelve months. This is based on the nature of services and the time between the acquisition of assets or inventories for processing and their realization in cash and cash equivalents. The classification of assets and liabilities has been done on the basis of documentary evidences. Where conclusive evidences are not available, the classification has been done on the basis of managements best estimate of the period in which the assets would be realised or the liabilities would be settled. We have evaluated the reasonability of the managements estimates. Shah Dhandharia & Co. Standalone
10 Adani Enterprises Ltd. Diversified Key Audit Matters 31st March, 2019 The application of the new revenue accounting standard involves identifying accounting and reporting differences in revenue recognition principles between Ind AS 18 and Ind AS 115, taking certain key judgements relating to identification of distinct performance obligations, determination of transaction price of the identified performance obligations, the appropriateness of the basis used to measure revenue recognized over a period. We have assessed the process to identify the impact of adoption of the new revenue accounting standard undertaken by the Group, its associates and jointly controlled entities, except entities audited by other auditors. The management has taken the help of industry experts to assess the impact of Ind AS 115 and the accounting and reporting differences in revenue recognition principles between Ind AS 18 and Ind AS 115. We have reviewed the exhaustive reports issued by the experts covering all material revenue transactions and have relied upon the same. The reports state that there is no material impact of the new revenue accounting standard and the existing accounting practices can be continued. For entities audited by other auditors we have relied upon their audit reports. Shah Dhandharia & Co. Consolidated
11 Adani Enterprises Ltd. Diversified Key Audit Matters 31st March, 2019 The Group, its associates and jointly controlled entities have pending litigations for demand in dispute under various tax statutes which involves significant judgment to determine the possible outcome of these disputes. We have obtained details of tax litigations under various statutes for the year ended 31st March 2019 from the management. We have reviewed the managements underlying assumptions in estimating the tax provision and the possible outcome of the disputes. We have also reviewed the legal precedence and other rulings provided for review by the management in evaluating its position in various matters. We have also reviewed the assumptions made by the management as at 31st March 2018 and evaluated whether any change was required on account of information and updates made available during the year. For entities audited by other auditors we have relied upon their audit reports Shah Dhandharia & Co. Consolidated
12 Adani Enterprises Ltd. Diversified Key Audit Matters 31st March, 2019 The Group, its associates and jointly controlled entities has pending litigations with various parties pending under arbitration and various forums of court which involves significant judgment to determine the possible outcome of these disputes. We have obtained details of litigations pending under arbitration and various forums of court for the year ended 31st March 2019 from the management. We have reviewed basis of assumptions made by the management in relation to the ongoing proceedings. We have had verbal discussions with internal and external legal experts of the Holding Company and evaluated whether the stands taken by the management required any change. For entities audited by other auditors we have relied upon their audit reports. Shah Dhandharia & Co. Consolidated
13 Adani Enterprises Ltd. Diversified Key Audit Matters 31st March, 2019 Appropriateness of Current- Non-current classification For the purpose of current/non-current classification of assets and Liabilities, the Group, its associates and jointly controlled entities have ascertained its normal operating cycle as twelve months. This is based on the nature of services and the time between the acquisition of assets or inventories for processing and their realization in cash and cash equivalents. The classification of assets and Liabilities has been done on the basis of documentary evidences. Where conclusive evidences are not available, the classification has been done on the basis of managements best estimate of the period in which the assets would be realised or the Liabilities would be settled. We have evaluated the reasonability of the managements estimates. Shah Dhandharia & Co. Consolidated
14 Adani Enterprises Ltd. Diversified Other Matters 31st March, 2019 The attached Standalone Financial Statements include Companys share of net assets of H 94.43 Crores in one unincorporated Joint Venture not operated by the Company, the unaudited accounts of which have been certified by the management which we have relied upon. Shah Dhandharia & Co. Standalone
15 Adani Enterprises Ltd. Diversified Other Matters 31st March, 2019 The Consolidated Financial Statements include the Groups proportionate share in jointly controlled net assets of H 328.76 Crores in respect of 3 Unincorporated Jointly Controlled Entities not operated by the Group, which is based on unaudited statements which have been certified by the management and relied upon by us. Shah Dhandharia & Co. Consolidated
16 Adani Enterprises Ltd. Diversified Other Matters 31st March, 2019 The accompanying Consolidated Financial Statements include Financial Statements of 87 subsidiaries which reflect total assets of H 29,309.57 Crores as at 31stMarch, 2019 and total revenues of H 26,995.82 Crores and Net Profit after tax (after adjusting minority interest and other comprehensive income) of H 913.52 Crores for the year then ended, which have been audited by other auditors whose financial statements, other financial information and auditors reports have been furnished to us by the management. Our opinion on the consolidated financial statements, in so far as it relates to the amounts and disclosures included in respect of these subsidiaries is based solely on the reports of such other auditors also refer note (iv) of the Emphasis of Matter paragraph. Shah Dhandharia & Co. Consolidated
17 Adani Enterprises Ltd. Diversified Other Matters 31st March, 2019 The accompanying Consolidated Financial Statements include the Groups share of Net Profit after tax of H 3.63 Crores for the year ended 31st March, 2019, in respect of 4 Jointly Controlled Entities and 3 Associates, which have been audited by other auditors, whose financial statements, other financial information and auditors reports have been furnished to us by the management. Our opinion on the consolidated financial statements, in so far as it relates to the amounts and disclosures included in respect of these jointly controlled entities and associates is based solely on the reports of such other auditors. Shah Dhandharia & Co. Consolidated
18 Adani Enterprises Ltd. Diversified Other Matters 31st March, 2019 The accompanying Consolidated Financial Statements include Financial Statements of 24 subsidiaries which reflect total assets of H 1,828.88 Crores as at 31st March, 2019 and total revenues of H 909.29 Crores and Net Profit after tax (after adjusting minority interest and other comprehensive income) of H 57.95 Crores for the year then ended whose financial statements are unaudited and have been furnished to us by the Management and our opinion on the Consolidated Financial Statements in so far as it relates to the amounts and disclosures included in respect of these Subsidiaries is based solely on such unaudited financial statements - also refer note (iv) of the Emphasis of Matter paragraph. Shah Dhandharia & Co. Consolidated
19 Adani Enterprises Ltd. Diversified Other Matters 31st March, 2019 The accompanying Consolidated Financial Statements include the Groups share of Net Profit after tax of H 14.73 Crores for the year ended 31st March, 2019, in respect of 13 Jointly Controlled Entities and 10 Associates whose financial statements are unaudited and have been furnished to us by the Management and our opinion on the consolidated financial statements in so far as it relates to the amounts and disclosures included in respect of these joint ventures and associates is based solely on such unaudited financial statements - also refer note (iv) of the Emphasis of Matter paragraph. Shah Dhandharia & Co. Consolidated
20 Adani Ports And Special Economic Zone Ltd. Marine Port & Services Emphasis of Matter 31st March, 2019 Note 38 to the standalone financial statements, which describes the managements assessment for recoverability of the project cost incurred by the Company, pending execution of definitive agreements between the parties. Deloitte Haskins & Sells LLP Standalone
21 Adani Ports And Special Economic Zone Ltd. Marine Port & Services Emphasis of Matter 31st March, 2019 Note 4(b)(ii) to the standalone financial statements which describes the basis on which Management has considered that no impairment is necessary as at March 31, 2019 for long term-investments amounting to Rs. 115.89 crore and loan amounting to Rs. 442.47 crore (including interest accrued Rs. 48.81 crore) in Adani Murmugao Port Terminal Private Limited and long term-investments amounting to Rs. 120.05 crore and loan amounting to Rs. 1,233.69 crore (including interest accrued Rs. 69.07 crore) in Adani Kandla Bulk Terminal Private Limited. Deloitte Haskins & Sells LLP Standalone
22 Adani Ports And Special Economic Zone Ltd. Marine Port & Services Emphasis of Matter 31st March, 2019 Note 39 to the consolidated financial statements, which describes the managements assessment for recoverability of the project cost incurred by Parent, pending execution of definitive agreements between the parties. Deloitte Haskins & Sells LLP Consolidated
23 Adani Ports And Special Economic Zone Ltd. Marine Port & Services Emphasis of Matter 31st March, 2019 Note 40(b) to the consolidated financial statements which describes the key sources of estimation uncertainties as at March 31, 2019 relating to the recoverability of the carrying amount of property, plant and equipment and intangible assets amounting to Rs. 355.41 crore in case of Adani Murmugao Port Terminal Private Limited and Rs. 834.20 crore in case of Adani Kandla Bulk Terminal Private Limited, subsidiaries of the Parent. Deloitte Haskins & Sells LLP Consolidated
24 Adani Ports And Special Economic Zone Ltd. Marine Port & Services Key Audit Matters 31st March, 2019 The Company has made equity investments of Rs. 115.89 crore and Rs. 120.05 crore in AMPTPL and AKBTPL respectively. Further the Company has also provided loans of Rs. 442.47 crore (including interest accrued Rs. 48.81 crore) and Rs. 1,233.69 crore (including interest accrued Rs. 69.07 crore) to these entities respectively. The Companys evaluation of impairment of its equity investments in and loan to these companies involves the comparison of their recoverable values to their corresponding carrying values. The Company used the discounted cash flow model to estimate recoverable values, which requires management to make estimates and assumptions related to forecasts of future revenues and operating margins, and discount rates. Changes in these assumptions could have a significant impact on either the recoverable value, the amount of any impairment charge, or both. We focused on this area as Key Audit Matter due to the size/materiality of the balances of equity investment in and loans to these companies, and because the Companys assessment of the recoverable values involves judgements about the future results of the business and the discount rates applied to future cash flow forecasts. Our audit procedures related to forecasts of future revenue and operating margin and selection of the discount rate for these assets included the following, among others: We tested the Design, Implementation and Operating effectiveness of controls over impairment assessment process, including those over the forecasts of future revenue and operating margin, and the selection of the discount rate. We evaluated the reasonableness of managements revenue and operating margin forecasts by comparing the forecasts to: Historical revenues and operating margins. Internal communications to management and the Board of Directors. With the assistance of our fair value specialists, we evaluated the reasonableness of the (1) valuation methodology and (2) discount rate by: Testing the source information underlying the determination of the discount rate and the mathematical accuracy of the calculation. Developing a range of independent estimates and comparing those to the discount rate selected by management. Deloitte Haskins & Sells LLP Standalone
25 Adani Ports And Special Economic Zone Ltd. Marine Port & Services Key Audit Matters 31st March, 2019 The Companys assets include project inventories of Rs. 562.89 crore towards construction of project facilities as referred to in a preliminary agreement entered into by the Company with one of its customers. Pending definitive agreement between the parties, the assessment of recoverability of the project assets involved judgement and hence considered a key audit matter. Our audit procedures related to the assessment of recoverability of aforesaid balances included the following: We tested key controls over the management judgments and the assumptions-setting processes including judgments regarding expected realization date and value. Assessing the underlying preliminary agreement, project progress reports, the reports of the committee set up by the customer to facilitate the execution of definitive agreements with the Company and various communications between the Company and the customer, which indicate that considerable progress has been made towards signing of the definitive agreements. Deloitte Haskins & Sells LLP Standalone
26 Adani Ports And Special Economic Zone Ltd. Marine Port & Services Key Audit Matters 31st March, 2019 The Companys evaluation of goodwill for impairment involves the comparison of the recoverable value of cash-generating unit to its carrying value. The Company used the discounted cash flow model to estimate recoverable value, which requires management to make significant estimates and assumptions related to forecasts of future revenues and operating margins, and discount rates. Changes in these assumptions could have a significant impact on either the recoverable value, the amount of any goodwill impairment charge, or both. The goodwill balance was Rs. 2,559.31 Crore as of March 31, 2019 is pertaining to Dhamra Port. The recoverable value of Dhamra Port exceeded its carrying value as of the measurement date and, therefore, no impairment was recognised. We focused on this area as Key Audit Matter due to the size/materiality of the goodwill balance, and because the Groups assessment of the value in use of the cash generating unit involves judgements about the future results of the business and the discount rates applied to future cash flow forecasts. Our audit procedures related to forecasts of future revenue, operating margins and cash flows and selection of the discount rate for impairment assessment of goodwill related to Dhamra Port included the following : We tested the Design, Implementation and Operating effectiveness of controls over impairment assessment process, including those over the forecasts of future revenue, operating margins and cash flows including selection of the discount rate. We evaluated the reasonableness of managements revenue and operating margin forecasts by comparing the forecasts to: Historical revenues and operating margins. Internal communications to management and the Board of Directors. With the assistance of our fair value specialists, we evaluated the reasonableness of the (1) valuation methodology and (2) discount rate by: Testing the source information underlying the determination of the discount rate and the mathematical accuracy of the calculation. Developing a range of independent estimates and comparing those to the discount rate selected by management. Deloitte Haskins & Sells LLP Consolidated
27 Adani Ports And Special Economic Zone Ltd. Marine Port & Services Key Audit Matters 31st March, 2019 The Group has entered into Service Concession Arrangement (SCAs) for its port facilities at Kandla and Goa. The cost of infrastructure facilities forming part of the SCAs are classified as Intangible assets along with certain tangible assets. As of March 31, 2019, the aggregate carrying value of these assets is Rs. 1,189.61 Crore. The Companys evaluation of impairment of these assets involves the comparison of recoverable value of each cash-generating unit to its corresponding carrying value. The Company used the discounted cash flow model to estimate recoverable value, which requires management to make significant estimates and assumptions related to forecasts of future revenues and operating margins, and discount rates. Changes in these assumptions could have a significant impact on either the recoverable value, the amount of any impairment charge, or both. We focused on this area as Key Audit Matter due to the size/materiality of the balance of assets under the SCA and because the Groups assessment of the value in use of the cash generating unit involves judgements about the future results of the business and the discount rates applied to future cash flow forecasts. Our audit procedures related to forecasts of future revenue and operating margin and selection of the discount rate for these SCAs included the following, among others: We tested the Design, Implementation and Operating effectiveness of controls over impairment assessment process, including those over the forecasts of future revenue and operating margin, and the selection of the discount rate. We evaluated the reasonableness of managements revenue and operating margin forecasts by comparing the forecasts to: Historical revenues and operating margins. Internal communications to management and the Board of Directors. With the assistance of our fair value specialists, we evaluated the reasonableness of the (1) valuation methodology and (2) discount rate by: Testing the source information underlying the determination of the discount rate and the mathematical accuracy of the calculation. Developing a range of independent estimates and comparing those to the discount rate selected by management. Deloitte Haskins & Sells LLP Consolidated
28 Adani Ports And Special Economic Zone Ltd. Marine Port & Services Key Audit Matters 31st March, 2019 During the year, the Group has acquired the businesses of MIDPL and AALL for a consideration of Rs. 1,950 Crore and Rs. 945.70 Crore respectively. The Group accounted for the acquisitions under the acquisition method of accounting for business combinations. Accordingly, the purchase price was allocated to the assets acquired and liabilities (including contingent liabilities, if any) assumed based on their fair values on their respective acquisition dates. The determination of such fair values for the purpose of purchase price allocation was considered to be a key focus area of our audit as the fair valuation process involves judgments and estimates such as appropriateness of the valuation methodology applied and the discount rates applied to future cash flow forecasts. Our audit procedures related to the reasonability of the fair values assigned to assets acquired and liabilities assumed included the following : We tested the Design, Implementation and Operating effectiveness of controls over the purchase price allocation process With the assistance of our fair value specialists, we evaluated (1) the appropriateness of the valuation methodologies for identified intangibles and (2) reasonableness of the valuation assumptions viz. discount rate / contributory asset charge, as applicable discount rate, including testing the source information underlying the determination of the discount rate, testing the mathematical accuracy of the calculation, and developing a range of independent estimates and comparing those to the discount rate selected by independent valuers and relied upon by the management. We evaluated the competencies, capabilities and objectivity of the independent valuers engaged by the Companys management for value analysis of tangible and intangible assets. Deloitte Haskins & Sells LLP Consolidated
29 Adani Ports And Special Economic Zone Ltd. Marine Port & Services Key Audit Matters 31st March, 2019 The groups assets include project inventories of Rs. 562.89 crore towards construction of project facilities as referred to in a preliminary agreement entered into by the Parent with one of its customers. Pending definitive agreement between the parties, the assessment of recoverability of the project assets involved judgement and hence considered a key audit matter Our audit procedures related to the assessment of recoverability of aforesaid balances included the following: We tested key controls over the management judgments and the assumptions-setting processes including judgments regarding expected realisation date and value Assessing the underlying preliminary agreement, project progress reports, the reports of the committee set up by the customer to facilitate the execution of definitive agreements with the Company and various communications between the Company and the customer, which indicate that considerable progress has been made towards signing of the definitive agreements Deloitte Haskins & Sells LLP Consolidated
30 Adani Ports And Special Economic Zone Ltd. Marine Port & Services Other Matters 31st March, 2019 We did not audit the financial statements of 51 subsidiaries, whose financial statements reflect total assets of Rs. 17,222.70 crore as at March 31, 2019, total revenues of Rs. 3,708.93 crore and net cash inflows amounting to Rs. 1,446.68 crore for the year ended on that date, as considered in the consolidated financial statements. The consolidated financial statements also include the Groups share of net loss of Rs. 100.69 crore for the year ended March 31, 2019, as considered in the consolidated financial statements, in respect of one joint venture, whose financial statements have not been audited by us. These financial statements have been audited by other auditors whose reports have been furnished to us by the Management and our opinion on the consolidated financial statements, in so far as it relates to the amounts and disclosures included in respect of these subsidiaries, and joint venture, and our report in terms of subsection (3) of Section 143 of the Act, in so far as it relates to the aforesaid subsidiaries, and joint venture is based solely on the reports of the other auditors. Certain of these subsidiaries are located outside India whose financial statements and other financial information have been prepared in accordance with accounting principles generally accepted in their respective countries and which have been audited by other auditors under generally accepted auditing standards applicable in their respective countries. The Companys management has converted the financial statements of such subsidiaries located outside India from accounting principles generally accepted in their respective countries to accounting principles generally accepted in India. We have audited these conversion adjustments made by the Companys management. Our opinion in so far as it relates to the balances and affairs of such subsidiaries located outside India is based on the report of other auditors and the conversion adjustments prepared by the management of the Company and audited by us. Deloitte Haskins & Sells LLP Consolidated
31 Adani Ports And Special Economic Zone Ltd. Marine Port & Services Other Matters 31st March, 2019 We did not audit the financial information of one subsidiary, whose financial information reflect total assets of Rs. Nil as at March 31, 2019, total revenues of Rs. Nil and net cash inflows amounting to Rs. Nil for the year ended on that date, as considered in the consolidated financial statements. This financial information are unaudited and have been furnished to us by the Management and our opinion on the consolidated financial statements, in so far as it relates to the amounts and disclosures included in respect of this subsidiary, is based solely on such unaudited financial information. In our opinion and according to the information and explanations given to us by the Management, this financial information are not material to the Group. Our opinion on the consolidated financial statements above and our report on Other Legal and Regulatory Requirements below, is not modified in respect of the above matters with respect to our reliance on the work done and the reports of the other auditors and the financial information certified by the Management. Deloitte Haskins & Sells LLP Consolidated
32 Adani Transmission Ltd. Power utilities and equipments Key Audit Matters 31st March, 2019 Loss allowances of Inter Company Loans given to the subsidiaries and impairment of carrying value of investments in the Subsidiaries (Refer to Note 3.2, 6, 7 and 16 in the standalone financial statements) The Company has given the loans to the subsidiaries and holds the investments in the subsidiaries aggregate of Rs. 12,193.60 Crores (31st March, 2018: Rs. 8,461.26 Crores). Loans given to subsidiaries are accounted at amortised cost. Investments in subsidiaries are accounted for at cost less impairment losses if any. Loans are assessed for loss allowances and Investments are assessed for impairment annually or earlier if loss allowances and impairment indicators exist. If such indicators exist, the loss allowances of loans and impairment of carrying value of investments in subsidiaries are estimated in order to determine the extent of the loss allowances and impairment losses, if any. Any such losses are recognised in the Statement of Profit and Loss. Management judgement is required in the area of impairment testing, particularly in assessing: (1) whether an event has occurred that may indicate that the related asset values may not be recoverable; (2) whether the carrying value of an asset can be supported by the recoverable amount, being the higher of fair value less costs to sell or the net present value of future cash flows which are estimated based on the continued use of the asset in the business; (3) the appropriate key assumptions to be applied in preparing cash flow projections including whether these cash flow projections are discounted using an appropriate rate, which is complex and involves the use of significant management estimates and assumptions that are dependent on expected future market and economic conditions. Our audit procedures included a combination of testing the design, implementation and operating effectiveness in respect of managements assessment of loss allowances of Inter Company Loans and existence of indicators of impairment and where applicable determination of recoverable amounts to measure the impairment provision that needs to be accounted for. Our substantive testing procedures included evaluation of appropriateness of managements assumption whether any indicators of loss allowances and impairment existed by verifying a discounted cash flow model prepared by the Management of the Company. We have tested the reasonableness of key assumptions, including revenue, profit and cash flow growth rates, terminal value and the selection of discount rates management has applied. We performed our own independent sensitivity analysis to understand the impact of reasonable changes in managements assumptions on the available headroom. Deloitte Haskins & Sells LLP Standalone
33 Aditya Birla Fashion And Retail Ltd. Retail & FMCG Key Audit Matters 31st March, 2019 Goodwill: Impairment Evaluation As disclosed in Note 4, goodwill amounts to Rs. 1,859.60 Crore as at March 31, 2019 and represents goodwill acquired through various business combinations and allocated to cash generating units of the Company. A cash generating unit to which goodwill has been allocated is tested for impairment annually, or more frequently when there is an indication that the unit may be impaired. As disclosed in Note 4, impairment of goodwill is determined by assessing the recoverable amount of each cash generating unit to which the goodwill relates The recoverable amount of the cash generating unit as at March 31, 2019 has been determined based on a value in use calculation using cash flow projections from financial budgets approved by senior management covering a three-year period. Management of the Company has used an external specialist in assessing the recoverable amount of the cash generating unit based on value in use computation. We focused this area because of the judgmental factors involved in impairment assessment and the significant carrying value of the goodwill. Our audit procedures in respect of impairment evaluation of goodwill included the following: Obtained an understanding of the process followed by the management to determine the recoverable amounts of cash generating units to which the goodwill has been allocated. Evaluated the objectivity and independence of the specialist engaged by the Company and reviewed the valuation reports issued by such specialist. Evaluated the model used in determining the value in use of the cash generating units. Evaluated the consistency of data used in the recoverable amount calculation with the financial budgets approved by senior management of the Company. Tested the arithmetical accuracy of the computation of recoverable amounts of cash generating units. Analysed the level of performance regards the business plan approved in the previous year, discussed with the management reasons for deviation as compared to such plan to and have assessed the assumptions used in the financial budgets for computation of value in use as at March 31, 2019. Involved valuation expert to assist in evaluating the assumptions around the key drivers of the cash flow projections including discount rates, expected growth rates and terminal growth rates used. Assessed the sensitivity analysis performed by the Company and the resultant change in the recoverable amount upon changes in assumptions. We also assessed the disclosures provided by the Company in relation to its annual impairment test in Note 4 to the financial statements. S R B C & Co. LLP Standalone
34 Aditya Birla Fashion And Retail Ltd. Retail & FMCG Key Audit Matters 31st March, 2019 Provision on inventories As at March 31, 2019, the Company held inventories of Rs. 1,921.28 Crore (net of provision of Rs. 270.91 Crore). Inventories are carried at lover of cost and net realisable value in accordance with the accounting policy of the Company. The Company makes provision for inventory based on policy, past experience, current trend and future expectations of these materials depending upon the category of goods. Significant judgement is required in assessing the appropriate level of the provision for slow moving and/or obsolete inventory. Accordingly, we have considered provision on inventories to be a key audit matter. Our audit procedures to test the provision on inventories, included the following: We obtained an understanding, evaluated the design and tested the operating effectiveness of controls that the Company has in relation to inventory provision We compared the methodology used to calculate the inventory provision and its consistency with prior periods and obtained an understanding of management justification for changes. We obtained inventory provision calculation from the Company and re-performed the calculation of the inventory provision as per the policy of the Company. For specific provisions made, on a sample basis we assessed the basis of such provision and also tested it with management approvals. For inventory on hand at the end of the period, we assessed on a sample basis, whether such inventory was recorded at the lover of cost and net realisable value by testing the cost for such sample inventory items to the most recent retail price. We assessed the Companys disclosures concerning this in Note 38 on significant accounting judgements, estimates and assumptions and Note 11 Inventories to financial statements. S R B C & Co. LLP Standalone
35 Aditya Birla Fashion And Retail Ltd. Retail & FMCG Key Audit Matters 31st March, 2019 Provision for discount and sales returns Revenue from contracts with customer is recognized upon transfer of control of promised goods and is measured at the fair value of the consideration received or receivable, net of returns and allowances, trade discounts and volume rebates, based on contractually defined terms. In some cases, discounts estimated will be determined on sale of goods by the customers. Also, in certain cases the Company has contracts with customers which entitles them to right of return. At year end, amount of returns, and discounts that have been incurred and not yet settled with the customer are estimated and accrued. Estimating the amount of accrual at year-end is considered a key audit matter due to the judgements required to be made by management. Our audit procedures to test the provision for discount and sales returns included the following: Read and understood the Companys accounting policy for recognition and measurement of net sales revenue, including the policy for recording returns, and discounts by assessing compliance with Ind AS 115 Revenue from Contracts with Customers. Tested the estimate of returns and discounts related accruals with underlying documentation such as management approved norms, customer agreements, sales data and customer reconciliations, as applicable. Tested design and operating effectiveness of key controls for calculating, reviewing and approving returns and discounts. Analysed returns and discounts and held discussions with management to understand changes in provisioning norms/additional provisions made based on managements assessment of market conditions. We assessed the Companys disclosures concerning this in Note 38 on significant accounting judgments, estimates and assumptions. S R B C & Co. LLP Standalone
36 Aditya Birla Fashion And Retail Ltd. Retail & FMCG Key Audit Matters 31st March, 2019 Recognition of Deferred tax assets, including Minimum Alternate Tax (MAT) credit entitlement Deferred tax assets are recognised to the extent that it is probable that taxable profit will be available against which the deductible temporary differences and the carry forward of unused tax credits and unused tax losses can be utilised. The Companys ability to recognise previously un-recognised deferred tax assets is assessed by the management at the end of each reporting period, taking into account forecasts of future taxable profits and the applicable tax laws. As at March 31, 2019 the Company has recognised total deferred tax assets of Rs. 194.56 Crore (including Rs. 21.84 Crore of Minimum Alternate Tax credit entitlement). The recognition of deferred tax asset is a key audit matter as its recoverability within the allowed time frame involves significant estimate of the financial projections, availability of sufficient taxable income in the future and significant judgements in the interpretation of tax regulations and tax positions adopted by the Company. Our audit procedures to test the recognition of deferred tax assets (including MAT credit entitlement) included the following: Read and understood the Companys accounting policies with respect to recognition of deferred taxes and for assessing compliance with Ind AS 12 Income Taxes. Involved tax specialists who evaluated the Companys tax positions by assessing the prevalent tax laws and compared the current position with prior years, past precedents. Assessed the consistency of data used in the deferred tax assets amount calculation with the financial budgets approved by senior management of the Company. We compared the projections with past trends and enquired for the significant variations. We assessed the disclosures in Note 9 and 36 of the Ind AS financial statements in accordance with the requirements of Ind AS 12 Income Taxes. S R B C & Co. LLP Standalone
37 Advanced Enzyme Technologies Ltd. Agro products Key Audit Matters 31st March, 2019 Revenue is recognised when the control of the products being sold has transferred to the customer. Therefore, there is a risk of revenue being overstated on account of variation in the timing of transfer of control due to the pressure management may feel to achieve performance targets at the reporting period end. Refer note 4 (a) to the standalone financial statements for details on accounting policy on revenue recognition. In view of the significance of the matter we applied following procedures: Assessed appropriateness of the Companys revenue recognition accounting policies, including those relating to anticipated sales returns by comparing with applicable accounting standards. Assessed and tested design, implementation and operating effectiveness of the Companys general IT controls and key IT/ manual application controls over the Companys systems which govern recording of revenue, creation of new customers, revenue cut-off and sales return accruals in the general ledger accounting system. Performed substantive testing (including year-end cut-off testing) by selecting samples of revenue transactions recorded during the year, including one off sales to customers, by verifying the underlying documents, which included sales invoices/contracts and shipping documents. We assessed manual journals posted to revenue to identify unusual items and considered adequacy of disclosures in respect of revenue B S R & Co. LLP Standalone
38 Advanced Enzyme Technologies Ltd. Agro products Key Audit Matters 31st March, 2019 Revenue is recognised when the control of the products being sold has transferred to the customer. Therefore, there is a risk of revenue being overstated on account of variation in the timing of transfer of control due to the pressure management may feel to achieve performance targets at the reporting period end. Refer note 5 (a) to the standalone financial statements for details on accounting policy on revenue recognition. In view of the significance of the matter we applied following procedures: Assessed appropriateness of the Companys revenue recognition accounting policies, including those relating to anticipated sales returns by comparing with applicable accounting standards. Assessed and tested design, implementation and operating effectiveness of the Companys general IT controls and key IT/ manual application controls over the Companys systems which govern recording of revenue, creation of new customers, revenue cut-off and sales return accruals in the general ledger accounting system. Performed substantive testing (including year-end cut-off testing) by selecting samples of revenue transactions recorded during the year, including one off sales to customers, by verifying the underlying documents, which included sales invoices/contracts and shipping documents. We assessed manual journals posted to revenue to identify unusual items and considered adequacy of disclosures in respect of revenue B S R & Co. LLP Consolidated
39 Advanced Enzyme Technologies Ltd. Agro products Other Matters 31st March, 2019 We did not audit the financial statements / financial information of eleven subsidiaries, whose financial statements reflect total assets of Rs.5,930 million as at 31 March 2019, total revenues of Rs. 3,330 million and net cash flows amounting to Rs. (407) million for the year ended on that date, as considered in the consolidated financial statements. These financial statements / financial information have been audited by other Auditors whose reports have been furnished to us by the Management and our opinion on the consolidated financial statements, in so far as it relates to the amounts and disclosures included in respect of these subsidiaries and our report in terms of sub-section (3) of Section 143 of the Act, in so far as it relates to the aforesaid subsidiaries is based solely on the audit reports of the other auditors. Our opinion on the consolidated financial statements, and our report on Other Legal and Regulatory Requirements below, is not modified in respect of the above matters with respect to our reliance on the work done and the reports of the other auditors. B S R & Co. LLP Consolidated
40 AIA Engineering Ltd. Construction & Engineering Key Audit Matters 31st March, 2019 Revenue of the company mainly comprise of sale of high chrome mill internals to its customers and its overseas subsidiaries. Revenue recognition is a significant audit risk that revenue us recognised on sale of goods before the control in the goods is transferred. Revenue is also a key performance indicator of the company Our key audit procedures to assess recognition of revenue on sale of goods included the following: a) We assessed the appropriateness of the Company's revenue recognition policies, including those related to discounts and incentives by comparing with applicable accounting standards. b)We obtained an understanding of the process and assessed the design, implementation and operating effectiveness of the management's key controls in relation to revenue recognition from sale of goods. We also tested the Company's controls over timing revenue recognition c) We also tested on sample basis whether specific revenue transactions around the year end have been recognised in appropriate period on the basis of sale contract d) We inspected the key customer contracts to identify terms and conditions related to acceptance of goods and the right to return and assessing the Company's revenue recognition policies with reference to the requirements of the prevailing accounting standards. We also considered adequacy of the Company's disclosures in respect of revenue and related estimates and judgements in the standalone Ind AS financial statements B S R & Co. LLP Standalone
41 AIA Engineering Ltd. Construction & Engineering Key Audit Matters 31st March, 2019 The company is contesting a litigation which is under arbitration, whereby the claimant has claimed the damages inter alia alleging infringement of its patent by the company in relation to the company' s particular technology and breach of settlement deed as disclosed in Note No. 41 of the standalone Ind AS financial statements as on 31 - March 2019. The amount involved in the said dispute is approximately Rs. 41521.44/- Lakhs including costs and damages, which could have a significant impact on the results of the company if the potential exposures were to materialise. Given the arbitration is still pending its potential impact on the standalone Ind AS financial statements are subject to significant judgements and estimates made by judgement, we identify it as a key audit matter Our key audit procedures included the following: a) We have held discussions with the inhouse legal team of the company regarding the status of the ongoing arbitration to understand the associated risk and management's assessment of the potential impact of the arbitration. b)We obtained confirmation from external legal counsel and considered the appropriateness of the disclosure made in the standalone Ind AS financial statements. B S R & Co. LLP Standalone
42 AIA Engineering Ltd. Construction & Engineering Key Audit Matters 31st March, 2019 Revenue of the Group mainly comprise of sale of high chrome mill internals to its customers. Revenue recognition is a significant audit risk primarily as there is a risk that revenue is recognised on sale of goods before the control in the goods is transferred. Revenue is also a key performance indicator of the Group. Our key audit procedures to assess the recognition of revenue on sale of goods included the following: We assessed the appropriateness of the Group's revenue recognition policies, including those related to discounts and incentives by comparing with the applicable accounting standards; We obtained an understanding of process and assessed the design, implementation and operating effectiveness of management's key internal controls in relation to revenue recognition from sale of goods. We also tested the Company's controls over timing of revenue recognition; We also tested, on a sample basis, whether specific revenue transactions around the year end had been recognised in the appropriate period on the basis of the terms of sale of the contract; We inspected key customer contracts to identify terms and conditions related to acceptance of goods and the right to return and assessing the Group's revenue recognition policies with reference to the requirements of the prevailing accounting standards. We also considered adequacy of the Group's disclosures in respect of revenue and related estimates and judgements in the consolidated Ind AS financial statements. B S R & Co. LLP Consolidated
43 AIA Engineering Ltd. Construction & Engineering Key Audit Matters 31st March, 2019 The Holding Company is contesting a litigation which is under arbitration, whereby the claimant has claimed damages inter alia alleging infringement of its Patent by the Company in relation to the Holding Company's particular technology and breach of the Settlement Deed as disclosed in Note 41 of the consolidated Ind AS financial statements as at 31 March 2019. The amount involved in the said dispute is approximately Rs. 41,521.44 Lakhs, including costs and damages, which could have a significant impact on the results of the Holding Company if the potential exposures were to materialise. Given that the arbitration is still pending, its potential impact on the consolidated Ind AS financial statements are subject to significant judgments and estimates made by the management, we identify it as key audit matter. Our key audit procedures included the following: We have held discussions with in-house legal team of the Holding Company regarding the status of the ongoing arbitration to understand the associated risk and management's assessment of the potential impact of the arbitration; We obtained confirmation from external legal counsel and considered the appropriateness of the disclosure made in the consolidated Ind AS financial statements. B S R & Co. LLP Consolidated
44 AIA Engineering Ltd. Construction & Engineering Other Matters 31st March, 2019 We did not audit the financial statements of 8 subsidiaries, whose financial statements reflect total assets of Rs. 119,759.04 Lakhs as at 31 March 2019, total revenues of Rs. 251,974.90 Lakhs and net cash inflows amounting to Rs. 2,852.77 Lakhs for the year ended on that date, as considered in the consolidated Ind AS financial statements. These financial statements have been audited by other auditors whose reports have been furnished to us by the Management and our opinion on the consolidated Ind AS financial statements, in so far as it relates to the amounts and disclosures included in respect of these subsidiaries and our report in terms of sub-section (3) of Section 143 of the Act, in so far as it relates to the aforesaid subsidiaries is based solely on the audit reports of the other auditors. Certain of these subsidiaries are located outside India whose financial statements and other financial information have been prepared in accordance with accounting principles generally accepted in their respective countries and which have been audited by other auditors under generally accepted auditing standards applicable in their respective countries. The Holding Company's management has converted the financial statements of such subsidiaries located outside India from accounting principles generally accepted in their respective countries to accounting principles generally accepted in India. We have audited these conversion adjustments made by the Holding Company's management. Our opinion in so far as it relates to the balances and affairs of such subsidiaries located outside India is based on the report of other auditors and the conversion adjustments prepared by the management of the Holding Company and audited by us. B S R & Co. LLP Consolidated
45 AIA Engineering Ltd. Construction & Engineering Other Matters 31st March, 2019 The financial information of 3 subsidiaries whose financial information reflect total assets of Rs. 3,055.22 Lakhs as at 31 March 2019, total revenues of Rs. 488.25 Lakhs and net cash inflows amounting to Rs. 824.89 Lakhs for the year ended on that date, as considered in the consolidated Ind AS financial statements, have not been audited either by us or by other auditors. These unaudited financial information have been certified and furnished to us by the Holding Company's management and our opinion on the consolidated Ind AS financial statements, in so far as it relates to the amounts and disclosures included in respect of these subsidiaries and our report in terms of sub-sections (3) of Section 143 of the Act in so far as it relates to the aforesaid subsidiaries is based solely on such unaudited financial information. In our opinion and according to the information and explanations given to us by the Management, these financial information is not material to the Group. B S R & Co. LLP Consolidated
46 Alkem Laboratories Ltd. Pharmaceuticals & Chemicals Key Audit Matters 31st March, 2019 1. Revenue Recognition: - The Company provides a right of return to its customers as a customary business practice. These arrangements result in deductions to gross amounts invoiced. The initial revenue recognition is reduced taking into consideration the anticipated sales returns. - Revenue is recognised when the control of the products being sold has transferred to the customer. Therefore, there is a risk of revenue being overstated on account of variation in the timing of transfer of control due to the pressure management may feel to achieve performance targets at the reporting period end. - Refer note 2.9 of the standalone financial statements for details on accounting policy on revenue recognition. - Due to the Companys presence across different regions and the competitive business environment, the estimation of anticipated sales returns is material and considered to be complex and judgmental. Management has determined an accrual of 1,015.8 Million to be necessary as at 31 March 2019 (31 March 2018: Rs. 910.7 Million). In view of the significance of the matter we applied following procedures: -Assessed appropriateness of the Companys revenue recognition accounting policies, including those relating to anticipated sales returns by comparing with applicable accounting standards. Assessed and tested design, implementation and operating effectiveness of the Companys general IT controls and key IT/ manual application controls over the Companys systems which govern recording of revenue, creation of new customers, revenue cut-off and sales return accruals in the general ledger accounting system. Performed substantive testing (including year-end cut-off testing) by selecting samples of revenue transactions recorded during the year (and before and after the financial year end), including one off sales to customers, by verifying the underlying documents, which included sales invoices/contracts and shipping documents. Performed testing by selecting samples relating to sales returns recorded during the year and comparing the parameters used in the calculation with the relevant source documents (including invoices and contracts) to assess whether the methodology adopted in the calculation was in accordance with the terms and conditions. We have also considered the historical accuracy of the Companys estimates as well as current trends of sales return. We assessed manual journals posted to revenue to identify unusual items and considered the adequacy of the disclosures in respect of revenue. B S R & Co. LLP Standalone
47 Alkem Laboratories Ltd. Pharmaceuticals & Chemicals Key Audit Matters 31st March, 2019 2. Assessment of recoverability of the carrying value of investments in Subsidiaries: As at 31 March 2019, the Company has Rs.13,821.7 Million (31 March 2018: Rs. 11,051.1 Million) of investment in subsidiaries. The carrying value of investment in subsidiaries will be recovered through future cash flows and there is inherent risk that these assets may be impaired if these cash flows do not meet the Companys expectations. Refer to note 2.4 and 3.2 in the standalone financial statements for details of accounting policies on impairment of investment in subsidiaries and related disclosures. Valuation of investment in subsidiaries is a key audit matter due to: The inherent complexity in auditing the forward looking assumptions applied to recoverable value given the significant judgements involved. The key assumptions in the cash flow models include the forecast revenue, margins, terminal growth and discount rates. In view of the significance of the matter we applied following procedures : tested operating effectiveness of controls over managements review of the impairment analysis. Assessed the accuracy of prior period cash flow forecasts of the Company by reference to actual performance. using our knowledge of the Company and industry, challenged the significant assumptions and judgements, where applicable, incorporated in valuation reports of subsidiaries by independent valuers for impairment analysis specifically in relation to forecast revenue, margins, terminal growth and discount rates with the assistance of our valuations specialist; performed sensitivity analysis of the key assumptions, including future revenue growth rates, future gross margins, and the discount rate applied in the recoverable value and considering the resulting impact on the impairment testing and whether there were any indicators of management bias in the selection of these key assumptions; evaluated the adequacy of disclosures, including disclosures of key assumptions, judgements and sensitivities. B S R & Co. LLP Standalone
48 Alkem Laboratories Ltd. Pharmaceuticals & Chemicals Key Audit Matters 31st March, 2019 3. Taxation and MAT credit asset: The Company operates in a complex tax jurisdictions environment in India with various tax exemptions available across regions and are subject to tax challenges and audits by local tax authorities. There are open tax and transfer pricing matters under litigation with tax authorities. Judgment is required in assessing the level of provisions and disclosure of contingent liabilities required in respect of uncertain tax positions that reflects managements best estimate of the most likely outcome based on the facts available. The Company pays minimum alternate tax (MAT) under section 115JB of the Income Tax Act, 1961. The MAT paid would be available as an offset over a period of 15 years. The MAT credit is recognized as a deferred tax asset to be available for offset when the Company pays taxes under the provision of Income Tax Act, 1961. The balance of MAT credit receivable as at 31 March 2019 is Rs. 7,594.4 Million (31 March 2018: Rs. 6,988.8 Million) (refer note 3.7 to the standalone financial statements). The recognition and recoverability of deferred tax asset on account of MAT credit requires significant judgment regarding the Companys future profitability and taxable income which will result in utilization of the MAT credit within the time limits available under the applicable Income tax laws. In view of the significance of the matter we applied following procedures : Tested the operating effectiveness of controls around the recording and re-assessment of tax provisions and disclosure of contingent liabilities. For uncertain tax positions, we read and analysed select correspondence with tax authorities, reviewed managements assessment and conclusion on likely eventual outcome. We also read opinion from third party experts, judgement and also assessed legal opinions from third party tax advisors. We used our tax specialists expertise to assess the status of the ongoing tax litigations and judgmental tax positions in tax returns and their most likely outcome, basis expertise, industry outcomes and companys own past outcomes in respect of similar matters. In respect of such deferred tax assets (MAT credit entitlement), we analysed origination of MAT credit entitlement and reviewed managements assessment and conclusion in relation to reasonable certainty for its utilization within the period allowed for carry forward and set off against forecast taxable income streams. We evaluated appropriateness of taxation disclosures in note 3.7 to the standalone financial statements, including the enhanced disclosures made in respect of the utilization period of deferred tax assets in relation to MAT credit entitlement. B S R & Co. LLP Standalone
49 Alkem Laboratories Ltd. Pharmaceuticals & Chemicals Key Audit Matters 31st March, 2019 1. Revenue Recognition The Group distributes its products in several geographies in many cases through wholesale distributors, and the ultimate net selling prices are determined based on contractual arrangements. Further in several geographies the Group also provides a right of return to its customers as a customary business practice. These arrangements result in deductions to gross amounts invoiced. The initial revenue recognition, which is usually upon shipment to distributor is reduced taking into consideration items such as discounts, rebates, chargebacks and sales returns. Revenue is recognised when the control of the products being sold has transferred to external customer. Therefore, there is a risk of revenue being overstated on account of variation in the timing of transfer of control due to the pressure management may feel to achieve performance targets at the reporting period end. Refer note 2.10 of the consolidated financial statements for more details on accounting policy on revenue recognition. The process of managements estimation over items such as discounts, rebates, chargebacks and sales returns are considered to be complex and judgmental. Estimation of discounts, rebates, chargebacks and sales returns is material and considered to be complex and judgmental. Management has determined an accrual of Rs. 4,347.1 Million to be necessary as at 31 March 2019 (31 March 2018: Rs. 3,914.2 Million). In view of the significance of the matter we applied following procedures: Assessed appropriateness of the Companys revenue recognition accounting policies, including those relating to discounts, rebates, chargebacks and sales return by comparing with applicable accounting standards. Assessed and tested the design, implementation and operating effectiveness of Groups general IT controls and key IT/manual application controls over the Companys systems which govern recording of revenue, creation of new customers, revenue cut-off, discounts, rebates, chargebacks and sales return accruals in the general ledger accounting system including those controls over accrual rates used for calculations of accrued liabilities, provisions or deductions from trade receivables. Performed substantive testing (including year-end cut-off testing) by selecting samples of revenue transactions recorded during the year (and before and after the financial year end), including one off sales to customers, by verifying the underlying documents, which included sales invoices/contracts and shipping documents. Performed testing by selecting samples relating to items such as discounts, rebates, chargebacks and sales returns recorded during the year and comparing the parameters used in the calculation with the relevant source documents (including invoices and contracts) to assess whether the methodology adopted in the calculation was in accordance with the terms and conditions. Compared the assumptions of chargeback calculations, discounts, rebates and sales returns to current payment trends. We have also considered the historical accuracy of the Groups estimates in previous years. We assessed manual journals posted to revenue to identify unusual items and considered the adequacy of the disclosures in respect of revenue. B S R & Co. LLP Consolidated
50 Alkem Laboratories Ltd. Pharmaceuticals & Chemicals Key Audit Matters 31st March, 2019 2. Assessment of recoverability of the carrying value of Goodwill and Intangible assets: As at 31 March 2019, the Group has goodwill of Rs. 3,805.6 Million (31 March 2018: Rs. 3,664.6 Million) in respect of acquired businesses. The carrying value of goodwill will be recovered through future cash flows and there is inherent risk that these assets may be impaired if these cash flows do not meet the Groups expectations. Refer to note 2.5 and 3.37 in the consolidated financial statements for details of accounting policies on impairment of goodwill and related disclosures. Valuation of goodwill is a key audit matter due to: The inherent complexity in auditing the forward looking assumptions applied to the recoverable value given the significant judgements involved. The key assumptions in the cash flow models include the forecast revenue, margins, terminal growth and discount rates. In view of the significance of the matter we applied following procedures: tested operating effectiveness of controls over managements review of the impairment analysis. Assessed the accuracy of prior period cash flow forecasts of the Group by reference to actual performance. using our knowledge of the Group and industry, challenged the significant assumptions and judgements, where applicable, incorporated in valuation reports of subsidiaries by independent valuers for impairment analysis specifically in relation to forecast revenue, margins, terminal growth and discount rates with the assistance of our valuations specialist; performed sensitivity analysis of the key assumptions, including future revenue growth rates, future gross margins, and the discount rate applied in the recoverable value and considering the resulting impact on the impairment testing and whether there were any indicators of management bias in the selection of these key assumptions; evaluated the adequacy of disclosures, including disclosures of key assumptions, judgements and sensitivities. B S R & Co. LLP Consolidated
51 Alkem Laboratories Ltd. Pharmaceuticals & Chemicals Key Audit Matters 31st March, 2019 3. Taxation and MAT Credit Asset: The Holding Company operates in a complex tax jurisdictions environment in India with various tax exemptions available across regions and are subject to tax challenges and audits by local tax authorities. There are open tax and transfer pricing matters under litigation with tax authorities. Judgment is required in assessing the level of provisions and disclosure of contingent liabilities required in respect of uncertain tax positions that reflects managements best estimate of the most likely outcome based on the facts available. The Holding Company pays minimum alternate tax (MAT) under section 115JB of the Income Tax Act, 1961. The MAT paid would be available as an offset over a period of 15 years. The MAT credit is recognized as a deferred tax asset to be available for offset when the Holding Company pays taxes under the provision of Income Tax Act, 1961. The balance of MAT credit receivable as at 31 March 2019 is Rs. 7,609.3 Million (31 March 2018: Rs. 7,003.7 Million (refer note 3.7 to the consolidated financial statements). The recognition and recoverability of deferred tax asset on account of MAT credit requires significant judgment regarding the Holding Companys future profitability and taxable income which will result in utilization of the MAT credit within the time limits available under the applicable Income tax laws. In view of the significance of the matter we applied following procedure: Tested the operating effectiveness of controls around the recording and re-assessment of tax provisions and disclosure of contingent liabilities. For uncertain tax positions, we read and analysed select correspondence with tax authorities, reviewed managements assessment and conclusion on likely eventual outcome. We also read opinion from third party experts, judgement and also assessed legal opinions from third party tax advisors. We used our tax specialists expertise to assess the status of the ongoing tax litigations and judgmental tax positions in tax returns and their most likely outcome, basis expertise, industry outcomes and companys own past outcomes in respect of similar matters. In respect of such deferred tax assets (MAT credit entitlement), we analysed origination of MAT credit entitlement and reviewed managements assessment and conclusion in relation to reasonable certainty for its utilization within the period allowed for carry forward and set off against forecast taxable income streams. We evaluated appropriateness of taxation related disclosures in note 3.7 to the consolidated financial statements, including the enhanced disclosures made in respect of the utilization period of deferred tax assets in relation to MAT credit entitlement. B S R & Co. LLP Consolidated
52 Alkem Laboratories Ltd. Pharmaceuticals & Chemicals Other Matters 31st March, 2019 We did not audit the financial statements / financial information of nineteen subsidiaries whose financial statements / financial information reflect total assets of Rs. 18,028.8 Million as at 31 March 2019, total revenues of Rs. 12,164.5 Million and net cash outflows amounting to Rs. 508.0 Million for the year ended on that date, as considered in the consolidated financial statements. These financial statements / financial information have been audited by other auditors whose reports have been furnished to us by the Management and our opinion on the consolidated financial statements, in so far as it relates to the amounts and disclosures included in respect of these subsidiaries and our report in terms of sub-section (3) of Section 143 of the Act, in so far as it relates to the aforesaid subsidiaries is based solely on the reports of the other auditors. Certain of these subsidiaries are located outside India whose financial statements and other financial information have been prepared in accordance with accounting principles generally accepted in their respective countries and which have been audited by other auditors under generally accepted auditing standards applicable in their respective countries. The companys management has converted the financial statements of such subsidiaries located outside India from accounting principles generally accepted in their respective countries to accounting principles generally accepted in India. We have audited these conversion adjustments made by the Companys management. Our opinion in so far as it relates to the balances and affairs of such subsidiaries located outside India is based on the report of other auditors and the conversion adjustments prepared by the management of the Company and audited by us. Our opinion on the consolidated financial statements, and our report on Other Legal and Regulatory Requirements below, is not modified in respect of the above matters with respect to our reliance on the work done and the reports of the other auditors and the financial statements/financial information certified by the Management. B S R & Co. LLP Consolidated
53 Allahabad Bank Banks Emphasis of Matter 31st March, 2019 We draw attention to para no. 21 of Schedule 18- Notes to financial accounts regarding Deferred Tax Assets on provision for bad and doubtful debts Rs. 2156.00 crores and carried forward loss Rs. 1118.19 crores created upto 31.03.2018. Our opinion is not modified in respect of this matter. Nandy Halder & Ganguli, P L Tandon & Co., R. Gopal & Associates, JBMT & Associates, Prakash S. Jain & Co. Standalone
54 Allahabad Bank Banks Emphasis of Matter 31st March, 2019 We draw attention to para no. 2.8 of Schedule 19- Notes to financial accounts regarding Deferred Tax Assets on provision for bad and doubtful debts Rs. 2156.00 crores and carried forward loss Rs.1118.19 crores created upto 31.03.2018. Our opinion is not modified in respect of this matter. Nandy Halder & Ganguli, P L Tandon & Co., R. Gopal & Associates, JBMT & Associates, Prakash S. Jain & Co. Consolidated
55 Allahabad Bank Banks Key Audit Matters 31st March, 2019 Evaluations of IT systems: The Bank has system based identification of non performing assets in accordance with IRAC Norms. We have assessed the efficacy of the system and we recommend that the system to be calibrated further to enhance the vigorousness. Nandy Halder & Ganguli, P L Tandon & Co., R. Gopal & Associates, JBMT & Associates, Prakash S. Jain & Co. Standalone
56 Allahabad Bank Banks Key Audit Matters 31st March, 2019 Evaluation of uncertain tax positions : The bank has material uncertain tax positions including matters under dispute which involves significant judgement to determine the possible outcome of the disputes. Refer Note No. 41.6 to standalone financial statement . Obtained details of completed tax assessments, demands and appeal orders for assessment completed. We considered legal precedence and rulings in evaluating management position on these uncertain tax positions. Nandy Halder & Ganguli, P L Tandon & Co., R. Gopal & Associates, JBMT & Associates, Prakash S. Jain & Co. Standalone
57 Allahabad Bank Banks Key Audit Matters 31st March, 2019 Classification of Advance into Priority & Non Priority Sector : Bank has made numerous reclassification and declassifications of borrowers accounts between priority & non -priority sectors during the year under audit. We have observed from Memorandum of Changes issued by Branch Auditors and have further performed test checks & substantive procedures to validate the findings. We are of the opinion that Bank should further strengthen their system to avoid such type of misclassification in future. Nandy Halder & Ganguli, P L Tandon & Co., R. Gopal & Associates, JBMT & Associates, Prakash S. Jain & Co. Standalone
58 Allahabad Bank Banks Key Audit Matters 31st March, 2019 Evaluations of IT systems : The Bank has system based identification of non performing assets in accordance with IRAC Norms. We have assessed the efficacy of the system and we recommend that the system to be calibrated further to enhance the vigorousness. Nandy Halder & Ganguli, P L Tandon & Co., R. Gopal & Associates, JBMT & Associates, Prakash S. Jain & Co. Consolidated
59 Allahabad Bank Banks Key Audit Matters 31st March, 2019 Evaluation of uncertain tax positions : The bank has material uncertain tax positions including matters under dispute which involves significant judgement to determine the possible outcome of the disputes. Refer Note No. 41.6 to standalone financial statement . Obtained details of completed tax assessments, demands and appeal orders for assessment completed. We considered legal precedence and rulings in evaluating management position on these uncertain tax positions. Nandy Halder & Ganguli, P L Tandon & Co., R. Gopal & Associates, JBMT & Associates, Prakash S. Jain & Co. Consolidated
60 Allahabad Bank Banks Key Audit Matters 31st March, 2019 Classification of Advance into Priority & Non Priority Sector : Bank has made numerous reclassification and declassifications of borrowers accounts between priority & non -priority sectors during the year under audit. We have observed from Memorandum of Changes issued by Branch Auditors and have further performed test checks & substantive procedures to validate the findings. We are of the opinion that Bank should further strengthen their system to avoid such type of misclassification in future. Nandy Halder & Ganguli, P L Tandon & Co., R. Gopal & Associates, JBMT & Associates, Prakash S. Jain & Co. Consolidated
61 Allahabad Bank Banks Other Matters 31st March, 2019 We did not audit the financial statements / information of 1893 branches/ offices included in the standalone financial statements of the Bank whose financial statements / financial information reflect total assets of Rs. 108710.22 crore as at 31st March 2019 and total revenue of Rs. 6272.31 crore for the year ended on that date, as considered in the standalone financial statements. The financial statements / information of these branches have been audited by the branch auditors whose reports have been furnished to us, and in our opinion in so far as it relates to the amounts and disclosures included in respect of branches, is based solely on the report of such branch auditors. Our opinion is not modified in respect of this matter. Nandy Halder & Ganguli, P L Tandon & Co., R. Gopal & Associates, JBMT & Associates, Prakash S. Jain & Co. Standalone
62 Allahabad Bank Banks Other Matters 31st March, 2019 We did not audit the financial statements of one jointly controlled entity included in the consolidated financial results, whose financial statements reflect total assets of Rs.985.46 Crore as at 31st March, 2019, total revenues of Rs. 405.31 Crore, total net profit after tax of Rs.38.66 Crore and cash outflow (net) of Rs.22.08 Crore for the year ended on that date, as considered in the consolidated financial results. These financial statements have been audited by other auditors whose reports have been furnished to us by the Management and our opinion on the consolidated financial results, in so far as it relates to the amounts and disclosures included in respect of the jointly controlled entity, is based solely on the reports of the other auditors. We did not audit the financial statements of one jointly controlled entity included in the consolidated financial results, whose financial statements reflect total assets of Rs. 45.11 Crore as at 31st March, 2019, total revenues of Rs. 5.48 Crore, total net profit after tax of Rs.1.03 Crore and cash outflow of Rs. 3.15 Crore for the year ended on that date, as considered in the consolidated financial results. The consolidated financial results also include the Bank's share of net loss of Rs. 163.10 Crore for the year ended 31st March, 2019, as considered in the consolidated financial results, in respect of one associate, whose financial statements have not been audited by us. These financial statements are unaudited and have been furnished to us by the Management and our opinion on the Statement, in so far as it relates to the amounts and disclosures included in respect of these jointly controlled entity and associate, is based solely on such unaudited financial statements. In our opinion and according to the information and explanations given to us by the Management, these financial statements are not material to the Bank. Nandy Halder & Ganguli, P L Tandon & Co., R. Gopal & Associates, JBMT & Associates, Prakash S. Jain & Co. Consolidated
63 Andhra Bank Banks Key Audit Matters 31st March, 2019 Asset Classification and Provisioning in respect of Advances We focused on Advances primarily because of the magnitude of this particular financial statement line item. Banks are governed by the prudential norms issued by the Reserve Bank of India on Income recognition, Asset Classification and provisioning pertaining to Advances. In terms of the said guidelines, Banks are required to classify Advances as Non Performing Assets (Sub Standard, Doubtful and Loss) based on prescribed rules involving time lines and to provide for their delinquency at specified percentages (15%, 25%, 40% and 100%) based on the period since when such advances remained in the non performing category. Identification of such non-performing advances is carried out in the bank based on system identification by the Core Banking Solution (CBS) solution software in operation i.e. Finacle. In order to comply with the prudential guidelines, the software has various controls and logics embedded therein. Although, identification of NPAs is rule based and system driven, the management exercises significant judgement when estimating the realizable value of primary security and consequently the individual and collective provision for delinquency in respect of NPAs. Advances comprise a substantial portion of the Bank's assets and since the management exercises significant judgement in the asset classification and provisioning, this has been considered by us as a key audit matter We have focused on the following judgements and estimates which could give rise to material misstatement or are potentially subject to management bias: a) The completeness and timing of recognition of depletion in the value of security; and b) Thee measurement of individually assessed provisions, which is dependent on the valuation of primary and collateral securities, realisable value of inventories, trade receivables, valuation of collateral securities, liquidation value, legal status, stage of insolvency proceedings in NCLT referred cases etc. In obtaining sufficient audit evidence we: a) Reviewed the operating effectiveness of key controls around the process of loan performance monitoring, assessment of drawing power in respect of Working Capital limits, evaluation of available security etc.; b) Evaluated and tested the key assumptions and judgements adopted by management in assessment of depletion in the value of securities and asset classification; c) Performed procedures to obtain comfort on the accuracy of the collective impairment calculation process through recalculation of the provision made based on realisable value of security and other parameters; d) For material non-performing advances, we assessed the adequacy of the recognised individual provision losses; We also performed the following procedures : a) Corrected all changes suggested by the Statutory Branch auditors with respect to income recognition, asset classification and provisioning. b) Reviewed and placed reliance upon the Independent Auditors Report and Long Form Audit Reports (LFAR) of the Statutory Branch Auditors. c) Reviewed and verified the correctness of the asset classification and provisioning in respect of all material advances in the branches audited by us. d) Tested compliance with the Significant accounting policies of the bank and the extant guidelines of the Reserve Bank of India. e) Checked the correctness of data input, logical controls in the software for the purpose of identification of non-performing assets and provisioning thereon across selected samples. Also reviewed the IT Audit reports for identifying any control weakness. f) Ensured correction of all material misstatements observed by us during the course of our testing process with respect to income recognition, asset classification and provisioning. g) Reviewed the Concurrent Audit Reports, Internal Inspection Reports (SIFA), Stock Audit Reports, Forensic Audit Reports, Valuation Reports etc. for identifying material control weakness. Agarwal & Saxena, Ray & Co., Santosh Gupta & Co., G S Madhava Rao & Co. Standalone
64 Andhra Bank Banks Key Audit Matters 31st March, 2019 Assessment of Deferred tax asset (DTA) recognized by the bank:- Deferred tax is the tax effect of the timing differences between accounting income and taxable income for a period that originates in one period and are capable of reversal in one or more subsequent periods. The same is governed by Accounting Standard (AS) 22 on "Accounting for Taxes on Income issued by the Institute of Chartered Accountants of India. In terms of para 17 of AS 22 as above, where an enterprise has unabsorbed depreciation or carry forward of losses under tax laws, deferred tax assets should be recognized only to the extent that there is virtual certainty supported by convincing evidence that sufficient future taxable income will be available against which such DTAs can be realized. As indicated in Schedule 11 (V), the net deferred tax assets amount to Rs. 2296.71 crore as at 31st March 2019.We have considered the recoverability of such deferred tax assets on tax losses carried forward as a key audit matter due to the importance of management's estimation and judgment in determining virtual certainty of sufficient future taxable income being available for future set off of the DTA recognized and the materiality of amounts at stake. The managements estimation is also based on advice from independent tax advisors and there is an uncertainty in the outcome of these issue and judgment in the interpretation of law. In obtaining sufficient audit evidence we performed the following audit procedures: a) We used our tax specialists to assist us in assessing the appropriateness of the level of deferred taxes recognized in the balance sheet. b) We tested the assumptions and judgments underlying the forecasts for the period over which the deferred tax would be set off by future taxable income. c) We assessed the adequacy of the tax disclosure under Note 2.9 to the financial statements. d) We reviewed the details of past income tax assessment orders, unresolved tax issues together with their impact on account of matters pending with appropriate assessing and appellate tax authorities, amount of allowable carried forward losses as per the Income Tax orders etc. e) We reviewed the current status of the issues under litigation based on our understanding of the likely outcome of the issues under dispute and the possible tax outflow. Agarwal & Saxena, Ray & Co., Santosh Gupta & Co., G S Madhava Rao & Co. Standalone
65 Andhra Bank Banks Key Audit Matters 31st March, 2019 Asset Classification and Provisioning in respect of Advances: We focused on Advances primarily because of the magnitude of this particular financial statement line item. Banks are governed by the prudential norms issued by the Reserve Bank of India on Income recognition, Asset Classification and provisioning pertaining to Advances. In terms of the said guidelines, Banks are required to classify Advances as Non Performing Assets (Sub Standard, Doubtful and Loss) based on prescribed rules involving time lines and to provide for their delinquency at specified percentages (15%, 25%, 40% and 100%) based on the period since when such advances remained in the non performing category. Identification of such non-performing advances is carried out in the bank based on system identification by the Core Banking Solution (CBS) solution software in operation i.e. Finacle. In order to comply with the prudential guidelines, the software has various controls and logics embedded therein. Although, identification of NPAs is rule based and system driven, the management exercises significant judgement when estimating the realizable value of primary security and consequently the individual and collective provision for delinquency in respect of NPAs. Advances comprise a substantial portion of the Bank's assets and since the management exercises significant judgement in the asset classification and provisioning, this has been considered by us as a key audit matter. We have focused on the following judgements and estimates which could give rise to material misstatement or are potentially subject to management bias: a) The completeness and timing of recognition of depletion in the value of security; and b) The measurement of individually assessed provisions, which is dependent on the valuation of primary and collateral securities, realisable value of inventories, trade receivables, valuation of collateral securities, liquidation value, legal status, stage of insolvency proceedings in NCLT referred cases etc. In obtaining sufficient audit evidence we: a)Reviewed the operating effectiveness of key controls around the process of loan performance monitoring, assessment of drawing power in respect of Working Capital limits, evaluation of available security etc.; b)Evaluated and tested the key assumptions and judgements adopted by management in assessment of depletion in the value of securities and asset classification; c)Performed procedures to obtain comfort on the accuracy of the collective impairment calculation process through recalculation of the provision made based on realisable value of security and other parameters; d) For material non-performing advances, we assessed the adequacy of the recognized individual provision losses; We also performed the following procedures: a) Corrected all changes suggested by the Statutory Branch auditors with respect to income recognition, asset classification and provisioning. b) Reviewed and placed reliance upon the Independent Auditors Report and Long Form Audit Reports (LFAR) of the Statutory Branch Auditors. c) Reviewed and verified the correctness of the asset classification and provisioning in respect of all material advances in the branches audited by us. d) Tested compliance with the Significant accounting policies of the bank and the extant guidelines of the Reserve Bank of India. e) Checked the correctness of data input, logical controls in the software for the purpose of identification of non performing assets and provisioning thereon across selected samples. Also reviewed the IT Audit reports for identifying any control weakness. f) Ensured correction of all material misstatements observed by us during the course of our testing process with respect to income recognition, asset classification and provisioning. g) Reviewed the Concurrent Audit Reports, Internal Inspection Reports (SIFA), Stock Audit Reports, Forensic Audit Reports, Valuation Reports etc. for identifying material control weakness. Agarwal & Saxena, Ray & Co., Santosh Gupta & Co., G S Madhava Rao & Co. Consolidated
66 Andhra Bank Banks Key Audit Matters 31st March, 2019 Assessment of Deferred tax asset (DTA) recognized by the bank: Deferred tax is the tax effect of the timing differences between accounting income and taxable income for a period that originates in one period and are capable of reversal in one or more subsequent periods. The same is governed by Accounting Standard (AS) 22 on "Accounting for Taxes on Income" issued by the Institute of Chartered Accountants of India. In terms of para 17 of AS 22 as above, where an enterprise has unabsorbed depreciation or carry forward of losses under tax laws, deferred tax assets should be recognized only to the extent that there is virtual certainty supported by convincing evidence that sufficient future taxable income will be available against which such DTAs can be realized. As indicated in Schedule 11 (V), the net deferred tax assets amount to Rs.2298.31 crore as at 31st March 2019. We have considered the recoverability of such deferred tax assets on tax losses carried forward as a key audit matter due to the importance of management's estimation and judgment in determining virtual certainty of sufficient future taxable income being available for future set off of the DTA recognized and the materiality of amounts at stake. The managements estimation is also based on advice from independent tax advisors and there is an uncertainty in the outcome of these issues and judgment in the interpretation of law. In obtaining sufficient audit evidence we performed the following audit procedures: a) We used our tax specialists to assist us in assessing the appropriateness of the level of deferred taxes recognized in the balance sheet. b) We tested the assumptions and judgments underlying the forecasts for the period over which the deferred tax would be set off by future taxable income. c) We assessed the adequacy of the tax disclosure under Notes of the financial statements. d) We reviewed the details of past income tax assessment orders, unresolved tax issues together with their impact on account of matters pending with appropriate assessing and appellate tax authorities, amount of allowable carried forward losses as per the Income Tax orders etc. e) We reviewed the current status of the issues under litigation based on our understanding of the likely outcome of the issues under dispute and the possible tax outflow. Agarwal & Saxena, Ray & Co., Santosh Gupta & Co., G S Madhava Rao & Co. Consolidated
67 Andhra Bank Banks Other Matters 31st March, 2019 We did not audit the financial statements/ information of 1169 branches included in the standalone financial statements of the Bank whose financial statements/ financial information reflect total advances of Rs. 12,428.97 crores as at 31st March 2019 and total interest of Rs. 1071.15 crores for the year ended on that date, as considered in the standalone financial statements. The financial statements/ information of these branches have been audited by the branch auditors whose reports have been furnished to us, and in our opinion in so far as it relates to the amounts and disclosures included in respect of branches, is based solely on the report of such branch auditors. Our opinion is not modified in respect of this matter. Agarwal & Saxena, Ray & Co., Santosh Gupta & Co., G S Madhava Rao & Co. Standalone
68 Andhra Bank Banks Other Matters 31st March, 2019 We did not audit the financial statements /information of one subsidiary and three joint ventures whose financial statements / information reflect total assets of Rs 4584.21 crores as at 31st March, 2019, total revenues of Rs 1313.71 crores and net cash flows amounting to Rs 0.93 crores for the year ended on that date, as considered in the consolidated financial statements. We consolidated financial statements also include the Groups share of net profit of Rs 25.09 crores for the year ended 31st March, 2019, as considered in the consolidated financial statements, in respect of one associate, whose financial statements/information have not been audited by us. we audited financial statements /information of one subsidiary, one joint venture and unaudited financial statements /information of two joint ventures and one associate have been furnished to us by the Management. Our opinion on the consolidated financial statements, in so far as it relates to aforesaid subsidiary, jointly controlled entities and associates, is based solely on the reports of the other auditors in respect of audited entities and as per the management in respect of unaudited entities. Agarwal & Saxena, Ray & Co., Santosh Gupta & Co., G S Madhava Rao & Co. Consolidated
69 Apollo Tyres Ltd. Auto Parts & equipments Key Audit Matters 31st March, 2019 As at 31 March 2019, the Company carries provisions for sales related obligations amounting to Rs. 1,280.31million (Refer note C8).Such provision is recognised based on past trends, frequency, expected cost of obligations, management estimates regarding possible future incidences and appropriate discount rates for non-current portion of the obligations. These estimates require high degree of management judgement with respect to the underlying assumptions, As at 31 March 2019, the Company carries provisions the amounts to be recorded in the financial statements. Considering the materiality of the above matter to the financial statements, complexities and judgement involved, and the significant auditor attention required to test such managements judgement, we have identified this as a key audit matter for current year audit. Our audit procedures included, but were not limited to the following: a) Obtained an understanding from the management with respect to process and controls followed by the Company to ensure appropriateness of recognition, measurement and completeness of the sales related obligations. b) Tested the managements computation of sales related obligations by evaluating the reasonability of the key assumptions, reviewing the contractual terms, comparing the assumptions to historical data and analysing the expected costs of incidences. c) Traced the inputs used in the computations, to the relevant accounting Our audit procedures included, but were not limited to the following: and tested the arithmetical accuracy of the computation. d) Compared the amounts recognized as provision in the past years with the corresponding settlements and assessed whether the aggregate provisions recognized as at the current year-end were sufficient to cover expected costs in light of known and expected incidences and standard return periods provided. e) Performed sensitivity analysis on the managements computation by evaluating the impact of change on the obligation by changing certain key assumptions such as discount rates used. f) Assessed and validated the adequacy and appropriateness of the disclosures made by the management in the standalone financial statements. Walker Chandiok & Co. LLP Standalone
70 Apollo Tyres Ltd. Auto Parts & equipments Key Audit Matters 31st March, 2019 As disclosed in Note C17 [contingent liability note]and Note C8 [Provision for contingencies note] to the standalone financial statements, the Company is involved in direct and indirect tax litigations(litigations) amounting to Rs. 3,147.53 million that are pending with various tax authorities. Whether a liability is recognised or disclosed as a contingent liability in the financial statements is inherently judgmental and dependent on a number of significant assumptions and assessments. These As disclosed in Note C17 [contingent liability note]timing of the cash outflows from the business and the interpretation of local laws and pending assessments at various levels of the statute. We placed specific focus on the judgements in respect to these demands against the Company. Determining the amount, if any, to be recognised or disclosed in the standalone financial statements, is inherently subjective. The amounts involved are potentially significant and due to the range of possible outcomes and considerable uncertainty around the various claims the determination of the need for creating a provision in the financial statements is inherently subjective and therefore is considered to be a key audit matter in the current year Our procedures included, but were not limited to, the following:Obtained an understanding from the management with respect to process and controls followed by the Company for identification and monitoring of significant developments in relation to the litigations, including completeness thereof.Obtained the list of litigations from the management and reviewed their assessment of the likelihood of outflow of economic resources being probable, possible or remote in respect of the litigations. This involved assessing the probability of an unfavourable outcome of a given proceeding and the reliability of estimates of related amounts Our procedures included, but were not limited to, the following: documents / communications from the tax authorities and re-computation of the amounts involved.Assessed managements conclusions through discussions held with the inhouse legal counsel and understanding precedents in similar cases;Obtained and evaluated the independent confirmations from the consultants representing the Company before the various authorities.Engaged auditors experts, who obtained an understanding of the current status of the litigations, conducted discussions with the management, reviewed independent legal advice received by the Company, if any and considered relevant legal provisions and available precedents to validate the conclusions made by the management.Assessed and validated the adequacy and appropriateness of the disclosures made by the management in the standalone financial statements. Walker Chandiok & Co. LLP Standalone
71 Apollo Tyres Ltd. Auto Parts & equipments Key Audit Matters 31st March, 2019 As detailed in Note C3 to the consolidated financial statement, the Group carries goodwill amounting to Rs.1,993.25 million and intangibles amounting to Rs. 1,359.27million (pertaining to Reifencom) in its consolidated balance sheet as at March 31, 2019. These goodwill and Intangibles were recorded on the acquisition of Reifencom GmbH, Germany, a multi-channel distributor for tyres and allied services, which has been determined as a cash generating unit (CGU) by the management. In terms with Indian Accounting Standard 36, Goodwill As detailed in Note C3 to the consolidated financial annually at the CGU level, whereby the carrying amount of the CGU (including goodwill) is compared with the recoverable amount of the CGU. The recoverable amount is determined on the basis of the value in use which is the present value of future cash flows of the CGU using discounted cash flow model (Model), which involves estimates pertaining to expected business and earnings forecasts and key assumptions including those related to discount and long-term growth rates. These estimates require high degree of management judgement resulting in inherent subjectivity. The management has concluded that the recoverable amount of the CGU is higher than its carrying amount and accordingly, no impairment provision has been recorded as at 31 March, 2019.Considering the materiality of the amount involved and significant degree of judgement and subjectivity involved in the estimates and assumptions used in determining the cash flows used in the impairment evaluation, we have determined impairment of such goodwill and intangibles arising from the business combination as a key audit matter for the current year audit. Our audit procedures included: a) Obtained an understanding from the management with respect to process and controls followed by the Group to perform annual impairment test related to goodwill and intangibles. b) Obtained the impairment analysis model from the management and reviewed their conclusions, including reading the report provided by an independent valuation expert engaged by the management. c) Tested the inputs used in the Model by examining the underlying data and validating the future projections by comparing past projections with actual results, including discussions with management relating to these Our audit procedures included: d ) We reconciled the cash flow projections to the business plans approved by the Companys board of directors; e) We assessed the reasonableness of the assumptions used and appropriateness of the valuation methodology applied. Tested the discount rate and long-term growth rates used in the forecast including comparison to economic and industry forecasts where appropriate; f) Assessed the professional competence, objectivity and capabilities of the third party expert considered by the management for performing the required valuations to estimate the recoverable value of the goodwill and intangibles; g) Engaged our valuation specialists to assess the appropriateness of the significant assumptions used in the Model, which included comparing the underlying parameters of the discount and long term growth rates used with the publicly available information. h) Performed sensitivity analysis on these key assumptions to assess potential impact of downside in the underlying cash flow forecasts and assessed the possible mitigating actions identified by management. i) Assessed and validated the adequacy and appropriateness of the disclosures made by the management in the consolidated financial statements. Walker Chandiok & Co. LLP Consolidated
72 Apollo Tyres Ltd. Auto Parts & equipments Key Audit Matters 31st March, 2019 As at 31 March 2019, the Group carries these trademarks amounting to Rs. 1,001.19 million in its consolidated balance sheet. These trademarks were recorded on the acquisition of Apollo Vredestein B.V. (AVBV) in the Netherlands. The trademarks are tested for impairment annually at the CGU level, whereby the carrying amount of the CGU(including goodwill) is compared with the recoverable amount of the recoverable amount is determined on the basis As at 31 March 2019, the Group carries these trademarks cash flows of the CGU using discounted cash flow model (Model), which involves estimates pertaining to expected business and earnings forecasts and key assumptions including those related to discount and long-term growth rates. These estimates require high degree of management judgement resulting in inherent subjectivity. As explained in note C3, the management has concluded that the recoverable amount of the CGU is higher than its carrying amount. a) Obtained an understanding from the management with respect to process and controls followed by the Group to perform annual impairment tests related to the trademarks. b) Reviewed the work performed by the other auditors of AVBV who have conducted the following procedures: i. Obtained the Model from the management and reviewed their conclusions; ii. Tested the inputs used in the Model by examining the underlying data and validating the future projections by comparing past projections with actual results, including discussions with management relating a) Obtained an understanding from the management with respect to process iii. Assessed the appropriateness of the significant assumptions used in the Model, which included comparing the underlying parameters of the discount and long term growth rates used with the publicly available information; and iv. Performed sensitivity analysis on these key assumptions to assess potential impact of downside in the underlying cash flow forecasts and assessed the possible mitigating actions identified by ) Assessed and validated the adequacy and appropriateness of the disclosures made by the management in the consolidated financial statements. Walker Chandiok & Co. LLP Consolidated
73 Apollo Tyres Ltd. Auto Parts & equipments Key Audit Matters 31st March, 2019 As at 31 March 2019, the Group carries provisions for sales related obligations amounting to Rs. 2,100.23 million(Refer note C10).Such provision is recognized based on past trends, frequency, expected cost of obligations, management estimates regarding possible future incidences and appropriate discount rates for non-current portion of the obligations. These estimates require high degree of management judgement with respect to the underlying assumptions, As at 31 March 2019, the Group carries provisions for amounts to be recorded in the financial statements. Considering the materiality of the above matter to the financial statements, complexities and judgement involved, and the significant auditor attention required to test such managements judgement, we have identified this as a key audit matter for current year audit. a) Obtained an understanding from the management with respect to process and controls followed by the Group to ensure appropriateness of recognition, measurement and completeness of the sales related obligations. b) Tested the managements computation of sales related obligations by evaluating the reasonability of the key assumptions, reviewing the contractual terms, comparing the assumptions to historical data and analysing the expected costs of incidences. c) Traced the inputs used in the computations, to the relevant accounting records, including discussions with the relevant management personnel a) Obtained an understanding from the management with respect tod) Compared the amounts recognized as provision in the past years with the corresponding settlements and assessed whether the aggregate provisions recognized as at the current year-end were sufficient to cover expected costs in light of known and expected incidences and standard return periods provided. e) Performed sensitivity analysis on the managements computation by evaluating the impact of change on the obligation by changing certain key assumptions such as discount rates used) Assessed and validated the adequacy and appropriateness of the disclosures made by the management in the consolidated financial statements. Walker Chandiok & Co. LLP Consolidated
74 Apollo Tyres Ltd. Auto Parts & equipments Key Audit Matters 31st March, 2019 As disclosed in Note C17 [contingent liability note]and Note C10 [Provision for contingencies note] to the consolidated financial statements, the Group is involved in direct and indirect tax litigations (litigations)amounting to Rs. 3,147.53 million that are pending with various tax authorities. Whether a liability is recognized or disclosed as a contingent liability in the financial statements is inherently judgmental and dependent on a number of significant assumptions and assessments. These include As disclosed in Note C17 [contingent liability note]cash outflows from the business and the interpretation of local laws and pending assessments at various levels of the statute. We placed specific focus on the judgements in respect to these demands against the Group. Determining the amount, if any, to be recognized or disclosed in the consolidated financial statements, is inherently subjective. The amounts involved are potentially significant and due to the range of possible outcomes and considerable uncertainty around the various claims the determination of the need for creating a provision in the financial statements is inherently subjective and therefore is considered to be a key audit matter in the current year Obtained an understanding from the management with respect to process and controls followed by the Group for identification and monitoring of significant developments in relation to the litigations, including completeness thereof. Obtained the list of litigations from the management and reviewed their assessment of the likelihood of outflow of economic resources being probable, possible or remote in respect of the litigations. This involved assessing the probability of an unfavourable outcome of a given proceeding and the reliability of estimates of related amounts. Performed substantive procedures including tracing from underlying Obtained an understanding from the management with respect to process of the amounts involved. Assessed managements conclusions through discussions held with thein house legal counsel and understanding precedents in similar cases; Obtained and evaluated the independent confirmations from the consultants representing the Group before the various authorities. Engaged auditors experts, who obtained an understanding of the current status of the litigations, conducted discussions with the management, reviewed independent legal advice received by the Group, if any and considered relevant legal provisions and available precedents to validate the conclusions made by the management. Assessed and validated the adequacy and appropriateness of the disclosures made by the management in the consolidated financial statements. Walker Chandiok & Co. LLP Consolidated
75 Apollo Tyres Ltd. Auto Parts & equipments Other Matters 31st March, 2019 We did not audit the financial statements of 33 subsidiaries, whose financial statements reflects total assets of Rs. 94,851.51 million and net assets of Rs. 46,998.68 million as at 31 March 2019, total revenues of Rs. 96,414.58 million and net cash inflows amounting to Rs. 421.73 million for the year ended on that date, as considered in the consolidated financial statements. The consolidated financial statements also include the Groups share of net profit (including other comprehensive income) of Rs. 1.16 million for the year ended 31 March 2019, as considered in the consolidated financial statements, in respect of one associate, whose financial statements have not been audited by us. These financial statements have been audited by other auditors whose reports have been furnished to us by the management and our opinion on the consolidated financial statements, in so far as it relates to the amounts and disclosures included in respect of these subsidiaries and associate, and our report in terms of sub-section (3) of Section 143 of the Act, in so far as it relates to the aforesaid subsidiaries and associate, is based solely on the reports of the other auditors. Further, all subsidiaries are located outside India whose financial statements and other financial information have been prepared in accordance with accounting principles generally accepted in their respective countries and which have been audited by other auditors under generally accepted auditing standards applicable in their respective countries. The Holding Companys management has converted the financial statements of such subsidiaries located outside India from accounting principles generally accepted in their respective countries to accounting principles generally accepted in India. We have audited these conversion adjustments made by the Holding Companys management. Our opinion, and matters identified and disclosed under key audit matters section above, in so far as it relates to the balances and affairs of such subsidiaries located outside India is based on the report of other auditors and the conversion adjustments prepared by the management of the Holding Company and audited by us. Our opinion above on the consolidated financial statements, and our report on other legal and regulatory requirements below, are not modified in respect of the above matters with respect to our reliance on the work done by and the reports of the other auditors. Walker Chandiok & Co. LLP Consolidated
76 Arvind Ltd. Textiles Key Audit Matters 31st March, 2019 During the year a Scheme of arrangement was approved between the company and its subsidiary companies, Arvind Fashions Limited (AFL) and The Anup Engineering Limited (AEL) whereby it has proposed to demerge Branded Apparel Undertaking to AFL with effective date of the Scheme i.e. November 29, 2018, and Engineering undertaking to AEL with effect from January 01, 2018. Accounting treatment is provided by the management for transferring of assets and liabilities of the Brand Apparel and Engineering undertaking to subsidiary companies and accordingly the impact is given in the financial statement for year ended on March 31, 2019. Thus it is considered to be key audit matter as this is significant event which has happened during the year and it required compliance of scheme and applicable Ind AS. Our audit procedures includes obtaining an understanding of the transaction. We have read the approved scheme of arrangement related to demerger and identified pertinent terms relevant to the accounting for the transaction. We assessed the Companys conclusion as regard business combination accounting in accordance with Appendix C to IND AS 103 with respect to Demerger scheme. These conclusion included: the transfer of assets and liabilities at cost to the demerged entity as the entity were under common control. Impact in reserves and surplus on book value of net assets transferred to the demerged entity. In determining the treatment of the demerger we tested following: the arithmetic accuracy of managements calculations for giving effect of the scheme in standalone financial statements, tested the bifurcation of profit and loss into continued and discontinued business having engineering and brand division, tested the adjustment given in the reserves and surplus for net assets transferred to the demerged entity, tested the inter business transaction between demerged business and continued business. Deloitte Haskins & Sells LLP Standalone
77 Arvind Ltd. Textiles Key Audit Matters 31st March, 2019 During the year, Company has upgraded its accounting software to SAP HANA with effect from October 1, 2018 and other erstwhile systems have been discontinued. Migration to S/4 HANA is a major upgrade to the existing core enterprise application system resulting into a significant change to the financial accounting configuration which is the core for financial reporting including preparation of standalone financial statements. Risks identified as emanating from the aforesaid change were (i) Inappropriate changes made to the application systems or programs that contain relevant automated controls (i.e., configurable settings, automated algorithms, automated calculations, and automated data extraction) and/or report logic and (ii) Systems not adequately configured or updated to restrict system access to authorized users. Our audit procedures included obtaining detailed project plan and SAP Governance framework for transition to new SAP landscape. We involved Information Technology (IT) Specialists as part of the audit team to perform audit procedures in respect of this upgradation. Considering upgradation stabilization period, we have planned to test it predominantly with transaction level manual controls followed by the entity. We have reviewed manual controls implemented and tested its effectiveness to ensure integrity of data processed and used in preparation of financial statements Deloitte Haskins & Sells LLP Standalone
78 Arvind Ltd. Textiles Key Audit Matters 31st March, 2019 During the year a Scheme of arrangement was approved between the company and its subsidiary companies, Arvind Fashions Limited (AFL) and The Anup Engineering Limited (AEL) whereby it has proposed to demerge Branded Apparel Undertaking to AFL with effective date of the Scheme i.e. November 29, 2018, and Engineering undertaking to AEL with effect from January 01, 2018. As per scheme, The Anup Engineering limited has been demerged with effect from January 1, 2018 and Arvind Fashions Limited along with subsidiaries has been demerged with effect from November 29, 2018. Accounting treatment is provided by the management for demerging of Anup engineering Limited and Arvind Fashions Limited (along with its subsidiaries) and accordingly the impact is given in the financial statement for year ended on March 31, 2019. Thus it is considered to be key audit matter as this is significant event which has happened during the year and it required compliance of scheme and applicable Ind AS. Our audit procedures includes obtaining an understanding of the transaction. We have read the approved scheme of arrangement related to demerger and identified pertinent terms relevant to the accounting for the transaction. We assessed the Companys conclusion as regard business combination accounting in accordance with Appendix C to IND AS 103 with respect to Demerger Scheme. These conclusion included: the transfer of assets and liabilities at cost to the demerged entity as the entity were under common control Impact in reserves and surplus on book value of net assets transferred to the demerged entity. In determining the treatment of the demerger we tested following: the arithmetic accuracy of managements calculations for giving effect of the scheme in consolidated financial statements, tested the bifurcation of profit and loss into continued and discontinued business having engineering and brand division, tested the adjustment given in the reserves and surplus for net assets transferred to the demerged entity, tested the inter business transaction between demerged business and continued business. Deloitte Haskins & Sells LLP Consolidated
79 Arvind Ltd. Textiles Key Audit Matters 31st March, 2019 During the year, Company has upgraded its accounting software to SAP HANA with effect from October 1, 2018 and other erstwhile systems have been discontinued. Migration to S/4 HANA is a major upgrade to the existing core enterprise application system resulting into a significant change to the financial accounting configuration which is the core for financial reporting including preparation of standalone financial statements. Risks identified as emanating from the aforesaid change were (i) Inappropriate changes made to the application systems or programs that contain relevant automated controls (i.e., configurable settings, automated algorithms, automated calculations, and automated data extraction) and/or report logic and (ii) Systems not adequately configured or updated to restrict system access to authorized users. Our audit procedures included obtaining detailed project plan and SAP Governance framework for transition to new SAP landscape. We involved Information Technology (IT) Specialists as part of the audit team to perform audit procedures in respect of this upgradation. Considering upgradation stabilization period, we have planned to test it predominantly with transaction level manual controls followed by the entity. We have reviewed manual controls implemented and tested its effectiveness to ensure integrity of data processed and used in preparation of financial statements. Deloitte Haskins & Sells LLP Consolidated
80 Arvind Ltd. Textiles Key Audit Matters 31st March, 2019 During the year the Group have adopted new accounting standard w.e.f April 1, 2018 for recognition of revenue from operation which is one of the significant audit risk. Risk exists that revenue is recognised without substantial transfer of control and is not in accordance with IND AS-115 Revenue from Contracts with Customer resulting into recognition of revenue in incorrect period. Our audit procedure consist of the design and operating effectiveness of the internal control and substantive testing performed by the us and by the Component auditor are as follows: We evaluated the design of internal controls relating to revenue recognition. We selected sample of Sales transactions and tested the operating effectiveness of the internal control relating to revenue recognition. We carried out a combination of procedures involving enquiry and observation, re-performance and inspection. We have tested sample of Sale transaction to their respective customer contracts, underlying invoices and related documents. For above procedure Group auditor have enquired from the Component auditor for the process followed by them and relied upon the testing carried by Component auditor for Components audited by them. Deloitte Haskins & Sells LLP Consolidated
81 Arvind Ltd. Textiles Other Matters 31st March, 2019 (a) We did not audit the financial statements of 24 subsidiaries, whose financial statements reflect total assets of Rs. 1,104.77 crores as at March 31, 2019, total revenues of Rs. 4,061.14 crores and net cash outflows amounting to Rs. 13.33 crores for the year ended on that date, as considered in the consolidated financial statements. These financial statements have been audited by other auditors whose reports have been furnished to us by the Management and our opinion on the consolidated financial statements, in so far as it relates to the amounts and disclosures included in respect of these subsidiaries, and our report in terms of subsection (3) of Section 143 of the Act, in so far as it relates to the aforesaid subsidiaries is based solely on the reports of the other auditors. (b) We did not audit the financial statements of 5 subsidiaries, whose financial statements reflect total assets of Rs. 60.06 crores as at March 31, 2019, total revenues of Rs. 54.95 crores and net cash inflows amounting to Rs. 14.19 crores for the year ended on that date, as considered in the consolidated financial statements. The consolidated financial statements also include the Groups share of net profit of Rs. 1.01 crores for the year ended March 31, 2019, as considered in the consolidated financial statements, in respect of 5 joint ventures, whose financial statements have not been audited by us. These financial statements are unaudited and have been furnished to us by the Management and our opinion on the consolidated financial statements, in so far as it relates to the amounts and disclosures included in respect of these subsidiaries and joint ventures, is based solely on such unaudited financial statements. In our opinion and according to the information and explanations given to us by the Management, these financial statements are not material to the Group. Our opinion on the consolidated financial statements above and our report on Other Legal and Regulatory Requirements below, is not modified in respect of the above matters with respect to our reliance on the work done and the reports of the other auditors and the financial statements certified by the Management. Our aforesaid report under Section 143(3)(i) of the Act on the adequacy and operating effectiveness of the internal financial controls over financial reporting insofar as it relates to 12 subsidiary companies and 1 joint venture, which are companies incorporated in India, is based solely on the corresponding reports of the auditors of such companies incorporated in India. Our opinion is not modified in respect of the above matters. Deloitte Haskins & Sells LLP Consolidated
82 Ashok Leyland Ltd. Automobiles & Commercial Vehicles Key Audit Matters 31st March, 2019 (Refer to note 1B. 4, 1.C and note 3,14D for the Financial Statements) In the consolidated Ind AS financial statements of the Group, the gross carrying value of goodwill excluding goodwill forming part of LCV Business is INR 1,065.89 crores against which a cumulative impairment provision of INR 400.23 crores is outstanding as March 31, 2019. In the consolidated Ind In the consolidated Ind AS financial statements of the Holding Company, the carrying value of the net assets of cash generating unit (including goodwill) of the LCV business Is INR 688.05 crores at M As part of our Audit, our procedures includes the following: We obtained an understanding and assessed the design, implementation and operating effectiveness of managements key internal controls to identify whether there are any indicators exists, the method by which the recoverable amount is determined by the management. Specifically, we focused on management controls to conclude on the appropriateness of future cash flows (including terminal cash flow) and key assumptions used in arriving at the recoverable amount. We evaluated the following: - Terminal growth rate by comparing with the long term outlook based on the relevant macroeconomic outlook for the geography in which the respective entities and LCV business are operating. - Discount rate by comparing it with an independently calculated discount rate. - Budgets considering the growth and other cash flow projections provided by the holding companys management and compared these with the actual results of earlier years to assess the appropriateness of forecast - The competence, capabilities and objectivity of the managements expert involved in the valuation process. We along with the auditors expert evaluated the appropriateness of the measurement model and reasonableness of key assumptions like terminal growth rate, discount rate, etc. We performed our own independent sensitivity calculations to determine the impact of changes in the key assumptions on our impairment assessments. We evaluated the adequacy of the disclosures made in consolidated Ind AS financial statements. Based on the above procedures performed, we did not identify any significant expectations in the managements assessment in relation to the carrying value of Goodwill and that of carrying value of net assets of LCV business. Price Waterhouse & Co. Chartered Accountants LLP Consolidated
83 Ashok Leyland Ltd. Automobiles & Commercial Vehicles Key Audit Matters 31st March, 2019 (Refer to Note 1B.18, Note 1.22, Note 1,30 and Note IC of Ind AS Financial statements) In the consolidated Ind AS financial statements, the group carries a provision of Rs. 415. 56 crores for warranty obligations pertaining to the Holding company. We determined this matter as key audit matter since the product warranty obligations and estimations thereof are determined by management using a model which incorporates historical information on the type of product, nature, frequency and average cost of warranty claims, the estimates regarding possible future incidences of product failures and discount rate, Change in the estimated frequency and amount of future warranty claims can materially affect warranty expenses. As part of our Audit, our procedures includes the following: We obtained an understanding and assessed the design, implementation and operating effectiveness of managements key internal controls with regards to the appropriateness of recording of warranty claims, provisioning of warranty and the periodic review of provision created. We also involved our auditors specialist to verify the appropriateness of the process and controls around IT systems as established by the management. Specifically, we found on controls around periodic review of warranty provision and that around the appropriateness and adequacy of the provision. We evaluated the model used by the management for provisioning the warranty to evaluate on the appropriateness of the methodology followed by the management and the mathematical accuracy of the model. To this effect we evaluated the following: - The inputs to the model were verified on a sample basis with historical cost input on actual claims incurred and historical sales data of the Holding Company. - We compared the amount of provisions from prior year with actual claims processed during the period, in order to verify the reasonableness of the forecast. - The discount rate used for arriving at the present value of obligation was verified for reasonableness and the mathematical accuracy of the present value of the obligation was verified. Based on the above procedures performed, we consider the provision for warranty obligations pertaining to the Holding Company to be reasonable. Price Waterhouse & Co. Chartered Accountants LLP Consolidated
84 Ashok Leyland Ltd. Automobiles & Commercial Vehicles Key Audit Matters 31st March, 2019 (Refer to Note 1B.6, Note 2.1, Note 3.7 of Ind AS Financial statements) Effective April 01, 2018, on account of adoption of new revenue standard Ind AS 115- Revenue from contracts with customer, the Holding company has changed its revenue recognition policy with regards to timing of recognition based on the satisfaction of the identified performance obligations and related disclosures. We focused on this area because revenue requires significant time and resource to audit due to the magnitude, revenue transaction to Ind AS 115 and the adequacy of disclosures in this respect has been considered as key audit matter for the Holding company. As part of our Audit, our procedures includes the following: -We obtained an understanding and assessed the design, implementation and operating effectiveness of managements key internal controls with regards to recognition of revenue. -We also involved our auditors specialist to verify the appropriateness of the process and controls around IT systems as established by the management. -We tested the managements evaluation of Ind AS 115 and tested on a sample basis managements working on recognition and measurement of multiple performance obligations and related variable considerations. -We have tested on sample basis whether revenue transactions near to the reporting data have been recognised in the appropriate period by comparing the transactions selected with relevant underlying documentation, including goods delivery notes and the terms of sales. We have inspected the underlying documentation to verify that the control and ownership has been transferred to the customer. -We also considered the adequacy of the consolidated Ind AS financial statements disclosures in relation to Ind AS 115. Based on the above procedures performed, we did not find any material exceptions with regards to revenue recognition including transition to Ind AS 115, and those relating to presentation and disclosures pertaining to the Holding company. Price Waterhouse & Co. Chartered Accountants LLP Standalone
85 Asian Paints Paints Key Audit Matters 31st March, 2019 Revenue is one of the key profit drivers and is therefore susceptible to misstatement. Cut-off is the key assertion insofar as revenue recognition is concerned, since an inappropriate cut-off can result in material misstatement of results for the year. Our audit procedures with regard to revenue recognition included testing controls, automated and manual, around dispatches / deliveries, inventory reconciliations and circularization of receivable balances, substantive testing for cut-offs and analytical review procedures. Deloitte Haskins & Sells LLP Consolidated
86 Asian Paints Paints Key Audit Matters 31st March, 2019 Discounts and incentives to dealers / customers are administered through various schemes including incentives. These are material items of business cost. The calculation of the amount of expense to be recognized is both voluminous, complex and involves significant judgement. The liability recognized for such discounts and incentives as at 31st March 2019 is Rs. 475.11 crores. There is a risk that such liabilities for discounts and incentives may be inaccurately recognised. Our audit procedures included assessment of the design and implementation of controls, in addition to testing the effectiveness of key controls in respect of recognition of the liabilities for such discounts and incentives. We have considered each significant type of discount recognized and assessed the appropriateness of the judgement applied while recognizing the liability including the methodology and inputs used in calculating the amount and in some cases, re-performed the calculation. Our audit procedures also included verification of appropriate authorization, analytical review including comparison of budgeted amount and actual charge for the year and review of historical trends in respect of these liabilities. Deloitte Haskins & Sells LLP Consolidated
87 Asian Paints Paints Key Audit Matters 31st March, 2019 The Parent had embarked on the project of setting up manufacturing plants in Mysuru and Vizag. Value of Mysuru and Vizag plants capitalized during the year is Rs. 1,220 crores and Rs. 1,125 crores respectively. The projects need to be capitalized and depreciated once the assets are ready for use as intended by the management of the Parent. Inappropriate timing of capitalization of the project and/or inappropriate classification of categories of items of PPE could result in material misstatement of Capital work-in-progress/PPE with a consequent impact on depreciation charge and results for the year. Our audit procedures included testing the design, implementation and operating effectiveness of controls in respect of review of capital work in progress, particularly in respect of timing of the capitalization and recording of additions to items of various categories of PPE with source documentation, substantive testing of appropriateness of the cut-off date considered for project capitalization. We tested the source documentation to determine whether the expenditure is of capital nature and has been appropriately approved and segregated into appropriate categories. We reviewed operating expenses to determine appropriateness of Our audit procedures included testing the design, implementation accounting. Further, through sites visits, we physically verified existence of capital work in progress/PPE. Deloitte Haskins & Sells LLP Consolidated
88 Asian Paints Paints Key Audit Matters 31st March, 2019 The Parent used SAP ECC 6.0 which was upgraded to SAP S/4HANA in November 2018. Migration to S/4 HANA is a major upgrade to the existing core enterprise application system resulting into a significant change to the financial accounting configuration which is the core for financial reporting including preparation of Consolidated Financial Statements. Risks identified as emanating from the aforesaid change were (i)Inappropriate changes made to the application systems or programs that contain relevant automated controls (i.e., configurable settings, automated algorithms, automated calculations, and automated The Parent used SAP ECC 6.0 which was upgraded to SAP S/4data extraction) and/or report logic and (ii) Systems not adequately configured or updated to restrict system access to authorized users. Our audit procedures included obtaining detailed project plan and SAP Governance framework for transition to new SAP landscape. We involved Information Technology (IT) Specialists as part of the audit team to perform audit procedures in respect of this upgradation. Audit procedures performed by the IT Specialists involved, obtaining User Acceptance Testing (UAT) sign-off to ensure that the implemented system was configured in line with business requirements, performing test of General IT Controls and user access controls in respect of SAP S/4 HANA IT environment and Our audit procedures included obtaining detailed project plan testing the operating effectiveness of the data migration process. The audit procedures also involved testing of critical transactions, segregation of duties (SOD) rules to ensure system access was restricted to authorized users and testing of interface controls between new SAP environment and other auxiliary systems. Deloitte Haskins & Sells LLP Consolidated
89 Asian Paints Paints Key Audit Matters 31st March, 2019 The Consolidated Financial Statements reflect goodwill on acquisition / consolidation of Rs. 321.30 crores, including Rs. 35.36crores towards acquisition of bath fitting business recognized in the standalone financial statements of the Parent, while the balance emanates from the subsidiaries. Goodwill is required to be tested annually for impairment. To this end, the Parent and the relevant subsidiary have estimated the recoverable amount of the Cash Generating Unit (CGU) to which the goodwill is allocable based on Value in Use (ViU) calculations. Determination of ViU involves significant estimates, assumptions and judgements as The Consolidated Financial Statements reflect goodwill on regards determination of method to be used for ViU calculation, reasonableness of assumptions involved in developing projections of financial performance etc., and is therefore susceptible to material misstatement due to error or fraud. The key assumptions applied in the impairment reviews are described in note 3A of the Consolidated Financial Statements. Our audit procedures to the extent the goodwill is recognised in the standalone financial statements of the Parent included, reviewing the approach adopted for testing impairment including the method used for determination of ViU, testing the design, implementation and operating effectiveness of controls over the process of impairment assessment and performing substantive testing in respect of financial projections for their accuracy, reviewing the assumptions used for reasonableness and involving fair value specialists. We challenged the assumptions made by the management of the Parent in relation to the ViU computation. Our audit procedures to the extent the goodwill is recognised We also reviewed the sensitivity analysis performed by the management of the Parent on the key assumptions. To the extent, goodwill relates to the subsidiaries, component auditor has reviewed the ViU calculations for compliance with generally accepted methodologies, assess management's estimates of key inputs (discount rates, growth rates and profit margins) based on historical performance, their knowledge of the CGU operations and environment and general economic forecasts, and performed sensitivity analyses to assess the impact of reasonably possible changes in estimates on the recoverable amount of the CGU. We have reviewed the working papers of the component auditors and sought information and explanations from the component auditors, as considered, necessary. Deloitte Haskins & Sells LLP Consolidated
90 Asian Paints Paints Key Audit Matters 31st March, 2019 Revenue is one of the key profit drivers and is therefore susceptible to misstatement. Cut-off is the key assertion in so far as revenue recognition is concerned, since an inappropriate cut-off can result in material misstatement of results for the year. Our audit procedures with regard to revenue recognition included testing controls, automated and manual, around dispatches/deliveries, inventory reconciliations and circularization of receivable balances, substantive testing for cut-offs and analytical review procedures. Deloitte Haskins & Sells LLP Standalone
91 Asian Paints Paints Key Audit Matters 31st March, 2019 Discounts and incentives to dealers / customers are administered through various schemes including incentives. These are material items of business cost. The calculation of the amount of expense to be recognized is both voluminous, complex and involves significant judgement. The liability recognized for such discounts and incentives as at 31st March,2019 is Rs. 475.11 crores. There is a risk that such liabilities for discounts and incentives may be inaccurately recognised. Our audit procedures included assessment of the design and implementation of controls, in addition to testing the effectiveness of key controls in respect of recognition of the liabilities for such discounts and incentives. We have considered each significant type of discount recognized and assessed the appropriateness of the judgement applied while recognising the liability including the methodology and inputs used in calculating the amount and in some cases, re-performed the calculation. Our audit procedures also included verification of appropriate authorization, analytical Our audit procedures included assessment of the design review including comparison of budgeted amount and actual charge for the year and review of historical trends in respect of these liabilities. Deloitte Haskins & Sells LLP Standalone
92 Asian Paints Paints Key Audit Matters 31st March, 2019 The Company had embarked on the project of setting up manufacturing plants in Mysuru and Vizag. Value of Mysuru and Vizag plants capitalized during the year is Rs. 1,220 crores and Rs. 1,125 crores respectively. The projects need to be capitalized and depreciated once the assets are ready for use as intended by the management. Inappropriate timing of capitalization of the project and/or inappropriate classification of categories of items of PPE could result in material misstatement of Capital work-in-progress/ PPE with a consequent impact on depreciation charge and results for the year. Our audit procedures included testing the design, implementation and operating effectiveness of controls in respect of review of capital work in progress, particularly in respect of timing of the capitalization and recording of additions to items of various categories of PPE with source documentation, substantive testing of appropriateness of the cut-off date considered for project capitalization. We tested the source documentation to determine whether the expenditure is of capital nature and has been appropriately approved and segregated into appropriate categories. We Our audit procedures included testing the design, reviewed operating expenses to determine appropriateness of accounting. Further, through sites visits, we physically verified existence of capital work in progress/PPE. Deloitte Haskins & Sells LLP Standalone
93 Asian Paints Paints Key Audit Matters 31st March, 2019 The Company used SAP ECC 6.0 which was upgraded to SAPS/4 HANA in November 2018. Migration to S/4 HANA is a major upgrade to the existing core enterprise application system resulting into a significant change to the financial accounting configuration which is the core for financial reporting including preparation of standalone financial statements. Risks identified as emanating from the aforesaid change were(i) Inappropriate changes made to the application systems or programs that contain relevant automated controls (i.e., configurable settings, automated algorithms, automated The Company used SAP ECC 6.0 which was upgraded to SAP calculations, and automated data extraction) and/or report logic and (ii) Systems not adequately configured or updated to restrict system access to authorized users. Our audit procedures included obtaining detailed project plan and SAP Governance framework for transition to new SAP landscape. We involved Information Technology(IT) Specialists as part of the audit team to perform audit procedures in respect of this upgradation. Audit procedures performed by the IT Specialists involved, obtaining User Acceptance Testing (UAT) sign-off to ensure that the implemented system was configured in line with business requirements, performing test of General IT Controls and user access controls in respect of SAP S/4 HANA IT Our audit procedures included obtaining detailed project environment and testing the operating effectiveness of the data migration process. The audit procedures also involved testing of critical transactions, segregation of duties (SOD)rules to ensure system access was restricted to authorized users and testing of interface controls between new SAP environment and other auxiliary systems. Deloitte Haskins & Sells LLP Standalone
94 Asian Paints Paints Other Matters 31st March, 2019 We did not audit the financial statements/consolidated financial information of 21 subsidiaries, whose financial statements/consolidated financial information reflect total assets of Rs. 2,859.29 crores as at 31st March, 2019, total revenues of Rs. 2,357.79 crores and net cash outflows amounting to Rs. 59.23crores for the year ended on that date, as considered in the Consolidated Financial Statements. The Consolidated Financial Statements also include the Group's share of net profit of Rs. 40.82crores for the year ended 31st March, 2019, as considered in the Consolidated Financial Statements, in respect of 3 associates, We did not audit the financial statements/consolidated financial whose Consolidated Financial Statements have not been audited by us. These financial statements/Consolidated Financial Statements/consolidated financial information have been audited by other auditors whose reports have been furnished to us by the Management and our opinion on the Consolidated Financial Statements, in so far as it relates to the amounts and disclosures included in respect of these subsidiaries and associate, and our report in terms of sub-section (3) of Section143 of the Act, in so far as it relates to the aforesaid subsidiaries and associate is based solely on the reports of the other auditors. Our opinion on the Consolidated Financial Statements above, and our report on Other Legal and Regulatory Requirements below, is not modified in respect of the above matter with respect to our reliance on the work done and the reports of the other auditors. Deloitte Haskins & Sells LLP Consolidated
95 Astral Poly Technik Ltd. Retail & FMCG Key Audit Matters 31st March, 2019 Impairment assessment of investments in subsidiaries The Companys investment in subsidiaries is amounting to Rs.33,346.81 lacs as at 31 March 2019, which is 19% of total assets as at 31 March 2019. The determination of recoverable amounts of the Companys investments in subsidiaries is dependent on managements estimates with respect to such entitys performance, future cash flows and making judgment with respect to assumptions used in computing the recoverable amount of investments in subsidiaries (Recoverable amount). Considering the uncertainty involved in forecasting of cash flows and the judgement involved in respect of assumptions used in computing the Recoverable amount this audit area is considered a key audit matter. We performed following procedures, among others: We evaluated the forecast of future cash flows used by the management in the model to compute the Recoverable amount. We compared the forecast of future cash flows to business plan and previous forecasts to the actual results. We focused our analysis on management assumptions in respect of future sales growth rate and discount rate used to compute the Recoverable amount. We recalculated estimates using the management model. We involved valuation specialists to assist in evaluating the key assumptions and methodologies used by the Company in computing the Recoverable amount. We assessed the disclosures made in the Standalone Ind AS financial statements. S R B C & Co. LLP Standalone
96 Astral Poly Technik Ltd. Retail & FMCG Key Audit Matters 31st March, 2019 Business Combination : During the year, the Company has acquired 51% of equity shares of Rex Polyextrusion Private Limited Ltd. (Amalgamating Company) against cash consideration and subsequently merged Amalgamating Company with the Company by buying out minority shareholders by issuing Companys own equity shares against the balance 49% of equity shares held by minority shareholders. The fair value of the consideration transferred amounted to Rs. 14,750.00 lacs in total. The allocation of the purchase price to identifiable assets and liabilities acquired was performed by the Company with support from external advisors and lead to the recognition of Goodwill of Rs.1,921.98 lacs. The individual assets acquired, especially brands have no observable market values are available. To determine the corresponding fair values, valuation models based on assumptions are used. This measurement is dependent on estimates of future cash flows as well as the discount rate applied and subject to uncertainty. Accounting for acquisitions requires the application of complex accounting policies, mainly Ind AS 103 Business combinations, and involves significant judgments and assumptions and hence considered a key audit matter. With respect to the accounting for the acquisition: We have read the relevant parts of the purchase agreements, scheme of amalgamation for the merger of Amalgamating Company with the Company, obtained an understanding of the deal structure and evaluated the accounting treatment in accordance with Ind AS 103. This included the evaluation of the interpretation of specific sections of the agreements and the application of accounting policies to thereon. We evaluated the qualifications and objectivity of the experts engaged by the Company to perform the purchase price allocation. We have recalculated the model using the management inputs and assumptions for ascertaining mathematical accuracy. We compared the inputs in the model to internal and external data. We focused our analysis on management assumptions in respect of future sales growth rate and discount rate used in valuation. We involved valuation specialists to assist in evaluating the key assumptions and methodologies. We assessed the disclosures made in the Standalone Ind AS Financial Statements. S R B C & Co. LLP Standalone
97 Astral Poly Technik Ltd. Retail & FMCG Key Audit Matters 31st March, 2019 Impairment of Goodwill (as described in note 2 (v)(iii) of the Consolidated Ind AS financial statements) The Groups balance sheet includes H 25,378.06 lacs of goodwill, representing 12% of total Group assets. In accordance with Ind AS 36, these balances are allocated to Cash Generating Units (CGUs) which are tested annually for impairment using discounted cash-flow models of each CGUs recoverable value compared to the carrying value of the assets. A deficit between the recoverable value and the CGUs net assets would result in impairment. The inputs to the impairment testing model which have the most significant impact on CGU recoverable value include: - Projected revenue growth, operating margins and operating cash-flows; and - Business specific discount rates The annual impairment testing is considered a significant accounting judgement and estimate [Note 2(v)(iii)] and a key audit matter because the assumptions on which the tests are based are highly judgmental and are affected by future market and economic conditions which are inherently uncertain, and because of the materiality of the balances to the Consolidated Ind AS financial statements. We performed following procedures, among others: We assessed whether the Groups definition of the CGUs is compliant with the applicable accounting standards We evaluated the forecast of future cash flows used by the management in the model to compute the recoverable value of CGUs. We compared the forecast of future cash flows to business plan and previous forecasts to the actual results We focused our analysis on management assumptions in respect of future sales growth rate and discount rate used to compute the recoverable value of CGUs. We recalculated estimates using the management model. We involved valuation specialists to assist in evaluating the key assumptions and methodologies used by the Holding Company in computing the recoverable value of CGUs. We assessed the disclosures made in the Consolidated Ind AS financial statements. S R B C & Co. LLP Consolidated
98 Astral Poly Technik Ltd. Retail & FMCG Key Audit Matters 31st March, 2019 Business Combination (Refer note no. 42 of the Consolidated Ind AS Financial Statements During the year, the Group has acquired 51% of equity shares of Rex Polyextrusion Private Limited (Amalgamating Company) against cash consideration and subsequently merged Amalgamating Company with the Holding Company by buying out minority shareholders by issuing Companys own equity shares against the balance 49% of equity shares held by minority shareholders. The fair value of the consideration transferred amounted to H 14,750.00 lacs in total. The allocation of the purchase price to identifiable assets and liabilities acquired was performed by the Group with support from external advisors and lead to the recognition of Goodwill of H 1,921.98 lacs. The individual assets acquired, especially Brands, have no observable market values are available. To determine the corresponding fair values, valuation models based on assumptions are used. This measurement is dependent on estimates of future cash flows as well as the discount rate applied and, subject to considerable uncertainty. Accounting for acquisitions requires the application of complex accounting policies, mainly Ind AS 103 Business Combinations, and involves significant judgments and assumptions and hence considered a key audit matter. With respect to the accounting for the acquisition: We have read the relevant parts of the purchase agreements, scheme of amalgamation for the merger of Amalgamating Company with the Holding Company, obtained an understanding of the deal structure and evaluated the accounting treatment in accordance with Ind AS 103. This included the evaluation of the interpretation of specific sections of the agreements and the application of accounting policies to thereon. We evaluated the qualifications and objectivity of the experts engaged by the Group to perform the purchase price allocation. We have recalculated the model using the management inputs and assumptions for ascertaining mathematical accuracy. We compared the inputs in the model to internal and external data. We focused our analysis on management assumptions in respect of future sales growth rate and discount rate used in valuation. We involved valuation specialists to assist in evaluating the key assumptions and methodologies We assessed the disclosures made in the Consolidated Ind AS Financial Statements. S R B C & Co. LLP Consolidated
99 Astral Poly Technik Ltd. Retail & FMCG Other Matters 31st March, 2019 We did not audit the financial statements and other financial information of Amalgamating Company, which was merged into the Company with effect from July 10, 2018, included in the accompanying standalone Ind AS financial statements of the Company whose financial statements and other financial information reflect total assets of H14,424.31 lacs as at March 31, 2019, total revenues of H13,863.43 lacs and net cash inflows of H367.50 lacs for the period July 10, 2018 to March 31, 2019. The financial statements of Amalgamating Company as at March 31, 2019 and for the period then ended has been audited by another auditor whose unmodified opinion dated April 20, 2019 has been furnished to us by the management. Our opinion on standalone Ind AS financial statement, in so far as it relates to the amounts and disclosures included in respect of Amalgamating Company, and our report in terms of sub-sections (3) of Section 143 of the Act, in so far as it relates to the Amalgamating Company, is based solely on the report of such other auditors. Our opinion is not modified in respect of this matter. S R B C & Co. LLP Standalone
100 Astral Poly Technik Ltd. Retail & FMCG Other Matters 31st March, 2019 Our report under Section 143(3)(i) of the Act on the adequacy and operating effectiveness of the internal financial controls over financial reporting of the Company, insofar as it relates to Amalgamating Company, which is Company incorporated in India, is based on the corresponding report of the auditors of Amalgamating Company. S R B C & Co. LLP Standalone
101 Astral Poly Technik Ltd. Retail & FMCG Other Matters 31st March, 2019 (a) We did not audit the financial statements and other financial information, in respect of 3 subsidiaries, whose financial statements include total assets of H 14,794.90 lacs as at March 31, 2019, and total revenues of H 19,772.03 lacs and net cash inflows of H 636.01 lacs for the year ended on that date. These financial statement and other financial information have been audited by other auditors, which financial statements, other financial information and auditors reports have been furnished of these subsidiaries and joint venture, and our report in terms of sub-sections (3) of Section 143 of the Act, in so far to us by the management. The Consolidated Ind AS financial statements also include the Groups share of net loss of H 356.77 lacs for the year ended March 31, 2019, as considered in the Consolidated Ind AS financial statements, in respect of a joint venture, whose financial statements, other financial information have been audited by other auditors and whose reports have been furnished to us by the Management. Our opinion on the Consolidated Ind AS financial statements, in so far as it relates to the amounts and disclosures included in respect of these subsidiaries and joint venture, our report in terms of sub section(3) of Section 143 of the Act, in so far as it relates to the aforesaid subsidiaries and joint venture, is based solely on the report(s) of such other auditors. Certain of these subsidiaries and Joint Venture are located outside India whose financial statements and other financial information have been prepared in accordance with accounting principles generally accepted in their respective countries and which has been audited by other auditors under generally accepted auditing standards applicable in their respective countries. The Holding Companys management has converted the financial statements of such subsidiaries and joint venture located outside India from accounting principles generally accepted in their respective countries to accounting principles generally accepted in India. We have audited these conversion adjustments made by the Holding Companys management. Our conclusion in so far as it relates to the results of such subsidiaries and joint venture located outside India is based on the report of other auditors and the conversion adjustments prepared by the management of the Company which is audited by us. (b) We did not audit the financial statements and other financial information of Amalgamating Company, which was merged into the Holding Company with effect from July 10, 2018, included in the accompanying Consolidated Ind AS financial statements of the Company whose financial statements and other financial information reflect total assets of H 14,424.31 lacs as at March 31, 2019, total revenues of H 13,863.43 lacs and net cash inflows of H 367.50 lacs for the period July 10, 2018 to March 31, 2019. The financial statements of Amalgamating Company as at March 31, 2019 and for the period then ended has been audited by another auditor whose unmodified opinion dated April 20, 2019 has been furnished to us by the management. Our opinion on the Consolidated Ind AS financial statements, in so far as it relates to the amounts and disclosures included in respect of Amalgamating Company, and our report in terms of sub- sections (3) of Section 143 of the Act, in so far as it relates to the Amalgamating Company, is based solely on the report of such other auditors. Our opinion above on the Consolidated Ind AS financial statements, and our report on Other Legal and Regulatory Requirements below, is not modified in respect of the above matters with respect to our reliance on the work done and the reports of the other auditors. S R B C & Co. LLP Consolidated
102 Astral Poly Technik Ltd. Retail & FMCG Other Matters 31st March, 2019 Our report under Section 143(3)(i) of the Act on the adequacy and operating effectiveness of the internal financial controls over financial reporting of the Holding Company, insofar as it relates to subsidiary companies and Amalgamating Company, which are companies incorporated in India, are based on the corresponding reports of the auditors of such subsidiary companies and Amalgamating Company, incorporated in India. S R B C & Co. LLP Consolidated
103 Atul Ltd. Agro products Key Audit Matters 31st March, 2019 Contingent liabilities and provisions The Company has received certain claims from the government authorities and customers, which are disputed. These involve a high degree of judgement to determine the possible outcomes, and estimates relating to the timing and the amount of outflow of resources embodying economic benefits The audit procedures included but were not limited to: - Obtaining a detailed understanding processes and controls of the Management with respect to claims or disputes. - Evaluation of the design of the controls relating to compilation of the claims; assessment of probability of outcome, estimates of the timing and the amount of the outflows, an appropriate reporting by the management and testing implementation and operating effectiveness of the key controls. - Performing following procedures on samples selected: - Understanding the matters by reading the correspondence's, communications, minutes of the Audit Committee and | or the Board meetings and discussions with the appropriate Management personnel. - Making corroborative inquiries with appropriate level of the management personnel including status update, expectation of outcomes with the basis, and the future course of action contemplated by the Company, and perusing legal opinions, if any, obtained by the Management. - Obtaining direct confirmation from the legal attorneys of the company and considering their opinions | probability assessment of the outcomes. - Evaluating the evidence supporting the judgement of the management about possible outcomes and the reasonableness of the estimates. We involved our internal experts for technical guidance and evaluation of the assessments of the Management, as appropriate. - Evaluating appropriateness of adequate disclosures in accordance with the applicable accounting standards. Deloitte Haskins & Sells LLP Consolidated
104 Atul Ltd. Agro products Key Audit Matters 31st March, 2019 Adoption of Ind AS 115, Revenue from contracts with customers (new revenue accounting standard) The Company sells products to the customers under different types of contractual terms. The application of the new revenue accounting standard involved assessing if distinct performance obligations exist under each type of the contracts, and ensuring appropriate and adequate disclosures in the Standalone Financial Statements. The audit procedures included but were not limited to: - Assessment of the processes of the Company for adoption of the new accounting standards. - Selecting a sample from each type of the contracts with the customers, and testing the operating effectiveness of the internal control, relating to identification of the distinct performance obligations and determination of transaction price. Carrying out a combination of procedures involving enquiry and observation, re-performance and inspection of evidence in respect of operation of these controls. - Testing the relevant controls including access and change management controls of information technology systems, which are relevant for appropriate measurement and presentation of revenue and related account balances. - Performing following procedures on the samples selected: - Reading, analysing and identifying the distant performance obligations in these contracts. - Comparing these performance obligation with that identified and recorded by the Company. - Testing sample of revenues with the performance obligation specified in the underlying contracts. - Carrying analytical procedure for reasonable of revenue disclosed by segments. - Evaluating the appropriateness of adequate disclosures in accordance with the standards. Deloitte Haskins & Sells LLP Consolidated
105 Aurobindo Pharma Ltd. Pharmaceuticals & Chemicals Key Audit Matters 31st March, 2019 The Company has made investments in its subsidiaries and joint venture entities. The carrying value of these investments as at 31 March 2019 is Rs. 23,390.2 million. Determining whether there is objective evidence of impairment, which includes a significant shortfall in the investees actual business performance compared with budgets and significant changes in the technological, market, economic or legal environment that have an adverse effect on the fair value of the investment for investments which do not have a quoted prices in an active market, involves the exercise of significant management judgement. We identified assessing potential impairment of investments in subsidiaries and joint ventures as a key audit matter because of the significance of investments to the financial statements and because of the degree of judgement exercised by management in determining whether there was objective evidence of impairment of investments. Discussing with management whether there was any objective evidence of impairment of individual investment and challenging managements assertions and conclusions with reference to the guidance in the prevailing accounting standards and by (i) obtaining the latest available budgets and comparing the actual performance of the investees with management expectations, (ii) obtaining and reviewing the latest financial statements of the respective investee companies and (iii) comparing the carrying amount of the investments with audited net worth of these investee companies which have been audited by the respective component auditor. Assessing the appropriateness of the valuation methodology used by management and tested the mathematical accuracy of the impairment models. Assessing the reasonableness of the valuation assumptions, such as discount rates, growth rate, projected/ forecasted cash flow used by management. Performing a sensitivity analysis around the key assumptions, in particular discount rates and long term growth rates. Assessed the appropriateness of the disclosure made in the standalone financial statements. B S R & Associates LLP Standalone
106 Aurobindo Pharma Ltd. Pharmaceuticals & Chemicals Key Audit Matters 31st March, 2019 The Company operates in multiple jurisdictions in the pharmaceutical industry which is heavily regulated, resulting in increased exposure to litigation risk. The Company is involved in a number of litigations/ legal actions. These provisions are based on judgements and accounting estimates made by management reflect in determining the likelihood and magnitude of an unfavourable outcome on the claims. Accordingly, unexpected adverse outcomes could significantly impact the Companys reported profit and balance sheet position. Evaluating the design and testing the operating effectiveness of controls in respect of the recognition and measurement of provisions towards litigation and claims; Corroborating managements assessment by: making enquiries with the in-house legal counsel of the Company; verifying correspondence, orders and appeals in respect of open litigation; Obtaining confirmations from internal legal counsel where relevant and/ or evaluating legal opinions obtained by the management; Evaluating significant adjustments to legal provisions recorded during the year to determine if they were indicative of management bias; and Evaluating adequacy of disclosures given in Note 30(C) to standalone financial statements B S R & Associates LLP Standalone
107 Aurobindo Pharma Ltd. Pharmaceuticals & Chemicals Key Audit Matters 31st March, 2019 Revenue from sale of goods is recognised when a promise in a customer contract (performance obligation) has been satisfied by transferring control over the promised goods to the customer. Control is usually transferred upon shipment, delivery to, upon receipt of goods by the customer, in accordance with the delivery and acceptance terms agreed with the customers. The amount of revenue to be recognised is based on the consideration expected to be received in exchange for goods, excluding trade discounts, volume discounts, sales returns and any taxes or duties collected on behalf of the government which are levied on sales such as sales tax, value added tax, goods and services tax etc., where applicable. Revenue is one of the key performance indicators of the Company and there could be a risk that revenue is recognized in the incorrect period or before the control has been transferred to the customer. Assessed the appropriateness of the Companys revenue recognition accounting policies including those relating to discounts and sales return and assessed compliance with the policies in terms of applicable accounting standards. Tested the effectiveness of the Companys controls over measurement and recognition of revenue in accordance with customer contracts which includes control over transaction pricing including discounts and correct timing of revenue recognition. Assessed sales transactions taking place at either side of the balance sheet date as well as credit notes issued after the year end date to assess whether that revenue was recognised in the correct period. Other audit procedures specifically designed to address risk of Management override of controls included journal entry testing. B S R & Associates LLP Standalone
108 Aurobindo Pharma Ltd. Pharmaceuticals & Chemicals Key Audit Matters 31st March, 2019 The carrying value of Intangible assets including goodwill aggregate to Rs. 27,812.0 million. These assets are evaluated for any impairment annually. Refer note 2.2 and 2.3(e) of group accounting policies in respect of impairment. The Management performs the annual assessment of the intangible assets including goodwill at each cash generating unit (CGU) level, to identify any indicators of impairment. The recoverable amount of the CGUs which is based on the higher of the value in use or fair value less costs to sell, has been derived from discounted forecast cash flow models. These models use several key assumptions, including estimates of future sales volumes, prices, operations costs, terminal value growth rates and the weighted average cost of capital (discount rate). A) We performed the following key audit procedures: Testing design, implementation and operating effectiveness of key controls over the impairment review process including the review and approval of forecasts and review of valuation models; Assessing the valuation methodology used by management and management review control around making this assessment and testing the mathematical accuracy of the impairment models; Assessing managements identification of CGUs with reference to the guidance in the applicable accounting standards; Evaluating the reasonableness of the valuation assumptions, such as discount rates, used by management through reference to external market data; Involving our internal expert to assess the reasonableness of the valuation assumptions, such as discount rates, growth rate, used by management; and Evaluating past performances where relevant and assessed historical accuracy of the forecast produced by management. B) In view of the significance of the matter, the auditor Aurobindo Pharma USA, Inc. has reported that the following audit procedures in this area were applied, among others to obtain sufficient appropriate audit evidence: Assessing methodology: Assessing that the principles and integrity of the cash flow models are in accordance with the relevant group accounting policies; Challenging growth assumptions: Challenging managements assumptions and obtaining support such as management approved strategy plans and customer contracts for the growth initiatives used in the cash flow models; Sensitivity analysis: Performing breakeven analysis on the key assumptions noted above; Testing the key assumptions such as the future growth rate, the operating margins and the discount rate for reasonability; Historical comparisons: Evaluating the track record of the historical assumptions used against actual results achieved; Used our own valuation experts to challenge the methodology and key assumptions used in the cash flow model. B S R & Associates LLP Consolidated
109 Aurobindo Pharma Ltd. Pharmaceuticals & Chemicals Key Audit Matters 31st March, 2019 Intangible assets under development as at 31 March 2019 includes amounts aggregating to Rs. 2,393.1 million (31 March 2018: Rs. 1,206.1 million) representing the product development cost capitalised by the Group during the year ended 31 March 2019 on its various molecules under development. The Group capitalises qualifying development expenditure on the basis of its products being generic alternatives to already proven and regulator approved, in-market original medical therapies. Where these criteria are not met, the Group expenses its research and development cost. The capitalisation of development expenditure was considered a key audit matter as development activities are subject to uncertainties and judgmental assumptions as to the probability of scientific success, the timing of regulatory approval processes, as well as the ongoing future market viability of the relevant products from project initiation date to approved product launch date. Capitalised development costs are amortised once the product is available for use; normally from when regulatory approval is obtained. Tested the mathematical accuracy of the Groups capitalised development expenditure model and evaluated the key assumptions and methodologies used by the Group. Performed the following procedures in respect of the development expenditure capitalised: Assessed the nature and appropriateness of the costs incurred that have been assessed by Group as directly attributable to the development activities of the relevant projects, and tested the consistency of the capitalisation approach taken across the portfolio during the year and in previous periods; Agreed a sample of costs capitalised and assessed whether these met the capitalization criteria set out in accordance group accounting policies; Carried out a series of discussions with the Groups Quality and Product Development heads to understand the status of various products under development and to test the criteria applied by them for capitalisation of the costs incurred for consistency with the group accounting policies; In respect of projects that are no longer considered viable, determined whether any carrying amount had been appropriately written off. B S R & Associates LLP Consolidated
110 Aurobindo Pharma Ltd. Pharmaceuticals & Chemicals Key Audit Matters 31st March, 2019 The Group operates in multiple jurisdictions in the pharmaceutical industry which is heavily regulated, resulting in increased exposure to litigation risk. The Group is involved in a number of litigations/ legal actions. These provisions are based on judgements and accounting estimates made by management reflect in determining the likelihood and magnitude of an unfavourable outcome on the claims. Accordingly, unexpected adverse outcomes could significantly impact the Groups reported profit and balance sheet position. A) We performed the following key audit procedures: Evaluating the design and testing the operating effectiveness of controls in respect of the recognition and measurement of provisions towards litigation and claims; Corroborating managements assessment by: making enquiries with the in-house legal counsel of the Group; verifying correspondence, orders and appeals in respect of open litigations; Obtaining confirmations from internal legal counsel where relevant and/ or evaluating legal opinions obtained by the management; Evaluating significant adjustments to legal provisions recorded during the year to determine if they were indicative of management bias; and Evaluating adequacy of disclosures given in Note 33 to consolidated financial statements. B) In view of the significance of the matter the auditor of Aurobindo Pharma USA, Inc. has reported that the following audit procedures in this area were applied, among others to obtain sufficient appropriate audit evidence: Reading external legal advice obtained by the management; Discussing open matters and developments with the Groups in-house legal counsel; Assessing and challenging managements conclusions through understanding precedents set in similar cases; and Obtaining third party legal confirmations, together with follow up discussions. B S R & Associates LLP Consolidated
111 Aurobindo Pharma Ltd. Pharmaceuticals & Chemicals Key Audit Matters 31st March, 2019 The Group makes sales to customers in the United States of America (USA) that fall under certain commercial and governmental reimbursement schemes and mandated contracts of which the most significant are chargebacks, rebates, supply penalties, Medicaid and other related accruals (collectively known as gross-to-net sales adjustments). The Group also provides a right of return to its customers for its products. These arrangements result in deductions to gross sales and give rise to obligations for the Group to provide customers with chargebacks, rebates, medicaid, allowances, supply penalties and right of return, which for unsettled amounts are recognised as an accrual. This area is focused because arrangements are complex and establishing an appropriate accrual requires significant judgement and estimation by management. This judgement is particularly complex in USA healthcare environment in which competitive pricing pressure and multi-layered product discounting are increasingly prevalent. The Group has accrued an amount of INR 25,428.2 million towards these arrangements. Obtained the calculations for accruals under applicable schemes and validated the assumptions used by reference to the Groups stated commercial policies, the terms of applicable contracts, stock lying at wholesalers and historical levels of product returns. With respect to the contract management system that produced the underlying source data, agreed a sample of signed and authorized contracts to the details in the contract management system to confirm the integrity and accuracy of the data. For each significant accrual developed an independent expectation and agreed the material estimates, to underlying supporting documentation such as actual sales, settlements and/or reclassification between the elements of gross-to-net sales adjustments. For each of the estimated accruals, tested the mathematical accuracy of the calculations and assessed the integrity of the data used in the calculations. Assessed the inputs used in the calculations including product returns, weighted average sales prices and inventory levels which remain unsold by the distributor, taking into account historical trends and specific circumstances at reporting date, to the underlying supporting documentation. Based on the historical data and trends audit procedures included the following: Developing an expectation on expected gross to net accrual balances and comparing this to the recorded accrual balances; Understood, evaluated the significant management judgements involved in estimating the provisions; - Analysed and assessed actual claims made in previous periods to evaluate the Groups historical accuracy in estimating the gross to net sales adjustments; Agreed a sample of transactions processed in the contract management system during the period to supporting documents such as signed customer contracts and claim details such as chargeback rates, product details, wholesaler details, customer allowances; Assessed claims made subsequent to balance date and considered whether these were appropriately treated at reporting date; Analysed credit notes and payments (on a sample basis) throughout the year and post year-end, and assessed the impact to accruals recorded during the period. B S R & Associates LLP Consolidated
112 Aurobindo Pharma Ltd. Pharmaceuticals & Chemicals Key Audit Matters 31st March, 2019 During the year ended 31 March 2019, the Group had made two acquisitions through its subsidiary Aurobindo Pharma USA, Inc., duly classified as business combination in accordance with the group accounting policies. The details of the assets and liabilities acquired along with their fair values, the resultant goodwill recognised and the consideration paid for the acquisitions have been disclosed in note 39(i) and 39(ii) to the consolidated financial statements. Accounting for business combinations can involve judgements in relation to the assessment of the fair values of assets and liabilities that are recognised on acquisition, particularly the allocation of purchase consideration to goodwill and separately identified intangibles assets. Any misstatement made in the identification and/or valuation of acquired intangibles gives rise to an equal, compensating misstatement in goodwill. Adjustments are made to the assets acquired and liabilities assumed during the allocation period to the extent that further information and knowledge come to light that more accurately reflect conditions at the acquisition date. Future contingent elements of consideration, which may include development and launch milestones, revenue threshold milestones and revenue-based royalties, are fair valued at the date of acquisition using decision-tree analysis with key inputs including probability of success, consideration of potential delays and revenue projections based on the Groups internal forecasts. Basis the above factors mentioned, the same has been considered as key audit matter. for all the acquisitions consummated, obtained and reviewed the key supporting documentation such as purchases agreements; for each transaction, understood the nature of the transaction and assessed the proposed accounting treatment in relation to the Groups accounting policies and relevant Ind AS. Management relies on external valuation specialists to value significant intangibles acquired in business combinations, assessed the independence and competency of the experts and tested the results of their work, in so far as it relates to the valuation already completed; In respect of the acquisition for which the allocation of the purchase price to various assets and liabilities is in progress as at the reporting date, tested the provisional allocation made by the management for its reasonability and verified the underlying supporting documentation such as draft allocation reports in this regard; Used valuation experts to challenge the methodology and key assumptions used in allocation of the purchase price to various assets and liabilities acquired and the resultant fair values arrived at. Challenged the management estimate of the cash flows applied within the valuations models and the key assumptions such as the discount rates, growth rates, customer attrition and period for amortisation for reasonability. B S R & Associates LLP Consolidated
113 Aurobindo Pharma Ltd. Pharmaceuticals & Chemicals Other Matters 31st March, 2019 a) We did not audit the financial statements and other financial information of 66 subsidiaries, whose financial statements reflect total assets of Rs. 206,218.9 million as at 31 March 2019, total revenues of Rs. 151,023.0 million and net cash flows amounting to Rs. 8,444.5 million for the year ended on that date, as considered in the consolidated financial statements. The consolidated financial statements also include the Groups share of net profit (and other comprehensive income) of Rs. 1.5 million for the year ended 31 March 2019, in respect of five joint ventures, whose financial statements and other financial information have not been audited by us. These financial statements and financial information have been audited by other auditors whose reports have been furnished to us by the Management and our opinion on the consolidated financial statements, in so far as it relates to the amounts and disclosures included in respect of these subsidiaries and joint ventures, and our report in terms of sub-section (3) of Section 143 of the Act, in so far as it relates to the aforesaid subsidiaries and joint ventures is based solely on the audit reports of the other auditors. Certain of these subsidiaries and joint ventures are located outside India whose financial statements and other financial information have been prepared in accordance with accounting principles generally accepted in their respective countries and which have been audited by other auditors under generally accepted auditing standards applicable in their respective countries. The Companys management has converted the financial statements of such subsidiaries and joint ventures located outside India from accounting principles generally accepted in their respective countries to accounting principles generally accepted in India. We have audited these conversion adjustments made by the Companys management. Our opinion in so far as it relates to the balances and affairs of such subsidiaries and joint ventures located outside India is based on the report of other auditors and the conversion adjustments prepared by the management of the Company and audited by us. Our opinion on the consolidated financial statements, and our report on Other Legal and Regulatory Requirements below, is not modified in respect of the above matters with respect to our reliance on the work done and the reports of the other auditors. B S R & Associates LLP Consolidated
114 Bajaj Finance Ltd. NBFCs & Housing Finance Key Audit Matters 31st March, 2019 The Company has adopted Ind AS from 1 April 2018 with an effective date of 1 April 2017 for such transition. For periods up to and including the year ended 31 March 2018, the Company had prepared and presented its financial statements in accordance with the erstwhile generally accepted accounting principles in India (Indian GAAP). To give effect of the transition to Ind AS, these financial statements for the year ended 31 March 2019, together with the comparative financial information for the previous year ended 31 March 2018 and the transition date Balance Sheet as at 1 April 2017 have been prepared under Ind AS. The transition has involved significant change in the Companys policies and processes for financial reporting, including generation of supportable information and applying estimates to inter alia determine impact of Ind AS on accounting and disclosure requirements prescribed under extant Reserve Bank of India (RBI) directions. In view of the complexity involved, Ind AS transition and the preparation of financial statements subsequent to the transition date have been areas of key focus in our audit. - Read the Ind AS impact assessment performed by the Management and the resultant changes made to the accounting policies considering the requirements of the new framework. - Evaluated the exemptions and exceptions allowed by Ind AS and applied by the Management in applying the first-time adoption principles of Ind AS 101 in respect of fair valuation of assets and liabilities existing as at transition date. - Tested the accounting adjustments posted as at the transition date and in respect of the previous year to convert the financial information reported under erstwhile Indian GAAP to Ind AS. - Tested the disclosures prescribed under Ind AS. S R B C & Co. LLP Consolidated
115 Bajaj Finance Ltd. NBFCs & Housing Finance Key Audit Matters 31st March, 2019 Ind AS 109 requires the Company to recognise impairment loss allowance towards its financial assets (designated at amortised cost and fair value through other comprehensive income) using the expected credit loss (ECL) approach. Such ECL allowance is required to be measured considering the guiding principles of Ind AS 109 including: - unbiased, probability weighted outcome under various scenarios; - time value of money; - impact arising from forward looking macro-economic factors and; - availability of reasonable and supportable information without undue costs. Applying these principles involves significant estimation in various aspects, such as: - grouping of borrowers based on homogeneity by using appropriate statistical techniques; - staging of loans and estimation of behavioural life; - determining macro-economic factors impacting credit quality of receivables; - estimation of losses for loan products with no/minimal historical defaults. Considering the significance of such allowance to the overall financial statements and the degree of estimation involved in computation of expected credit losses, this area is considered as a key audit matter. We read and assessed the Companys accounting policies for impairment of financial assets and their compliance with Ind AS 109. - We tested the criteria for staging of loans based on their past-due status to check compliance with requirement of Ind AS 109. Tested a sample of performing (stage 1) loans to assess whether any loss indicators were present requiring them to be classified under stage 2 or 3 and vice versa. - We evaluated the reasonableness of the Management estimates by understanding the process of ECL estimation and tested the controls around data extraction and validation. - Tested the ECL model, including assumptions and underlying computation. - Assessed the floor/minimum rates of provisioning applied by the Company for loan products with inadequate historical defaults. - Audited disclosures included in the Ind AS financial statements in respect of expected credit losses. S R B C & Co. LLP Consolidated
116 Bajaj Finance Ltd. NBFCs & Housing Finance Key Audit Matters 31st March, 2019 Financial accounting and reporting processes, especially in the financial services sector, are fundamentally reliant on IT systems and IT controls to process significant transaction volumes, hence we identified IT systems and controls over financial reporting as a key audit matter for the Company. Automated accounting procedures and IT environment controls, which include IT governance, general IT controls over program development and changes, access to programs and data and IT operations, are required to be designed and to operate effectively to ensure reliable financial reporting. - We tested the design and operating effectiveness of the Companys IT access controls over the information systems that are important to financial reporting and various interfaces, configuration and other identified application controls. - We tested IT general controls (logical access, changes management and aspects of IT operational controls). This included testing requests for access to systems were reviewed and authorised. - We tested the Companys periodic review of access rights. We also tested requests of changes to systems for approval and authorisation. - In addition to the above, we tested the design and operating effectiveness of certain automated controls that were considered as key internal controls over financial reporting. S R B C & Co. LLP Consolidated
117 Bajaj Finance Ltd. NBFCs & Housing Finance Key Audit Matters 31st March, 2019 The Company has adopted Ind AS from 1 April 2018 with an effective date of 1 April 2017 for such transition. For periods up to and including the year ended 31 March 2018, the Company had prepared and presented its financial statements in accordance with the erstwhile generally accepted accounting principles in India (Indian GAAP). To give effect of the transition to Ind AS, these financial statements for the year ended 31 March 2019, together with the comparative financial information for the previous year ended 31 March 2018 and the transition date Balance Sheet as at 1 April 2017 have been prepared under Ind AS. The transition has involved significant change in the Companys policies and processes for financial reporting, including generation of supportable information and applying estimates to inter alia determine impact of Ind AS on accounting and disclosure requirements prescribed under extant Reserve Bank of India (RBI) directions. In view of the complexity involved, Ind AS transition and the preparation of financial statements subsequent to the transition date have been areas of key focus in our audit. - Read the Ind AS impact assessment performed by the Management and the resultant changes made to the accounting policies considering the requirements of the new framework. - Evaluated the exemptions and exceptions allowed by Ind AS and applied by the Management in applying the first-time adoption principles of Ind AS 101 in respect of fair valuation of assets and liabilities existing as at transition date. - Tested the accounting adjustments posted as at the transition date and in respect of the previous year to convert the financial information reported under erstwhile Indian GAAP to Ind AS. - Tested the disclosures prescribed under Ind AS. S R B C & Co. LLP Standalone
118 Bajaj Finance Ltd. NBFCs & Housing Finance Key Audit Matters 31st March, 2019 Ind AS 109 requires the Company to recognise impairment loss allowance towards its financial assets (designated at amortised cost and fair value through other comprehensive income) using the expected credit loss (ECL) approach. Such ECL allowance is required to be measured considering the guiding principles of Ind AS 109 including: - unbiased, probability weighted outcome under various scenarios; - time value of money; - impact arising from forward looking macro-economic factors and; - availability of reasonable and supportable information without undue costs. Applying these principles involves significant estimation in various aspects, such as: - grouping of borrowers based on homogeneity by using appropriate statistical techniques; - staging of loans and estimation of behavioural life; - determining macro-economic factors impacting credit quality of receivables; - estimation of losses for loan products with no/minimal historical defaults. Considering the significance of such allowance to the overall financial statements and the degree of estimation involved in computation of expected credit losses, this area is considered as a key audit matter. We read and assessed the Companys accounting policies for impairment of financial assets and their compliance with Ind AS 109. - We tested the criteria for staging of loans based on their past-due status to check compliance with requirement of Ind AS 109. Tested a sample of performing (stage 1) loans to assess whether any loss indicators were present requiring them to be classified under stage 2 or 3 and vice versa. - We evaluated the reasonableness of the Management estimates by understanding the process of ECL estimation and tested the controls around data extraction and validation. - Tested the ECL model, including assumptions and underlying computation. - Assessed the floor/minimum rates of provisioning applied by the Company for loan products with inadequate historical defaults. - Audited disclosures included in the Ind AS financial statements in respect of expected credit losses. S R B C & Co. LLP Standalone
119 Bajaj Finance Ltd. NBFCs & Housing Finance Key Audit Matters 31st March, 2019 Financial accounting and reporting processes, especially in the financial services sector, are fundamentally reliant on IT systems and IT controls to process significant transaction volumes, hence we identified IT systems and controls over financial reporting as a key audit matter for the Company. Automated accounting procedures and IT environment controls, which include IT governance, general IT controls over program development and changes, access to programs and data and IT operations, are required to be designed and to operate effectively to ensure reliable financial reporting. - We tested the design and operating effectiveness of the Companys IT access controls over the information systems that are important to financial reporting and various interfaces, configuration and other identified application controls. - We tested IT general controls (logical access, changes management and aspects of IT operational controls). This included testing requests for access to systems were reviewed and authorised. - We tested the Companys periodic review of access rights. We also tested requests of changes to systems for approval and authorisation. - In addition to the above, we tested the design and operating effectiveness of certain automated controls that were considered as key internal controls over financial reporting. S R B C & Co. LLP Standalone
120 Bajaj Holdings & Investment Ltd. NBFCs & Housing Finance Key Audit Matters 31st March, 2019 The Company holds 2,742,848 equity shares amounting to H 0.24 crore in Maharashtra Scooters Ltd. (MSL). Western Maharashtra Development Corporation Ltd. (WMDC), who holds (3,085,712 equity shares) in MSL had offered to sell its entire shareholding in MSL in 2003. The purchase price of such shares was under dispute for several years and the matter was pending with the Honourable Supreme Court of India (the Supreme Court) vide a special leave petition (SLP) filed by WMDC on 15 September 2015. On 9 January 2019, the Honourable Supreme Court of India dismissed the SLP and instructed the Company to pay H 232 per share along with simple interest @ 18% per annum from 14 January 2006The Company holds 2,742,848 equity shares amounting to H 0.24 crore in Maharashtra Scooters Ltd. (MSL). The Company issued cheques to WMDC amounting to H 222.48 crore (including interest of H 150.89 crore); which has not been banked by WMDC as on date, pending their internal approvals. The cheques turned stale post 31 March 2019 and fresh cheques of H 222.48 crore have been issued on 12 April 2019. As at 31 March 2019, the cheques issued by the Company have been disclosed as an advance; with a suitable note. MSL would become a subsidiary of the Company only post completion of banking of the cheques by WMDC and transfer of MSL shares by WMDC, in accordance with the terms of Supreme Court order. In view of the significant impact upon completion of banking of cheques, the same is considered a key audit matter. - Obtained and read a copy of the final judgment passed by the Supreme Court, from the official website of the Supreme Court. - Read the filings made by the Company with the stock exchanges in respect of the judgment of the Supreme Court. - Assessed the accounting treatment of the amount paid by the Company to WMDC. - Read and assessed the disclosures made by the Company in the standalone financial statements as at 31 March 2019 for compliance with disclosure requirements under the Accounting Standards and the quarterly results for the quarter and year ended 31 March 2019. S R B C & Co. LLP Standalone
121 Bajaj Holdings & Investment Ltd. NBFCs & Housing Finance Key Audit Matters 31st March, 2019 The Holding Company holds 2,742,848 equity shares amounting to H 0.24 crore in Maharashtra Scooters Ltd. (MSL). Western Maharashtra Development Corporation Ltd. (WMDC), who holds (3,085,712 equity shares) in MSL had offered to sell its entire shareholding in MSL in 2003. The purchase price of such shares was under dispute for several years and the matter was pending with the Honourable Supreme Court of India (Supreme Court) vide a special leave petition (SLP) filed by WMDC on 15 September 2015. On 9 January 2019, Supreme Court dismissed the SLP and instructed the Company to pay H 232 per share along with simple interest @ 18% per annum from 14 January 2006. The Company issued cheques to WMDC amounting to H 222.48 crore (including interest of H 150.89 crore); which has not been banked by WMDC as on date, pending their internal approvals. The cheques turned stale post 31 March 2019 and fresh cheques of H 222.48 crore have been issued on 12 April 2019. As at 31 March 2019, the cheques issued by the Company have been disclosed as an advance; with a suitable note. MSL would become a subsidiary of the Company only post completion of banking of the cheques by WMDC and transfer of MSL shares by WMDC, in accordance with the terms of Supreme Court order. In view of the significant impact upon completion of banking of cheques, the same is considered a key audit matter Our Audit procedures included the following: -Obtained and read a copy of the final judgment passed by the Supreme Court from the official website of Supreme Court. -Read the filings made by the Holding Company with the stock exchanges in respect of the judgment of the Supreme Court. -Assessed the accounting treatment of the amount paid by the Holding Company to WMDC. -Read and assessed the disclosures made by the Holding Company in the consolidated financial statements as at 31 March 2019 for compliance with disclosure requirements under the Accounting Standards and the quarterly results for the quarter and year ended 31 March 2019. S R B C & Co. LLP Consolidated
122 Bajaj Holdings & Investment Ltd. NBFCs & Housing Finance Key Audit Matters 31st March, 2019 BFS has adopted Ind AS from 1 April 2018 with an effective date of 1 April 2017 for such transition. For periods up to and including the year ended 31 March 2018, BFS had prepared and presented its financial statements in accordance with the erstwhile generally accepted accounting principles in India (Indian GAAP). In order to give effect of the transition to Ind AS these financial statements for the year ended 31 March 2019, together with the comparative financial information for the previous year ended 31 March 2018 and the transition date Balance Sheet as at 1 April 2017 have been prepared under Ind AS. The transition has involved significant change in BFSs policies and processes for financial reporting, including generation of supportable information and exercise of estimates to inter alia determine impact of Ind AS on accounting and disclosure requirements prescribed under extant Reserve Bank of India (RBI) directions. In view of the complexity involved, Ind AS transition and the preparation of financial statements subsequent to the transition have been areas of key focus in our audit. Our Audit procedures included the following: -Read the Ind AS impact assessment performed by the Management and the resultant changes made to the accounting policies in light of the requirements of the new framework. -Evaluated the exemptions and exceptions allowed by Ind AS and applied by the Management in applying the first-time adoption principles of Ind AS 101 in respect of fair valuation of assets and liabilities existing as at transition date. -Tested the accounting adjustments posted as at the transition date and in respect of the previous year to convert the financial information reported under erstwhile Indian GAAP to Ind AS. -Tested regulatory disclosures prescribed under Ind AS. S R B C & Co. LLP Consolidated
123 Bajaj Holdings & Investment Ltd. NBFCs & Housing Finance Key Audit Matters 31st March, 2019 Ind AS 109 requires to recognise impairment allowance towards its financial assets (designated at amortised cost and fair value through other comprehensive income) using the expected credit loss (ECL) approach. Such ECL allowance is required to be measured considering the guiding principles of Ind AS 109 including -unbiased, probability weighted outcome under various scenarios; -time value of money; -impact arising from forward looking macro-economic factors and; -availability of reasonable and supportable information without undue costs. -Applying these principles involves significant estimation in various aspects, such as grouping of borrowers on the basis of homogeneity by using appropriate statistical techniques; -staging of loans and estimation of behavioural life; -determining macro-economic factors impacting credit quality of receivables; -estimation of losses for loan products with no/minimal historical defaults. Considering the significance of such allowance to the overall financial statements and the degree of estimation involved in computation of expected credit losses, this area is considered as a key audit matter. Our audit procedures included the following: - Read and assessed BFSs accounting policies for impairment of financial assets and also their compliance with respect to Ind AS 109. - Tested the criteria for staging of loans based on their past-due status is in compliance with requirement of Ind AS 109 by testing a sample of performing (stage 1) loans to assess whether any loss indicators were present requiring them to be classified under stage 2 or 3 and vice versa. - Evaluated the reasonableness of the Management estimates by understanding the process of ECL estimation and tested the controls around data extraction and validation. - Tested the ECL model, including assumptions and underlying computation. - Assessed the floor/minimum rates of provisioning applied by BFS for loan products with inadequate historical defaults. - Audited disclosures included in the Ind AS financial statements in respect of expected credit losses. S R B C & Co. LLP Consolidated
124 Bajaj Holdings & Investment Ltd. NBFCs & Housing Finance Key Audit Matters 31st March, 2019 Financial accounting and reporting systems, especially in the financial services sector, are fundamentally reliant on IT systems and IT controls to process significant transaction volumes, hence we identified IT systems and controls over financial reporting as a key audit matter for the Group. Automated accounting procedures and IT environment controls, which include IT governance, general IT controls over program development and changes, access to programs and data and IT operations, are required to be designed and to operate effectively to ensure reliable financial reporting. Our audit procedures included the following: l Tested the design and operating effectiveness of BFSs IT access controls over the information systems that are important to financial reporting and various interfaces, configuration and other identified application controls. - Tested IT general controls (logical access, changes management and aspects of IT operational controls). This included testing requests for access to systems were reviewed and authorised. - Tested BFSs periodic review of access rights. Also tested requests of changes to systems for approval and authorisation. - Tested the design and operating effectiveness of certain automated controls that were considered as key internal controls over financial reporting. S R B C & Co. LLP Consolidated
125 Bajaj Holdings & Investment Ltd. NBFCs & Housing Finance Key Audit Matters 31st March, 2019 The joint auditors of BAGIC, a subsidiary of BFS, have reported that outstanding Motor TP claims represent estimates of future payments of reported claims for losses and related expenses at balance sheet date. The valuation of reported third party loss involves a high degree of subjectivity and estimation. For such claims, a provision is made on the basis of the amounts that are likely to be paid against each claim as estimated by BAGIC in light of the information available at the balance sheet date and which is subsequently modified for changes, as appropriate, based on availability of additional information. Resultantly, outstanding Motor TP claims is an area which requires auditors attention, especially considering the significant degree of judgment which is required to be applied to determine this amount. The procedures performed by the joint auditors of BAGIC, as reported by them to determine the appropriateness of the outstanding Motor TP claims by undertaking the following procedures: - Obtained an understanding of the BAGICs process of Motor TP claims provisioning, which takes into consideration factors such as evaluation of legal precedents and professional judgments of lawyers. - Tested the design, implementation and operating effectiveness of key controls over the Motor TP claims provisioning as at the year-end. - Performed substantive audit procedures and tested samples of outstanding Motor TP claims along with their underlying documentation for assessing existence and accuracy. - Assessed the appropriateness of the overall Motor TP estimate made by BAGIC. S R B C & Co. LLP Consolidated
126 Bajaj Holdings & Investment Ltd. NBFCs & Housing Finance Key Audit Matters 31st March, 2019 BAL has investments aggregating H 17,936.64 crore in equity shares, bonds, liquid mutual funds, short term funds, fixed maturity plans (FMPs) and commercial papers as at 31 March 2019. These investments are measured either at amortised cost, Fair Value through Profit and Loss (FVTPL) or Fair Value through Other Comprehensive Income (FVTOCI) based on fulfilment of required criteria which involve management judgment. Of the above total investments, BALs investments in FMPs as at 31 March 2019 amounted to H 12,338.10 crore (63% of total investments). These investments were measured at FVTPL till 31 March 2018. BAL applies amortised cost, where it has ability to demonstrate that the underlying instruments in the portfolio fulfil the solely payments of principal and interest (SPPI) test and the churn in the portfolio is negligible. As these conditions have been fulfilled effective from 1 April 2018, BAL has classified FMPs, as subsequently measured at amortised cost. Our audit procedures included the following: - Read the minutes of the meetings of the Investment Committee. - Performed test of controls on a sample basis on the operating effectiveness of internal controls on investments. - Tested on a sample basis, the investments underlying the FMPs to ascertain whether those investments would satisfy the conditions of Ind AS. - Compared on a sample basis the indicative yields used by BAL for accounting for interest income on amortised cost basis, with the actual yields earned by the Company on those FMPs at the time of redemption. - Tested on a sample basis the portfolio churn in case of FMPs to ascertain whether majority of the instruments in the FMP are held till maturity. - Tested the disclosures made by BAL. S R B C & Co. LLP Consolidated
127 Bajaj Holdings & Investment Ltd. NBFCs & Housing Finance Other Matters 31st March, 2019 (a). The consolidated financial statements also include the Groups share of net profit of H6.01 crore for the year ended 31 March 2019, as considered in the consolidated financial statements, in respect of a jointly controlled entity and two companies forming part of the Group, whose financial statements, other financial information have been audited by other auditors and whose reports have been furnished to us by the Management. Our opinion on the consolidated financial statements, in so far as it relates to the amounts and disclosures included in respect of these jointly controlled entity and two companies forming part of the Group and our report in terms of sub-sections (3) of section 143 of the Act, in so far as it relates to the aforesaid jointly controlled entity and two companies forming part of the Group, is based solely on the reports of such other auditors. S R B C & Co. LLP Consolidated
128 Bajaj Holdings & Investment Ltd. NBFCs & Housing Finance Other Matters 31st March, 2019 (b). The auditors of Bajaj Allianz Life Insurance Company Ltd. (BALIC), a company forming part of the Group, have reported that the actuarial valuation of liabilities for life policies in force and for policies in respect of which premium has been discontinued but liability exists as at 31 March 2019 is the responsibility of the BALICs Senior Vice President Actuary (the SVP Actuary). The actuarial valuation of these liabilities for life policies in force and for policies in respect of which premium has been discontinued but liability exists as at 31 March 2019 has been duly certified by the BALICs SVP Actuary and in his opinion, the assumptions for such valuation are in accordance with Ind AS 104 Insurance Contracts, Ind AS 109 Financial Instruments, the guidelines and norms issued by the Insurance Regulatory Development Authority of India (IRDAI/Authority) and the Institute of Actuaries of India in concurrence with the IRDAI. BALICs auditors have relied upon SVP Actuarys certificate in this regard for forming their opinion on the valuation of liabilities for life policies in force and for policies in respect of which premium has been discontinued but liability exists in Financial Statements of BALIC. S R B C & Co. LLP Consolidated
129 Bajaj Holdings & Investment Ltd. NBFCs & Housing Finance Other Matters 31st March, 2019 (C). The auditors of Bajaj Allianz General Insurance Company Ltd. (BAGIC), a Company forming part of the Group, have reported that the actuarial valuation of liabilities in respect of claims Incurred But Not Reported (IBNR) and claims Incurred But Not Enough Reported (IBNER) of BAGIC is the responsibility of the BAGICs Appointed Actuary. The actuarial valuation of these liabilities as at 31 March 2019 has been duly certified by the BAGICs Appointed Actuary. The BAGICs Appointed Actuary has also certified that in his opinion, the assumptions for such valuation are in accordance with Ind AS 104 Insurance Contracts, Ind AS 109 Financial Instruments, the guidelines and norms issued by the Insurance Regulatory Development Authority of India (IRDAI/Authority) and the Institute of Actuaries of India in concurrence with the IRDAI. BAGICs auditors have relied upon the BAGICs Appointed Actuarys certificate in this regard for forming our opinion on the financial statements of BAGIC. S R B C & Co. LLP Consolidated
130 Bata India Ltd. Retail & FMCG Key Audit Matters 31st March, 2019 The Companys major part of revenue relates to retail sales which comprises of high volumes of individually small transactions recorded in the books through journals. Revenue from the sale of goods is recognised when the Company performs its obligation to its customers and the amount of revenue can be measured reliably and recovery of the consideration is probable. The timing of such recognition in case of sale of goods is when control over the same is transferred to the customer, which is mainly upon delivery. The timing of revenue recognition is relevant to the reported performance of the Company. The management considers revenue as a key measure for evaluation of performance. Since revenue comprises of high volumes of individually small transactions, the process of summarizing and recording sales revenue is critical with regard to the completeness, existence and accuracy of retail sales revenue. In view of the significance of the matter we applied the following audit procedures in this area, among others to obtain sufficient appropriate audit evidence: A) Obtaining an understanding of and assessing the design, implementation and operating effectiveness of managements key internal controls relating to the recognition of revenue, including those related to the reconciliation of sales records to cash / credit card / online receipts, preparation, posting and approval of manual journal entries relating to revenue recognition. B) Testing the accuracy of retail revenue recorded during the year by examining that the sale of goods transactions are in agreement with the cash / credit card / online receipts and deposit of cash amounts recorded in daily cash reports with bank remittances, on sample basis. C) Testing whether the sales have been recorded in the correct period by selecting samples of reconciliation between sales transactions and cash / credit card / online and agreeing those reconciliations through supporting documentation. D) Performing on a test basis cash counts at selected stores and examining whether the cash balances are in agreement with the cash receipts reported in the daily collection report. E) Obtaining reconciliation of retail sales as per books of account with the sales as per Indirect tax records and inquire about reasons for differences, if any. F) Performing an analysis of the manual journal entries passed during the year. B S R & Co. LLP Standalone
131 Bata India Ltd. Retail & FMCG Key Audit Matters 31st March, 2019 The Companys major part of inventory comprises finished goods which are geographically spread across multiple locations such as retail stores, depots and factories. These inventories are counted by the Company on a cyclical basis and accordingly provision for obsolescence of inventories is assessed and recognized by the management in the financial statements based on management estimation as at end of reporting period. The Company manufactures and sells goods which may be subject to changing consumer demands and fashion trends. Significant degree of judgment is thereby required to assess the net realizable value of the inventories and appropriate level of provisioning for items which may be ultimately sold below cost. Such judgment include managements expectations for future sale volumes, inventory liquidation plans and future selling prices less cost to sell. Based on above, existence and valuation of inventories has been identified as a key audit matter. In view of the significance of the matter, we applied the following audit procedures in this area, among others to obtain sufficient appropriate audit evidence: A) Obtaining an understanding of and assessing the design, implementation and operating effectiveness of managements key internal controls relating to physical verification of inventories by the management and the internal auditors of the Company, identification of obsolete and slow moving inventories, inventories with low or negative gross margins, monitoring of inventory ageing and assessment of provisioning and of net realizable values. B) Assessing whether items in the inventory ageing report prepared by the management were classified within the appropriate ageing bracket; C) Performing a review of the provisions for inventories by examining movements in the balance during the current year and new provisions made for inventory balances as at 31 March 2018 during the current year to assess the historical accuracy of managements inventory provisioning process; D) Assessing, on a sample basis, the net realizable value of slow-moving and obsolete inventories and inventories with low or negative gross margins as calculated by management with reference to prices achieved and costs to sell after the financial year end. E) Attending cyclical inventory counts at selected stores, factories, retail distribution centres and wholesale distribution centres twice during the reporting period and evaluating the results of the cycle counts performed by the management throughout the year to assess managements estimation of the provisioning. B S R & Co. LLP Standalone
132 Bata India Ltd. Retail & FMCG Key Audit Matters 31st March, 2019 The Companys major part of revenue relates to retail sales which comprises of high volumes of individually small transactions recorded in the books through journals. Revenue from the sale of goods is recognised when the Company performs its obligation to its customers and the amount of revenue can be measured reliably and recovery of the consideration is probable. The timing of such recognition in case of sale of goods is when control over the same is transferred to the customer, which is mainly upon delivery. The timing of revenue recognition is relevant to the reported performance of the Company. The management considers revenue as a key measure for evaluation of performance. Since revenue comprises of high volumes of individually small transactions, the process of summarizing and recording sales revenue is critical with regard to the completeness, existence and accuracy of retail sales revenue. In view of the significance of the matter we applied the following audit procedures in this area, among others to obtain sufficient appropriate audit evidence: A) Obtaining an understanding of and assessing the design, implementation and operating effectiveness of managements key internal controls relating to the recognition of revenue, including those related to the reconciliation of sales records to cash / credit card / online receipts, preparation, posting and approval of manual journal entries relating to revenue recognition. B) Testing the accuracy of retail revenue recorded during the year by examining that the sale of goods transactions are in agreement with the cash / credit card / online receipts and deposit of cash amounts recorded in daily cash reports with bank remittances, on sample basis. C) Testing whether the sales have been recorded in the correct period by selecting samples of reconciliation between sales transactions and cash / credit card / online and agreeing those reconciliations through supporting documentation. D) Performing on a test basis cash counts at selected stores and examining whether the cash balances are in agreement with the cash receipts reported in the daily collection report. E) Obtaining reconciliation of retail sales as per books of account with the sales as per Indirect tax records and inquire about reasons for differences, if any. F) Performing an analysis of the manual journal entries passed during the year. B S R & Co. LLP Consolidated
133 Bata India Ltd. Retail & FMCG Key Audit Matters 31st March, 2019 The Companys major part of inventory comprises finished goods which are geographically spread across multiple locations such as retail stores, depots and factories. These inventories are counted by the Company on a cyclical basis and accordingly provision for obsolescence of inventories is assessed and recognized by the management in the financial statements based on management estimation as at end of reporting period. The Company manufactures and sells goods which may be subject to changing consumer demands and fashion trends. Significant degree of judgment is thereby required to assess the net realizable value of the inventories and appropriate level of provisioning for items which may be ultimately sold below cost. Such judgment include managements expectations for future sale volumes, inventory liquidation plans and future selling prices less cost to sell. Based on above, existence and valuation of inventories has been identified as a key audit matter. In view of the significance of the matter, we applied the following audit procedures in this area, among others to obtain sufficient appropriate audit evidence: A) Obtaining an understanding of and assessing the design, implementation and operating effectiveness of managements key internal controls relating to physical verification of inventories by the management and the internal auditors of the Company, identification of obsolete and slow moving inventories, inventories with low or negative gross margins, monitoring of inventory ageing and assessment of provisioning and of net realizable values. B) Assessing whether items in the inventory ageing report prepared by the management were classified within the appropriate ageing bracket; C) Performing a review of the provisions for inventories by examining movements in the balance during the current year and new provisions made for inventory balances as at 31 March 2018 during the current year to assess the historical accuracy of managements inventory provisioning process; D) Assessing, on a sample basis, the net realizable value of slow-moving and obsolete inventories and inventories with low or negative gross margins as calculated by management with reference to prices achieved and costs to sell after the financial year end. E) Attending cyclical inventory counts at selected stores, factories, retail distribution centres and wholesale distribution centres twice during the reporting period and evaluating the results of the cycle counts performed by the management throughout the year to assess managements estimation of the provisioning. B S R & Co. LLP Consolidated
134 Bata India Ltd. Retail & FMCG Other Matters 31st March, 2019 We did not audit the financial statements of three subsidiaries, whose financial statements reflect total assets of Rs. 74.12 million as at 31 March 2019, total revenues of Rs. 30.54 million and net cash flows amounting to Rs. (1.25) million for the year ended on that date, as considered in the consolidated financial statements. These financial statements have been audited by other auditors whose reports have been furnished to us by the Management and our opinion on the consolidated financial statements, in so far as it relates to the amounts and disclosures included in respect of these subsidiaries, and our report in terms of sub-section (3) of Section 143 of the Act, in so far as it relates to the aforesaid subsidiaries is based solely on the audit reports of the other auditors. Our opinion on the consolidated financial statements, and our report on Other Legal and Regulatory Requirements below, is not modified in respect of the above matters with respect to our reliance on the work done and the reports of the other auditors. B S R & Co. LLP Consolidated
135 Bharti Airtel Ltd. Telecom Services Emphasis of Matter 31st March, 2019 We draw attention to Note 24(I)(f)(vi) of the Standalone Financial Statements, which describes the uncertainties related to the legal outcome of Department of Telecommunications demand with respect to one-time spectrum charges. Our opinion is not modified in respect of this matter Deloitte Haskins & Sells LLP Consolidated
136 Bharti Airtel Ltd. Telecom Services Key Audit Matters 31st March, 2019 Revenue recognition: There is an inherent risk around accuracy of revenue recorded in respect of Mobile Services and Airtel Business segments because of the complexity of the IT systems and other support systems, significance of volumes of data processed by the system and the impact of changing price models ( tariff structures , incentive arrangements and discounts, etc.). In addition, for Airtel Business, we considered occurrence of revenue as a risk due to the possibility that revenue may be recorded without active service links being provided to customers or for contracts that are cancelled/not renewed. Refer note 2.19 Revenue recognition for accounting policies and note 24 on disclosures related to Revenue in the standalone financial statements. We involved our IT specialists to evaluate the design and test the operating effectiveness of the general IT cogenerated reports used in our audit of revenues. We also tested the controls within the billing systems, prepaid charging systems, capturing and recording of revenue, authorisation and input of changes to the IT systems and over reconciliations performed between the active customers base with billing system. We performed substantive procedures, which included verifying the accuracy of customer invoices and tracing receipts to customer invoices, comparing the number of links/connection as per the active customer base to the billing system, testing reconciliations between billing system and the general ledger (including validation of relevant journal entries), making test calls and testing whether they are rated correctly and analytical procedures for relevant segment revenue. We verified the appropriateness of the accounting policies and the disclosures related to Revenue in notes 2.19 and 24 respectively in the standalone financial statements. Deloitte Haskins & Sells LLP Standalone
137 Bharti Airtel Ltd. Telecom Services Key Audit Matters 31st March, 2019 Recoverability of deferred tax assets (DTA) recognized on tax loss carry-forwards and Minimum Alternate Tax (MAT) credit:- DTA on tax loss carry forwards and MAT credit recognised as at March 31, 2019 amounts to Rs 126,085 million. Significant judgement is required in assessing the recoverability of DTA on tax loss carry forwards and MAT credit. Recoverability of DTA on tax loss and MAT credit is sensitive to the assumptions used by management in projecting the ten year business plan and tax plan and to expiry of losses and restriction on utilization of MAT credit after the period specified in tax statute of respective countries. Refer note 2.12 Taxes for accounting policies, note 3.1.b in Critical accounting estimates and assumptions related to taxes and note 12 Income taxes for disclosures related to taxes in the standalone financial statement . We evaluated the design and tested the effectiveness of internal controls related to the assessment of recoverability of DTA on carry forward tax losses and MAT credit. We benchmarked and challenged the key business assumptions like revenue growth rates, amount of future capital expenditure and EBIDTA margins in the ten year business plans against historical data and trends and with market data and external sources, where available, to assess their reasonableness. We verified the tax computation for the ten year forecast period and considered whether the tax losses and MAT credit would expire in accordance with the provisions of Income tax Act, 1961. We also performed sensitivity assessment to evaluate whether it is probable that the tax losses and MAT credit would expire 1961 and tested the mathematical accuracy of the business plans and tax computation for the forecast period. We verified that recognition of DTA is consistent with companys accounting guidelines for recognition of deferred tax on tax loss carry forward and MAT credit. We verified the appropriateness of accounting policies, critical accounting estimates and assumptions and disclosures related to Income tax in notes 2.12, 3.1.b and 12 respectively in the standalone financial statements. Deloitte Haskins & Sells LLP Standalone
138 Bharti Airtel Ltd. Telecom Services Key Audit Matters 31st March, 2019 Evaluation of impairment assessment for investments in subsidiaries Investments in subsidiaries as at March 31, 2019 amounts to Rs. 357,533 million. The management assessed that there are impairment indicators in respect of its investment in Bharti Infratel limited (BIL). Accordingly, the management estimated the recoverable value of its investment in BIL, the carrying value of which as at March 31, 2019 is Rs. 227,516 million. The evaluation of the recoverable amount involves determination of the most appropriate valuation method and the inputs used in the valuation model. Refer note 2.10(a) for policy on Recognition, classification and presentation of financial instruments and note 8 Investments for disclosures related to details of Investments in the standalone financial statements. We evaluated the design and tested the effectiveness of internal controls related to evaluation of impairment assessment of investment in Bharti Infratel Limited. We evaluated the managements valuation method used and the accuracy of the inputs used in the model to determine the recoverable value. We challenged the inputs used to assess their reasonableness, tested the sensitivity of the recoverable value to the change in the inputs used and tested the arithmetical accuracy of the model. We verified the appropriateness of the accounting policies & disclosure related to investments in notes 2.10(a) and 8 respectively in the standalone financial statements. Deloitte Haskins & Sells LLP Standalone
139 Bharti Airtel Ltd. Telecom Services Key Audit Matters 31st March, 2019 Evaluation of uncertain positions related to tax and regulatory matters: The Company has material uncertain positions related to regulatory matters and direct and indirect tax matters under dispute that involves significant judgement to determine the possible outcome of these disputes, provisions required, if any, and/or write back of provision in respect of such matters. Refer Note 2.18 Contingencies for accounting policies, Note 20 Provisions for disclosure related to provisions for sub judice matters and Note 23(I) in respect of details of Contingent liabilities in the standalone financial statements . We evaluated the design and tested the effectiveness of internal controls related to the assessment of the likely outcome of uncertain positions related to the regulatory and tax matters, the provision made, if any, and/or write back of the provision. We designed significant open matters and developments with the Companys regulatory and tax team. We involved our internal tax experts to understand and evaluate the status of tax matters, review legal precedence and external expert opinions, if any, obtained by the management to evaluate whether the tax and regulatory position is appropriate and has taken into account recent developments, if any. We challenged managements underlying assumptions in estimating tax and regulatory provisions and/or write back of provisions and assessed management evaluations and conclusions by understanding precedence, if any, set in similar matters and performed substantive procedures on the underlying calculation supporting the provisions required and/or write back of provisions. We verified the appropriateness of the accounting policies disclosures related to provisions for sub judice matters and details of contingent liabilities in notes 2.18, 20 and 23(I) respectively in the standalone financial statements. Deloitte Haskins & Sells LLP Standalone
140 Bharti Airtel Ltd. Telecom Services Key Audit Matters 31st March, 2019 Revenue recognition: There is an inherent risk around accuracy of revenue recorded in respect of Mobile Services, Airtel Business, Digital TV Services and Tower Infrastructure Services segments because of the complexity of the IT systems and other support systems, significance of volumes of data processed by the systems and the impact of changing pricing models (tariff structures, incentive arrangements and discounts, etc.). In addition, for Airtel Business, we considered occurrence of revenue as a risk due to the possibility that revenue may be recorded without active service links being provided to customers or for contracts that are cancelled/not renewed. In addition, the Group has applied Ind AS 115 Revenue from contracts with customers which was effective from April 1, 2018. An adjustment on presentation of revenue for the year ended March 31, 2019 is required on transition to Ind-AS 115 from Ind- AS 18. The Group has applied full retrospective method. Refer note 2.19 Revenue recognition for accounting policies and notes related to implementation of Ind AS-115 and note 25 on disclosures related to Revenue in the consolidated financial statements. We involved our IT specialists to evaluate the design and test the operating effectiveness of the general IT controls and application specific controls within the IT system, including testing of system generated reports used in our audit of revenues. We also tested the controls within the billing systems, prepaid charging systems, capturing and recording of revenue, authorisation and input of changes to the IT systems and over reconciliations performed between the active customers base with billing system. We performed substantive procedures, which included verifying the accuracy of customer invoices and tracing receipts to customer invoices, comparing the number of links/connection as per the active customer base to the billing system, testing reconciliations between billing system and the general ledger (including validation of relevant journal entries), making test calls and testing whether they are rated correctly and analytical procedures for relevant segment revenue. With regard to the estimated impact of the initial adoption of Ind AS 115, we assessed the impact analysis and the accounting estimates and judgements made in respect of the revenue transactions of the Group and the appropriateness of the methods used in such analysis. We also evaluated and verified the retrospective application of Ind AS 115. We verified the appropriateness of the accounting policies, notes related to implementation of Ind AS-115 and the disclosure related to Revenue in notes 2.19 and 25 respectively in the consolidated financial statements and the consistency of the recorded revenue with the Groups accounting policies. Deloitte Haskins & Sells LLP Consolidated
141 Bharti Airtel Ltd. Telecom Services Key Audit Matters 31st March, 2019 Recoverability of deferred tax assets (DTA) recognized on tax loss carry-forwards and Minimum Alternate Tax (MAT) credit DTA on tax loss carry forwards and MAT credit recognised as at March 31, 2019 amounts to Rs. 152,447 million. Significant judgement is required in assessing the recoverability of DTA and MAT credit, particularly in respect of tax losses and MAT credit in India and tax losses in Nigeria amounting to Rs. 126,085 million and Rs. 20,148 million respectively. Recoverability of DTA on tax loss carry forwards and MAT credit. Recoverability of DTA on tax loss and MAT credit is sensitive to the assumptions used by management in projecting the ten year business plan and tax plan and to expiry of losses and restriction on utilization of MAT credit after the period specified in tax statute of respective countries. Refer note 2.12 Taxes for accounting policies, note 3.1.b in Critical accounting estimates and assumptions related to taxes and note 14 Income taxes for disclosures related to taxes in the consolidated financial statement . We evaluated the design and tested the operating effectiveness of internal controls related to the assessment of recoverability of DTA on carry forward tax losses and MAT credit. We benchmarked and challenged the key business assumptions like revenue growth rates, amount of future capital expenditure and EBIDTA margins in the ten year business plans against historical data and trends and with market data and external sources, where available, to assess their reasonableness. We verified the tax computation for the ten year forecast period and considered whether the tax losses and MAT credit would expire in accordance with the tax statute of respective countries. We also performed sensitivity assessment to evaluate whether it is probable that the tax losses and MAT credit would expire within the period specified in the tax statute of respective countries and tested the mathematical accuracy of the business plans and tax computation for the forecast period. We verified that recognition of DTA is consistent with Groups accounting guidelines for recognition of deferred tax on loss carry forward and MAT credit. We verified the appropriateness of disclosures in accounting policies, critical accounting estimates and assumptions and disclosures related to Income tax in notes 2.12, 3.1.b and 14 respectively in the consolidated financial statements. Deloitte Haskins & Sells LLP Consolidated
142 Bharti Airtel Ltd. Telecom Services Key Audit Matters 31st March, 2019 Evaluation of Impairment Assessment of Goodwill At least once a year, Management ensures that the net carrying amount of goodwill recognised as an asset, amounting to Rs. 332,562 million at March 31, 2019, does not exceed its recoverable amount. The impairment assessment is performed at the level of each cash generating unit (CGU) or group of CGUs, which generally corresponds to the operating segment. The recoverable amount is determined based on value in use, which represents the present value of the estimated future cash flows expected to arise from the use of the asset group comprising each CGU or group of CGUs. The determination of recoverable amount of goodwill based on value-in-use is complex and subjective as estimates of future cash flows and determination of value in use involves managements estimates and judgement in determining the variables such as the revenue growth rates, EBITDA margins, amount of future capital expenditure, discount rates applied to estimated cash flows and long-term growth rate. The carrying amount of goodwill reported in the consolidated financial statements is significant and is sensitive to the assumptions made by the Management. In March 2019, for internal management purposes, the Group has reorganised its reporting structure basis which goodwill in respect of Mobile Services Africa is monitored at three group of CGUs, which is lover than the Mobile Services Africa segment level, and which requires further allocation of goodwill to the three group of CGUs. Allocation of goodwill to three group of CGUs necessitated fresh assessment of whether goodwill at the three CGUs level is impaired. This involves judgement with respect to identifying the most appropriate relative fair value approach or any other appropriate method for allocation of goodwill and the valuation assumptions like discount rates and long term growth rates that need to be applied to the future cash flows to determine the fair value of three group of CGUs. Refer note 2.9(a) for policy on Impairment of non-financial assets- Goodwill, note 3.1(a) on Critical accounting estimates and assumptions related to impairment reviews and note 7 Intangible assets for disclosures related to Impairment review of goodwill in the consolidated financial statements. We evaluated the design and tested the operating effectiveness of internal controls related to evaluation of impairment assessment of goodwill. We involved our internal valuation specialists to test the reasonableness of key valuation assumptions like long-term growth rates and discount rates used in determining value in use. We benchmarked and challenged the key business assumptions like revenue growth rates, amount of future capital expenditure and EBIDTA margins against historical data and trends and with market data and external sources, where available, to assess their reasonableness. We tested the sensitivity assessment of value in use to a change in the valuation assumptions and tested the mathematical accuracy of the cash flow models. We verified management's assessment of alternatives approaches to allocate Mobile services Africa goodwill based on relative fair value, the rationale for the selected option to allocate goodwill to the three group of CGUs and the appropriateness thereof, the related workings for allocation of goodwill to three group of CGUs and the impairment assessment at the revised three group of CGUs post allocation of goodwill. We verified the appropriateness of the accounting policies, critical accounting estimates and assumptions and disclosures related to impairment review of goodwill in notes 2.9(a), 3.1(a) and 7 respectively in the consolidated financial statements. Deloitte Haskins & Sells LLP Consolidated
143 Bharti Airtel Ltd. Telecom Services Key Audit Matters 31st March, 2019 Evaluation of uncertain positions related to tax and regulatory matters: The Group has material uncertain positions related to regulatory matters and direct and indirect tax matters under dispute that involves significant judgment to determine the possible outcome of these disputes, provisions required, if any, and/or write back of provision in respect of such matters. Refer notes 2.18 Contingencies for accounting policies, note 22 Provisions for disclosure related to provisions for sub judice matters and notes 24(i) in respect of details of Contingent liabilities in the consolidated financial statements. We evaluated the design and tested the operating effectiveness of internal controls related to the assessment of the likely outcome of uncertain positions related to the regulatory and tax matters, the provision made, if any, and/or write back of provision. We discussed significant open matters and developments with the Groups regulatory and tax team. We involved our internal tax experts to understand and evaluate the status of tax matters, review legal precedence and external expert opinions, if any, obtained by the management to evaluate whether the tax position is appropriate and has taken into account recent developments, if any. We challenged managements underlying assumptions in estimating tax and regulatory provisions and/or write back of provisions and assessed management evaluations and conclusions by understanding precedence, if any, set in similar matters and performed substantive procedures on the underlying calculation supporting the provisions required and/or write back of provisions. We verified the appropriateness of the accounting policies, disclosures related to provisions for sub judice matters and details of contingent liabilities in notes 2.18, 22 and 24(i) respectively in the consolidated financial statements. Deloitte Haskins & Sells LLP Consolidated
144 Bharti Airtel Ltd. Telecom Services Other Matters 31st March, 2019 The Consolidated Financial Statement include the Groups share of net profit of Rs. 3625 Million and total comprehensive income of Rs 3623 Million for the year ended March 31, 2019, as considered in the Consolidated Financial Statements, in respect of two joint ventures, whose financial statements have not been audited by us. These financial statements have been audited by other auditors whose reports have been furnished to us by the Management and our opinion on the Consolidated Financial Statements, in so far as it relates to the amounts and disclosures included in respect of these joint ventures and our report in terms of subsection (3) of Section 143 of the Act, in so far as it relates to the aforesaid joint ventures is based solely on the reports of the other auditors. Our opinion on the Consolidated Financial Statements above and our report on Other Legal and Regulatory Requirements below, is not modified in respect of the above matter with respect to our reliance on the work done and the reports of the other auditors. Deloitte Haskins & Sells LLP Consolidated
145 Bharti Infratel Ltd. Telecom Services Key Audit Matters 31st March, 2019 Revenue recognition accuracy of revenue recorded There is an inherent risk around the accuracy of revenue recorded at rates other than the approved contracts / agreements. This is because the Companys billing systems are complex and process large volume of data, including combination of different components of revenue. Our audit approach consisted evaluation of design and implementation of controls, and testing the operating effectiveness of the internal controls over: Capture and recording of revenue transactions; Authorisation of rates changes and input of the rate changes into the billing systems; Preparation and validation of the billing schedule; and Calculations of amounts billed to operators, in line with underlying contracts / agreements; We tested a sample of invoices issued to operators to ensure that the revenue recorded are agreeing to the relevant underlying supporting documentation. We also performed analytical procedures to test the recorded rental revenue; We involved our internal IT specialists to test IT general controls and application specific controls surrounding billing system, including testing of system generated reports used in our audit; We examined and assessed the accounting policies applied in the recognition of revenue for compliance with the applicable financial reporting framework; and We challenged management estimates around appropriateness of revenue recognition and reversals for biases that could result in material misstatement. Deloitte Haskins & Sells LLP Standalone
146 Bharti Infratel Ltd. Telecom Services Key Audit Matters 31st March, 2019 Evaluation of uncertain tax positions The Company has material uncertain tax positions including matters under dispute which involves significant judgment to determine the possible outcome of these disputes. Principal audit procedures performed: Our audit procedures included evaluation of design of controls and testing of operating effectiveness of the Companys controls over assessment and evaluation of possible outcomes around tax disputes. We involved our internal tax experts, to gain understanding of the current status of the disputed tax cases; and to challenge managements underlying assumptions in estimating the possible outcome of these tax disputes. Our internal tax experts considered legal precedence and other ruling in evaluating managements position on these uncertain tax positions. We also considered the effect of new information in respect of uncertain tax positions as at April 1, 2018 to evaluate whether any change was required to managements position on these uncertainties. Our audit procedures also included Reading and evaluating external legal opinions obtained by the management; Direct communication with the relevant third party legal representatives and discussion with them regarding certain material disputed tax cases; Inquiry with local management, reading relevant correspondence and assessing management conclusion in similar tax cases. Deloitte Haskins & Sells LLP Standalone
147 Bharti Infratel Ltd. Telecom Services Key Audit Matters 31st March, 2019 Valuation and existence of property, plant and equipment including assessment of useful lives and residual values Property, plant and equipment represents a significant proportion of the Companys asset base, being 30 % of the Companys total assets. The estimates and assumptions made to determine the carrying amounts, including whether and when to capitalise or expense certain costs, and the determination of depreciation charges are material to the Companys financial position and performance. The charges in respect of periodic depreciation are derived after estimating an assets expected useful life and the expected residual value. Changes to assets carrying amounts, expected useful lives or residual value could result in a material impact on the financial statements. Our audit approach consisted evaluation of design and implementation of controls, and testing the operating effectiveness of the internal controls over: Valuation of property, plant and equipment and review of useful lives; Periodic physical verification of property, plant and equipment; We involved our internal IT specialists to test IT general controls and application specific controls including testing of system generated reports used in our audit We tested a sample items of property, plant and equipment acquired and capitalised for new rollout, upgrade or expansion of sites during the year and inspected relevant underlying documentation to assess whether these items met the criteria for capitalisation with reference to the requirements of the prevailing accounting standards; We physically inspected a sample of sites and warehouses at the year-end to ensure existence of property, plant and equipment and tested the reconciliation between physical verification reports and fixed assets registers on a sample basis to determine any adjustments that may be required thereon; We performed a reconciliations between number of sites on which revenue has been recognised and network cost have been incurred with number of sites as per fixed asset records; and. We performed substantive testing for the determination of asset useful lives and residual values. In performing these procedures we considered managements judgments, including the appropriateness of existing asset lives and residual values applied in the calculation of depreciation to determine whether these judgments reflected technological developments within the industry and changes in the anticipated duration of use by the management Deloitte Haskins & Sells LLP Standalone
148 Biocon Ltd. Pharmaceuticals & Chemicals Key Audit Matters 31st March, 2019 The Company has adopted Ind AS 115: Revenue from Contracts with Customers effective April 01, 2018 using the modified retrospective approach, with the cumulative effect of initially applying the impact of any change to the opening equity as at April 01, 2018. The Company has significant out-licensing and collaboration arrangements and given the terms of these arrangements, the accounting is complex and judgmental, with significant judgement being applied under the new revenue standard. With respect to collaboration and out-licensing arrangements, the risk is to determine applicability of the standard to some of these contracts in part or full, whether all the identified performance obligations meet the criteria of being distinct and consequently its impact on timing and pattern of revenue recognition. Refer to Significant Accounting Policies Note 2(j) and Note 21 in the Standalone Financial Statements for the year ended March 31, 2019. With reference to revenue recognition from licensing income and on accounting for collaboration arrangements, we reviewed the underlying contracts and evaluated the appropriateness of the key judgements and estimates. We also reviewed managements assessment whether the rights transferred under these arrangements qualified for revenue recognition and in particular whether the underlying performance obligations meet the criteria of being distinct and hence can be segregated from other obligations under the arrangement. B S R & Co. LLP Standalone
149 Biocon Ltd. Pharmaceuticals & Chemicals Key Audit Matters 31st March, 2019 The Company is subject to complexities with respect to various tax positions on deductibility of transactions and tax incentives / exemptions, and on cross border transfer pricing arrangements. Judgment is required in assessing the range of possible outcomes for some of these tax matters. Management makes an assessment to determine the outcome of these uncertain tax positions and decides to make an accrual or consider it to be a possible contingent liability. Where the amount of tax liabilities are uncertain, the Company recognizes accruals that reflect Managements best estimate of the outcome based on the facts known in the relevant jurisdiction. Accordingly we focused on this area. For further information refer to the Significant accounting policies which includes General accounting principles, Key accounting judgements, estimates and assumptions- Note 2(l) and financial disclosures are disclosed in Tax expense- Note 33 in the Standalone Financial Statements for the year ended March 31, 2019. For uncertain tax positions, we read and analysed select key correspondences with the tax authorities, reviewed Managements judgment regarding the eventual resolution of matters with various tax authorities, assessment of third-party opinions and the use, of past experience, where available, with the tax authorities in the respective jurisdiction. Additionally we used our own tax specialists expertise to assess the appropriateness of the key assumptions made by Management. B S R & Co. LLP Standalone
150 Biocon Ltd. Pharmaceuticals & Chemicals Key Audit Matters 31st March, 2019 The Group has significant product related intangible assets as at 31 March 2019 which primarily comprises of internally generated intangibles codeveloped under collaboration arrangements and certain acquired assets through in-licensing arrangements. The commencement of capitalisation of development cost involves judgment. The key risk is the ability to successfully develop and subsequently commercialize the asset concerned. Development risk include Companys inability to achieve desired clinical trial results and / or obtain regulatory approvals. There is also a risk of impairment in the event the carrying amount of intangible asset is lower than its recoverable value. Managements assessment of recoverable value to test for impairment contain a number of parameters that involve significant judgements and estimates including weighted average cost of capital, revenue growth, expected market share and price erosion. Changes in these assumptions could lead to an impairment to the carrying value of these intangible assets. Accordingly, we have focused our audit work in these areas. For further information on the carrying value of product-related intangible assets refer to the Significant accounting policies which includes General accounting principles, Key accounting judgements, estimates and assumptions- Note 2(e),and financial disclosures are disclosed in Intangible assets- Note 5 in the Consolidated Financial Statements for the year ended March 31, 2019. Our principal audit procedures included, amongst others, testing the Groups controls surrounding intangible asset capitalisation, impairments and evaluating assumptions used in assessing the recoverability of intangible assets, in particular revenue and cash flow projections and the probability of obtaining regulatory approval for assets under development. We involved our valuation specialists to assist us in evaluating the valuation methodologies and assumptions used by the Management. We reviewed managements assessment in relation to key inputs by considering third party sources to the extent available to corroborate the expected future cash inflows due to actions by competitors or due to changes in relevant markets. We reviewed sensitivity analysis carried out by management around these key estimates to assess the level of sensitivity to key assumptions so we could focus our work on those areas and assess Managements allowance for risk. We also interviewed Companys senior research, development and commercial personnel in order to understand and challenge those assumptions. B S R & Co. LLP Consolidated
151 Biocon Ltd. Pharmaceuticals & Chemicals Key Audit Matters 31st March, 2019 The Group has adopted Ind AS 115: Revenue from Contracts with Customers effective April 01, 2018 using the modified retrospective approach, with the cumulative effect of initially applying the impact of any change to the opening equity as at April 01, 2018. The Group has significant out-licensing and collaboration arrangements and given the terms of these arrangements, the accounting is complex and judgmental, with significant judgement being applied under the new revenue standard. With respect to collaboration and out-licensing arrangements, the risk is to determine applicability of the standard to some of these contracts in part or full, whether all the identified performance obligations meet the criteria of being distinct and consequently its impact on timing and pattern of revenue recognition. Refer to Significant Accounting Policies Note 2(l) and Note 21 in the Consolidated Financial Statements for the year ended March 31, 2019. With reference to revenue recognition from licensing income and on accounting for collaboration arrangements, we reviewed the underlying contracts and evaluated the appropriateness of the key judgements and estimates. We also reviewed Managements assessment whether the rights transferred under these arrangements qualified for revenue recognition and in particular whether the underlying performance obligations meet the criteria of being distinct and hence can be segregated from other obligations under the arrangement. B S R & Co. LLP Consolidated
152 Biocon Ltd. Pharmaceuticals & Chemicals Key Audit Matters 31st March, 2019 The Group operates across different tax jurisdictions around the world and is subject to complexities with respect to various tax positions on deductibility of transactions and tax incentives / exemptions, and on cross border transfer pricing arrangements. Judgment is required in assessing the range of possible outcomes for some of these tax matters. Management makes an assessment to determine the outcome of these uncertain tax positions and decides to make an accrual or consider it to be a possible contingent liability. Where the amount of tax liabilities are uncertain, the Group recognizes accruals that reflect Managements best estimate of the outcome based on the facts known in the relevant jurisdiction. Accordingly we focused on this area for further information refer to the Significant accounting policies which includes General accounting principles, Key accounting judgements, estimates and assumptions- Note 2(n) and financial disclosures are disclosed in Tax expenses- Note 38 in the Consolidated Financial Statements for the year ended March 31, 2019. For uncertain tax positions, we read and analysed select key correspondences with tax authorities, reviewed Managements judgment regarding the eventual resolution of matters with various tax authorities, assessment of third-party opinions and the use, of past experience, where available, with the tax authorities in the respective jurisdiction. Additionally we used our own tax specialists expertise to assess the appropriateness of the key assumptions made by Management. B S R & Co. LLP Consolidated
153 Biocon Ltd. Pharmaceuticals & Chemicals Key Audit Matters 31st March, 2019 The Group enters into forward, option and interest rate swap contracts to hedge its foreign exchange and interest rate risks. Foreign exchange risks arise from sales to customers as substantial part of its revenues are denominated in foreign currency with most of the costs denominated in Indian Rs. (INR). The interest rate risks arises from the variable rate of interest on its foreign currency borrowings. The Group designates a substantial portion of its derivatives as cash flow hedges of highly probable forecasted transactions. Derivative financial instruments are recognized at their fair value as of balance sheet date on the basis of valuation report obtained from third party specialists. Basis such valuations, effective portion of derivative movements are recognized within equity. These matters are of importance to our audit due to complexity in the valuation of derivative contracts and complex accounting and documentation requirements under Ind AS 109 - Financial Instruments. For further information refer to the Significant accounting policies which includes General accounting principles, Key accounting judgements, estimates and assumptions- Note 2(c) and financial disclosures are disclosed in Financial Instruments- Note 36 in the Consolidated Financial Statements for the year ended March 31, 2019. With the support of our internal valuation specialists, we assessed the fair value of the derivatives by testing sample contracts. We also analysed critical terms (such as nominal amount, maturity and underlying) of the hedging instrument and the hedged item to ensure that they are closely aligned and meet the criteria under the accounting principles. B S R & Co. LLP Consolidated
154 Biocon Ltd. Pharmaceuticals & Chemicals Other Matters 31st March, 2019 We did not audit the financial statements / financial information of a subsidiary and a joint venture incorporated outside India included in the consolidated financial statements of the Group, whose financial statements/financial information reflect total assets of Rs. 25,353 million as at 31 March 2019, total revenues of Rs. 3,029 million and net cash flows amounting to Rs. (58) million for the year ended on that date, as considered in the consolidated financial statements. The consolidated financial statements also include the Groups share of net profit (and other comprehensive income) of Rs. 9 million for the year ended 31 March 2019, in respect of a joint venture, whose financial statements/financial information have not been audited by us. These financial statements / financial information of the subsidiary and a joint venture both incorporated outside India have been prepared in accordance with accounting principles generally accepted in their respective countries and which have been audited by other auditors under generally accepted auditing standards applicable in their respective countries. The Companys Management has converted the financial statements of the subsidiary and a joint venture both incorporated outside India from accounting principles generally accepted in their respective countries to accounting principles generally accepted in India. We have audited these conversion adjustments, if any made by the Companys Management. Our opinion in so far as it relates to the balances and affairs of such subsidiary and joint venture both incorporated outside India is based on the reports of other auditors and the conversion adjustments, if any prepared by the Management of the Company and audited by us. Our opinion on the consolidated financial statements, and our report on Other Legal and Regulatory Requirements below, is not modified in respect of the above matters with respect to our reliance on the work done and the reports of the other auditors and the financial statements/financial information certified by the Management. B S R & Co. LLP Consolidated
155 Birla Corporation Ltd. Cement & Cement Products Key Audit Matters 31st March, 2019 The Company has recognised deferred tax assets mainly on account of tax credit available for set off (Minimum Alternate Tax) under the Income Tax Act, 1961. Under Ind AS 12 Income Taxes, deferred tax assets shall be recognised to the extent that it is probable that future taxable profit will be available against which the unused tax credit can be utilised. The assessment of valuation of deferred tax assets requires significant management judgement and estimation. This include, amongst others, estimation long-term future profitability, future revenue from proposed projects and tax regulations and developments. As a result, the recognition of the deferred tax asset on above is significant to our audit. The disclosures relating to the above are included in Note no 25 of the standalone financial statements. Audit procedures included, among others, review of: The appropriateness of the methodology applied by the Company with applicable Indian accounting standards and applicable taxation laws along with the future business forecast of taxable profits. The likelihood of the Company to utilize the available MAT credit entitlements in the future with underlying projections and assumptions relating to future estimated profits, future capitalisations and depreciation allowance thereon and future estimates of taxable income. The adequacy of the Companys disclosures in the financials on deferred tax assets and assumptions used. V. Sankar Aiyar & Co. Standalone
156 Birla Corporation Ltd. Cement & Cement Products Key Audit Matters 31st March, 2019 The Company has recognised deferred tax assets mainly on account of tax credit available for set off (Minimum Alternate Tax) under the Income Tax Act, 1961. Under Ind AS 12 Income Taxes, deferred tax assets shall be recognised to the extent that it is probable that future taxable profit will be available against which the unused tax credit can be utilised. The assessment of valuation of deferred tax assets requires significant management judgement and estimation. This include, amongst others, estimation long-term future profitability, future revenue from proposed projects and tax regulations and developments. As a result, the recognition of the deferred tax asset on above is significant to our audit. The disclosures relating to the above are included in Note no 25 of the standalone financial statements. Audit procedures included, among others, review of: The appropriateness of the methodology applied by the Company with applicable Indian accounting standards and applicable taxation laws along with the future business forecast of taxable profits. The likelihood of the Company to utilize the available MAT credit entitlements in the future with underlying projections and assumptions relating to future estimated profits, future capitalisations and depreciation allowance thereon and future estimates of taxable income. The adequacy of the Companys disclosures in the financials on deferred tax assets and assumptions used. V. Sankar Aiyar & Co. Consolidated
157 Birla Corporation Ltd. Cement & Cement Products Other Matters 31st March, 2019 (a) We did not audit the financial statements of six subsidiaries whose financial statements reflect the total assets of Rs. 12.91 crores as at 31st March, 2019, total revenues of Rs. 1.04 crores and net cash flow amounting of Rs. (-) 0.27 crores for the year ended on that date, as considered in the consolidated financial statements. These financial statements have been audited by other auditors whose reports have been furnished to us by the management and our opinion on the statements, in so far as it relates to the amounts and disclosures included in respect of these subsidiaries and our report in terms of subsection (3) of Section 143 of the Act, in so far as it relates to the aforesaid subsidiaries is based solely on the reports of the other auditors. (b) The consolidated financial statements does not include the two associate companies which have been voluntary wound up under the provisions of the Companies Act, 2013 and appropriately adjusted in the accounts. Our opinion on the consolidated financial statements, and our report on Other Legal and Regulatory Requirements below, is not modified in respect of the above matters with respect to the our reliance on the work done and the reports of the other auditors and explanation provided by the Management. V. Sankar Aiyar & Co. Consolidated
158 Bombay Dyeing & Mfg.Co.Ltd. Textiles Emphasis of Matter 31st March, 2019 The remuneration paid to the Managing Director for the year ended March 31, 2017 is in excess of the limit prescribed under Section 197 read with Schedule V of the Act by Rs. 4.29 Crore . The Company has received an approval from the Central Government dated June 21, 2017 for payment of remuneration amounting to Rs. 2.12 Crore only. Fresh application for the approval of the pending amount was made to the Central Government, however, the same stands abated pursuant to the provisions of the Companies (Amendment) Act, 2017, and the same shall be regularised by taking approval from the shareholders at the ensuing Annual General Meeting pursuant to the said provisions. Bansi S. Mehta & Co. Standalone
159 Bombay Dyeing & Mfg.Co.Ltd. Textiles Emphasis of Matter 31st March, 2019 The remuneration paid to the Managing Director for the year ended March 31, 2017 is in excess of the limit prescribed under Section 197 read with Schedule V of the Act by Rs. 4.29 crores. The Company has received an approval from the Central Government dated June 21, 2017 for payment of remuneration amounting to Rs. 2.12 crores only. Fresh application for the approval of the pending amount was made to the Central Government, however, the same stands abated pursuant to the provisions of the Companies (Amendment) Act, 2017, and the same shall be regularised by taking approval from the shareholders at the ensuing Annual General Meeting pursuant to the said provisions. Our opinion is not modified in respect of the above matter. Bansi S. Mehta & Co. Consolidated
160 Bombay Dyeing & Mfg.Co.Ltd. Textiles Key Audit Matters 31st March, 2019 Effective April 1, 2018, the Company has adopted a new accounting standard, Ind AS 115 on Revenue from Contracts with Customers and applied the modified retrospective approach to contracts that are not completed as on that date and to not restate the comparative periods. This standard, interalia, could have the significant impact on the manner in which a company in real estate industry recognises its revenue. Under Ind AS 115, revenue is recognised over a period (as known as Percentage of Completion Method POCM) or at a point in time (as known as Project Completion Method - PCM). To determine the revenue to be recognised under Ind AS 115 and the impact thereof, the management undertook assessment of its contracts with customers that were not completed and more particularly, for its ongoing Real Estate Development Project (the ongoing project). On assessment, the management considered that it would have to recognise the revenue at a point in time (PCM) and accordingly, reversed the revenue hitherto recognised under POCM as per Ind AS 18 on Revenue and Ind AS 11 on Construction Contracts with corresponding impact to Retained Earnings as per transitional provisions specified under Ind AS 115. During the year, the Company received part Occupancy Certificate (OC) for the ongoing project and accordingly, on satisfying performance obligations under contracts, the Company recognised revenue as per PCM, that is, at a point in time. For the part of the project for which Occupancy Certificate is yet to be received, the amount is carried as Working- progress. The application and transition to Ind AS 115 is complex and involve certain key judgements relating to appropriateness of the basis used to recognise revenue and more particularly, for its ongoing project and hence, the same is considered to be a key audit matter. Assessed the Companys process to identify the impact of adoption of Ind AS 115, the new revenue accounting standard, among other types of revenue, that for its ongoing real estate project. Our audit procedures included, among others, the following: Evaluated the design of the internal controls relating to implementation of Ind AS 115; Evaluated the requirements of Ind AS 115 for the manner of recognising revenue; Evaluated the accounting policy of recognising revenue and that based on POCM which was hitherto followed; Evaluated its existing contracts with customers and the analysis performed by management for each contract by selecting samples for such contracts with customers; Based on the evaluation of contracts, assessed the appropriateness to adopt PCM as policy for revenue recognition for the ongoing project; Examined the process and related documents (like OC, possession letter) to determine the satisfaction of performance obligations of contracts under ongoing project during the year; Evaluated and examined the effect of adjustment, as at April 1, 2018 for reversal of revenue hitherto recognised in terms of transition requirement under Ind AS 115; also evaluated the appropriateness of disclosure for reversal of revenue; Evaluated the appropriateness and assessed the completeness of disclosures in accordance with the requirements of Ind AS 115. Bansi S. Mehta & Co. Standalone
161 Bombay Dyeing & Mfg.Co.Ltd. Textiles Key Audit Matters 31st March, 2019 The Company has uncertain tax matters pending litigations under direct tax and various indirect tax laws. The litigation involves significant judgement to determine the possible outcome based on which accounting treatment is given to the disputed amount. Given the magnitude of potential outflow of economic resources and uncertainty of potential outcome, uncertain tax positions are considered to be key audit matters. Our audit procedures included, among others, the following: Obtained details of uncertain tax position and gained understanding thereof; Obtained details of tax assessments and also demands raised; Along with our internal tax experts, read and analysed relevant communication with the authorities; Evaluated advice obtained by the management from legal consultants on possible outcome of the litigation; Discussed with senior management and evaluated managements assumptions regarding provisions made or reflected as contingent liabilities; Assessed whether the disclosures for uncertain tax positions are in accordance with the requirements of Ind AS 37 on Provisions, Contingent Liabilities and Contingent Assets. Bansi S. Mehta & Co. Standalone
162 Bombay Dyeing & Mfg.Co.Ltd. Textiles Key Audit Matters 31st March, 2019 During the year, on entering the agreement with Municipal Corporation of Greater Mumbai (MCGM) and Maharashtra Housing and Development Authority (MAHADA), the Company received entitlement of Transferable Development Rights (TDR) and Floor Space Index (FSI) in lieu of lands earmarked and handed over to MCGM and MHADA under the Integrated Development Scheme as per the provisions of DCR 58. Based on Valuation Reports of Registered Valuers, the value of entitlement of TDR and FSI so determined have been recognised as Revenue from Real Estate Development activity and reflected as inventories. Considering the materiality of the amounts as also the valuation of TDR/FSI involve significant judgements and assumptions and the accounting thereof, this matter is considered to be key audit matter. Our audit procedures included, among others, the following: Evaluated the details of land surrendered to MCGM and MHADA respectively and corresponding entitlement by way TDR and FSI entitlement; Evaluated the managements review of valuations provided by external experts, that is, independent valuers; Assessed the competence of the independent valuers; Evaluated the valuation reports of external experts for the basis adopted for fair valuation of TDR and FSI, benchmarks used such as the Stamp Duty Ready Reckoner rate as also the assumptions applied for the valuation; Evaluated the accounting treatment of TDR/FSI whether the same is in compliance with the related Ind AS; Assessed whether the disclosures in relation to TDR/FSI are in accordance with the related Ind AS. Bansi S. Mehta & Co. Standalone
163 Bombay Dyeing & Mfg.Co.Ltd. Textiles Key Audit Matters 31st March, 2019 Effective April 1, 2018, the Group has adopted a new accounting standard, Ind AS 115 on Revenue from Contracts with Customers and applied the modified retrospective approach to contracts that are not completed as on that date and to not restate the comparative periods. This standard, interalia, could have the significant impact on the manner in which a company in real estate industry recognises its revenue. Under Ind AS 115, revenue is recognised over a period (as known as Percentage of Completion Method POCM) or at a point in time (as known as Project Completion Method - PCM). To determine the revenue to be recognised under Ind AS 115 and the impact thereof, the management undertook assessment of its contracts with customers that were not completed and more particularly, for its ongoing Real Estate Development Project (the ongoing project). On assessment, the management considered that it would have to recognise the revenue at a point in time (PCM) and accordingly, reversed the revenue hitherto recognised under POCM as per Ind AS 18 on Revenue and Ind AS 11 on Construction Contracts with corresponding impact to Retained Earnings as per transitional provisions specified under Ind AS 115. During the year, the Group received part Occupancy Certificate (OC) for the ongoing project and accordingly, on satisfying performance obligations under contracts, the Group recognised revenue as per PCM, that is, at a point in time. For the part of the project for which Occupancy Certificate is yet to be received, the amount is carried as Work-in-progress. The application and transition to Ind AS 115 is complex and involve certain key judgements relating to appropriateness of the basis used to recognise revenue and more particularly, for its ongoing project and hence, the same is considered to be a key audit matter. Assessed the Groups process to identify the impact of adoption of Ind AS 115, the new revenue accounting standard, among other types of revenue, that for its ongoing real estate project. Our audit procedures included, among others, the following: Evaluated the design of the internal controls relating to implementation of Ind AS 115; Evaluated the requirements of Ind AS 115 for the manner of recognising revenue; Evaluated the accounting policy of recognising revenue and that based on POCM which was hitherto followed; Evaluated its existing contracts with customers and the analysis performed by management for each contract by selecting samples for such contracts with customers; Based on the evaluation of contracts, assessed the appropriateness to adopt PCM as policy for revenue recognition for the ongoing project; Examined the process and related documents (like OC, possession letter) to determine the satisfaction of performance obligations of contracts under ongoing project during the year; Evaluated and examined the effect of adjustment, as at April 1, 2018 for reversal of revenue hitherto recognised in terms of transition requirement under Ind AS 115; also evaluated the appropriateness of disclosure for reversal of revenue; Evaluated the appropriateness and assessed the completeness of disclosures in accordance with the requirements of Ind AS 115. Bansi S. Mehta & Co. Consolidated
164 Bombay Dyeing & Mfg.Co.Ltd. Textiles Key Audit Matters 31st March, 2019 The Group has uncertain tax matters pending litigations under direct tax and various indirect tax laws. The litigation involves significant judgement to determine the possible outcome based on which accounting treatment is given to the disputed amount. Given the magnitude of potential outflow of economic resources and uncertainty of potential outcome, uncertain tax positions are considered to be key audit matters. Our audit procedures included, among others, the following: Obtained details of uncertain tax position and gained understanding thereof; Obtained details of tax assessments and also demands raised; Along with our internal tax experts, read and analysed relevant communication with the authorities; Evaluated advice obtained by the management from legal consultants on possible outcome of the litigation; Discussed with senior management and evaluated managements assumptions regarding provisions made or reflected as contingent liabilities; Assessed whether the disclosures for uncertain tax positions are in accordance with the requirements of Ind AS 37 on Provisions, Contingent Liabilities and Contingent Assets. Bansi S. Mehta & Co. Consolidated
165 Bombay Dyeing & Mfg.Co.Ltd. Textiles Key Audit Matters 31st March, 2019 During the year, on entering the agreement with Municipal Corporation of Greater Mumbai (MCGM) and Maharashtra Housing and Development Authority (MAHADA), the Group received entitlement of Transferable Development Rights (TDR) and Floor Space Index (FSI) in lieu of lands earmarked and handed over to MCGM and MHADA under the Integrated Development Scheme as per the provisions of DCR 58. Based on Valuation Reports of Registered Valuers, the value of entitlement of TDR and FSI so determined have been recognised as Revenue from Real Estate Development activity and reflected as inventories. Considering the materiality of the amounts as also the valuation of TDR/FSI involve significant judgements and assumptions and the accounting thereof, this matter is considered to be key audit matter. Our audit procedures included, among others, the following: Evaluated the details of land surrendered to MCGM and MHADA respectively and corresponding entitlement by way TDR and FSI entitlement; Evaluated the managements review of valuations provided by external experts, that is, independent valuers; Assessed the competence of the independent valuers; Evaluated the valuation reports of external experts for the basis adopted for fair valuation of TDR and FSI, benchmarks used such as the Stamp Duty Ready Reckoner rate as also the assumptions applied for the valuation; Evaluated the accounting treatment of TDR/FSI whether the same is in compliance with the related Ind AS; Assessed whether the disclosures in relation to TDR/FSI are in accordance with the related Ind AS. Bansi S. Mehta & Co. Consolidated
166 Bombay Dyeing & Mfg.Co.Ltd. Textiles Key Audit Matters 31st March, 2019 The Holding Company has investments in a Joint Venture (JV) Company, however, diminution in value of such investments have already been provided; the Holding Company has also given loans to the JV Company which has also been fully provided for. During the year, the Holding Company increased its holding in the said JV Company by acquiring the share of the Joint Venture partner and thus, acquired control of the JV Company. In terms of provisions Ind AS 103, the consideration paid for acquiring the share of JV partner has resulted in recognising Goodwill on Consolidation. During the year, the loans given by the Holding Company have been converted into equity shares of the JV Company. The acquisition requires the management to apply judgement in identifying and valuing the goodwill arising from the transaction; on acquisition of control of JV Company, for the purpose of preparation of consolidated financial statements, goodwill worked out to Rs. 92.39 crores which is considered significant; However, the goodwill is to be tested for impairment which involves valuations which are complex and require significant judgement. Since the investments in JV Company has already been impaired and the subsidiary is already in the process of liquidation, the estimated recoverable amount from the subsidiary would be insignificant and hence, the amount of Goodwill on Consolidation was fully impaired. The appropriateness of accounting treatment of conversion of loans into equity shares as also the accounting treatment of recognition of Goodwill on Consolidation of the subsidiary and subsequent impairment thereof are of significant nature and are considered to be key audit matters. Our audit procedures included, among others, the following: In relation to the acquisition of shares of JV partner, examined the legal agreements supporting the transaction as also the related valuation at which the shares were acquired; Assessed the competence of the independent valuers and evaluated the approach adopted for the valuation as also the information contained in valuation report as well as internal management presentations to the Board of Directors; Examined the process followed for the acquisition, including the required compliance with the Reserve Bank of India and filing of documents, etc.; Assessed whether the accounting treatment of conversion of loan/advances into equity shares is in terms of the provisions of the relevant Ind AS 109 on Financial Instruments; Considered the appropriateness of the methodology used by management in working out consequential amount of goodwill; Assessed in the light of facts, whether the impairment of goodwill is considered appropriate for the consolidated financial statements. Understood the management process for impairment assessment and also evaluated the design and tested the effectiveness of the internal controls surrounding such assessment; Assessed whether the accounting treatment of Goodwill on Consolidation and provision for impairment thereof is in terms of the related Ind AS 110 on Consolidated Financial Statements and Ind AS 36 on Impairment of Assets; Assessed whether the disclosures in relation to the acquisition of shares and goodwill, including its impairment, meet the requirements of the relevant Ind AS. Bansi S. Mehta & Co. Consolidated
167 Bombay Dyeing & Mfg.Co.Ltd. Textiles Other Matters 31st March, 2019 We did not audit the financial statements and the financial information of the subsidiary located outside India whose financial statements and financial information reflect total assets of Rs. 2.41 crores as at March 31, 2019, total loss of Rs. 1.9 crores and net cash outflows amounting to Rs. 1.75 crores for the year ended on that date, as considered in preparation of consolidated financial statements. These financial statements/financial information, have been prepared in accordance with accounting principles generally accepted in its respective country and have been audited by other auditors. The Companys management has converted these financial statements/financial information of such subsidiary to the Indian GAAP and the accounting principles generally accepted in India, which have been audited by us. Our opinion in so far as it relates to the balances and affairs of such subsidiary, is based on the report of the auditors and the conversion adjustments prepared by the management and audited by us. The consolidated financial statements also includes the Groups share of net profit of Rs. 0.13 crore in respect of 2 (two) associates for the year ended March 31, 2019, as considered in the consolidated financial statements, whose financial statements have not been audited by us. These financial statements/financial information have been audited by other auditors whose reports have been furnished to us by the Management and our opinion on the consolidated financial statements, in so far as it relates to the amounts and disclosures included in respect of these associates, is based solely on the reports of the other auditors. The comparative financial information of the Group for the year ended March 31, 2018 included in these consolidated financial statements, are based on the previously issued financial statements prepared in accordance with the Companies (Indian Accounting Standards) Rules, 2015 and other accounting principles generally accepted in India and audited by the predecessor auditor (vide their unmodified audit report on May 14, 2018). Our opinion on the consolidated financial statements, and our report on Other Legal and Regulatory Requirements below, is not modified in respect of the above matters with respect to our reliance on the work done and the reports of the other auditors and the financial statements and financial information certified by the management. Our aforesaid report under Section 143(3)(i) of the Act on the adequacy and operating effectiveness of the internal financial controls with reference to financial statements insofar as it relates to its associates, which are incorporated in India, are based on the corresponding report of the auditors of such companies. Bansi S. Mehta & Co. Consolidated
168 Bombay Dyeing & Mfg.Co.Ltd. Textiles Other Matters 31st March, 2019 The Comparative financial information of the Company for the year ended March 31, 2018 included in these standalone financial statements, are based on the previously issued financial statements prepared in accordance with the Companies (Indian Accounting Standards) Rules, 2015 and other accounting principles generally accepted in India and audited by the predecessor auditor (vide their unmodified audit report on May 14, 2018). Our opinion on the standalone financial statements, and our report on Other Legal and Regulatory Requirements below, is not modified in respect of the above matter. Bansi S. Mehta & Co. Standalone
169 Britannia Industries Ltd. Retail & FMCG Key Audit Matters 31st March, 2019 The principal products of the Company comprises food products that are mainly sold through distributors, modern trade and direct sale channels amongst others. Revenue is recognised when the customer obtains control of the goods. We identified revenue recognition as a key audit matter because the Company and its external stakeholders focus on revenue as a key performance indicator. This could create an incentive for revenue to be overstated or recognised before control has been transferred. 1. We assessed the appropriateness of the revenue recognition accounting policies by comparing with applicable accounting standards. 2. We evaluated the design of key controls and operating effectiveness of the relevant key controls with respect to revenue recognition on selected transactions. 3. We performed substantive testing by selecting samples of revenue transactions, recorded during the year by testing the underlying documents using statistical sampling. 4. We carried out analytical procedures on revenue recognised during the year to identify unusual variances. 5. We performed confirmation procedures on selected customer balances at the balance sheet date. 6. We tested, on a sample basis, specific revenue transactions recorded before and after the financial year end date to determine whether the revenue had been recognised in the appropriate financial period. 7. We tested manual journal entries posted to revenue to identify unusual items. B S R & Co. LLP Standalone
170 Britannia Industries Ltd. Retail & FMCG Key Audit Matters 31st March, 2019 The Company has entered into several transactions with related parties during the year 2018-19. We identified related party transactions as a key audit matter because of risks with respect to completeness of disclosures made in the financial statements; non-compliance with statutory regulations governing related party relationships such as the Companies Act 2013 and SEBI Regulations and the judgement involved in assessing whether transactions with related parties are undertaken at arms length. 1. We carried out an assessment of the key controls to identify and disclose related party relationships and transactions in accordance with the relevant accounting standard. 2. We carried out an assessment of compliance with the listing regulations and the regulations under the Companies Act, 2013, including checking of approvals/ scrutiny as specified in Sections 177 and 188 of the Companies Act, 2013 with respect to the related party transactions. In cases where the matter was subject to interpretation, we exercised judgement to rely on opinions provided by legal practitioners. 3. We considered the adequacy and appropriateness of the disclosures in the financial statements, relating to the related party transactions. 4. For transactions with related parties, we inspected relevant ledgers, agreements and other information that may indicate the existence of related party relationships or transactions. We also tested completeness of related parties with reference to the various registers maintained by the Company statutorily. 5. We have tested on a sample basis, Managements assessment of related party transactions for arms length pricing. B S R & Co. LLP Standalone
171 Britannia Industries Ltd. Retail & FMCG Key Audit Matters 31st March, 2019 The Company is involved in several ongoing direct and indirect tax litigations in various states of India. The Company recognises a provision when it has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. A disclosure for contingent liabilities is made where there is a possible obligation or a present obligation that may probably not require an outflow of resources. When there is a possible or a present obligation where the likelihood of outflow of resources is remote, no provision or disclosure is made. We have identified tax litigations, provisions and contingencies as a key audit matter because it requires the management to make judgements and estimates in relation to the exposure arising out of litigations. The key judgement lies in the estimation of provisions where they may differ from the future obligations. The Company operates under several tax laws and some of these have a significant impact on the financial statements of the Company. 1. We tested the effectiveness of key controls around the recording and assessment of tax provisions and contingent liabilities. 2. We used our own tax specialists to assess the value of the provisions and contingent liabilities in light of the nature of the exposures, applicable regulations and related correspondences with the authorities. 3. We assessed the relevant historical and recent judgments passed by the court authorities. 4. Obtained Managements assessment of the open cases and compared the same to the assessment of our tax specialists to assess the reasonableness of the provision or contingency. 5. Considered the adequacy of the Companys disclosures made in relation to taxation related provisions and contingencies in the financial statements. B S R & Co. LLP Standalone
172 Britannia Industries Ltd. Retail & FMCG Key Audit Matters 31st March, 2019 The principal products of the Group comprise food products that are mainly sold through distributors, modern trade and direct sale channels amongst others. Revenue is recognised when the customer obtains control of the goods. We identified revenue recognition as a key audit matter because the group and its external stakeholders focus on revenue as a key performance indicator. This could create an incentive for revenue to be overstated or recognised before control has been transferred. 1. We assessed the appropriateness of the revenue recognition accounting policies by comparing with applicable accounting standards. 2. We evaluated the design of key controls and operating effectiveness of the relevant key controls with respect to revenue recognition on selected transactions. 3. We performed substantive testing by selecting samples of revenue transactions, recorded during the year by testing the underlying documents using statistical sampling. 4. We carried out analytical procedures on revenue recognised during the year to identify unusual variances. 5. We performed confirmation procedures on selected customer balances at the balance sheet date. 6. We tested, on a sample basis, specific revenue transactions recorded before and after the financial year end date to determine whether the revenue had been recognised in the appropriate financial period. 7. We tested manual journal entries posted to revenue to identify unusual items. B S R & Co. LLP Consolidated
173 Britannia Industries Ltd. Retail & FMCG Key Audit Matters 31st March, 2019 The Group has entered into several transactions with related parties during the year 2018-19. We identified related party transactions as a key audit matter because of risks with respect to completeness of disclosures made in the consolidated financial statements; non-compliance with statutory regulations governing related party relationships such as the Companies Act 2013 and SEBI Regulations and the judgement involved in assessing whether transactions with related parties are undertaken at arms length. 1. We carried out an assessment of the key controls to identify and disclose related party relationships and transactions in accordance with the relevant accounting standard. 2. We carried out an assessment of compliance with the listing regulations and the regulations under the Companies Act, 2013, including checking of approvals/ scrutiny as specified in Sections 177 and 188 of the Companies Act, 2013 with respect to the related party transactions. In cases where the matter was subject to interpretation, we exercised judgement to rely on opinions provided by legal practitioners. 3. We considered the adequacy and appropriateness of the disclosures in the consolidated financial statements, relating to the related party transactions. 4. For transactions with related parties, we inspected relevant ledgers, agreements and other information that may indicate the existence of related party relationships or transactions. We also tested completeness of related parties with reference to the various registers maintained by the respective Company statutorily. 5. We have tested on a sample basis, Managements assessment of related party transactions for arms length pricing. B S R & Co. LLP Consolidated
174 Britannia Industries Ltd. Retail & FMCG Key Audit Matters 31st March, 2019 The Group is involved in several ongoing direct and indirect tax litigations in various states of India. The Group recognises a provision when it has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. A disclosure for contingent liabilities is made where there is a possible obligation or a present obligation that may probably not require an outflow of resources. When there is a possible or a present obligation where the likelihood of outflow of resources is remote, no provision or disclosure is made. We have identified tax litigations, provisions and contingencies as a key audit matter because it requires the management to make judgements and estimates in relation to the exposure arising out of litigations. The key judgement lies in the estimation of provisions where they may differ from the future obligations. The Group operates under several tax laws and some of these have a significant impact on the consolidated financial statements of the Company. 1. We tested the effectiveness of key controls around the recording and assessment of tax provisions and contingent liabilities. 2. We used our own tax specialists to assess the value of the provisions and contingent liabilities in light of the nature of the exposures, applicable regulations and related correspondences with the authorities. 3. We assessed the relevant historical and recent judgments passed by the court authorities. 4. Obtained Managements assessment of the open cases and compared the same to the assessment of our tax specialists to assess the reasonableness of the provision or contingency. 5. Considered the adequacy of the disclosures made in relation to taxation related provisions and contingencies in the financial statements. B S R & Co. LLP Consolidated
175 Britannia Industries Ltd. Retail & FMCG Other Matters 31st March, 2019 (a) We did not audit the financial statements of seven subsidiaries whose financial statements reflect total assets of INR 766.50 crores as at 31 March 2019, total revenues of INR 510.09 crores and net cash outflows amounting to INR 9.24 crores for the year ended on that date, as considered in the consolidated financial statements. These financial statements have been audited by other auditors whose reports have been furnished to us by the Management and our opinion on the consolidated financial statements, in so far as it relates to the amounts and disclosures included in respect of these subsidiaries and our report in terms of sub-section (3) of Section 143 of the Act, in so far as it relates to the aforesaid subsidiaries is based solely on the audit reports of the other auditors. These subsidiaries are located outside India whose financial statements and other financial information have been prepared in accordance with accounting principles generally accepted in their respective countries and 160 Britannia Industries Limited Annual Report 2018-19 which have been audited by other auditors under generally accepted auditing standards applicable in their respective countries. The Companys management has converted the financial statements of such subsidiaries located outside India from accounting principles generally accepted in their respective countries to accounting principles generally accepted in India. We have audited these conversion adjustments made by the Companys management. Our opinion in so far as it relates to the balances and affairs of such subsidiaries located outside India is based on the report of other auditors and the conversion adjustments prepared by the management of the Company and audited by us. (b) The consolidated financial statements also include the Groups share of net loss (and other comprehensive income) of INR 0.97 crores for the year ended 31 March 2019, as considered in the consolidated financial statements, in respect of three associates, whose financial statements have not been audited by us or by other auditors. These unaudited financial statements have been furnished to us by the Management and our opinion on the consolidated financial statements, in so far as it relates to the amounts and disclosures included in respect of these associates, and our report in terms of sub-sections (3) of Section 143 of the Act in so far as it relates to the aforesaid subsidiaries and associates, is based solely on such unaudited financial statements. In our opinion and according to the information and explanations given to us by the Management, these financial statements are not material to the Group. Our opinion on the consolidated financial statements, and our report on Other Legal and Regulatory Requirements below, is not modified in respect of the above matters with respect to our reliance on the work done and the reports of the other auditors and the financial statements/financial information certified by the Management. B S R & Co. LLP Consolidated
176 Canara Bank Banks Key Audit Matters 31st March, 2019 Adequacy of classification and provisions in respect of advances Advances are classified as performing and nonperforming assets in accordance with the prudential norms issued by RBI. The bank has a system of autoclassification of advances as NPA in accordance with the RBI Guidelines. However the identification of NPA and creation of provision on such advances also involves key judgments relating to performance of borrowers, determination of security value, sources of repayment, application of regulatory conditions, etc. Accordingly, our audit was focused on income recognition, asset classification and provisioning pertaining to advances due to involvement of management judgment and considering the materiality of the balances. Principal Audit Procedures: We assessed the Banks system in place to identify and provide for nonperforming assets. Our audit approach consisted testing of the design and operating effectiveness of the internal controls and substantive testing as follows: Reviewed the design, implementation and operating effectiveness of the Banks General IT controls over the key IT systems for the purpose of identification of nonperforming assets and provisioning thereon. Tested the relevant information technology systems used in identification and making provision for such NPA as per the RBI Guidelines including involvement of manual process and manual controls in relation to income recognition, asset classification and provisioning pertaining to advances. Evaluated and tested the management estimates and judgments for the purpose of identification of NPA and adequacy of provision required as per RBIs Prudential Norms. Considered branch audit reports for identification and provisioning for nonperforming assets. Ensured exceptions noticed during our audit procedures are duly corrected. Dagliya and Co., komandoor & Co. LLP, D.K.Chhajer & Co., SNK & Co. Standalone
177 Canara Bank Banks Key Audit Matters 31st March, 2019 Assessment of Deferred tax assets recognized by the bank on carry forward of losses. Deferred tax assets on unabsorbed depreciation or carry forward of losses are to be recognized only when there is a virtual certainty supported by convincing evidence that sufficient future taxable income will be available against which such deferred tax assets can be realised. Determination of virtual certainty is a matter of judgment based on convincing evidence. Considering the involvement of managements estimation and judgment in determining virtual certainty of sufficient future taxable income being available this matter has been determined as a key audit matter. Refer Para 5.6 of Schedule 18 to the Standalone Financial Statements. Principal Audit Procedures performed: Considered the taxable pro?ts of the bank and taxes paid in the past, obtained details of carry forward losses under income tax and details of estimates of taxable incomes for future periods without considering further capital infusion, of restructuring and without considering expected recoveries from assets where resolution proceedings are underway. Tested the period over which the deferred tax assets on such unabsorbed losses would be recovered against future taxable income. Tested the management's under lying assumptions and judgments in estimating the future taxable incomes against which such unabsorbed losses would be recovered. We have reviewed past income tax assessment orders, unresolved tax issues and their current status under litigation, based on our understanding on the likely outcome of the issues on the dispute and the amount of allowable carry forward losses. Dagliya and Co., komandoor & Co. LLP, D.K.Chhajer & Co., SNK & Co. Standalone
178 Canara Bank Banks Key Audit Matters 31st March, 2019 Key Information technology (IT) systems (Flex Cube Oracle based) used in financial reporting process. The Banks operational and financial processes are dependent on IT systems due to large volume of transactions that are processed on daily basis and hence considered as a key audit matter. Principal Audit Procedures: We conducted an assessment and identified key IT applications, databases and operating systems that are relevant to our audit and have identified CBS and Flexcube Treasury System primarily as relevant for financial reporting. Our audit approach consisted testing of the design and operating effectiveness of the internal controls as follows: Obtained an understanding of the Banks IT control environment and IT policies during the audit period. Reviewed the design, implementation and operating effectiveness of the Banks basic IT controls including application, access controls that are critical to financial reporting. Reviewed the IS Audit Reports and discussed with IS Wing on compliance to key IS Controls. Tested key automated and business cycle controls and logic for system generated reports relevant to the audit on test check basis Dagliya and Co., komandoor & Co. LLP, D.K.Chhajer & Co., SNK & Co. Standalone
179 Canara Bank Banks Key Audit Matters 31st March, 2019 Adequacy of classification and provisions in respect of advances Advances are classified as performing and nonperforming assets in accordance with the prudential norms issued by RBI. The bank has a system of autoclassification of advances as NPA in accordance with the RBI Guidelines. However the identification of NPA and creation of provision on such advances also involves key judgments relating to performance of borrowers, determination of security value, sources of repayment, application of regulatory conditions, etc. Accordingly, our audit was focused on income recognition, asset classification and provisioning pertaining to advances due to involvement of management judgment and considering the materiality of the balances. Principal Audit Procedures: We assessed the Banks system in place to identify and provide for nonperforming assets. Our audit approach consisted testing of the design and operating effectiveness of the internal controls and substantive testing as follows: Reviewed the design, implementation and operating effectiveness of the Banks General IT controls over the key IT systems for the purpose of identification of nonperforming assets and provisioning thereon. Tested the relevant information technology systems used in identification and making provision for such NPA as per the RBI Guidelines including involvement of manual process and manual controls in relation to income recognition, asset classification and provisioning pertaining to advances. Evaluated and tested the management estimates and judgments for the purpose of identification of NPA and adequacy of provision required as per RBIs Prudential Norms. Considered branch audit reports for identification and provisioning for nonperforming assets. Ensured exceptions noticed during our audit procedures are duly corrected. Dagliya and Co., komandoor & Co. LLP, D.K.Chhajer & Co., SNK & Co. Consolidated
180 Canara Bank Banks Key Audit Matters 31st March, 2019 Assessment of Deferred tax assets recognized by the bank on carry forward of losses. Deferred tax assets on unabsorbed depreciation or carry forward of losses are to be recognized only when there is a virtual certainty supported by convincing evidence that sufficient future taxable income will be available against which such deferred tax assets can be realised. Determination of virtual certainty is a matter of judgment based on convincing evidence. Considering the involvement of managements estimation and judgment in determining virtual certainty of sufficient future taxable income being available this matter has been determined as a key audit matter. Refer Para 10 of Schedule 19 to the Consolidated Financial Statements. Principal Audit Procedures performed: Considered the taxable pro?ts of the bank and taxes paid in the past, obtained details of carry forward losses under income tax and details of estimates of taxable incomes for future periods without considering further capital infusion, of restructuring and without considering expected recoveries from assets where resolution proceedings are underway. Tested the period over which the deferred tax assets on such unabsorbed losses would be recovered against future taxable income. Tested the management's under lying assumptions and judgments in estimating the future taxable incomes against which such unabsorbed losses would be recovered. We have reviewed past income tax assessment orders, unresolved tax issues and their current status under litigation, based on our understanding on the likely outcome of the issues on the dispute and the amount of allowable carry forward losses. Dagliya and Co., komandoor & Co. LLP, D.K.Chhajer & Co., SNK & Co. Consolidated
181 Canara Bank Banks Key Audit Matters 31st March, 2019 Key Information technology (IT) systems (Flex Cube Oracle based) used in financial reporting process. The Banks operational and financial processes are dependent on IT systems due to large volume of transactions that are processed on daily basis and hence considered as a key audit matter. Principal Audit Procedures: We conducted an assessment and identified key IT applications, databases and operating systems that are relevant to our audit and have identified CBS and Flexcube Treasury System primarily as relevant for financial reporting. Our audit approach consisted testing of the design and operating effectiveness of the internal controls as follows: Obtained an understanding of the Banks IT control environment and IT policies during the audit period. Reviewed the design, implementation and operating effectiveness of the Banks basic IT controls including application, access controls that are critical to financial reporting. Reviewed the IS Audit Reports and discussed with IS Wing on compliance to key IS Controls. Tested key automated and business cycle controls and logic for system generated reports relevant to the audit on test check basis Dagliya and Co., komandoor & Co. LLP, D.K.Chhajer & Co., SNK & Co. Consolidated
182 Canara Bank Banks Other Matters 31st March, 2019 We did not audit the financial statements / information of 3857 branches included in the standalone financial statements of the Bank whose financial statements / financial information reflect total advances of Rs.2,59,839.27 Crs as at 31st March 2019 and total revenue of Rs.22,204.30 Crs for the year ended on that date, as considered in the standalone financial statements. The financial statements / information of these branches have been audited by the branch auditors whose reports have been furnished to us, and in our opinion in so far as it relates to the amounts and disclosures included in respect of branches, are based solely on the report of such branch auditors. Our opinion is not modified in respect of this matter Dagliya and Co., komandoor & Co. LLP, D.K.Chhajer & Co., SNK & Co. Standalone
183 Canara Bank Banks Other Matters 31st March, 2019 We did not audit the financial statements Four (4) subsidiaries, and one (1) jointly controlled entity, whose financial statements reflect total assets of Rs.16253.17 crores as at 31st March, 2019, total revenues of Rs.1194.53 crores and net cash outflows amounting to Rs.101.16 crores for the year ended on that date, as considered in the consolidated financial statements. The consolidated financial statements also include the Groups share of net profit of Rs.89.02 crores for the year ended 31st March, 2019, as considered in the consolidated financial statements, in respect of one (1) associate, whose financial statements have not been audited by us. These financial statements have been audited by other auditors whose reports have been furnished to us by the Management and our opinion on the consolidated financial statements, in so far as it relates to the amounts and disclosures included in respect of these subsidiaries, jointly controlled entity and associate, and our report in so far as it relates to the aforesaid subsidiaries, jointly controlled entities and associates, is based solely on the reports of the other auditors. We did not audit the financial statements Four(4) subsidiaries whose financial statements reflect total assets of Rs. 1117 crores as at 31st March, 2019, total revenues of Rs.90.04 crores and net cash out flows amounting to Rs. 14.43 crores for the year ended on that date, as considered in the consolidated financial statements. The consolidated financial statements also include the Groups share of net profit/loss of Rs. 59.89 crores for the year ended 31st March, 2019, as considered in the consolidated financial statements, in respect of two (2) associates, whose financial statements have not been audited by us. These financial statements are unaudited and have been furnished to us by the Management and our opinion on the consolidated financial statements, in so far as it relates to the amounts and disclosures included in respect of these subsidiaries, jointly controlled entities and associates, and our report in so far as it relates to the aforesaid subsidiaries, jointly controlled entities and associates, is based solely on such unaudited financial statements / financial information. In our opinion and according to the information and explanations given to us by the Management, these financial statements are not material to the Group. Our opinion on the consolidated financial statements, and our report on Other Legal and Regulatory Requirements below, is not modified in respect of the above matters with respect to our reliance on the work done and the reports of the other auditors and the financial statements / financial information certified by the Management. The auditors of Canara HSBC Oriental Bank of Commerce Life Insurance Company Ltd., a subsidiary of the Group have reported that the actuarial valuation of liabilities for life policies in force is the responsibility of the Companys Appointed Actuary (the Appointed Actuary). The actuarial valuation of these liabilities as at 31st March, 2019 for policies in force and policies in respect of which premium has been discontinued but liability exists as at that date has been duly certified by the Appointed Actuary. The Appointed Actuary has certified to the Company that the assumptions for such valuations are in accordance with the guidelines and norms issued by the Insurance Regulatory and Development Authority of India (IRDAI) and the Institute of Actuaries of India in concurrence with the IRDAI. Further, the concerned Component Auditor has reported that they had relied upon the Appointed Actuarys certificate in this regard and their opinion in so far as it relates to the actuarial valuation is based solely on the certificate of the Appointed Actuary and is not modified in respect of this matter. Dagliya and Co., komandoor & Co. LLP, D.K.Chhajer & Co., SNK & Co. Consolidated
184 Carborundum Universal Ltd. Diversified Key Audit Matters 31st March, 2019 During the year, the Parent has recognised revenue of Rs.17,519.12 million as revenue from sale of goods and services. Revenue from sale of goods is recognised under Ind AS 115 - Revenue from Contracts with Customers at a point in time when the control has been transferred, which generally coincides with dispatch of products to customers in case of domestic sales and on the basis of bill of lading in the case of export sales. Revenue from services is recognised over a period of time/ at a point in time, as per the terms agreed with the customers. We determined this to be a key audit matter due to the significance of the time and effort involved in assessing the appropriateness of revenue recognition including accounting for the discounts and covering the aspects of completeness, accuracy, occurrence and cut off performance of obligations differ from the estimates as applied, this will have an impact on the accuracy of revenue recognized in the current year and accrued as at year end. a. Understood and performed procedures to assess the design and test the operating effectiveness of relevant controls related to recording of revenue including the related discounts. b. Assessed whether the policy of recognising revenue was in line with Ind AS - 115. c. Tested the reconciliation of the amounts as per the sales register to the general ledger. d. Performed tests, on sample basis by validating the amounts recorded with the underlying documents which inter - alia includes invoices, dispatch documents, customer orders/contracts, receipt of consideration from customers and allocation of variable consideration namely discounts. e. Performed tests, on sample basis on revenue recognised from services, and ensured that the revenue was recognised over a period of time/ at a point in time, as per the terms contracted with customers. f. Performed cut off testing, on sample basis and ensured that the revenue from sale of goods is recognized in the appropriate period. Based on the above procedures performed, we did not identify any exceptions in revenue recognition on sale of goods and services. Independent Auditors Price Waterhouse Chartered Accountants LLP Standalone
185 Carborundum Universal Ltd. Diversified Key Audit Matters 31st March, 2019 During the year, the Company has recognised Rs.17,519.12 million as revenue from sale of goods and services which constitutes 97% of its total income. Revenue from sale of goods is recognised under Ind AS 115 - Revenue from Contracts with Customers at a point in time when the control has been transferred, which generally coincides with dispatch of products to customers in case of domestic sales and on the basis of bill of lading in the case of export sales. Revenue from services is recognised over a period of time/at a point in time, as per the terms agreed with the customers. We determined this to be a key audit matter due to significant time and effort involved in assessing the appropriateness of revenue recognition including accounting for the discounts and covering the aspects of completeness, accuracy, occurrence and cut off. a. Understood and performed procedures to assess the design and test the operating effectiveness of relevant controls related to recording of revenue including the related discounts. b. Assessed whether the policy of recognising revenue was in line with Ind AS - 115. c. Tested the reconciliation of the amounts as per the sales register to the general ledger. d. Performed tests, on sample basis by validating the amounts recorded with the underlying documents which inter - alia includes invoices, dispatch documents, customer orders/contracts, receipt of consideration from customers, where applicable and allocation of variable consideration namely discounts. e. Performed tests, on sample basis on revenue recognised from services, and ensured that the revenue was recognised over a period of time/at a point in time, as per the terms contracted with customers. f. Performed cut off testing, on sample basis and ensured that the revenue from sale of goods is recognised in the appropriate period. Based on the above procedures performed, we did not identify any exceptions in revenue recognition on sale of goods and services. Price Waterhouse Chartered Accountants LLP Consolidated
186 Carborundum Universal Ltd. Diversified Key Audit Matters 31st March, 2019 The Companys equity investments in subsidiaries, joint ventures and associate amounted to Rs.2,408.43 million as at March 31, 2019. Such investments are carried at cost as per Ind AS 27 - Separate Financial Statements. The carrying value of investments in subsidiaries, joint ventures and associate was considered to be a key audit matter as these are material and significant to the net worth of the Company and is dependent on the future performance of the subsidiaries, joint ventures and associate. a. Understood and performed procedures to assess the design and test the operating effectiveness of relevant controls related to valuation of investments. b. We obtained the audited financial statements of the subsidiaries, joint ventures and associate and evaluated the assessment carried out by the Company with regard to net worth of those respective subsidiaries, joint ventures and associate with the carrying value of the investments made in those entities. c. We also obtained the Managements documentation and tested its assessment on whether there were indicators for impairment if any, of the aforesaid investments, as required by Ind AS 36, Impairment of Assets. Based on above procedures performed, we found the managements assessment of carrying value of investments in subsidiaries, joint ventures and associate to be reasonable. Price Waterhouse Chartered Accountants LLP Consolidated
187 Carborundum Universal Ltd. Diversified Other Matters 31st March, 2019 1. We did not audit the financial statements/financial information of eleven subsidiaries, whose financial statements/financial information reflect total assets of Rs.12,763 million and net assets of Rs.9,965 million as at March 31, 2019, total revenue of Rs.11,371 million, total comprehensive income (comprising of profit and other comprehensive income) of Rs.1,463 million and net cash out flows amounting to Rs.224 million for the year ended on that date, as considered in the consolidated Ind AS financial statements. The consolidated Ind AS financial statements also include the Groups share of total comprehensive income (comprising of profit and other comprehensive income) of Rs.136 million for the year ended March 31, 2019 as considered in the consolidated Ind AS financial statements, in respect of two jointly controlled entities whose financial statements/financial information have not been audited by us. These financial statements/financial information have been audited by other auditors whose reports have been furnished to us by the Management, and our opinion on the consolidated Ind AS financial statements insofar as it relates to the amounts and disclosures included in respect of these subsidiaries and jointly controlled entities and our report in terms of sub-section (3) of Section 143 of the Act including report on Other Information insofar as it relates to the aforesaid subsidiaries and jointly controlled entities, is based solely on the reports of the other auditors. 2. We did not audit the financial statements/financial information of one subsidiary, whose financial statements/financial information reflect total assets of Rs. Nil and net assets of Rs. Nil as at March 31, 2019, total revenue of Rs. Nil, total comprehensive income (comprising of loss and other comprehensive income) of Rs. Nil and net cash flows amounting to Rs. Nil for the year ended on that date, as considered in the consolidated Ind AS financial statements. These financial statements/financial information are unaudited and have been furnished to us by the Management, and our opinion on the consolidated Ind AS financial statements insofar as it relates to the amounts and disclosures included in respect of this subsidiary and our report in terms of sub-section (3) of Section 143 of the Act including report on Other Information insofar as it relates to the aforesaid subsidiary, is based solely on such unaudited financial statements/financial information. In our opinion and according to the information and explanations given to us by the Management, these financial statements/financial information are not material to the Group. 3. The financial statements/the financial information of eight subsidiaries located outside India, included in the consolidated Ind AS financial statements, which constitute total assets of Rs.10,652 million and net assets of Rs.8,180 million as at March 31, 2019, total revenue of Rs.9,821 million, total comprehensive income (comprising of profit/ loss and other comprehensive income) of Rs.1,033 million and net cash out flows amounting to Rs.207 million for the year then ended; have been prepared in accordance with accounting principles generally accepted in their respective countries and have been audited by other auditors under generally accepted auditing standards applicable in their respective countries. The Parents management has converted the financial statements/ financial information of such subsidiaries located outside India from the accounting principles generally accepted in their respective countries to the accounting principles generally accepted in India. We have audited these conversion adjustments made by the Parents management. Our opinion insofar as it relates to the balances and affairs of such subsidiaries located outside India, including other information, is based on the report of other auditors and the conversion adjustments prepared by the management of the Parent and audited by us. Our opinion on the consolidated Ind AS financial statements, and our report on Other Legal and Regulatory Requirements below, is not modified in respect of the above matters with respect to our reliance on the work done and the reports of the other auditors and the financial statements /financial information certified by the Parents Management. Price Waterhouse Chartered Accountants LLP Consolidated
188 CARE Ratings Ltd. NBFCs & Housing Finance Key Audit Matters 31st March, 2019 Presentation and disclosures of revenues and other related balances in accordance with Ind AS 115 Revenue from con-tracts with customers (new accounting standard) and other regulatory requirements The recognition, measurement, presentation and disclosures of revenues and other related balances in accordance with Ind AS 115 and other regulatory requirements involve significant judgements and estimation on behalf of the management of the Company. Further, the recognition of revenue involves various complexities with respect to nature and category of clients of the Company. We determined this matter to be a key audit matter due to the complexity associated to comply with the applicable Ind AS and other regulatory requirements. [Note 1(j) to the stand-alone Ind AS financial statements] Our audit approach consisted testing of the design and operating effectiveness of the internal controls and substantive testing as follows: - Evaluated the design of internal controls relating to implementation of the new revenue accounting standard. - Evaluated the report of expert on the application of the standard on the entity as per its accounting policies. - Evaluated the reasonableness of the significant judgements and estimation involved in the process. - Selected a sample of continuing and new contracts, and tested the operating effectiveness of the internal control, relating to identification of the distinct performance - obligations and determination of transaction price. - Selected a sample of continuing and new contracts and performed the following procedures: Read, analysed and identified the distinct performance obligations in these contracts. Compared these performance obligations with that identified and recorded by the entity. - Sample of revenue disaggregated by type and service offerings was tested with the performance obligations specified in the underlying contracts. Khimji Kunverji & Co. LLP Standalone
189 CARE Ratings Ltd. NBFCs & Housing Finance Key Audit Matters 31st March, 2019 Regulations Litigations and claims The Company is exposed to various laws and regulations. In this regulatory environment, there is an inherent risk of litigations and claims. Consequently, provisions and contingent liabilities disclosures may arise from direct and indirect tax proceedings, legal proceedings, including regulatory and other government / department proceedings, as well as investigations by authorities. As at March 31, 2019, the Companys has ascertained contain-gent liabilities of Rs. 62.26 Lakhs and also has unascertained liabilities (refer note 28 to the standalone Ind AS financial statements. Management applies significant judgement in estimating the likelihood of the future outcome in each case when consider- whether, and how much, to provide or in determining the required disclosure for the potential exposure of each matter. This is due to the highly complex nature and magnitude of the legal matters involved along with the fact that resolution of tax and legal proceedings may span over multiple years, and may involve protracted negotiation or litigation. These estimates could change substantially over time as new facts emerge and each legal case progress. We determined this matter to be a key audit matter due to the inherent complexity and magnitude of potential exposures across the Company and the judgment necessary to estimate the amount of provisions required or determine the required disclosure. Our Audit approach in relation to the matter involved the following: - Review the outstanding litigations against the Company for consistency with the previous years. Enquire and obtain explanations for movement during the year. Reading the latest correspondence between the Company and the various tax/legal authorities for significant matters. - Examined selectively the Companys legal expenses and read fully the minutes of the board meetings, in order to ascertain all cases have been identified. - With respect to tax matters, involving our tax specialists, and discussing with the Companys personnel dealing with tax matters, their views and strategies on significant cases, as well as the related technical grounds relating to their conclusions based on applicable tax laws and precedence - Assessing the decisions and rationale for provisions held or for decisions not to record provisions or make disclosures. - For those matters where management concluded that no provisions should be recognised, considering the adequacy and completeness of the Companys disclosures. -For complex regulatory litigations, reviewing the relevant correspondence by the company, studying the matters in the light of past precedence and views of companys legal advisor as made available by the company Khimji Kunverji & Co. LLP Standalone
190 CCL Products (India) Ltd. Retail & FMCG Key Audit Matters 31st March, 2019 As described in Note 1.16 to the standalone financial statements, the Company has adopted Ind AS 115,Revenue from Contracts with Customers (Ind AS 115)which is the new revenue accounting standard. The application and transition to this accounting standard is complex and is an area of focus in the audit. The revenue standard establishes a comprehensive framework for determining whether, how much and when revenue is recognized. This involves certain key judgments relating to identification of distinct performance obligations, determination of transaction price of identified performance obligation, the appropriateness of the basis used to measure revenue recognized over a period. Additionally, the standard mandates robust disclosures in respect of revenue and periods over which the remaining performance obligations will be satisfied subsequent to the balance sheet date. The Company adopted Ind AS 115 and applied the available exemption provided therein, to not restate the comparative periods. Our audit procedures on adoption of Ind AS 115, Revenue from contracts with Customers (Ind AS 115), which is the new accounting standard, include Evaluated the design and implementation of the processes and internal controls relating to implementation of the new accounting standard; Evaluated the detailed analysis performed by management on revenue streams by selecting samples for the existing contracts with customers and considered revenue recognition policy in the current period in respect of those revenue streams; Evaluated the changes made to IT systems to reflect the changes required in revenue recognition as per the new accounting standard; Evaluated the cumulative effect adjustments as at 1st April 2018 for compliance with the new accounting standard; and Evaluated the appropriateness of the disclosures provided under the new accounting standard and assessed the completeness and mathematical accuracy of the relevant disclosures Ramanatham & Rao Standalone
191 CCL Products (India) Ltd. Retail & FMCG Key Audit Matters 31st March, 2019 The Company has material uncertain tax positions including matters under dispute which involves significant judgment to determine the possible outcome of these disputes. Obtained details of completed tax assessments and demands upto the year ended March 31, 2019 from management. We involved our internal experts to challenge the managements underlying assumptions in estimating the tax provision and the possible outcome of the disputes. Our internal experts also considered legal precedence and other rulings in evaluating managements position on these uncertain tax positions. Additionally, we considered the effect of new information in respect of uncertain tax positions as at 1st April 2018 to evaluate whether any change was required to managements position on these uncertainties. Ramanatham & Rao Standalone
192 CCL Products (India) Ltd. Retail & FMCG Key Audit Matters 31st March, 2019 As described in Note 1.17 to the standalone financial statements, the Company has adopted Ind AS 115,Revenue from Contracts with Customers (Ind AS 115)which is the new revenue accounting standard. The application and transition to this accounting standard is complex and is an area of focus in the audit. The revenue standard establishes a comprehensive framework for determining whether, how much and when revenue is recognized. This involves certain key judgments relating to identification of distinct performance obligations, determination of transaction price of identified performance obligation, the appropriateness of the basis used to measure revenue recognized over a period. Additionally, the standard mandates robust disclosures in respect of revenue and periods over which the remaining performance obligations will be satisfied subsequent to the balance sheet date. The Group adopted Ind AS 115 and applied the available exemption provided therein, to not restate the comparative periods. Our audit procedures on adoption of Ind AS 115, Revenue from contracts with Customers (Ind AS 115), which is the new accounting standard, include Evaluated the design and implementation of the processes and internal controls relating to implementation of the new accounting standard; Evaluated the detailed analysis performed by management on revenue streams by selecting samples for the existing contracts with customers and considered revenue recognition policy in the current period in respect of those revenue streams; Evaluated the changes made to IT systems to reflect the changes required in revenue recognition as per the new accounting standard; Evaluated the cumulative effect adjustments as at 1st April, 2018 for compliance with the new accounting standard; and Evaluated the appropriateness of the disclosures provided under the new accounting standard and assessed the completeness and mathematical accuracy of the relevant disclosures. Ramanatham & Rao Consolidated
193 CCL Products (India) Ltd. Retail & FMCG Key Audit Matters 31st March, 2019 The Company has material uncertain tax positions including matters under dispute which involves significant judgment to determine the possible outcome of these disputes. Obtained details of completed tax assessments and demands upto the year ended March 31, 2019 from management. We involved our internal experts to challenge the managements underlying assumptions in estimating the tax provision and the possible outcome of the disputes. Our internal experts also considered legal precedence and other rulings in evaluating managements position on these uncertain tax positions. Additionally, we considered the effect of new information in respect of uncertain tax positions as at 1st April 2018 to evaluate whether any change was required to managements position on these uncertainties. Ramanatham & Rao Consolidated
194 CCL Products (India) Ltd. Retail & FMCG Other Matters 31st March, 2019 We did not audit the finical information of 4 subsidiaries whose financial statements reflect total assets of Rs. 41,369.50 lakhs as at 31st March, 2019, total revenues of Rs. 34,871.20 Lakhs and total net profit after tax amounting to Rs. 6,052.84 lakhs for the year ended on that date, as considered in the consolidated financial statements. These financial information have been audited by other auditors whose reports have been furnished to us by the Management and our opinion on the consolidated financial statements, in so far as it relates to the amounts and disclosures included in respective of these subsidiaries and our report in terms of subsection (3) of Section 143 of the Act, in so far as it relates to the aforesaid subsidiaries is based solely on the reports of the other auditors. Our opinion on the consolidated financial statements above and our report on Other Legal and Regulatory Requirements below, is not modified in respect of the above matters with respect to our reliance on the work done and the reports of the other auditors. Ramanatham & Rao Consolidated
195 Century Plyboards India Ltd. Retail & FMCG Key Audit Matters 31st March, 2019 Refer to note 10 to the financial statements. The Company is having Inventory of H 40,097.45 Lacs as on 31st March 2019. Inventories are to be valued as per IND AS 2. As described in the accounting policies in note 2.1(j) to the financial statements, inventories are carried at the lover of cost and net realisable value. As a result, the management applies judgment in determining the appropriate provisions against inventory of Stores, Raw Material, Finished goods and Work in progress based upon a detailed analysis of old inventory, net realisable value below cost based upon future plans for sale of inventory. We obtained assurance over the appropriateness of the managements assumptions applied in calculating the value of the inventories and related provisions by: Completed a walkthrough of the inventory valuation process and assessed the design and implementation of the key controls addressing the risk. Verifying the effectiveness of key inventory controls operating over inventories; including sample based physical verification. Physically observing inventory measurement and count procedure carried out by the management. Verifying for a sample of individual products that costs have been correctly recorded. Comparing the net realisable value to the cost price of inventories to check for completeness of the associated provision. Reviewing the historical accuracy of inventory provisioning and the level of inventory write-offs during the year. Our Observation: Based on the audit procedures performed we did not identify any material exceptions in the Inventory valuation. Singhi & Co. Standalone
196 Century Plyboards India Ltd. Retail & FMCG Key Audit Matters 31st March, 2019 Revenue Recognition- The accuracy of amounts recorded as revenue is an inherent risk due to the complexity involved. The application of revenue recognition accounting standards IND AS 115 involves a number of judgments and estimates. Refer note no 2.3 (h). In addition, disclosure is required of the impact of the new standard on revenue recognition, IND AS 115, which is effective from 1st April 2018. In view of the complexity of the revenue recognition under IND AS 115 and the judgments and estimates involved the recognition of revenue was a matter of most significance to our audit. As part of our audit, we understood the Companys policies and processes, control mechanisms and methods in relation to the revenue recognition and evaluated the design and operative effectiveness of the financial controls from the above through our test of control procedures. Tested a sample of sales transactions for compliance with the Companys accounting principles to assess the completeness, occurrence and accuracy of revenue recorded performing procedures to ensure that the revenue recognition criteria adopted by Company for all major revenue streams is appropriate and in line with the Companys accounting policies. We tested the companys system generated reports, based on which revenue is accrued at the year end, and performed tests of details on the accrued revenue and accounts receivable balances recognized in the balance sheet at the year end. Our tests of detail focused on transactions occurring within proximity of the year end and obtaining evidence to support the appropriate timing of revenue recognition, based on terms and conditions set out in sales contracts and delivery documents We considered the appropriateness and accuracy of any cut-off adjustments. Reviewed the process of determining performance obligation and management estimates of discounts / incentives to ensure that revenue is recognized at transaction price. Traced disclosure information to accounting records and other supporting documentation. Our Observation: Based on the audit procedures performed we did not identify any material exceptions in the revenue recognition. Singhi & Co. Standalone
197 Century Plyboards India Ltd. Retail & FMCG Key Audit Matters 31st March, 2019 Valuation of inventories Refer note 11 to the Consolidated financial statements. The Holding Company is having Inventory of Rs.40,097.45 Lacs as on 31st March 2019. Inventories are to be valued as per IND AS 2. As described in the accounting policies in note 2.1(l) to the Consolidated financial statements, inventories are carried at the lover of cost and net realisable value. As a result, the management of the Holding Company applies judgment in determining the appropriate provisions against inventory of Stores, Raw Material, Finished goods and Work in progress based upon a detailed analysis of old inventory, net realisable value below cost based upon future plans for sale of inventory. We obtained assurance over the appropriateness of the assumptions applied in calculating the value of the inventories and related provisions by: Completed a walkthrough of the inventory valuation process of Holding Company and assessed the design and implementation of the key controls addressing the risk. Verifying the effectiveness of key inventory controls operating over inventories; including sample based physical verification. Physically observing inventory measurement and count procedure carried out by the management of the Holding Company. Verifying for a sample of individual products that costs have been correctly recorded. Comparing the net realisable value to the cost price of inventories to check for completeness of the associated provision. Reviewing the historical accuracy of inventory provisioning and the level of inventory write-offs during the year by Holding Company. Our Observation: Based on the audit procedures performed we did not identify any material exceptions in the Inventory valuation. Singhi & Co. Consolidated
198 Century Plyboards India Ltd. Retail & FMCG Key Audit Matters 31st March, 2019 Revenue Recognition The accuracy of amounts recorded as revenue is an inherent risk due to the complexity involved. The application of revenue recognition accounting standards IND AS 115 involves a number of judgments and estimates. Refer note no 2.3 (h). In addition, disclosure is required of the impact of the new standard on revenue recognition, IND AS 115, which is effective from 1st April 2018. In view of the complexity of the revenue recognition under IND AS 115 and the judgments and estimates involved the recognition of revenue was a matter of most significance to our audit As part of our audit, we understood the Holding Companys policies and processes, control mechanisms and methods in relation to the revenue recognition and evaluated the design and operative effectiveness of the financial controls from the above through our test of control procedures. Tested a sample of sales transactions for compliance with the accounting principles to assess the completeness, occurrence and accuracy of revenue recorded. performing procedures to ensure that the revenue recognition criteria adopted by Holding Company for all major revenue streams is appropriate and in line with the accounting policies. We tested the Holding companys system generated reports, based on which revenue is accrued at the year end, and performed tests of details on the accrued revenue and accounts receivable balances recognized in the balance sheet at the year end. Reviewed the process of determining performance obligation and management estimates of discounts / incentives to ensure that revenue is recognized at transaction price. Our tests of detail focused on transactions occurring within proximity of the year end and obtaining evidence to support the appropriate timing of revenue recognition, based on terms and conditions set out in sales contracts and delivery documents. We considered the appropriateness and accuracy of any cut-off adjustments Traced disclosure information to accounting records and other supporting documentation. Our Observation: Based on the audit procedures performed we did not identify any material exceptions in the revenue recognition. Singhi & Co. Consolidated
199 Century Plyboards India Ltd. Retail & FMCG Other Matters 31st March, 2019 a. We did not audit the financial statements/ Financial information of seven subsidiaries whose financial statements/ Financial information reflect total assets of Rs. 6,080.54 Lacs and net assets Rs. 3,360.43 Lacs as at March 31, 2019 and total revenues of Rs. 10,196.46 Lacs, total comprehensive income of Rs. 340.62 Lacs for the year ended on that date and net cash inflow of Rs. 102.45 Lacs, as considered in the consolidated financial statements. These financial statements have been audited by other auditors whose reports have been furnished to us by the Management and our report on consolidated financial statement in terms of sub section 3 of section 143 of the Act including the report on other informations so far as it relates to the aforesaid subsidiaries is based solely on the reports of the other auditors. Singhi & Co. Consolidated
200 Century Plyboards India Ltd. Retail & FMCG Other Matters 31st March, 2019 b. We did not audit the consolidated financial statements, standalone financial statements /financial information of three foreign subsidiaries, whose financial statements / financial information reflect total assets of H 15,946.74 Lacs and net assets Rs. 11,198.71 Lacs as at March 31, 2019, total revenue of Rs. 3,947.25 Lacs and total comprehensive income of Rs. (1314.75) Lacs for the year ended on that date and net cash outflow of Rs. (48.70) Lacs, as considered in the consolidated financial statements. This financial statements / financial information are audited as per the local law of the respective country and have been converted by the management of the Company into Ind-AS complaint financial statements. Our opinion on the statement in so far as relates to the amounts included in respect of these subsidiaries is based solely on such management certified financial IND AS financial statements. Our opinion on the consolidated financial statement and our report on other regulatory requirement below is not modified in respect of the above matters with regard to our reliance on the work done and the reports of the other auditors and the financial statements certified by the management. Singhi & Co. Consolidated
201 Cera Sanitaryware Ltd. Paints Other Matters 31st March, 2019 We did not audit the financial statements of 1 subsidiary, whose financial statements reflect total assets of Rs.14200.42 lakhs and net assets of Rs. 1222.75 lakhs as at 31st March, 2019, total revenues of Rs. 7650.16 lakhs and net cash outflow of Rs. 15.24 lakhs for the year ended on that date, as considered in the consolidated financial statements. The consolidated financial statements also include the Groups share of net loss of Rs. 2.61 lakhs for the year ended 31st March, 2019, as considered in the consolidated financial statements, in respect of 3 associates, whose financial statements have not been audited by us. These financial statements have been audited by other auditors whose reports have been furnished to us by the management and our opinion on the consolidated financial statements, in so far as it relates to the amounts and disclosures included in respect of 1 subsidiary and 3 associates, and our report in terms of sub-sections (3) and (11) of Section 143 of the Act, in so far as it relates to the aforesaid subsidiary and associates, is based solely on the reports of the other auditors. The share of loss for the year in Cera Sanitaryware Limited FZC (an associate) is Rs. 19.79 lakhs. The accumulated share of losses have exceeded the Parent Companys Interest in this associate and therefore, is reduced to zero. The Parent Company has not recognized the excess losses aggregating to Rs. 28.17 lakhs as at 31st March, 2019 and are to be recognized only to the extent that the Parent Company has incurred legal or constructive obligations or made payments on behalf of the associate (Para 39 of Ind AS-28 Investments in Associates and Joint Ventures.) Our opinion on the consolidated financial statements, and our report on Other Legal and Regulatory Requirements below, is not modified in respect of the above matters with respect to our reliance on the work done and the reports of the other auditors. N. M. Nagri & Co., Standalone
202 Chambal Fertilisers & Chemicals Ltd. Fertilizers Key Audit Matters 31st March, 2019 During the year, the Company has commenced commercial production and capitalised Rs 576,205 lakhs of costs as tangible and intangible assets towards its new urea plant We focused on this area given the significance of the overall capital expenditure and judgements involved in assessing the useful life of the assets and whether the criteria, including internal costs directly attributable to the construction, as set out in Indian Accounting Standards (Ind AS) 16 Property, Plant and Equipment for the capitalisation of such expenditure had been met. Our procedures included the following amongst others : We understood and evaluated the design and tested operating effectiveness of managements internal financial controls in relation to approval of expenditure and capitalisation of appropriate costs. We were able to place reliance on these controls for the purpose of our audit. We performed testing of costs capitalised during the year, focusing on those items that we considered significant due to their amount or nature, which included examining third-party invoices, purchase orders, terms and conditions of significant contracts and other supporting documents, as appropriate, to check whether such costs had been appropriately capitalised under the correct asset category. In respect of internal costs allocated to the plant, test checked the identification and allocation of costs directly attributable to the construction of the plant. We examined the factors considered by the Company to determine the date on which the plant was ready to be used. We examined the useful life for individual assets to determine whether it is consistent with the Companys accounting policy. Examined the appropriateness of the related disclosures in the Standalone Ind AS Financial Statements. As a results of the above procedures, we did not identify any significant exceptions in relation to the expenditure incurred on the capitalisation towards Gad pan III Plant. Price Waterhouse Chartered Accountants LLP Standalone
203 Chambal Fertilisers & Chemicals Ltd. Fertilizers Key Audit Matters 31st March, 2019 During the year, the Company has recognised subsidy revenue amounting to Rs. 599,718 lakhs and as at March 31, 2019 has subsidy receivables aggregating to Rs. 432,232 lakhs and related allowance for doubtful debts aggregating to Rs. 19,794 lakhs which are significant to the Standalone Ind AS Financial Statements. We focused on this area since the recognition of subsidy revenue and the assessment of recoverability of the related subsidy receivables is subject to significant judgements of the management. The areas of subjectivity and judgement include interpretation and satisfaction of conditions specified in the notifications/ policies in the estimation of timing and amount of recognition of subsidy revenue, likelihood of recoverability and allowance in relation to the outstanding subsidy receivables. Our procedures included the following: We understood and evaluated the design and tested the operating effectiveness of controls as established by management in recognition of subsidy revenue and assessment of the recoverability of subsidy receivables. We evaluated the managements assessment regarding reasonable certainty of complying with the relevant conditions as specified in the notifications/policies. We considered the relevant notifications/policies issued by various authorities to ascertain the appropriateness of the recognition of subsidy revenue and adjustments to subsidy receivables already recognised pursuant to changes in subsidy rates. We also understood the basis of judgements that management has made in relation to the notifications/policies including past precedence and subsequent evidence, as applicable. We tested the ageing of the related receivables and assessed the information used by the management to determine the recoverability of subsidy receivable and assessment of allowance for doubtful receivables by considering historical collection trends and the level of credit loss charged over time. We evaluated adequacy of disclosures in the Standalone Ind AS Financial Statements. Based on the above procedures performed, the managements assessment of implications of government notifications/policies on recognition of subsidy revenue and the recoverability were considered to be reasonable. Price Waterhouse Chartered Accountants LLP Standalone
204 Chambal Fertilisers & Chemicals Ltd. Fertilizers Key Audit Matters 31st March, 2019 During the year, the Company has commenced commercial production and capitalised Rs 576,205 lakhs of costs as tangible and intangible assets towards its new urea plant We focused on this area given the significance of the overall capital expenditure and judgements involved in assessing the useful life of the assets and whether the criteria, including internal costs directly attributable to the construction, as set out in Indian Accounting Standards (Ind AS) 16 Property, Plant and Equipment for the capitalisation of such expenditure had been met. Our procedures included the following amongst others : We understood and evaluated the design and tested operating effectiveness of managements internal financial controls in relation to approval of expenditure and capitalisation of appropriate costs. We were able to place reliance on these controls for the purpose of our audit. We performed testing of costs capitalised during the year, focusing on those items that we considered significant due to their amount or nature, which included examining third-party invoices, purchase orders, terms and conditions of significant contracts and other supporting documents, as appropriate, to check whether such costs had been appropriately capitalised under the correct asset category. In respect of internal costs allocated to the plant, test checked the identification and allocation of costs directly attributable to the construction of the plant. We examined the factors considered by the Company to determine the date on which the plant was ready to be used. We examined the useful life for individual assets to determine whether it is consistent with the Companys accounting policy. Examined the appropriateness of the related disclosures in the Standalone Ind AS Financial Statements. As a results of the above procedures, we did not identify any significant exceptions in relation to the expenditure incurred on the capitalisation towards Gad pan III Plant. Price Waterhouse Chartered Accountants LLP Consolidated
205 Chambal Fertilisers & Chemicals Ltd. Fertilizers Key Audit Matters 31st March, 2019 During the year, the Company has recognised subsidy revenue amounting to Rs. 599,718 lakhs and as at March 31, 2019 has subsidy receivables aggregating to Rs. 432,232 lakhs and related allowance for doubtful debts aggregating to Rs. 19,794 lakhs which are significant to the Standalone Ind AS Financial Statements. We focused on this area since the recognition of subsidy revenue and the assessment of recoverability of the related subsidy receivables is subject to significant judgements of the management. The areas of subjectivity and judgement include interpretation and satisfaction of conditions specified in the notifications/ policies in the estimation of timing and amount of recognition of subsidy revenue, likelihood of recoverability and allowance in relation to the outstanding subsidy receivables. Our procedures included the following: We understood and evaluated the design and tested the operating effectiveness of controls as established by management in recognition of subsidy revenue and assessment of the recoverability of subsidy receivables. We evaluated the managements assessment regarding reasonable certainty of complying with the relevant conditions as specified in the notifications/policies. We considered the relevant notifications/policies issued by various authorities to ascertain the appropriateness of the recognition of subsidy revenue and adjustments to subsidy receivables already recognised pursuant to changes in subsidy rates. We also understood the basis of judgements that management has made in relation to the notifications/policies including past precedence and subsequent evidence, as applicable. We tested the ageing of the related receivables and assessed the information used by the management to determine the recoverability of subsidy receivable and assessment of allowance for doubtful receivables by considering historical collection trends and the level of credit loss charged over time. We evaluated adequacy of disclosures in the Standalone Ind AS Financial Statements. Based on the above procedures performed, the managements assessment of implications of government notifications/policies on recognition of subsidy revenue and the recoverability were considered to be reasonable. Price Waterhouse Chartered Accountants LLP Consolidated
206 Chambal Fertilisers & Chemicals Ltd. Fertilizers Other Matters 31st March, 2019 We did not audit the financial statements and other financial information of 5 subsidiaries whose financial statements and other financial information reflect total assets of Rs 11,246 lakhs and net assets of Rs (102,952) lakhs as at March 31, 2019, total revenue of Rs. 8,285 lakhs, total comprehensive income [comprising of profit/ (loss) and other comprehensive income] of Rs (1,923)lakhs and net cash inflows amounting to Rs 694 lakhs for the year ended on that date, as considered in the Consolidated Ind AS Financial Statements. The Consolidated Ind AS Financial Statements also include the Groups share of total comprehensive income (comprising of profit and other comprehensive income) of Rs. 12,669 lakhs for the period ended March 31, 2019 as considered in the Consolidated Ind AS Financial Statements, in respect of a joint venture, whose financial statements and other financial information have not been audited by us. These financial statements and other financial information have been audited by other auditors whose reports have been furnished to us by the Management, and our opinion on the Consolidated Ind AS Financial Statements insofar as it relates to the amounts and disclosures included in respect of these subsidiaries and joint venture and our report in terms of sub-section (3) of Section 143 of the Act including report on Other Information insofar as it relates to the aforesaid subsidiaries and joint venture, is based solely on the reports of the other auditors. Price Waterhouse Chartered Accountants LLP Consolidated
207 Chambal Fertilisers & Chemicals Ltd. Fertilizers Other Matters 31st March, 2019 We did not audit the financial information of 3 subsidiaries whose financial information reflect total assets of Rs 55 lakhs and net assets of Rs 50 lakhs as at March 31, 2019, total revenue of Rs. Nil, total comprehensive income [comprising of profit/(loss) and other comprehensive income] of Rs (25) lakhs and net cash outflows amounting to Rs (26) lakhs for the year ended on that date, as considered in the Consolidated Ind AS Financial Statements. These financial information are unaudited and have been furnished to us by the Management, and our opinion on the Consolidated Ind AS Financial Statements insofar as it relates to the amounts and disclosures included in respect of these subsidiaries and our report in terms of sub-section (3) of Section 143 of the Act including report on Other Information insofar as it relates to the aforesaid subsidiaries, is based solely on such unaudited financial information. In our opinion and according to the information and explanations given to us by the Management, these financial information are not material to the Group. Our opinion on the Consolidated Ind AS Financial Statements, and our report on Other Legal and Regulatory Requirements below, is not modified in respect of the above matters with respect to our reliance on the work done and the reports of the other auditors and the financial information certified by the Management. Price Waterhouse Chartered Accountants LLP Consolidated
208 Cipla Ltd. Pharmaceuticals & Chemicals Key Audit Matters 31st March, 2019 The Company operates in an industry which is regulated by authorities such as National Pharmaceutical Pricing Authority, Government of India (NPPA), The Food and Drug Administration, United States of America (USFDA) and other regulators in respective countries, which increases inherent compliance and litigation risks. There are number of legal and regulatory cases, of which the most significant is a litigation under Drugs (Prices Control) Orders Act (DPCO) as disclosed in Note 39B to the standalone financial statements, relating to overcharging of certain drugs under the DPCO. According to NPPAs public disclosure, the total demand against the Company aggregates to H2,655.09 crore as at 31st March, 2019, of which: a) H2,457.47 crore relates to matters pending at Honourable Bombay High Court, wherein the Company has deposited H175.08 crore being 50% of the total demand of H350.15 crore as at 1st August, 2003 under protest pursuant to direction of Honourable Supreme Court of India; and b) H197.62 crore relates to other matters, wherein based on facts and legal advice, the Company has recorded a charge of H8.08 crore (including interest) during the year ended 31st March, 2019 and carries a total provision of H98.49 crore (including interest) as at 31st March, 2019. The amounts involved are material and the application of accounting principles as given under Ind AS 37, Provisions, Contingent Liabilities and Contingent Assets, in order to determine the amount to be recognised as a liability or to be disclosed as a contingent liability, is inherently subjective, and needs careful evaluation and judgement to be applied by the management. Key judgements are also made by the management in estimating the amount of liabilities, provisions and/or contingent liabilities related to aforementioned litigation. Considering the materiality and the inherent subjectivity which involves significant management judgement in predicting the outcome of the matter and estimating the potential impact on cash flows in case of unfavourable outcome, DPCO matters have been considered to be a key audit matter for the current period audit. a) Obtained an understanding of the managements process for updating the status of the legal case, assessment of accounting treatment in accordance with Ind AS 37, and for measurement of amounts involved. b) Evaluated the design and tested the operating effectiveness of key controls around above process. c) Inspected correspondence with the Companys external legal counsel in order to corroborate our understanding of these matters, accompanied by discussions with both internal and external legal counsels. Tested the objectivity and competence of such management experts involved. d) Obtained direct confirmation from the external legal counsel handling DPCO matters with respect to the legal determination of the liability arising from such litigation, and assessment of resulting provision recognised and disclosures to be made in the financial statements in accordance with requirements of Ind AS 37. Evaluated the response received from the legal counsel to ensure that the conclusions reached are supported by sufficient legal rationale. e) Assessed the appropriateness of methods used, and the reliability of underlying data for the underlying calculations made for quantifying the amounts involved. Tested the arithmetical accuracy of such calculations. f) Evaluated the Companys disclosures for accuracy and adequacy regarding the significant litigations of the Company. Based on the audit procedures performed, the judgements made by management were reasonable and disclosures made in respect of these matters were appropriate in the context of the standalone financial statements taken as a whole. Walker Chandiok & Co. LLP Standalone
209 Cipla Ltd. Pharmaceuticals & Chemicals Key Audit Matters 31st March, 2019 The Company has investments in subsidiaries of H3,803.61 crore being carried at cost in accordance with Ind AS 27, Separate Financial Statements. The Company assesses the recoverable amount of each investment when impairment indicators exist by comparing the fair value and carrying amount of the investment as on the reporting date. Refer note 5 to the standalone financial statements. Managements assessment whether there are impairment indicators and determination of the recoverable amounts of the identified investments including the most appropriate valuation method to use discounted cash flow requires estimation and judgement around the underlying business plans and assumptions used in valuation methods. The key assumptions used in managements assessment of the recoverable amounts include, but are not limited to, projections of future cash flows, growth rates, discount rates. Changes to these assumptions could lead to material changes in estimated recoverable amounts, resulting in either impairment or reversals of impairment taken in prior years. Considering the materiality of amounts involved, and the inherent subjectivity involved in estimating future cash flows which required significant management judgement, assessment of impairment losses to be recognised, if any, on the carrying value of identified investments has been considered to be a key audit matter for the current period audit. a) Obtained an understanding of the managements process for identification of impairment indicators, and tested the design and operating effectiveness of internal controls over such identification and impairment measurement through fair valuation of each of the identified investments. b) Involved auditors experts to assess the appropriateness of the valuation methodologies used by the management. c) Reconciled the cash flows to the business plans approved by the respective Board of Directors of the identified investee companies. d) Evaluated and challenged managements assumptions such as implied growth rates during explicit period, terminal growth rate, targeted savings and discount rate for their appropriateness based on our understanding of the business of the respective investee companies, past results and external factors such as industry trends and forecasts. e) Obtained and evaluated sensitivity analysis performed by the management on key assumptions of implied growth rates during explicit period, terminal growth rate and discount rate. f) Tested the mathematical accuracy of the management computations with regard to cash flows and sensitivity analysis. g) Performed independent sensitivity analysis of aforesaid key assumptions to assess the effect of reasonably possible variations on the current estimated recoverable amount for each of the identified investments to evaluate sufficiency of headroom between recoverable value and carrying amounts. h) Evaluated the adequacy of disclosures given in the standalone financial statements, including disclosure of significant assumptions, judgements and sensitivity analysis performed, in accordance with applicable accounting standards. Based on the audit procedures performed, we determined that the carrying values of investments in subsidiaries are appropriate in the context of the standalone financial statements taken as a whole. Walker Chandiok & Co. LLP Standalone
210 Cipla Ltd. Pharmaceuticals & Chemicals Key Audit Matters 31st March, 2019 The Group operates in an industry which is regulated by authorities such as National Pharmaceutical Pricing Authority, Government of India (NPPA), The Food and Drug Administration, United States of America (USFDA) and other regulators in respective countries, which increases inherent compliance and litigation risk. There are number of legal and regulatory cases, of which the most significant is a litigation under Drugs (Prices Control) Orders Act (DPCO) as disclosed in Note 45B to the consolidated financial statements, relating to overcharging of certain drugs under the DPCO. According to NPPAs public disclosure, the total demand against the Group aggregates to H2,655.09 crore as at 31st March, 2019, of which: a) H2,457.47 crore relates to matters pending at Honourable Bombay High Court, wherein the Group has deposited H175.08 crore being 50% of the total demand of H350.15 crore as at 1st August, 2003 under protest pursuant to direction of Honourable Supreme Court of India; and b) H197.62 crore relates to other matters, wherein based on facts and legal advice, the Group has recorded a charge of H8.08 crore (including interest) during the year ended 31st March, 2019 and carries a total provision of H98.49 crore (including interest) as at 31st March, 2019. The amounts involved are material and the application of accounting principles as given under Ind AS 37, Provisions, Contingent Liabilities and Contingent Assets, in order to determine the amount to be recognised as a liability or to be disclosed as a contingent liability, is inherently subjective, and needs careful evaluation and judgement to be applied by the management. Key judgements are also made by the management in estimating the amount of liabilities, provisions and/ or contingent liabilities related to aforementioned litigation. Considering the materiality and the inherent subjectivity which involves significant management judgement in predicting the outcome of the matter and estimating the potential impact on cash flows in case of unfavourable outcome, DPCO matters have been considered to be a key audit matter for the current period audit. a) Obtained an understanding of the managements process for updating the status of the legal case, assessment of accounting treatment in accordance with Ind AS 37, and for measurement of amounts involved. b) Evaluated the design and tested the operating effectiveness of key controls around above process. c) Inspected correspondence with the Groups external legal counsel in order to corroborate our understanding of these matters, accompanied by discussions with both internal and external legal counsels. Tested the objectivity and competence of such management experts involved. d) Obtained direct confirmation from the external legal counsel handling DPCO matters with respect to the legal determination of the liability arising from such litigation, and assessment of resulting provision recognised and disclosures to be made in the financial statements in accordance with requirements of Ind AS 37. Evaluated the response received from the legal counsel to ensure that the conclusions reached are supported by sufficient legal rationale. e) Assessed the appropriateness of methods used, and the reliability of underlying data for the underlying calculations made for quantifying the amounts involved. Tested the arithmetical accuracy of such calculations. f) Evaluated the Groups disclosures for accuracy and adequacy regarding the significant litigations of the Group. Based on the audit procedures performed, the judgements made by management were reasonable and disclosures made in respect of these matters were appropriate in the context of the consolidated financial statements taken as a whole. Walker Chandiok & Co. LLP Consolidated
211 Cipla Ltd. Pharmaceuticals & Chemicals Key Audit Matters 31st March, 2019 As at 31st March, 2019, the Group has goodwill balance of H2,869.14 crore relating to multiple Cash Generating Units (CGUs). Further, the Group is carrying product related capitalized intangibles and intangibles under development aggregating to H1,563.02 crore and H345.13 crore, respectively. These balances are subject to a test of impairment by the management in accordance with the applicable accounting standards. The Group has recorded an impairment charge of H206.95 crore during the year ended 31st March, 2019. Refer note 4 and 5 to the consolidated financial statements. The carrying values of goodwill, intangible assets and intangible assets under development will be recovered through future cash flows and there is a risk that the assets will be impaired if these cash flows do not meet the Groups expectations. In addition to significance of the amount, management's assessment process is detailed and comprehensive as it involves significant judgement in determining the assumptions to be used to estimate the recoverable amount involved in forecasting cash flows for each of the CGUs, intangible assets and those under development, principally relating to budgeted utilization of plants, operating margins, long-term growth rates and the discount rates used. Considering the materiality of amounts involved together with the inherent subjectivity related to principal assumptions, which are dependent on current and future economic factors and trading conditions varying for different economic and geographical territories, assessment of carrying values of goodwill, intangibles and intangible assets under development is considered to be complex and determined to be a key audit matter in our current year audit. a) Obtained an understanding of the managements process for identification of impairment indicators for goodwill, intangibles and intangibles under development and process for identification of CGUs and impairment testing of such assets. b) Tested the design and operating effectiveness of internal controls over such identification and impairment measurement through fair valuation of identified assets. c) Evaluated managements identification of CGUs. d) Involved auditors experts to assess the appropriateness of the valuation methodologies used by the management. e) Reconciled the cash flows to the business plans approved by the Board of Directors of the Companies which constitute identified CGUs. f) Evaluated and challenged managements assumptions such as implied growth rates during explicit period, terminal growth rate, targeted savings and discount rate for their appropriateness based on our understanding of the business of the respective CGUs, past results and external factors such as industry trends and forecasts. g) Tested the mathematical accuracy of the management computation. h) Obtained and evaluated sensitivity analysis performed by the management on key assumptions of implied growth rates during explicit period, terminal growth rate and discount rate. i) Performed independent sensitivity analysis of aforesaid key assumptions to assess the effect of reasonably possible variations on the current estimated recoverable amount for respective CGUs to evaluate sufficiency of headroom between recoverable value and carrying amounts. j) Evaluated the adequacy of disclosures given in the consolidated financial statements with respect to goodwill, intangibles and intangible assets under development, including disclosure of significant assumptions, judgements and sensitivity analysis performed, in accordance with applicable accounting standards. Based on the audit procedures performed, we determined that the carrying values of goodwill, intangible assets and intangible assets under development are appropriate in the context of the consolidated financial statements taken as a whole. Walker Chandiok & Co. LLP Consolidated
212 Cipla Ltd. Pharmaceuticals & Chemicals Key Audit Matters 31st March, 2019 The Groups sales to customers in the United States of America (US) fall under certain commercial and governmental reimbursement schemes and mandated contracts of which the most significant ones are chargebacks, rebates, failure to supply penalties and Medicaid Drug Rebate Program (Medicaid). The Group also provides a right of return to its customers for its products as per the terms of the contracts entered with such customers. These arrangements result in deductions to gross sales recognised by the Group, and require the Group to recognize obligations of the Group to provide such discounts, rebates and right of return to its customers for sales made during the reporting period. As at the reporting period end, the Group is required to estimate accruals and provisions with respect to such obligations for unsettled amounts arising from the revenue transactions. Accordingly, the Group has recognised an accrual of H6,809.23 crore as at 31st March, 2019 towards these arrangements and has adjusted revenues to the extent of H6,809.23 crore pertaining to Groups US operations during the year ended 31st March, 2019. Refer Note 1 and 30 to the consolidated financial statements. We focused on this area since these arrangements are complex and determining appropriate accruals and adjustments requires significant judgement and estimation by management. This judgement is particularly complex in US healthcare environment which involves multi-layered product discounting due to competitive pricing pressure apart from regulatory requirements such as Medicaid. Considering the materiality of the amount involved and high estimation uncertainty requiring significant judgement as discussed above, we determined this matter to be a key audit matter for the current year audit. a) Obtained an understanding of the management process for estimation and accounting treatment of transactions arising from various discount schemes, mandated contracts, chargebacks, rebates, failure to supply penalties and Medicaid compliance requirements, pertaining to Groups revenue operations in US. b) Tested the calculations for accruals under applicable schemes by testing the data with supporting documents such as Groups stated commercial policies, terms of underlying contracts inspected on a sample basis, stock lying at wholesalers, historical levels of product return and wholesale acquisition cost (WAC) determined for such calculations. c) Tested credit notes issued and payments made during the year under such schemes and arrangements, on a sample basis, from underlying supporting documents such as contracts, sales data and satisfaction of eligibility criteria as per terms of the scheme. d) Tested subsequent settlements, payments and rebates given to customers under various schemes and arrangements to determine adequacy of the accruals made at year end. e) Evaluated the historical accuracy of the Groups estimates of year-end accruals relating to such arrangements made in previous years. f) Evaluated the adequacy and appropriateness of the disclosures made in the accompanying consolidated financial statements relating to such arrangements in accordance with the requirements of the accounting standards. Based on audit procedures performed, we determined that the revenue accruals relating to US business are appropriate in the context of the consolidated financial statements taken as a whole. Walker Chandiok & Co. LLP Consolidated
213 Cipla Ltd. Pharmaceuticals & Chemicals Other Matters 31st March, 2019 We did not audit the financial statements of 45 subsidiaries, whose financial statements reflects total assets of H3,059.41 crore and net assets of H464.47 crore as at 31st March, 2019, total revenues of H3,170.59 crore and net cash outflows amounting to H137.13 crore for the year ended on that date, as considered in the consolidated financial statements. The consolidated financial statements also include the Groups share of net loss (including other comprehensive income) of H2.67 for the year ended 31st March, 2019, as considered in the consolidated financial statements, in respect of associates, whose financial statement has not been audited by us. These financial statements have been audited by other auditors whose report has been furnished to us by the management and our opinion on the consolidated financial statements, in so far as it relates to the amounts and disclosures included in respect of these subsidiaries and associates, and our report in terms of sub-Section (3) of Section 143 of the Act, in so far as it relates to the aforesaid subsidiaries and associates, is based solely on the reports of the other auditors. Further, of these subsidiaries and associates, 41 subsidiaries are located outside India whose financial statements have been prepared in accordance with accounting principles generally accepted in their respective countries and which have been audited by other auditors under generally accepted auditing standards applicable in their respective countries. The Holding Companys management has converted the financial statements of such subsidiaries located outside India from accounting principles generally accepted in their respective countries to accounting principles generally accepted in India. We have audited these conversion adjustments made by the Holding Companys management. Our opinion, and matters identified and disclosed under key audit matters Section above, in so far as it relates to the balances and affairs of such subsidiaries and associates located outside India is based on the report of other auditors and the conversion adjustments prepared by the management of the Holding Company and audited by us. Our opinion above on the consolidated financial statements, and our report on other legal and regulatory requirements below, are not modified in respect of the above matters with respect to our reliance on the work done by and the reports of the other auditors. Walker Chandiok & Co. LLP Consolidated
214 Cipla Ltd. Pharmaceuticals & Chemicals Other Matters 31st March, 2019 The consolidated financial statements also include the Groups share of net loss (including other comprehensive income) of H14.50 crore for the year ended 31st March, 2019, as considered in the consolidated financial statements, in respect of an associate. This financial information is unaudited and have been furnished to us by the management and our opinion on the consolidated financial statements, and matters identified and disclosed under key audit matters section above and our report in terms of sub-section (3) of Section 143 of the Act in so far as it relates to the aforesaid associates, are based solely on such unaudited financial information. In our opinion and according to the information and explanations given to us by the management, this financial information is not material to the Group. Our opinion above on the consolidated financial statements, and our report on other legal and regulatory requirements below, are not modified in respect of the above matter with respect to our reliance on the financial information certified by the management. Walker Chandiok & Co. LLP Consolidated
215 Crompton Greaves Consumer Electricals Ltd. Retail & FMCG Key Audit Matters 31st March, 2019 Goodwill On the demerger of the Consumer Business from Crompton Greaves Limited (CGL) (now CG Power and Industrial Solutions Limited) and in terms of Scheme of Arrangement the assets and liabilities of the consumer Business along with certain brand usage rights were transferred to Crompton Greaves Consumer Electricals Limited (CGCEL). The excess of liabilities over net assets based on fair value and the share capital amounting to Rs. 779.41 crore, was shown as Goodwill in the books of CGCEL. The Company has adopted the policy of amortising the goodwill in the books of account, on the basis of impairment test, only if there is an indication of impairment as at the reporting date. Based on the valuation done by the managements consultant, the value of the goodwill is more than book value of goodwill as at 31st March, 2019, and hence, there is no indication of impairment. Due to the inherent uncertainty involved in forecasting and discounting future cash flows, determination of discount and terminal growth rates, which are the basis for computing the value of goodwill and the assessment of recoverability, these are the key judgement areas. In view of the above, the Company has carried out an impairment assessment of goodwill using a value-in use model which is based on the net present value of the forecast earnings of the cash generating units. The calculation involved using certain assumptions around discount rates, growth rates and cash flow forecasts. This is considered as the key audit matter. We have performed the audit procedures, including: a) Critically reviewing the Companys assumptions pertaining to externally derived data in relation to key inputs, such as, long-term growth rates and discount rates; b) Assessed the appropriateness of the forecasted cash flows based on our understanding of the business and sector experience; c) Recalculated the weighted average cost of capital (WACC) used to discount the cash flows and assessed those rates to be reasonable based on knowledge of the economic environment and the risk premium associated with respective industries and countries. d) Compared the cash flow forecasts used in the impairment assessment prepared by management consultant with the budgeted numbers to the extent available; e) Evaluated the reasonableness of the forecasts made by the management by comparing past forecasts to historical results, where this was available, and by comparing to the current year results of the Company; f) Subjected related key assumptions to sensitivity analysis; g) Evaluated whether the Companys disclosures concerning the sensitivity of the impairment assessment to changes in key assumptions, reasonably reflected the risks inherent in the valuation of goodwill; h) Sceptically reviewed managements assumptions, judgement and the appropriateness of the valuation model used; i) Tested the mathematical accuracy of managements calculations. Our audit procedures did not reveal in any material variations. Sharp & Tannan Standalone
216 Crompton Greaves Consumer Electricals Ltd. Retail & FMCG Key Audit Matters 31st March, 2019 Ongoing tax matters, including provision for tax The Companys unsettled tax positions includes matters under dispute which involves significant judgment to determine the possible outcome of these disputes. These provisions are estimated using a significant degree of management judgement in interpreting the various relevant rules, regulations and practices. Provision for tax is also based on the resumption of significant estimates and assumptions on the allowability / disallowablilty of claims. Hence, it is considered as a Key Audit Matter. We have performed audit procedures, which including: a) Obtained information of completed tax assessments and demands / refunds received by the Company during the financial year 2018-19; b) Critically reviewed the processes and controls in place over tax assessments and demands / refunds through discussions with the managements internal experts / external consultants and reviewed the communications with those charged with governance pertaining to this issue; c) Involved our tax team to critically evaluate the assumptions in estimating the tax provisions and the possible outcome of the assessment / demands. Our tax team considered past precedence and other rulings in evaluating Companys position on these uncertain tax positions. d) Assessed whether the Companys disclosures in Note 31 to the standalone financial statements, the Contingent liabilities and commitments, adequately disclose the relevant facts and circumstances and potential liabilities of the Company. e) Also, considered the effect of all the information in respect of uncertain tax positions as at 31st March, 2019 and provision for tax to evaluate whether any review was necessary to Companys position on these uncertainties. Our audit procedures did not reveal any negative observations in the matter. Sharp & Tannan Standalone
217 Crompton Greaves Consumer Electricals Ltd. Retail & FMCG Key Audit Matters 31st March, 2019 Estimates - Provision for warranty Computation of provision for warranties and returns involves critical evaluation of historical data with respect to the nature of repair and returns, and estimation of costs in respect of future warranty claims and refunds. In view of the estimates being based on facts and circumstances that can change from period to period, this is considered to be a significant management judgement. Hence, a Key Audit Matter. We have performed audit procedures, which includes: a) Reviewed managements contract risk assessments by enquiries, inspection of meeting minutes and review of correspondence with customers, where available. As we have the knowledge gained through field involvement and feedback on review of the operation, contract and project reviews, we also assessed the justification for and the accuracy of provisions; b) Reviewed the recognition and appropriateness of provisions by re-computing the amounts, obtaining management statements, evidence and supporting documents, such as, correspondence with clients or legal assessments of internal sources, where available; c) Considered the historical accuracy of estimates made by management through reviews of actual facts. In order to gain a complete and clear understanding, additionally performed enquiry procedures and reviewed relevant documents. Our audit procedures did not reveal any observations of any material differences. Sharp & Tannan Standalone
218 Crompton Greaves Consumer Electricals Ltd. Retail & FMCG Key Audit Matters 31st March, 2019 On the demerger of the Consumer Business from Crompton Greaves Limited (CGL) (now CG Power and Industrial Solutions Limited) and in terms of Scheme of Arrangement the assets and liabilities of the Consumer Business along with certain brand usage rights were transferred to Crompton Greaves Consumer Electricals Limited (CGCEL). The excess of liabilities over net assets based on fair value and the share capital amounting to Rs. 779.41 crore, was shown as Goodwill in the books of CGCEL. The Company has adopted the policy of amortising the goodwill in the books of account, on the basis of impairment test, only if there is an indication of impairment as at the reporting date. Based on the valuation done by the managements consultant, the value of the goodwill is more than book value of goodwill as at 31st March, 2019, and hence, there is no indication of impairment. Due to the inherent uncertainty involved in forecasting and discounting future cash flows, determination of discount and terminal growth rates, which are the basis for computing the value of goodwill and the assessment of recoverability, these are the key judgement areas. In view of the above, the Company has carried out an impairment assessment of goodwill using a value-in use model which is based on the net present value of the forecast earnings of the cash generating units. The calculation involved using certain assumptions around discount rates, growth rates and cash flow forecasts. This is considered as the key audit matter. a) Critically reviewing the Companys assumptions pertaining to externally derived data in relation to key inputs, such as, long-term growth rates and discount rates; b) Assessed the appropriateness of the forecasted cash flows based on our understanding of the business and sector experience; c) Recalculated the weighted average cost of capital (WACC) used to discount the cash flows and assessed those rates to be reasonable based on knowledge of the economic environment and the risk premium associated with respective industries and countries. d) Compared the cash flow forecasts used in the impairment assessment prepared by management consultant with the budgeted numbers to the extent available; e) Evaluated the reasonableness of the forecasts made by the management by comparing past forecasts to historical results, where this was available, and by comparing to the current year results of the Company; f) Subjected related key assumptions to sensitivity analysis; g) Evaluated whether the Companys disclosures concerning the sensitivity of the impairment assessment to changes in key assumptions, reasonably reflected the risks inherent in the valuation of goodwill; h) Sceptically reviewed managements assumptions, judgement and the appropriateness of the valuation model used; i) Tested the mathematical accuracy of managements calculations. Our audit procedures did not reveal in any material variations Sharp & Tannan Consolidated
219 Crompton Greaves Consumer Electricals Ltd. Retail & FMCG Key Audit Matters 31st March, 2019 Ongoing tax matters, including provision for tax The Companys unsettled tax positions includes matters under dispute which involves significant judgment to determine the possible outcome of these disputes. These provisions are estimated using a significant degree of management judgement in interpreting the various relevant rules, regulations and practices. Provision for tax is also based on the presumption of significant estimates and assumptions on the allowability / disallowablilty of claims. Hence, it is considered as a Key Audit Matter. a) Obtained information of completed tax assessments and demands / refunds received by the Company during the financial year 2018-19; b) Critically reviewed the processes and controls in place over tax assessments and demands / refunds through discussions with the managements internal experts / external consultants and reviewed the communications with those charged with governance pertaining to this issue; c) Involved our tax team to critically evaluate the assumptions in estimating the tax provisions and the possible outcome of the assessment / demands. Our tax team considered past precedence and other rulings in evaluating Companys position on these uncertain tax positions. d) Assessed whether the Companys disclosures in Note 30 to the consolidated financial statements, the Contingent liabilities and commitments, adequately disclose the relevant facts and circumstances and potential liabilities of the Company. e) Also, considered the effect of all the information in respect of uncertain tax positions as at 31st March, 2019 and provision for tax to evaluate whether any review was necessary to Companys position on these uncertainties. Our audit procedures did not reveal any negative observations in the matter. Sharp & Tannan Consolidated
220 Crompton Greaves Consumer Electricals Ltd. Retail & FMCG Key Audit Matters 31st March, 2019 Estimates - Provision for warranty Computation of provision for warranties and returns involves critical evaluation of historical data with respect to the nature of repair and returns, and estimation of costs in respect of future warranty claims and refunds. In view of the estimates being based on facts and circumstances that can change from period to period, this is considered to be a significant management judgement. Hence, a Key Audit Matter. a) Reviewed managements contract risk assessments by enquiries, inspection of meeting minutes and review of correspondence with customers, where available. As we have the knowledge gained through field involvement and feedback on review of the operation, contract and project reviews, we also assessed the justification for and the accuracy of provisions; b) Reviewed the recognition and appropriateness of provisions by re-computing the amounts, obtaining management statements, evidence and supporting documents, such as, correspondence with clients or legal assessments of internal sources, where available; c) Considered the historical accuracy of estimates made by management through reviews of actual facts. In order to gain a complete and clear understanding, additionally performed enquiry procedures and reviewed relevant documents. Our audit procedures did not reveal any observations of any material differences. Sharp & Tannan Consolidated
221 Dabur India Ltd. Retail & FMCG Key Audit Matters 31st March, 2019 Revenue of the Company consists primarily of sale of products and is recognized when control of products being sold is transferred to customer and there is no unfulfilled obligation. Revenue is measured at fair value of the consideration received or receivable and is accounted for net of rebates, trade discounts. The estimation of discounts, incentives and rebates recognized, related to sales made during the year, is material and considered to be complex and subject to judgments. The complexity mainly relates to various discounts, incentives and scheme offers, diverse range of market presence and complex contractual agreements/commercial terms across those markets. Therefore, there is a risk of revenue being misstated as a result of inaccurate estimates of discounts and rebates. The Company also focuses on revenue as a key performance measure, which could create an incentive for overstating revenue by influencing the computation of rebates and discounts. Considering the materiality of amounts involved, significant judgements related to estimation of rebates and discounts, the same has been considered as a key audit matter. a) Assessed the appropriateness of the Companys revenue recognition accounting policies, including those relating to rebates and trade discounts by comparing with the applicable accounting standards; b) Tested the design and operating effectiveness of the general IT control environment and the manual controls for recognition of revenue, calculation of discounts and rebates; c) Performed test of details: i. Tested, on a sample basis, sales transactions to the underlying supporting documentation which includes goods dispatch notes and shipping documents; ii. Reviewed, on a sample basis, sales agreements and the underlying contractual terms related to delivery of goods and rebates to assess the Companys revenue recognition policies with reference to the requirements of the applicable accounting standards; iii. Assessed the Companys process for recording of the accruals for discounts and rebates as at the year-end for the prevailing incentive schemes; iv. Tested, on a sample basis, discounts and rebates recorded during the year to the relevant approvals and supporting documentation which includes assessing the terms and conditions defined in the prevalent schemes and customer contracts; and v. Obtained supporting documentation for a sample of credit notes issued after the year end to determine whether the transaction was recognized in the correct accounting period. d) Compared the discount, incentives and rebates of the current year with the prior year for variance/trend analysis and where relevant, conducted further inquiries and testing to corroborate the variances by considering both internal and external benchmarks, overlaying our understanding of industry practices. e) Assessed the appropriateness of the Companys description of the accounting policy, disclosures related to discounts, incentives and rebates and whether these are adequately presented in the standalone financial statements. Walker Chandiok & Co. LLP Standalone
222 Dabur India Ltd. Retail & FMCG Key Audit Matters 31st March, 2019 The Company is involved in direct, indirect tax and other litigations (litigations) that are pending with different statutory authorities. The level of management judgement associated with determining the need for, and the quantum of, provisions for any liabilities arising from these litigations is considered to be high. This judgement is dependent on a number of significant assumptions and assessments which involves interpreting the various applicable rules, regulations, practices and considering precedents in the various jurisdictions. This matter is considered as a key audit matter, in view of the uncertainty regarding the outcome of these litigations, the significance of the amounts involved and the subjectivity involved in managements judgement as to whether the amount should be recognized as a provision or only disclosed as contingent liability in the standalone financial statements. a) Assessed the appropriateness of the Companys accounting policies relating to provisions and contingent liability by comparing with the applicable accounting standards; b) Assessed the Companys process and the underlying controls for identification of the pending litigations and completeness for financial reporting and also for monitoring of significant developments in relation to such pending litigations; c) Assessed the Companys assumptions and estimates in respect of litigations, including the liabilities or provisions recognized or contingent liabilities disclosed in the standalone financial statements. This involved assessing the probability of an unfavourable outcome of a given proceeding and the reliability of estimates of related amounts; d) Performed substantive procedures on the underlying calculations supporting the provisions recorded; e) Assessed the managements conclusions through understanding relevant judicial precedents in similar cases and the applicable rules and regulations; f) Obtained legal opinions from the Companys external legal counsel, where appropriate; g) Engaged subject matter specialists to gain an understanding of the current status of litigations and monitored changes in the disputes, if any, through discussions with the management and by reading external advice received by the Company, where relevant, to validate managements conclusions; and h) Assessed the appropriateness of the Companys description of the accounting policy, disclosures related to litigations and whether these are adequately presented in the standalone financial statements. Walker Chandiok & Co. LLP Standalone
223 Dabur India Ltd. Retail & FMCG Key Audit Matters 31st March, 2019 The Companys investment portfolio represents a significant portion of the Companys total assets, which primarily consists of: i. Bonds; ii. Non-convertible debentures; iii. Commercial papers; iv. Certificate of deposits; and v. Fixed deposits The aforementioned instruments are valued at amortized cost or fair value through other compressive income (FVOCI) depending upon the nature as summarized below: 1. Instrument valued at amortized cost: a) Non-convertible debentures; b) Commercial papers; c) Certificate of deposits; and d) Fixed deposits 2. Instrument valued at fair value through other comprehensive income (FVOCI): a) Bonds This is considered to be a significant area in view of the materiality of amounts involved, judgements involved in determining of impairment/ recoverability of instruments measured at amortized cost which includes assessment of market data/conditions and financial indicators of the investee and judgements in selecting the valuation basis and the complexities involved in the valuation of instruments carried at FVTOCI which includes assessment of the available trading yield of relevant instruments. a) Assessed the appropriateness of the relevant accounting policies of the Company, including those relating to recognition and measurement of financial instrument by comparing with the applicable accounting standards; b) For instrument valued at fair value: i. Assessed the availability of quoted prices in liquid markets; ii. Assessed whether the valuation process is appropriately designed and captures relevant valuation inputs; iii. Performed testing of the inputs/assumptions used in the valuation; and iv. Assessed pricing model methodologies and assumptions against industry practice and valuation guidelines c) For instrument valued at amortized cost: Assessed the instrument for impairment by evaluating if there is any significant increase in credit risk, which mainly involves: i. Evaluating the credit rating of individual instrument, where relevant, to assess if there is any rating downgrade; ii. Evaluating the regularity of the interest payment and principal repayment as per agreed plan/term of issuance of instrument, where applicable; and iii. Obtained the valuations of instruments, where required; d) Assessed the appropriateness of the Companys description of the accounting policy and disclosures related to investments and whether these are adequately presented in the standalone financial statements. Walker Chandiok & Co. LLP Standalone
224 Dabur India Ltd. Retail & FMCG Key Audit Matters 31st March, 2019 Revenue of the Group consists primarily of sale of products and is recognized when control of products being sold is transferred to customer and there is no unfulfilled obligation. Revenue is measured at fair value of the consideration received or receivable and is accounted for net of rebates, trade discounts. The estimation of discounts, incentives and rebates recognized, related to sales made during the year, is material and considered to be complex and subject to judgments. The complexity mainly relates to various discounts, incentives and scheme offers, diverse range of market presence and complex contractual agreements/commercial terms across those markets. Therefore, there is a risk of revenue being misstated as a result of inaccurate estimates of discounts and rebates. The Group also focuses on revenue as a key performance measure, which could create an incentive for overstating revenue by influencing the computation of rebates and discounts. Considering the materiality of amounts involved, significant judgements related to estimation of rebates and discounts, the same has been considered as a key audit matter. This matter has also been reported as key audit matter to the audit opinion on the consolidated financial statements of Dabur International Limited, a subsidiary of the Holding Company, by an independent firm of Chartered Accountants vide its report dated 26 April, 2019. Our key procedures included, but were not limited to, the following: a) Assessed the appropriateness of the Groups revenue recognition accounting policies, including those relating to rebates and trade discounts by comparing with the applicable accounting standards; b) Tested the design and operating effectiveness of the general IT control environment and the manual controls for recognition of revenue, calculation of discounts and rebates; c) Performed test of details: i. Tested, on a sample basis, sales transactions to the underlying supporting documentation which includes goods dispatch notes and shipping documents; ii. Reviewed, on a sample basis, sales agreements and the underlying contractual terms related to delivery of goods and rebates to assess the Groups revenue recognition policies with reference to the requirements of the applicable accounting standards; iii. Assessed the Groups process for recording of the accruals for discounts and rebates as at the year-end for the prevailing incentive schemes; iv. Tested, on a sample basis, discounts and rebates recorded during the year to the relevant approvals and supporting documentation which includes assessing the terms and conditions defined in the prevalent schemes and customer contracts; and v. Obtained supporting documentation for a sample of credit notes issued after the year end to determine whether the transaction was recognized in the correct accounting period. d) Compared the discount, incentives and rebates of the current year with the prior year for variance/trend analysis and where relevant, conducted further inquiries and testing to corroborate the variances by considering both internal and external benchmarks, overlaying our understanding of industry practices; and e) Assessed the appropriateness of the Groups description of the accounting policy, disclosures related to discounts, incentives and rebates and whether these are adequately presented in the consolidated financial statements. Walker Chandiok & Co. LLP Consolidated
225 Dabur India Ltd. Retail & FMCG Key Audit Matters 31st March, 2019 The Group is involved in direct, indirect tax and other litigations (litigations) that are pending with different statutory authorities. The level of management judgement associated with determining the need for, and the quantum of, provisions for any liabilities arising from these litigations is considered to be high. This judgement is dependent on a number of significant assumptions and assessments which involves interpreting the various applicable rules, regulations, practices and considering precedents in the various jurisdictions. How our audit addressed the key audit matter This matter is considered as a key audit matter, in view of the uncertainty regarding the outcome of these litigations, the significance of the amounts involved and the subjectivity involved in managements judgement as to whether the amount should be recognized as a provision or only disclosed as contingent liability in the consolidated financial statements. This matter has also been reported as key audit matter to the audit opinion on the consolidated financial statements of Dabur International Limited, a subsidiary of the Holding Company, by an independent firm of Chartered Accountants vide its report dated 26 April, 2019. a) Assessed the appropriateness of the Groups accounting policies relating to provisions and contingent liability by comparing with the applicable accounting standards; b) Assessed the Groups process and the underlying controls for identification of the pending litigations and completeness for financial reporting and also for monitoring of significant developments in relation to such pending litigations; c) Assessed the Groups assumptions and estimates in respect of litigations, including the liabilities or provisions recognized or contingent liabilities disclosed in the consolidated financial statements. This involved assessing the probability of an unfavourable outcome of a given proceeding and the reliability of estimates of related amounts; d) Performed substantive procedures on the underlying calculations supporting the provisions recorded; e) Assessed the managements conclusions through understanding relevant judicial precedents in similar cases and the applicable rules and regulations; f) Obtained legal opinions from the Groups external legal counsel, where appropriate; g) Engaged subject matter specialists to gain an understanding of the current status of litigations and monitored changes in the disputes, if any, through discussions with the management and by reading external advice received by the Group, where relevant, to validate managements conclusions; and h) Assessed the appropriateness of the Groups description of the accounting policy, disclosures related to litigations and whether these are adequately presented in the consolidated financial statements. Walker Chandiok & Co. LLP Consolidated
226 Dabur India Ltd. Retail & FMCG Key Audit Matters 31st March, 2019 The Groups investment portfolio represents a significant portion of the Groups total assets, which primarily consists of: i. Bonds; ii. Non-convertible debentures; iii. Commercial papers; iv. Certificate of deposits; and v. Fixed deposits The aforementioned instruments are valued at amortized cost or fair value through other compressive income (FVOCI) depending upon the nature as summarized below: 1. Instrument valued at amortized cost: a) Non-convertible debentures; b) Commercial papers; c) Certificate of deposits, and d) Fixed deposits 2. Instrument valued at fair value through other comprehensive income (FVOCI): a) Bonds This is considered to be a significant area in view of the materiality of amounts involved, judgements involved in determining of impairment/ recoverability of instruments measured at amortized cost which includes assessment of market data/conditions and financial indicators of the investee and judgements in selecting the valuation basis and the complexities involved in the valuation of instruments carried at FVTOCI which includes assessment of the available trading yield of relevant instruments. This matter has also been reported as key audit matter to the audit opinion on the consolidated financial statements of Dabur International Limited, a subsidiary of the Holding Company, by an independent firm of Chartered Accountants vide its report dated 26 April, 2019. a) Assessed the appropriateness of the relevant accounting policies of the Group, including those relating to recognition and measurement of financial instrument by comparing with the applicable accounting standards; b) For instrument valued at fair value: i. Assessed the availability of quoted prices in liquid markets; ii. Assessed whether the valuation process is appropriately designed and captures relevant valuation inputs; iii. Performed testing of the inputs/assumptions used in the valuation; and iv. Assessed pricing model methodologies and assumptions against industry practice and valuation guidelines c) For instrument valued at amortized cost: Assessed the instrument for impairment by evaluating if there is any significant increase in credit risk, which mainly involves: i. Evaluating the credit rating of individual instrument, where relevant, to assess if there is any rating downgrade; ii. Evaluating the regularity of the interest payment and principal repayment as per agreed plan/term of issuance of instrument, where applicable; and iii. Obtained the valuations of instruments, where required; d) Assessed the appropriateness of the Groups description of the accounting policy and disclosures related to investments and whether these are adequately presented in the consolidated financial statements. Walker Chandiok & Co. LLP Consolidated
227 Dabur India Ltd. Retail & FMCG Key Audit Matters 31st March, 2019 The consolidated financial statements of the Group as at 31 March, 2019 carries goodwill amounting to ? 336.07 crores. This goodwill was recorded on the acquisition of step down subsidiaries in earlier years. Goodwill is tested for impairment annually at the cash generating unit level, whereby the carrying amount of the Cash Generating Unit (including goodwill) is compared with the recoverable amount of the cash generating unit. The recoverable amount is determined on the basis of the value in use which is the present value of future cash flows of the cash generating unit. The present value is determined using discounted cash flow model. The Groups approved annual plans forms the starting point which is then updated with assumptions of long term growth rates. This also takes into account expectations about future market developments and other macroeconomic factors. The discounting is based on weighted average cost of capital of the cash generating unit. The result of this evaluation is highly dependent on management estimates, which among others include, the expected business and earnings forecasts for future years, the assumed long-term growth rates and the discount rate used and is therefore subject to considerable judgement. a) Read group audit instructions, received from the principal auditor, in relation to testing of goodwill for impairment; b) Assessed the appropriateness of the Groups accounting policies, including those relating to recognition, measurement and impairment of goodwill by comparing with the applicable accounting standards; c) Assessed the appropriateness of the significant assumptions as well as the Groups valuation model with the support of our valuation specialists. This included a discussion of the expected development of the business and results as well as of the underlying assumptions used with those responsible for the planning process. The Group has engaged external experts to carry out impairment analysis. We also assessed the relevant skill set/experience of the management expert in respect of carrying out the valuation; d) Compared the discount rate used (in particular the underlying parameters such as risk free rate, market risk premium and the beta factor) with the publicly available information and also checked mathematical accuracy of the valuation model; e) Evaluated the appropriateness of the weighted average cost of capital considered in the valuation; f) Assessed the robustness of financial projections prepared by management by comparing projections for previous financial years with actual results realized and analysed significant deviations, if any; g) Performed a sensitivity analysis for reasonably possible changes in the sales growth, discount rate applied and the long-term growth rate; and h) Assessed the appropriateness of the Groups description of the accounting policy and disclosures related to goodwill and impairment testing and whether these are adequately presented in the consolidated financial statements. Walker Chandiok & Co. LLP Consolidated
228 Dabur India Ltd. Retail & FMCG Other Matters 31st March, 2019 We did not audit the financial statements of 23 subsidiaries, whose financial statements reflects total assets of ? 2,938.81 crores and net assets of ? 1,736.33 crores as at 31 March, 2019, total revenues of ? 2,716.39 crores and net cash inflows amounting to ? 31.27 crores for the year ended on that date, as considered in the consolidated financial statements. These financial statements have been audited by other auditor whose report has been furnished to us by the management and our opinion on the consolidated financial statements and matters identified and disclosed under key audit matters section above, in so far as it relates to the amounts and disclosures included in respect of these subsidiaries and our report in terms of Sub-Section (3) of Section 143 of the Act, in so far as it relates to the aforesaid subsidiaries is based solely on the report of the other auditor. Our opinion above on the consolidated financial statements, and our report on other legal and regulatory requirements below, are not modified in respect of the above matter with respect to our reliance on the work done by and the report of the other auditor. 16. Walker Chandiok & Co. LLP Consolidated
229 Dabur India Ltd. Retail & FMCG Other Matters 31st March, 2019 The consolidated financial statements also include the Groups share of net profit (including other comprehensive income) of ? 0.96 crores for the year ended 31 March, 2019, as considered in the consolidated financial statements, in respect of a joint venture, whose financial statements have not been audited by us. These financial statements are unaudited and have been furnished to us by the management and our opinion on the consolidated financial statements, and matters identified and disclosed under key audit matters section above and our report in terms of Sub-Section (3) of Section 143 of the Act in so far as it relates to the aforesaid joint venture, are based solely on such unaudited financial statements. In our opinion and according to the information and explanations given to us by the management, these financial statements are not material to the Group. Our opinion above on the consolidated financial statements, and our report on other legal and regulatory requirements below, are not modified in respect of the above matter with respect to our reliance on the financial statements certified by the management. Walker Chandiok & Co. LLP Consolidated
230 DCB Bank Ltd. Banks Key Audit Matters 31st March, 2019 Identification of and provisioning for non performing assets (loans) in accordance with the RBI guidelines The Bank has net advances amounting to Rs. 235,679,972 thousands as at 31 March 2019. Identification of and provisioning for non-performing assets (loans) in accordance with relevant prudential norms issued by the Reserve Bank of India (RBI) in respect of income recognition, asset classification and provisioning pertaining to advances (herein after referred as Relevant RBI guidelines) is a key audit matter due to the current processes at the Bank which requires manual interventions, management estimates and judgement and level of regulatory and other stakeholders focus. Accordingly, our audit was focused on income recognition, asset classification and provisioning pertaining to advances due to the materiality of the balances and associated impairment provisions. Our audit approach included testing the design, operating effectiveness of internal controls and substantive audit procedures in respect of income recognition, asset classification and provisioning pertaining to advances. In particular: we have evaluated and understood the Banks internal control system in adhering to the Relevant RBI guidelines regarding income recognition, asset classification and provisioning pertaining to advances; we have analysed and understood key IT systems/ applications used and tested the design and implementation as well as operational effectiveness of relevant controls, including involvement of manual process and manual controls in relation to income recognition, asset classification and provisioning pertaining to advances ; we test checked advances to examine the validity of the recorded amounts, loan documentation, examined the statement of accounts, indicators of impairment, impairment provision for non-performing assets, and compliance with income recognition, asset classification and provisioning pertaining to advances; and evaluated the past trends of management judgement, governance process and review controls over impairment provision calculations including minutes of the Specific Provisions Review Committee meetings and discussed the provisions made with senior management including the Chief Executive Officer, Chief Financial Officer, Chief Risk Officer and Chief Credit Officer. Deloitte Haskins & Sells Standalone
231 DCB Bank Ltd. Banks Key Audit Matters 31st March, 2019 Key Information technology (IT) systems used in financial reporting process The Banks operational and financial processes are dependent on IT systems due to large volume of transactions that are processed daily. The Bank has constituted an IT Strategy Committee at the Board level to oversee implementation of IT strategy. Accordingly, our audit was focussed on key IT systems and controls due to the pervasive impact on the financial statements. We involved our IT specialists to obtain an understanding of the Banks IT related control environment. Furthermore, we conducted an assessment and identified key IT applications, databases and operating systems that are relevant to our audit and have identified CBS and Treasury System primarily as relevant for financial reporting. For the key IT systems pertaining to CBS and treasury operations used to prepare accounting and financial information, our areas of audit focus included Access Security (including controls over privileged access), program change controls, database management and network operations. In particular: we obtained an understanding of the Banks IT control environment and key changes during the audit period that may be relevant to the audit and reviewed the minutes of IT Strategy Committee meetings; we tested the design, implementation and operating effectiveness of the Banks General IT controls over the key IT systems that are critical to financial reporting. This included evaluation of Banks controls to evaluate segregation of duties and access rights being provisioned / modified based on duly approved requests, access for exit cases being revoked in a timely manner and access of all users being recertified during the period of audit; we also tested key automated and manual business cycle controls and logic for system generated reports relevant to the audit; including testing of compensating controls or performed alternate procedures to assess whether there were any unaddressed IT risks that would materially impact the financial statements. Deloitte Haskins & Sells Standalone
232 Delta Corp Ltd. Entertainment Key Audit Matters 31st March, 2019 Deferred tax assets on long term capital losses (Refer note 19 and 51 of the standalone financial statement)As detailed in note 19 to the standalone financial statements, the Company has created deferred tax assets amounting to Rs. 4.32 crores as at 31st March, 2019 on brought forward long term capital losses. The Companys ability to recover the deferred tax assets is assessed by the management at the close of each financial year which depends upon the forecasts of the future results and long term taxable gains that Company expects to earn within the period by which such brought forward long term losses may be adjusted against the taxable long term taxable gains as governed by the Income Tax Act, 1961.As per the assessment done by the management, the Company believes that these long term capital losses will get offset against the long term capital gains as projected by the Company in future years on sale of certain investments held by the Company. As of 31st March, 2019, there is no binding agreement for sale of such investments and the Company is currently in process of finding possible buyers. Projections about long term capital gain in future involves significant management judgement and estimates. We have identified the recoverability of deferred tax assets as a key audit matter for the current year audit considering the materiality and significant judgment including the inherent uncertainty involved in forecasting future taxable profits and the probability of utilising the tax losses. Our audit procedures, included but were not limited to, the following: Evaluated the design and tested the operating effectiveness of key controls implemented by the Company over recognition of deferred tax assets based on the assessment of Companys ability to generate sufficient taxable profits in foreseeable future allowing the use of deferred tax assets within the time prescribed by income tax laws. Reconciled the future long term capital gain projections of the Company as approved by the Board of Directors. Obtained the board resolution for the proposed transactions on the basis of which deferred tax assets is created. Verified the cash flow forecasts used in the recoverability working to the Board approved projections. Reviewed the historical accuracy of the cash flow projections prepared by the management in prior periods. Evaluated managements assessment of time period available for adjustment of such deferred tax assets as per provisions of the Income Tax Act, 1961 and appropriateness of the accounting treatment with respect to the recognition of deferred tax assets as per requirements of Ind AS 12, Income Taxes. Evaluated the appropriateness of the disclosures made in the financial statements in respect of deferred tax assets. Walker Chandiok & Co. LLP Standalone
233 Delta Corp Ltd. Entertainment Key Audit Matters 31st March, 2019 Recoverability of the carrying value of investment in Subsidiary(refer note 3 of the standalone financial statements)The Company has investment in Daman Hospitality Private Limited (Subsidiary) carried at cost in accordance with Ind AS 27, Separate Financial Statements. The Company assesses the recoverable amount of the investments when impairment indicators exist by comparing the fair value (less costs of disposal) and carrying amount of the investments as on the reporting date. The recoverability of the investments in subsidiary was assessed by the management using discounted cash flow model using a management appointed valuation specialist. The valuation method involves significant estimates made by the management including discount rate, and business and cash flow projections during explicit period of five years based on revenue growth rates, projected operating margins, and terminal growth rate at the end of five years. Accordingly, considering the materiality of the carrying amounts, complexity and significance of judgement involved, impairment assessment of aforesaid investments has been considered to be a key audit matter for current years audit Our audit procedures included, but were not limited, to the following: Obtained an understanding of managements processes and controls for determining the fair valuation of investments; Evaluated the design and tested the operating effectiveness of key controls implemented by the management around fair valuation of investments including for cash flow projections, use of estimates involved and review of valuation performed Tested the accuracy of the input data provided by the management to the valuation specialist by reconciling the projected cash flows to approved business plans. Tested the reasonableness of key assumptions including revenue and profit growth or decline, discounting rate, operating margins including comparison of assumptions with industry and economic forecasts. Involved our internal valuation specialist to validate the valuation assumptions and methodology considered by the management while computing recoverable amount and perform sensitivity analysis on the key assumptions mentioned above. Evaluated the appropriateness of disclosures made in the financial statement in relation to such investments and their fair valuation as required by applicable accounting standards. Walker Chandiok & Co. LLP Standalone
234 Delta Corp Ltd. Entertainment Key Audit Matters 31st March, 2019 Revenue recognition (Refer note 1(i) for the accounting policy on revenue recognition and note 26 of the standalone financial statement for revenue recognized during the year)The Company has recognized Rs. 475.32 crores as revenue from physical casinos and hospitality business which requires processing of a large number of transactions each day using information technology systems used by the company for this purpose. Standards on Auditing prescribe a presumed risk of fraud in revenue recognition in that revenue may be misstated through improper recognition. Given this inherent risk and the complexity of the systems relied upon, we identified the occurrence of revenue as a significant risk of material misstatement. Further, the Company has adopted the new revenue accounting standard, Ind AS 115, Revenue from contracts with customers (Ind AS 115), from 1st April, 2018. The new standard requires management to make certain key judgements, such as, identification of distinct performance obligations in contracts with customers, determination of transaction price for the contract, selection of a method to allocate the transaction price to the performance obligations and manner of satisfaction of the performance obligations. Considering the amounts involved, large number of transactions and significant management judgement involved, revenue recognition was recognized as a key audit matter for the current year audit. Our audit procedures included, but were not limited, to the following: Obtained and updated our understanding of the revenue business process. Evaluated the design and tested the operating effectiveness of key controls over the recognition and measurement of revenue. Involved our information technology specialists to test information technology general controls and information technology application controls relevant for revenue recognition. Evaluated the appropriateness of the accounting treatment adopted by the management in accordance with Ind AS 115. For samples selected during the year and samples selected from the period before and after year end, testing supporting documents for revenue recognition including tracing of customers cash deposits and withdrawals to bank statements. Tested, on a sample basis, the appropriateness of journal entries impacting revenue, as well as other adjustments made in the preparation of the financial statements with respect to revenue recognition including specific journals posted manually directly to revenue. Evaluated the appropriateness of disclosures made in the financial statements with respect to revenue recognized during the year as required by applicable accounting standards. Walker Chandiok & Co. LLP Standalone
235 Delta Corp Ltd. Entertainment Key Audit Matters 31st March, 2019 Revenue Recognition (Refer note 1(j) and 27 of the consolidated financial statements) The Group enters into high volumes of revenue generating transactions each day recorded across physical casinos, hospitality business and online gaming. Further, a high number of sale transactions in hospitality and casino business, get settled in cash which requires the auditor to put significant additional effort and procedures to get comfort on those transactions. It is largely dependent on the effectiveness of the operational and fraud-related controls in place in the Groups IT systems that aim to correctly calculate appropriate wins and losses and commission revenues, as applicable, alongside customer funds. Standards on Auditing prescribe a presumed risk of fraud in revenue recognition in that revenue may be misstated through improper recognition. Given this inherent risk and the complexity of the systems relied upon, we identified the occurrence of revenue as a significant risk. The new accounting standard on revenue recognition, Ind AS 115 has become applicable from 1st April, 2018. Refer Note 55 for the impact of applicability of such standard on these financial statements. The new revenue standard involves significant management judgment to identify contracts with customer, performance obligation involved in contracts, determining transaction price which involves variable consideration elements on account of expected value and allocation of the transaction price to such performance obligations. Due to above considerations, revenue recognition relating to casino, hospitality business and online gaming is identified as a matter of most significance in the current year audit. Our audit procedure included, but were not limited to, the following: Obtained and updated our understanding of the revenue business process for each stream of revenue. Evaluated the design and tested the operating effectiveness of key controls over the recognition and measurement of revenue. Involved our information technology specialists to test information technology general controls and information technology application controls relevant for revenue recognition. Evaluated the appropriateness of the accounting treatment adopted by the management in accordance with Ind AS 115. For samples selected during the year and samples selected from the period before and after year end, testing supporting documents for revenue recognition including tracing of customers cash deposits and withdrawals to bank statements. Tested, on a sample basis, the appropriateness of journal entries impacting revenue, as well as other adjustments made in the preparation of the financial statements with respect to revenue recognition including specific journals posted manually directly to revenue. Evaluated the appropriateness of disclosures made in the financial statements with respect to revenue recognized during the year as required by applicable accounting standards. Walker Chandiok & Co. LLP Consolidated
236 Delta Corp Ltd. Entertainment Key Audit Matters 31st March, 2019 Goodwill impairment (Refer note 2(ii) of the consolidated financial statements) The group has recognised goodwill amounting to Rs. 396.86 crores in the consolidated financial statements. The Group has performed annual impairment test for the goodwill as required under the applicable accounting standards. The determination of recoverable value requires judgement on the part of management in both identifying and then computing the recoverable value of the cash generating units (CGU). The assumptions applied by the management in determining the recoverable value include discount rates, cash flow projections over five years, growth rate. Changes in these assumptions could lead to an impairment to the carrying value of the goodwill. Due to their materiality in the context of the Company financial statement as a whole, this is considered to be the area which has significant effect on our overall audit and accordingly, determined to be a key audit matter. Our audit procedure included but were not limited to the following: Obtained understanding of management process and evaluated the design and tested the operating effectiveness of key controls in assessing the carrying value of goodwill and identification of the groups CGUs. Obtained the management projections with regard to recoverable value. Agreed the cash flow forecasts for CGUs used in the recoverability working to the projections approved by the board of directors of the holding company. Tested the reasonableness of key assumptions including revenue and profit growth or decline, discounting rate, operating margins including comparison of assumptions with industry and economic forecasts. Involved our internal valuation specialists to validate the valuation assumptions and methodology considered by the management while computing recoverable amount and perform sensitivity analysis on the key assumptions mentioned above. Evaluated the appropriateness of disclosures made in the financial statement with respect to goodwill in accordance with applicable accounting standards. Walker Chandiok & Co. LLP Consolidated
237 Delta Corp Ltd. Entertainment Key Audit Matters 31st March, 2019 Deferred tax assets on long term capital losses (Refer note 5 and 51 of the standalone financial statement) As detailed in note 5 to the Holding Company has created deferred tax assets amounting to Rs. 4.32 crores as at 31st March, 2019 on brought forward long term capital losses. The Holding Companys ability to recover the deferred tax assets is assessed by the management at the close of each financial year which depends upon the forecasts of the future results and long term taxable gains that Company expects to earn within the period by which such brought forward long term losses may be adjusted against the taxable long term taxable gains as governed by the Income Tax Act, 1961. As per the assessment done by the management, the Holding Company believes that these long term capital losses will get offset against the long term capital gains as projected by the Company in future years on sale of certain investments held by the Holding Company. As of 31st March, 2019, there is no binding agreement for sale of such investments and the Company is currently in process of finding possible buyers. Projections about long term capital gain in future involves significant management judgement and estimates. We have identified the recoverability of deferred tax assets as a key audit matter for the current year audit considering the materiality and significant judgment including the inherent uncertainty involved in forecasting future taxable profits and the probability of utilising the tax losses. Our audit procedure included but were not limited to the following: Evaluated the design and tested the operating effectiveness of key controls implemented by the Holding Company over recognition of deferred tax assets based on the assessment of Companys ability to generate sufficient taxable profits in foreseeable future allowing the use of deferred tax assets within the time prescribed by income tax laws. Reconciled the future long term capital gain projections of the Holding Company as approved by the Board of Directors. Obtained the board resolution for the proposed transactions on the basis of which deferred tax assets is created. Verified the cash flow forecasts used in the recoverability working to the Board approved projections. Reviewed the historical accuracy of the cash flow projections prepared by the management in prior periods. Evaluated managements assessment of time period available for adjustment of such deferred tax assets as per provisions of the Income Tax Act, 1961 and appropriateness of the accounting treatment with respect to the recognition of deferred tax assets as per requirements of Ind AS 12, Income Taxes. Evaluated the appropriateness of the disclosures made in the financial statements in respect of deferred tax assets. Walker Chandiok & Co. LLP Consolidated
238 Delta Corp Ltd. Entertainment Other Matters 31st March, 2019 We did not audit the financial statements of 10 subsidiaries, whose financial statements reflects total assets of Rs. 390.87 Crores and net assets of Rs. 206.54 Crores as at 31st March, 2019, total revenues of Rs. 229.97 Crores and net cash outflows amounting to Rs. 9.09 Crores for the year ended on that date, as considered in the consolidated financial statements. These financial statements have been audited by other auditors whose reports have been furnished to us by the management and our opinion on the consolidated financial statements, in so far as it relates to the amounts and disclosures included in respect of these subsidiaries, and our report in terms of sub-section (3) of Section 143 of the Act, in so far as it relates to the aforesaid subsidiaries, is based solely on the reports of the other auditors. Further, of these subsidiaries, 3 subsidiaries are located outside India whose financial statements and other financial information have been prepared in accordance with accounting principles generally accepted in their respective countries and which have been audited by other auditors under generally accepted auditing standards applicable in their respective countries. The Holding Companys management has converted the financial statements of such subsidiaries, located outside India from accounting principles generally accepted in their respective countries to accounting principles generally accepted in India. We have audited these conversion adjustments made by the Holding Companys management. Our opinion, and matters identified and disclosed under key audit matters section above, in so far as it relates to the balances and affairs of such subsidiaries located outside India is based on the report of other auditors and the conversion adjustments prepared by the management of the Holding Company and audited by us. Our opinion above on the consolidated financial statements, and our report on other legal and regulatory requirements below, are not modified in respect of the above matters with respect to our reliance on the work done by and the reports of the other auditors. We did not audit the financial statements of 1 subsidiary, whose financial statements reflect total assets of Rs. 22.85 Crores and net assets of Rs. 21.66 Crores as at 31st March, 2019, total revenues of Rs. 0.06 Crores and net cash outflows amounting to Rs. 0.06 Crores for the year ended on that date, as considered in the consolidated financial statements. The consolidated financial statements also include the Groups share of net profit (including other comprehensive income) of Rs. Nil for the year ended 31st March, 2019, as considered in the consolidated financial statements, in respect of 3 associates, whose financial information have not been audited by us. These financial statements are unaudited and have been furnished to us by the management and our opinion on the consolidated financial statements, and matters identified and disclosed under key audit matters section above and our report in terms of sub-section (3) of Section 143 of the Act in so far as it relates to the aforesaid subsidiaries and associates, are based solely on such unaudited financial statements. In our opinion and according to the information and explanations given to us by the management, these financial statements are not material to the Group. Our opinion above on the consolidated financial statements, and our report on other legal and regulatory requirements below, are not modified in respect of the above matter with respect to our reliance on the financial statements/financial information certified by the management. Walker Chandiok & Co. LLP Consolidated
239 Dish TV India Ltd. Entertainment Key Audit Matters 31st March, 2019 Impairment assessment of Intangible assets including Goodwill As detailed in Note 7 and 8 of the financial statements, the Company has intangible assets, including Goodwill of Rs. 236,838 lakhs (net of provision for impairment of Rs.154,300 lakhs), Trademark/Brand of Rs. 102,909 lakhs and Customer and distributor relationship of Rs. 94,018 lakhs, arising out of business combinations. In terms with Indian Accounting Standard 36, Impairment of Assets, the management has carried out an impairment analysis of goodwill and other intangible assets, which requires significant estimations and judgement with respect to inputs used and assumptions made to prepare the forecasted financial information, used to determine the fair value of such intangibles, using discounted cash flow model. Key assumptions used in managements assessment of the carrying amount of goodwill and other intangible assets include the expected growth rates, estimates of future financial performance, market conditions, capital expenditure and discount rates, among others. Considering the materiality of the amount involved and significant degree of judgement and subjectivity involved in the estimates and assumptions used in determining the cash flows used in the impairment evaluation, we have determined impairment of such goodwill and other intangible assets arising from the business combination as a key audit matter. Our audit procedures to address this key audit matter included, but were not limited to the following: a) We obtained an understanding from the management through detailed discussions with respect to its impairment assessment process, assumptions used and estimates made by management and tested the operating effectiveness of the controls implemented by management. b) We obtained the impairment analysis carried out by the management and reviewed the valuation report obtained by management from an independent valuer. c) We assessed the professional competence, objectivity and capabilities of the third party expert considered by the management for performing the required valuations to estimate the recoverable value of the goodwill and other intangible assets d) We involved experts within the audit team to assess the appropriateness of the valuation model used by the management and reasonableness of assumptions made by the management relating to discount rate, risk premium, industry growth rate, etc. e) We evaluated the inputs used by the management with respect to revenue and cost growth trends, among others, for reasonableness thereof. f) We have evaluated the sensitivity analysis performed by the management in respect of the key assumptions used such as discount and growth rates to ensure that there would be no major impact on the valuation. g) We have evaluated the adequacy of disclosures made by the Company in the financial statements in view of the requirements as specified in the Indian Accounting Standards. Walker Chandiok & Co. LLP Standalone
240 Dish TV India Ltd. Entertainment Key Audit Matters 31st March, 2019 Impairment assessment of investment in and other amount recoverable from a wholly owned subsidiary As described in Note 9 and 11 to the financial statements, carrying value of investment and other amount recoverable as on 31 March 2019 from the wholly owned subsidiary of the Company, namely Dish Infra Services Private Limited, aggregates to Rs. 427,023 lakhs. The subsidiary has been incurring losses in the past. In view of the above, managements assessment of impairment of investment and other amounts recoverable from such subsidiary requires estimation and judgement with respect to certain inputs used and assumptions made to prepare the forecasted financial information of the subsidiary company, which is used to fair value such amounts, using discounted cash flow model. Key assumptions used in managements assessment of the carrying amount of investment in and other amounts recoverable from the subsidiary include expected growth rates, estimates of future financial performance, market conditions, capital expenditure and discount rates, among others, as attributable to such subsidiary. Based on the managements assessment, no impairment loss has been recognized on such investment Considering the materiality of the amounts involved and significant degree of judgement and subjectivity involved in the estimates and key assumptions used in determining the cash flows used in the impairment evaluation, we have determined impairment of such investments and other amounts receivable as a key audit matter. Our audit procedures to address this key audit matter included, but were not limited to the following: a) We have performed detailed discussions with the management to understand the impairment assessment process, assumptions used and estimates made by management and tested the operating effectiveness of the controls implemented by management. b) We obtained the impairment analysis carried out by the management and reviewed the valuation report prepared by an independent valuer and examined the reasonableness of key assumptions, including growth rate, discount rate etc. c) We assessed the professional competence, objectivity and capabilities of the third party expert considered by the management for performing the required valuations to estimate the recoverable value of Investment and other amount recoverable. d) We involved experts within the audit team to assess the appropriateness of the valuation model used by the management and reasonableness of assumptions made by the management relating to discount rate, risk premium, industry growth rate, etc. to assess their recoverability. e) We evaluated the inputs used by the management with respect to revenue and cost growth trends, among others, for reasonableness thereof. f) We evaluated the sensitivity analysis performed by management in respect of the key assumptions such as discount and growth rates to ensure that there would be no major impact on the valuation. g) We have evaluated the adequacy of disclosures made by the Company in the financial statements in view of the requirements as specified in the Indian Accounting Standards. Walker Chandiok & Co. LLP Standalone
241 Dish TV India Ltd. Entertainment Key Audit Matters 31st March, 2019 Impairment assessment of non-current loans given to Dish Lanka Private Limited - Subsidiary Company (Dish Lanka) As described in Note 49 to the financial statements, gross carrying value of non-current loan recoverable as on 31 March 2019 from the subsidiary of the Company, namely Dish Lanka Private Limited, aggregates Rs. 17,353 lakhs. The subsidiary has been incurring losses in the past and the net worth of the subsidiary is completely eroded, resulting in possible impairment indicators. The management of the Company is in the process of implementing certain changes to the business strategy related to this subsidiary in Sri Lanka. However, considering the uncertainty involved in successful implementation of the new business strategy, and the economic and social conditions in Sri Lanka, the management of the Company has recognised an impairment provision of Rs. 17,353 lakhs as at 31 March 2019 against such loans given to the subsidiary company. Considering the materiality of the amount involved and significant degree of judgement and subjectivity involved in the new business strategy of the management used for the impairment evaluation, we have determined impairment of loans as a key audit matter. Our audit procedures to address this key audit matter included, but were not limited to the following: a) We have performed detailed discussions with the management throughout the year to understand the impairment assessment process, assumptions used and estimates made by management to the assess the reasonableness of the recoverable amount and tested the operating effectiveness of controls implemented by management. b) We further inquired from the management of the business plans for the subsidiary company and in absence of any viable business plans available with the management of the Company, we ensured that the recoverable amount has been accurately provided for by the Company c) We also ensured that the other audit procedures performed and evidences examined do not indicate any contrary position to the managements estimate to provide for such investments and loans d) We referred to the economic conditions prevalent in the jurisdiction in which the subsidiary company operates and understood from the management about the future business plans. e) Keeping in view the above factors, we assessed the appropriateness of impairment provision recognized by the management as at 31 March 2019 and assessed the appropriateness of disclosures made in the financial statements for such impairment losses in accordance with applicable accounting standards Walker Chandiok & Co. LLP Standalone
242 Dish TV India Ltd. Entertainment Key Audit Matters 31st March, 2019 Amounts recoverable, provision for expected credit losses and related balances Refer note 4(i) for significant accounting policy and note 55(B) for credit risk disclosures. Trade receivables and other amounts recoverable comprise a significant portion of the current financial assets of the Company. As at March 31, 2019 trade receivables aggregate Rs. 10,984 lakhs (net of provision for expected credit losses of Rs. 4,865 lakhs) and other amounts recoverable aggregate Rs. 105,236 lakhs. In accordance with Ind AS 109, the Company applies expected credit loss (ECL) model for measurement and recognition of impairment loss for financial assets. The Company has analysed the trend of trade receivables under different ageing bracket for last three years and calculated credit loss rate basis such ageing. The complexity in calculation of ECL is mainly related to calculations performed for different type of revenue streams in which the Company operates and the different recovery period for different categories of customers. Additional provision is recognised for the receivables which are specifically identified as doubtful or non-recoverable. Other than the recognition of expected credit loss provisions, the management also assigned certain liabilities aggregating to Rs. 95,348 lakhs against certain recoverable from the vendor subject to terms and conditions of the settlement arrangement. Estimation of provisions and assessment of recoverability of amounts involves significant degree of judgement and evaluation basis the ongoing communications with the respective parties and is therefore considered as a key audit matter. Our audit procedures to address this key audit matter included, but were not limited to the following: a) Obtained an understanding the process adopted by the Company for calculation, recording and monitoring of the impairment loss recognized for expected credit loss; b) We assessed and tested the design and operating effectiveness of key controls over completeness and accuracy of the key inputs and assumptions considered for calculation, recording and monitoring of the impairment loss recognized. Also, evaluated the controls over the modelling process, validation of data and related approvals. c) We discussed with the management about the conditions leading to, and their assessment of recoverability of dues from the parties and also referred to the available communication, if any, between them. d) We referred to the aging of trade and other receivables and discussed the key balances to establish the managements assessment of recoverability of such dues. e) We analysed the methodology used by the management and considered the credit and payment history of specific parties to determine the trend used for arriving at the expected credit loss provision. f) We referred to the terms and conditions stipulated in the settlement arrangement with respect to amount recoverable from a vendor, and also considered the opinion obtained by the management from external consultant in connection with such settlement. g) We have assessed the adequacy of disclosures made by the management in the financial statements to reflect the expected credit loss provision, trade and other receivables and related balances, including note 67. Walker Chandiok & Co. LLP Standalone
243 Dish TV India Ltd. Entertainment Key Audit Matters 31st March, 2019 Revenue recognition in terms with Ind AS 115 Revenue from contracts with Customers" We refer to summary of significant accounting policies and note 33 of the financial statements of the Company for the year ended 31 March 2019 disclosures related to first time application of Ind AS 115 and impact of transition from previous standards to the new one. The company has adopted the new Ind AS 115 Revenue from contracts with Customers with effect from 1 April 2018 replacing the existing Ind AS 18 Revenue. Such introduction of new standard requires thorough assessment of revenue recognition in light of identification of performance obligation in a contract with customer, allocation of fair value of revenue between performance obligation(s) and review of revenue recognition criteria over the term of contract with customer. Significant judgements were involved in determination of the period on which revenue from activation revenue is to be recognized. Further, the Telecom Regulatory Authority of India (TRAI) has implemented a new regulatory framework for the television broadcasting industry in India which is known as New tariff order, 2017 (NTO). Among other things, NTO mandated that the customers pay only for the channels they choose to view and it sets out the inter-play between the broadcasters and distribution platform providers. This NTO has changed the pack price of channels as per the MRP fixed and extensive managements efforts were involved in analysing the impact of the same in the IT system for the mapping of pack price, however arrangement with broadcaster is in the process of finalisation. Introduction of Ind AS 115, coupled with the regulatory update on NTO required detailed analysis under the standards, which is complex and involves a certain degree of judgement and estimates, due to which, this matter has been considered as a key audit matter. Our audit procedures included, but were not limited to the following: a) We obtained an understanding of managements processes and internal controls around adoption of Ind AS 115. We sought explanations from the management for areas involving complex judgements or interpretations to assess their appropriateness. b) We tested the operating effectiveness of internal controls established by management to ensure completeness, accuracy and timing of revenue (point in time or over time, as applicable) recognized during the year as well as for adjustments made on transition. c) We reviewed the underlying contractual arrangements entered into by the Company with its customers, held discussions with the management and assessed its impact on the recognition of revenue from operations. d) We evaluated the completeness and mathematical accuracy of the cumulative adjustments on transition to Ind AS 115 by assessing whether the schedule of adjustments is complete and reflects appropriate consideration for the changes in the revenue accounting under Ind AS 115;e) We held detailed discussion with the management to assess the impact of the new tariff order on the operations of the Company, revenue recognition policy of the Company, f) In view of the NTO, which is in the process of being fully implemented, we have considered the prevailing arrangements with the broadcasters and analysed the contracts entered into between the Company and the customers to ensure that revenue has been appropriately recorded in the books of accounts. g) We have assessed the appropriateness of revenue recognition policy of the Company, its measurement and adequacy of disclosures made in the financial statements in terms with Ind AS 115. Walker Chandiok & Co. LLP Standalone
244 Dish TV India Ltd. Entertainment Key Audit Matters 31st March, 2019 A. Impairment assessment of Intangible assets including Goodwill As detailed in Note 7 and 8 of the consolidated financial statements, the Group has intangible assets, including Goodwill of Rs. 473,249 lakhs (net of provision for impairment of Rs. 154,300 lakhs), Trademark/Brand of Rs. 102,909 lakhs and Customer and distributor relationship of Rs. 107,241 lakhs, arising out of business combinations. In terms with Indian Accounting Standard 36, Impairment of Assets, the management has carried out an impairment analysis of goodwill and other intangible assets, which requires significant estimations and judgement with respect to inputs used and assumptions made to prepare the forecasted financial information, used to determine the fair value of such intangibles, using discounted cash flow model. Key assumptions used in managements assessment of the carrying amount of goodwill and other intangible assets include the expected growth rates, estimates of future financial performance, market conditions, capital expenditure and discount rates, among others. Considering the materiality of the amount involved and significant degree of judgement and subjectivity involved in the estimates and assumptions used in determining the cash flows used in the impairment evaluation, we have determined impairment of such goodwill and other intangible assets arising from the business combination as a key audit matter. Our audit procedures to address this key audit matter included, but were not limited to the following: a) We obtained an understanding from the management through detailed discussions with respect to its impairment assessment process, assumptions used and estimates made by management and tested the operating effectiveness of the controls implemented by management. b) We obtained the impairment analysis carried out by the management and reviewed the valuation report obtained by management from an independent valuer. c) We assessed the professional competence, objectivity and capabilities of the third party expert considered by the management for performing the required valuations to estimate the recoverable value of the goodwill and other intangible assets d) We involved experts within the audit team to assess the appropriateness of the valuation model used by the management and reasonableness of assumptions made by the management relating to discount rate, risk premium, industry growth rate, etc. e) We evaluated the inputs used by the management with respect to revenue and cost growth trends, among others, for reasonableness thereof. f) We have evaluated the sensitivity analysis performed by the management in respect of the key assumptions used such as discount and growth rates to ensure that there would be no major impact on the valuation. g) We have evaluated the adequacy of disclosures made by the Group in the financial statements in view of the requirements as specified in the Indian Accounting Standards. Walker Chandiok & Co. LLP Consolidated
245 Dish TV India Ltd. Entertainment Key Audit Matters 31st March, 2019 B. Amounts recoverable, provision for expected credit losses and related balances Refer note 4(j) for significant accounting policy and note 51(B) for credit risk disclosures. Trade receivables and other amounts recoverable comprise a significant portion of the current financial assets of the Group. As at March 31, 2019 trade receivables aggregate Rs 14,059 lakhs (net of provision for expected credit losses of Rs. 4,908 lakhs) and other amounts recoverable aggregate to Rs. 109,918 lakhs. In accordance with Ind AS 109, the Group applies expected credit loss (ECL) model for measurement and recognition of impairment loss for financial assets. The Group has analysed the trend of trade receivables under different ageing bracket for last three years and calculated credit loss rate basis such ageing. The complexity in calculation of ECL is mainly related to calculations performed for different type of revenue streams in which the Group operates and the different recovery period for different categories of customers. Additional provision is recognised for the receivables which are specifically identified as doubtful or non-recoverable. Other than the recognition of expected credit loss provisions, the management also assigned certain liabilities aggregating to Rs. 95,348 lakhs against certain recoverable from the vendor subject to terms and conditions of the settlement arrangement. Estimation of provisions and assessment of recoverability of amounts involves significant degree of judgement and evaluation basis the ongoing communications with the respective parties and is therefore considered as a key audit matter. Our audit procedures to address this key audit matter included, but were not limited to the following: a)Obtained an understanding the process adopted by the Group for calculation, recording and monitoring of the impairment loss recognized for expected credit loss; b)We assessed and tested the design and operating effectiveness of key controls over completeness and accuracy of the key inputs and assumptions considered for calculation, recording and monitoring of the impairment loss recognized. Also, evaluated the controls over the modelling process, validation of data and related approvals. c)We discussed with the management about the conditions leading to, and their assessment of recoverability of dues from the parties and also referred to the available communication, if any, between them. d)We referred to the aging of trade and other receivables and discussed the key balances to establish the managements assessment of recoverability of such dues. e)We analysed the methodology used by the management and considered the credit and payment history of specific parties to determine the trend used for arriving at the expected credit loss provision. f)We referred to the terms and conditions stipulated in the settlement arrangement with respect to amount recoverable from a vendor, and also considered the opinion obtained by the management from external consultant in connection with such settlement. g)We have assessed the adequacy of disclosures made by the management in the financial statements to reflect the expected credit loss provision, trade and other receivables and related balances, including note 64. Walker Chandiok & Co. LLP Consolidated
246 Dish TV India Ltd. Entertainment Key Audit Matters 31st March, 2019 C. Revenue recognition in terms with Ind AS 115 Revenue from contracts with Customers We refer to summary of significant accounting policies and note 34 of the consolidated financial statements of the Group for the year ended 31 March 2019 disclosures related to first time application of Ind AS 115 and impact of transition from previous standards to the new one. The Group has adopted the new Ind AS 115 Revenue from contracts with Customers with effect from 1 April 2018 replacing the existing Ind AS 18 Revenue. Such introduction of new standard requires thorough assessment of revenue recognition in light of identification of performance obligation in a contract with customer, allocation of fair value of revenue between performance obligation(s) and review of revenue recognition criteria over the term of contract with customer. Significant judgements were involved in determination of the period on which revenue from activation revenue is to be recognized. Further, the Telecom Regulatory Authority of India (TRAI) has implemented a new regulatory framework for the television broadcasting industry in India which is known as New tariff order, 2017 (NTO). Among other things, NTO mandated that the customers pay only for the channels they choose to view and it sets out the inter-play between the broadcasters and distribution platform providers. This NTO has changed the pack price of channels as per the MRP fixed and extensive managements efforts were involved in analysing the impact of the same in the IT system for the mapping of pack price, however arrangement with broadcaster is in the process of finalisation. Introduction of Ind AS 115, coupled with the regulatory update on NTO required detailed analysis under the standards, which is complex and involves a certain degree of judgement and estimates, due to which, this matter has been considered as a key audit matter. Our audit procedures included, but were not limited to the following: a)We obtained an understanding of managements processes and internal controls around adoption of Ind AS 115. We sought explanations from the management for areas involving complex judgements or interpretations to assess their appropriateness. b)We tested the operating effectiveness of internal controls established by management to ensure completeness, accuracy and timing of revenue (point in time or over time, as applicable) recognized during the year as well as for adjustments made on transition. c)We reviewed the underlying contractual arrangements entered into by the Group with its customers, held discussions with the management and assessed its impact on the recognition of revenue from operations. d)We evaluated the managements judgement for recognition of activation revenue over the period of initial contract. For this, among other things, we considered customer relationship period, subscriptions from customers, market conditions, business plans and our understanding of the business and the industry in which the Group operates. e)We evaluated the completeness and mathematical accuracy of the cumulative adjustments on transition to Ind AS 115 by assessing whether the schedule of adjustments is complete and reflects appropriate consideration for the changes in the revenue accounting under Ind AS 115; f)We held detailed discussion with the management to assess the impact of the new tariff order on the operations of the Group, revenue recognition policy of the Group. g)In view of the NTO, which is in the process of being fully implemented, we have considered the prevailing arrangements with the broadcasters and analysed the contracts entered into between the Group and the customers to ensure that revenue has been appropriately recorded in the books of account. h)We have assessed the appropriateness of revenue recognition policy of the Group, its measurement and adequacy of disclosures made in the financial statements in terms with Ind AS 115. Walker Chandiok & Co. LLP Consolidated
247 Dish TV India Ltd. Entertainment Other Matters 31st March, 2019 We did not audit the financial statements of 3 subsidiaries, whose financial statements reflects total assets of Rs. 783,071 lakhs and net assets of Rs. 318,820 lakhs as at 31 March 2019, total revenues of Rs. 236,680 lakhs and net cash outflows amounting to Rs. 1,047 lakhs for the year ended on that date, as considered in the consolidated financial statements. These financial statements have been audited by other auditors whose reports have been furnished to us by the management and our opinion on the consolidated financial statements, in so far as it relates to the amounts and disclosures included in respect of these subsidiaries, and our report in terms of sub-section (3) of Section 143 of the Act, in so far as it relates to the aforesaid subsidiaries, is based solely on the reports of the other auditors. Further, of these subsidiaries, 1 subsidiary is located outside India whose financial statements and other financial information have been prepared in accordance with accounting principles generally accepted in its country and which has been audited by other auditor under generally accepted auditing standards applicable in its country. The Holding Companys management has converted the financial statements of such subsidiary located outside India from accounting principles generally accepted in its country to accounting principles generally accepted in India. These conversion adjustments made by the Holding Companys management have been audited by other auditor. Our opinion, and matters identified and disclosed under key audit matters section above, in so far as it relates to the balances and affairs of such subsidiary located outside India is based on the report of other auditor and the conversion adjustments prepared by the management of the Holding Company and audited by other auditor. Our opinion above on the consolidated financial statements, and our report on other legal and regulatory requirements below, are not modified in respect of the above matters with respect to our reliance on the work done by and the reports of the other auditors. Walker Chandiok & Co. LLP Consolidated
248 Divi's Laboratories Ltd. Pharmaceuticals & Chemicals Key Audit Matters 31st March, 2019 Appropriateness of capitalisation of costs as per Ind AS 16 Property, Plant and Equipment: Refer to Note 3 to the standalone financial statements During the year, the Company has incurred capital costs aggregating to Rs19,481 lakhs on property, plant and equipment (representing Plant & Machinery and Roads & Buildings) and Rs.63,393 lakhs on Capital work-in-progress for expansion of its manufacturing facilities at Choutuppal (Unit-1) and Visakhapatnam (Unit-2). With regard to the capitalisation of Plant and Machinery, Roads and Buildings and Capital work-in-progress, Management has identified certain specific costs incurred for staff costs and other overheads relating to each of the assets and capital work in progress and has applied judgement to assess if the costs incurred in relation to these assets and capital work-in-progress meet the recognition criteria of Property, Plant and Equipment in accordance with Ind AS 16. This has been determined as a key audit matter due to the significance of the capital expenditure during the year and the risk that the elements of costs that are eligible for capitalisation are not appropriately capitalised in accordance with the recognition criteria provided in Ind AS 16. We have performed procedures, including the following, in relation to testing of capitalisation of costs relating to Road and Buildings, Plant and Machinery and capital work-in-progress: Understood, evaluated and tested the design and operating effectiveness of key controls relating to capitalisation of various costs incurred, including in relation to Plant and Machinery, Roads and Buildings and capital work-in-progress. Tested the direct and indirect costs capitalised, on a sample basis, with the underlying supporting documents to ascertain nature of costs and basis for allocation, where applicable, and evaluated whether they meet the recognition criteria provided in the Indian Accounting Standard 16, Property, Plant and Equipment Tested, on a sample basis, the employee costs capitalized in relation to Plant and Machinery and Roads and Buildings based on factors such as review of their timesheets. Tested other costs debited to Statement of Profit and Loss Account, on a sample basis, to ascertain whether these meet the criteria for capitalisation. Ensuring adequacy of disclosures in the financial statements Our procedures as mentioned above, did not identify any costs that had been inappropriately capitalised. Price Waterhouse Chartered Accountants LLP Standalone
249 Divi's Laboratories Ltd. Pharmaceuticals & Chemicals Key Audit Matters 31st March, 2019 Appropriateness of capitalisation of costs as per Ind AS 16 Property, Plant and Equipment: Refer to Note 3 to the consolidated financial statements During the year, the Company has incurred capital costs aggregating to Rs19,481 lakhs on property, plant and equipment (representing Plant & Machinery and Roads & Buildings) and Rs.63,393 lakhs on Capital work-in-progress for expansion of its manufacturing facilities at Choutuppal (Unit-1) and Visakhapatnam (Unit-2). With regard to the capitalisation of Plant and Machinery, Roads and Buildings and Capital work-in-progress, Management has identified certain specific costs incurred for staff costs and other overheads relating to each of the assets and capital work in progress and has applied judgement to assess if the costs incurred in relation to these assets and capital work-in-progress meet the recognition criteria of Property, Plant and Equipment in accordance with Ind AS 16. This has been determined as a key audit matter due to the significance of the capital expenditure during the year and the risk that the elements of costs that are eligible for capitalisation are not appropriately capitalised in accordance with the recognition criteria provided in Ind AS 16. We have performed procedures, including the following, in relation to testing of capitalisation of costs relating to Road and Buildings, Plant and Machinery and capital work-in-progress: Understood, evaluated and tested the design and operating effectiveness of key controls relating to capitalisation of various costs incurred, including in relation to Plant and Machinery, Roads and Buildings and capital work-in-progress. Tested the direct and indirect costs capitalised, on a sample basis, with the underlying supporting documents to ascertain nature of costs and basis for allocation, where applicable, and evaluated whether they meet the recognition criteria provided in the Indian Accounting Standard 16, Property, Plant and Equipment Tested, on a sample basis, the employee costs capitalized in relation to Plant and Machinery and Roads and Buildings based on factors such as review of their timesheets. Tested other costs debited to Statement of Profit and Loss Account, on a sample basis, to ascertain whether these meet the criteria for capitalisation. Ensuring adequacy of disclosures in the financial statements Our procedures as mentioned above, did not identify any costs that had been inappropriately capitalised. Price Waterhouse Chartered Accountants LLP Consolidated
250 Divi's Laboratories Ltd. Pharmaceuticals & Chemicals Other Matters 31st March, 2019 The financial statements of two subsidiaries located outside India, included in the consolidated financial statements, which constitute total assets of Rs.20,365 lakhs and net assets of Rs.227 lakhs as at March 31, 2019, total revenue of Rs.32,230 lakhs, profit of Rs.2,321 lakhs (comprising of profit and other comprehensive income) and net cash outflows amounting to Rs.1,137 lakhs for the year then ended have been prepared in accordance with accounting principles generally accepted in their respective countries and have been audited by other auditors under generally accepted auditing standards applicable in their respective countries. The Companys management has converted the financial statements of such subsidiaries located outside India from the accounting principles generally accepted in their respective countries to the accounting principles generally accepted in India. We have audited these conversion adjustments made by the Companys management. Our opinion in so far as it relates to the balances and affairs of such subsidiaries located outside India, including other information, is based on the report of other auditors and the conversion adjustments prepared by the management of the Company and audited by us. Our opinion on the consolidated financial statements, and our report on Other Legal and Regulatory Requirements below, is not modified in respect of the above matters with respect to our reliance on the work done and the reports of the other auditors and the financial statements certified by the Management. Price Waterhouse Chartered Accountants LLP Consolidated
251 DLF Ltd. Realty Emphasis of Matter 31st March, 2019 We draw attention to Note no. 50 to the Standalone Ind AS financial statements of the Company which describes the uncertainty relating to outcome of following lawsuits filed against the Company: a) In a complaint filed against the Company relating to imposing unfair conditions on buyers, the Competition Commission of India has imposed a penalty of Rs. 63,000 lakhs on the Company which was upheld by Competition Appellate Tribunal. The Company has filed an appeal which is currently pending with Honble Supreme Court of India and has deposited Rs. 63,000 lakhs as per direction of the Honble Supreme Court of India. b) In a writ filed with Honble High Court of Punjab and Haryana, the Company and one of its subsidiary and a joint venture Company have received judgments cancelling the sale deeds of land /removal of structure relating to two IT SEZ/ IT Park Projects in Gurugram. The Company and the subsidiary companies filed Special Leave petitions (SLPs) challenging the orders which is currently pending with Honble Supreme Court of India. The Honble Supreme Court has admitted the matters and stayed the operation of the impugned judgments till further orders in both the cases. c) Securities and Exchange Board of India (SEBI) in a complaint filed against the Company, imposed certain restrictions on the Company. The Company had received a favourable order against the appeal in said case from Securities Appellate Tribunal (SAT). SEBI, subsequently, has filed a statutory appeal which is currently pending before Honble Supreme Court. SEBI has also imposed penalties upon the Company, some of its directors, officers, its three subsidiaries and their directors which has been disposed of by SAT with a direction that these appeals will stand automatically revived upon disposal of civil appeal filed by SEBI against aforementioned SAT judgement. Based on the advice of the external legal counsels, no adjustment has been considered in these standalone Ind AS financial statements by the management in respect of above matters. Our report is not modified in respect of these matters S.R. Batliboi & Co. LLP Standalone
252 DLF Ltd. Realty Key Audit Matters 31st March, 2019 Revenue recognition for real estate projects The Company has adopted Ind AS 115 - Revenue from Contracts with Customers, mandatory for reporting periods beginning on or after April 1, 2018.The Company has applied the modified retrospective approach to contracts that were not completed as at April 01, 2018 and has given impact of Ind AS 115 application by debit to retained earnings as at the said date by Rs. 396,399.66 lakhs (net of tax).The application of Ind AS 115 has impacted the Companys accounting for recognition of revenue from real estate projects, which is now being recognised at a point in time upon the Company satisfying its performance obligation and the customer obtaining control of the underlying asset. Considering application of Ind AS 115 involves significant judgment in identifying performance obligations and determining when control of the asset underlying the performance obligation is transferred to the customer and the transition method to be applied, the same has been considered as key audit matter. Our audit procedures included: We have read the Companys revenue recognition accounting policies and assessed compliance of the policies with Ind AS 115; We tested the computation of the adjustment to retained earnings balance as at April 1, 2018 in view of adoption of Ind AS 115 as per the modified retrospective method; We obtained and understood revenue recognition process including identification of performance obligations and determination of transfer of control of the asset underlying the performance obligation to the customer; We have read the legal opinion obtained by the Company to determine the point in time at which the control is transferred in accordance with the underlying agreements; We tested, revenue related transactions with the underlying customer contracts, sale deed and handover documents, evidencing the transfer of control of the asset to the customer based on which revenue is recognized; We assessed the revenue-related disclosures included in Note 61 to the financial statements. S.R. Batliboi & Co. LLP Standalone
253 DLF Ltd. Realty Key Audit Matters 31st March, 2019 Claims, litigations and contingencies The Company is having various ongoing litigations, court and other legal proceedings before tax and regularity authorities and courts, which could have significant financial impact if the potential exposure were to materialize. Management estimates the possible outflow of economic resources based on legal counsel opinion and available information on the legal status of the proceedings. Considering the determination by the management of whether and how much, to provide and / or disclose for such contingencies involves significant judgement and estimation, the same has been considered as key audit matter. Our audit procedures included: We understood managements process relating to the identification and impact analysis of claims, litigations and contingencies; We analysed responses obtained from the legal advisors. We have obtained confirmation letters from legal counsels; We have read the minutes of meetings of the Audit Committee and the Board of Directors of the Company related to noting of status of material litigations; We have assessed managements assumptions and estimates related to disclosures of contingent liabilities in the financial statements. S.R. Batliboi & Co. LLP Standalone
254 DLF Ltd. Realty Key Audit Matters 31st March, 2019 Assessing the carrying value of Inventory The Companys inventory comprise of ongoing and completed real estate projects, unlaunched projects and development rights. As at 31 March 2019, the carrying values of inventories amounts to Rs. 1,135,726.23 lakhs. The inventories are carried at the lover of the cost and net realizable value (NRV). The determination of the NRV involves estimates based on prevailing market conditions, current prices and expected date of commencement and completion of the project, the estimated future selling price, cost to complete projects and selling costs. Considering significance of the amount of carrying value of inventories in the financial statements and the involvement of significant estimation and judgement in such assessment of NRV, the same has been considered as key audit matter. Our audit procedures/ testing included, among others: We read and evaluated the accounting policies and disclosures made in the financial statements with respect to inventories; We understood and reviewed the managements process and methodology of using key assumptions for determination of NRV of the inventories; We have tested the NRV of the inventories to its carrying value in books on sample basis. Where the Company involved specialists to perform valuations, we also performed the following procedures: We obtained and read the valuation report used by the management for determining the NRV; We considered the independence, competence and objectivity of the specialist involved in determination of valuation. Involved experts to review the assumptions used by the management specialists. S.R. Batliboi & Co. LLP Standalone
255 DLF Ltd. Realty Key Audit Matters 31st March, 2019 Assessing impairment of Investments in subsidiary, joint venture and associate entities The Company has significant investments in its subsidiaries, joint ventures and associates. As at 31 March 2019, the carrying values of Companys investment in its subsidiaries, joint ventures and associate entities amounts to Rs. 953,590.24 lakhs. Management reviews regularly whether there are any indicators of impairment of the investments by reference to the requirements under Ind AS 36 Impairment of Assets. For investments where impairment indicators exist, significant judgments are required to determine the key assumptions used in the discounted cash flow models, such as revenue growth, unit price and discount rates. Considering, the impairment assessment involves significant assumptions and judgement, the same has been considered as key audit matter. Our procedures in assessing the managements judgement for the impairment assessment included, among others, the following: We assessed the Companys valuation methodology applied in determining the recoverable amount of the investments; We obtained and read the valuation report used by the management for determining the fair value (recoverable amount) of its investments; We considered the independence, competence and objectivity of the management specialist involved in determination of valuation; We tested the fair value of the investment as mentioned in the valuation report to the carrying value in books; Made inquiries with management to understand key drivers of the cash flow forecasts, discount rates etc Involved experts to review the assumptions used by the management specialists. We reviewed the disclosures made in the financial statements regarding such investments. S.R. Batliboi & Co. LLP Standalone
256 DLF Ltd. Realty Key Audit Matters 31st March, 2019 Assessment of recoverability of deferred tax asset As at 31 March 2019, the Company has recognized deferred tax assets of Rs. 367,450.55 lakhs on deductible temporary differences and unused tax losses. Recognition of deferred tax assets to the extent that it is probable that taxable profit will be available against which the deductible temporary differences and the carry forward of unused tax credits and unused tax losses can be utilized involves significant management judgement and estimation given that it is based on assumptions such as the likely timing and level of future taxable profits which are affected by expected future market and economic conditions. Considering, this involves significant judgement and estimates, the same has been considered as key audit matter. Our audit procedures included, amongst others: Obtained an understanding of the process and tested the controls over recording of deferred tax and review of deferred tax at each reporting date; We tested the computation of the amounts recognized as deferred tax assets; We evaluated managements assumptions used to determine the probability that deferred tax assets recognized in the balance sheet will be recovered through taxable income in future years, by comparing them against profit trends and future business plans; We assessed the disclosures on deferred tax included in Note 9 to the financial statements. S.R. Batliboi & Co. LLP Standalone
257 DLF Ltd. Realty Key Audit Matters 31st March, 2019 Related party transactions The Company has undertaken transactions with its related parties in the ordinary course of business at arms length. These include transactions in the nature of investments, loans, sales and purchases, etc. as disclosed in note 45 to the standalone Ind AS financial statements. Considering the significance of transactions with related parties and regulatory compliances thereon, related party transactions and its disclosure as set out in respective notes to the financial statements has been identified as key audit matter. Our procedures/ testing included the following: Obtained and read the Companys policies, processes and procedures in respect of identifying related parties, obtaining approval, recording and disclosure of related party transactions; Read minutes of shareholder meetings, board meetings and minutes of meetings of those charged with governance in connection with Companys assessment of related party transactions being in the ordinary course of business at arms length; Tested, related party transactions with the underlying contracts, confirmation letters and other supporting documents; Agreed the related party information disclosed in the financial statements with the underlying supporting documents, on a sample basis. S.R. Batliboi & Co. LLP Standalone
258 DLF Ltd. Realty Key Audit Matters 31st March, 2019 Revenue recognition for real estate projects (as described in note 60 of the consolidated Ind AS financial statements) The Group has adopted Ind AS 115 - Revenue from Contracts with Customers, mandatory for reporting periods beginning on or after 1 April 2018. The Group has applied the modified retrospective approach to contracts that were not completed as at 1 April 2018 and has given impact of Ind AS 115 application by debit to retained earnings as at the said date by Rs. 554,279.48 lakhs (net of tax). The application of Ind AS 115 has impacted the Groups accounting for recognition of revenue from real estate projects, which is now being recognised at a point in time upon the Group satisfying its performance obligation and the customer obtaining control of the underlying asset. Considering application of Ind AS 115 involves significant judgment in identifying performance obligations and determining when control of the asset underlying the performance obligation is transferred to the customer and the transition method to be applied, the same has been considered as key audit matter. Our audit procedures included: We have read the Groups revenue recognition accounting policies and assessed compliance of the policies with Ind AS 115. We tested the computation of the adjustment to retained earnings balance as at 1 April 2018 in view of adoption of Ind AS 115 as per the modi?ed retrospective method. We obtained and understood revenue recognition process including identi?cation of performance obligations and determination of transfer of control of the asset underlying the performance obligation to the customer. We have read the legal opinion obtained by the Group to determine the point in time at which the control is transferred in accordance with the underlying agreements. We tested, revenue related transactions with the underlying customer contracts, sale deed and handover documents, evidencing the transfer of control of the asset to the customer based on which revenue is recognised. We assessed the revenue-related disclosures included in Note 60 to the ?nancial statements. S.R. Batliboi & Co. LLP Consolidated
259 DLF Ltd. Realty Key Audit Matters 31st March, 2019 Claims, litigations and contingencies (as described in note 48 of the consolidated Ind AS financial statements) The Group is having various ongoing litigations, court and other legal proceedings before tax and regularity authorities and courts, which could have significant financial impact if the potential exposure were to materialize. Management estimates the possible outflow of economic resources based on legal counsel opinion and available information on the legal status of the proceedings. Considering the determination by the management of whether and how much, to provide and/ or disclose for such contingencies involves significant judgement and estimation, the same has been considered as key audit matter. Our audit procedures included: We understood managements process relating to the identi?cation and impact analysis of claims, litigations and contingencies; We analysed responses obtained from the legal advisors; We have obtained con?rmation letters from legal counsels; We have read the minutes of meetings of the Audit Committee and the Board of Directors of the Company related to noting of status of material litigations; We have assessed managements assumptions and estimates related to disclosures of contingent liabilities in the ?nancial statements. S.R. Batliboi & Co. LLP Consolidated
260 DLF Ltd. Realty Key Audit Matters 31st March, 2019 Assessing the carrying value of Inventory (as described in note 16 of the consolidated Ind AS financial statements) The Groups inventory comprise of ongoing and completed real estate projects, unlaunched projects and development rights. The inventories are carried at the lover of the cost and net realizable value (NRV). The determination of the NRV involves estimates based on prevailing market conditions, current prices and expected date of commencement and completion of the project, the estimated future selling price, cost to complete projects and selling costs. Considering significance of the amount of carrying value of inventories in the financial statements and the involvement of significant estimation and judgement in such assessment of NRV, the same has been considered as key audit matter. Our audit procedures/ testing included, among others: We read and evaluated the accounting policies and disclosures made in the ?nancial statements with respect to inventories; We understood and reviewed the managements process and methodology of using key assumptions for determination of NRV of the inventories; We have tested the NRV of the inventories to its carrying value in books on sample basis; Where the management involved specialists to perform valuations, we also performed the following procedures: We obtained and read the valuation report used by the management for determining the NRV; We considered the independence, competence and objectivity of the specialist involved in determination of valuation; Involved experts to review the assumptions used by the management specialists. S.R. Batliboi & Co. LLP Consolidated
261 DLF Ltd. Realty Key Audit Matters 31st March, 2019 Assessing impairment of Investments in joint venture and associate entities (as described in note 8 of the consolidated Ind AS financial statements) The Group has significant investments in its joint ventures and associates. As at 31 March 2019, the carrying values of Groups investment in its joint ventures and associate entities amounts to Rs. 2,086,820.32 lakhs. Management reviews regularly whether there are any indicators of impairment of the investments by reference to the requirements under Ind AS 36 Impairment of Assets. For investments where impairment indicators exist, significant judgments are required to determine the key assumptions used in the discounted cash flow models, such as revenue growth, unit price and discount rates. Considering, the impairment assessment involves significant assumptions and judgement, the same has been considered as key audit matter. Our procedures in assessing the managements judgement for the impairment assessment included, among others, the following: We assessed the Groups valuation methodology applied in determining the recoverable amount of the investments; We obtained and read the valuation report used by the management for determining the fair value (recoverable amount) of its investments; We considered the independence, competence and objectivity of the management specialist involved in determination of valuation; We tested the fair value of the investment as mentioned in the valuation report to the carrying value in books; Made inquiries with management to understand key drivers of the cash flow forecasts, discount rates, etc and assessed the reasonableness thereof; Involved experts to review the assumptions used by the management specialists. We reviewed the disclosures made in the ?nancial statements regarding such investments. S.R. Batliboi & Co. LLP Consolidated
262 DLF Ltd. Realty Key Audit Matters 31st March, 2019 Assessment of recoverability of deferred tax asset (as described in note 13 of the consolidated Ind AS financial statements) As at 31 March 2019, the Group has recognized deferred tax assets of Rs. 237,691.92 lakhs on deductible temporary differences and unused tax losses. Recognition of deferred tax assets to the extent that it is probable that taxable profit will be available against which the deductible temporary differences and the carry forward of unused tax credits and unused tax losses can be utilized involves significant management judgement and estimation given that it is based on assumptions such as the likely timing and level of future taxable profits which are affected by expected future market and economic conditions. Considering, this involves significant judgement and estimates, the same has been considered as key audit matter. Our audit procedures included, amongst others: Obtained an understanding of the process and tested the controls over recording of deferred tax and review of deferred tax at each reporting date; We tested the computation of the amounts recognized as deferred tax assets; We evaluated managements assumptions used to determine the probability that deferred tax assets recognized in the balance sheet will be recovered through taxable income in future years, by comparing them against pro?t trends and future business plans; We assessed the disclosures on deferred tax included in Note 13 and Note 36 to the ?nancial statements. S.R. Batliboi & Co. LLP Consolidated
263 DLF Ltd. Realty Other Matters 31st March, 2019 (a) We did not audit the financial statements and other financial information, in respect of 80 subsidiaries and 1 partnership firm, whose Ind AS financial statements include total assets of Rs. 755,715.18 lakhs and net assets of Rs. (13,624.61) lakhs as at 31 March 2019 and total revenues of Rs. 76,706.84 lakhs and net cash inflows of Rs. 791.85 lakhs for the year ended on that date. These Ind AS financial statements and other financial information have been audited by other auditors and whose financial statements, other financial information and auditors reports have been furnished to us by the management. The consolidated Ind AS financial statements also include the Groups share of net profit of Rs. 858.72 lakhs for the year ended 31 March 2019, as considered in the consolidated Ind AS financial statements, in respect of 6 joint ventures, whose financial statements, other financial information have been audited by other auditors and whose reports have been furnished to us by the Management. Our opinion on the consolidated Ind AS financial statements, in so far as it relates to the amounts and disclosures included in respect of these subsidiaries, partnership firms and joint ventures and our report in terms of sub-sections (3) of Section 143 of the Act, in so far as it relates to the aforesaid subsidiaries, partnership firms and joint ventures, is based solely on the reports of such other auditors. Our opinion is not modified/ qualified in respect of this matter. (b) The accompanying consolidated Ind AS ?nancial statements include unaudited ?nancial statements and other unaudited ?nancial information in respect of one partnership ? rm and 2 joint operations, whose ?nancial statements and other ?nancial information re?ect total assets of Rs. 6,869.08 lakhs and net assets of Rs. 5,131.02 lakhs as at 31 March 2019 and total revenues of Rs. Nil lakhs and net cash in?ows of Rs. 6.73 lakhs for the year ended on that date. These unaudited ?nancial statements and other unaudited ?nancial information have been furnished to us by the management. The consolidated Ind AS ?nancial statements also include the Groups share of net pro?t of Rs. 210.50 lakhs for the year ended 31 March 2019, as considered in the consolidated Ind AS ?nancial statements, in respect of one associate, whose ?nancial statements, other ?nancial information have not been audited and whose unaudited ?nancial statements, other unaudited ?nancial information have been furnished to us by the management. Our opinion, in so far as it relates amounts and disclosures included in respect of these partnership ? rms, joint operations and associates and our report in terms of sub-sections (3) of Section 143 of the Act in so far as it relates to the aforesaid partnership ? rms, associates and joint operations, is based solely on such unaudited ?nancial statement and other unaudited ?nancial information. In our opinion and according to the information and explanations given to us by the Management, these ?nancial statements and other ?nancial information are not material to the Group. Our opinion is not modi?ed/ quali?ed in respect of this matter. Our opinion above on the consolidated Ind AS financial statements and our report on Other Legal and Regulatory Requirements below, is not modified in respect of the above matters with respect to our reliance on the work done and the reports of the other auditors and the financial statements and other financial information certified by the Management. S.R. Batliboi & Co. LLP Consolidated
264 Dr. Lal Pathlabs Ltd. Healthcare Key Audit Matters 31st March, 2019 Revenue recognition Reliance on information technology and system for controls over pricing master file We identified reliance on information technology and system for controls over pricing master file as a key audit matter due to likelihood of material misstatement in revenue recognition, resulting from unauthorised alterations to the pricing master file, on account of high volume of patient transactions. Refer to note 2.3 and note 27 to the standalone financial statements. Principal audit procedures performed: Obtained an understanding of and assessed and tested the design, implementation and operating effectiveness of relevant internal controls relating to authorisation of alterations to the pricing master file. Tested the controls around the access rights to the price masters by involving information technology specialists. Tested the automated controls for auto pick of the prices defined in the system based on the tests selected. Tested the reports of changes in the pricing master files for completeness and accuracy by involving information technology specialists and for the selected samples of alterations during the year, verified that the changes were authorised. Selected samples of the invoices and verified the billed price in respect thereof, to the underlying agreements. Deloitte Haskins & Sells LLP Standalone
265 Dr. Lal Pathlabs Ltd. Healthcare Key Audit Matters 31st March, 2019 Revenue Recognition Reliance on information technology and system for controls over pricing master file. We identified reliance on information technology and system for controls over pricing master file as a key audit matter due to a likelihood of material misstatement in revenue recognition, resulting from unauthorised alterations to the pricing master file, on account of high volume of patient transactions. Refer to notes 2.3 and 28 to the consolidated financial statements. Refer to notes 2.3 and 28 to the consolidated financial statements. The principal audit procedures performed by us as the Parent Company auditors and the procedures performed by the Other Auditors, as reported by them, have been provided below: Obtained an understanding of and assessed and tested the design, implementation and operating effectiveness of relevant internal controls relating to authorisation of alterations to the pricing master file. Tested the controls around the access rights to the price masters by involving information technology specialists. Tested the automated controls for auto pick of the prices defined in the system based on the tests selected. Tested the reports of changes in the pricing master files for completeness and accuracy by involving information technology specialists and for the selected samples of alterations during the year, verified that the changes were authorised. Selected samples of the invoices and verified the billed price in respect thereof, to the underlying agreements. Deloitte Haskins & Sells LLP Consolidated
266 Dr. Lal Pathlabs Ltd. Healthcare Other Matters 31st March, 2019 We did not audit the financial statements / financial information of four subsidiaries, whose financial statements / financial information reflect total assets of Rs. 105.38 million as at 31 March, 2019, total revenues of Rs. 111.47 million and net cash inflows amounting to Rs. 13.23 million for the year ended on that date, as considered in the consolidated financial statements. These financial statements / financial information have been audited by other auditors whose reports have been furnished to us by the Management and our opinion on the consolidated financial statements, in so far as it relates to the amounts and disclosures included in respect of these subsidiaries, and our report in terms of subsection (3) of Section 143 of the Act, in so far as it relates to the aforesaid subsidiaries is based solely on the reports of the other auditors. Our opinion on the consolidated financial statements above and our report on Other Legal and Regulatory Requirements below, is not modified in respect of the above matters with respect to our reliance on the work done and the reports of the other auditors. Deloitte Haskins & Sells LLP Consolidated
267 Dr. Reddy's Laboratories Ltd. Pharmaceuticals & Chemicals Key Audit Matters 31st March, 2019 As at 31 March 2019, the Company has Rs. 7,000 million of intangible assets and Rs. 323 million of goodwill. The carrying value of these intangible assets are based on future cash ?ows and there is a risk that the assets maybe impaired if cash ?ows are not in line with projections. Valuation of goodwill and intangible assets is subject to management's assessment of recoverable amount, being the higher of the value in use and fair value less costs to sell, involving signi?cant judgment and are based on number of variables and estimates including projection of future sales, operating costs and pro?t margins; appropriate discount rate and terminal value growth rate; and probability of technical and regulatory success factors in applying discounted cash flow valuation methodology. We evaluated the design and tested the operating effectiveness of managements controls in assessing the carrying value of goodwill and intangible assets. We assessed the Companys methodology applied in determining the CGUs to which goodwill is allocated. We assessed the Companys valuation methodology applied in deriving the recoverable value. We evaluated the assumptions applied to key inputs such as discount rates, sales volume and prices, long term growth rates and terminal values, which included comparing these inputs with assumptions made by the management in prior years. We discussed potential changes in key drivers as compared to previous year / actual performance with management to evaluate whether the inputs and assumptions used in the cash flow forecasts were suitable. We tested the arithmetical accuracy of the models. We also assessed the recoverable value headroom by performing sensitivity testing of key assumptions used. We evaluated the adequacy of ?nancial statement disclosures, including disclosures of key assumptions, judgements and sensitivities. S.R. Batliboi & Associates LLP Standalone
268 Dr. Reddy's Laboratories Ltd. Pharmaceuticals & Chemicals Key Audit Matters 31st March, 2019 The Company is involved in disputes, lawsuits, claims, anti-trust, governmental and / or regulatory inspections, inquiries, investigations and proceedings, including patent, tax and commercial matters that arise from time to time in the ordinary course of business. Most of the claims involve complex issues. The Company, assisted by their external legal counsel assesses the need to make provision or disclose a contingency on a case-to-case basis considering the underlying facts of each litigation. The aforesaid assessment may result in an incorrect disclosure or provision in the books of account. This area is signi?cant to our audit, since the accounting and disclosure for contingent legal and tax liabilities is complex and judgemental (due to the difficulty in predicting the outcome of the matter and estimating the potential impact if the outcome is unfavourable), and the amounts involved are, or can be, material to the standalone Ind AS ?nancial statements. We evaluated the design and tested the operating effectiveness of controls relating to identi?cation and evaluation of claims, proceedings and investigations at different levels in the Company, and the measurement of provisions for disputes, potential claims and litigation, contingent liabilities and disclosures. We obtained a list of ongoing litigations from the Companys in house legal counsel. We selected a sample of litigations based on materiality and performed inquiries with the said counsel on the legal evaluation of these litigations. We have compared the said evaluation with the provision or disclosure in the standalone Ind AS ?nancial statements. We have tested the underlying computation of the management in relation to the measurement of provision or the contingency. We solicited legal letters from the Companys external legal advisors with respect to the matters included in the summary. Where appropriate we examined correspondences connected with the cases. We obtained the details of tax assessments and demands as at the year ended 31 March 2019. We inspected relevant communication with tax authorities. We involved tax experts in assessing the nature and amount of the tax exposures and assessed managements conclusions on whether exposures are probable, contingent or remote. Where exposures are assessed as probable, we evaluated the amounts provided with respect to those exposures. We also evaluated the adequacy of disclosures in the standalone Ind AS ?nancial statements. S.R. Batliboi & Associates LLP Standalone
269 Dr. Reddy's Laboratories Ltd. Pharmaceuticals & Chemicals Key Audit Matters 31st March, 2019 Revenue is recognised net of accrual for sales returns, rebates & discounts, etc. The estimates relating to the accruals are important given the signi?cance of revenue and considering the distinctive terms of arrangement with customers. These estimates are complex and requires signi?cant judgement and estimation by the Company for establishing an appropriate accrual. Accuracy of revenues may deviate because change in judgements and estimates. Accordingly, the same has been considered as a key audit matter. We assessed and performed test of controls over the completeness, recognition and measurement of accruals. We obtained Managements calculations for accruals and assessed the assumptions used by reference to the companys stated commercial policies, the terms of the applicable contracts. We assessed management analysis of the historical pattern of accruals to validate managements assumption for creation of such provisions. We compared the assumptions to contracted prices, historical rebates, discounts, allowances and returns, where relevant and to current payment trends. We also considered the historical accuracy of the managements estimates in prior years. We have also performed procedures to test recording of revenue in appropriate period which includes: o Verifying sample sales transactions near period-end. o Evaluating the level of returns following the period end and compared to previous periods. S.R. Batliboi & Associates LLP Standalone
270 Dr. Reddy's Laboratories Ltd. Pharmaceuticals & Chemicals Key Audit Matters 31st March, 2019 The Company has adopted Ind AS 115, Revenue from Contracts with Customers, starting 1 April 2018. The adoption of the new revenue accounting standard involves application of certain key principles relating to identi?cation of performance obligations, determination of transaction price of the identi?ed performance obligations, the timing of transfer of control for recognition of revenue or the appropriateness of the basis used to measure revenue recognized over a period. Additionally, new revenue accounting standard contains new disclosures. We considered the Companys revenue recognition accounting policies based on the principles in Ind AS 115. We evaluated the design, implementation and effective operation of the internal controls relating to implementation of the new revenue accounting standard. We selected samples of continuing and new contracts and performed the following procedures: o Read, analysed and identi?ed the distinct performance obligations in these contracts. o Compared these performance obligations with that identi?ed and recorded by the Company. o Considered the terms of the contracts to determine the transaction price including any variable consideration to verify the transaction price used to compute revenue. o Evaluated management assessment of point of recognition of revenue based on transfer of control or satisfaction of obligations over time. We evaluated the adequacy of financial statement disclosures, pursuant to new revenue accounting standard. S.R. Batliboi & Associates LLP Standalone
271 Dr. Reddy's Laboratories Ltd. Pharmaceuticals & Chemicals Key Audit Matters 31st March, 2019 As at 31 March 2019, the Company has Rs. 18,124 million of intangible assets, Rs. 24,610 million of intangible assets under development and Rs. 4,659 million of goodwill. The carrying value of these intangible assets are based on future cash flows and there is a risk that the assets may be impaired if cash flows are not in line with projections. Valuation of goodwill and intangible assets is subject to management's assessment of recoverable amount, being the higher of the value in use and fair value less costs to sell, involving signi?cant judgment and are based on number of variables and estimates including projection of future sales, operating costs and profit margins; appropriate discount rate and terminal value growth rate; and probability of technical and regulatory success factors in applying discounted cash flow valuation methodology. We evaluated the design and tested the operating effectiveness of managements controls in assessing the carrying value of goodwill and intangible assets. We assessed the Groups methodology applied in determining the CGUs to which goodwill is allocated. We assessed the Companys valuation methodology applied in deriving the recoverable value. We evaluated the assumptions applied to key inputs such as discount rates, sales volume and prices, long term growth rates and terminal values, which included comparing these inputs with assumptions made by the management in prior years. We discussed potential changes in key drivers as compared to previous year / actual performance with management to evaluate whether the inputs and assumptions used in the cash flow forecasts were suitable. We tested the arithmetical accuracy of the models. We also assessed the recoverable value headroom by performing sensitivity testing of key assumptions used. We evaluated the adequacy of financial statement disclosures, including disclosures of key assumptions, judgements and sensitivities. S.R. Batliboi & Associates LLP Standalone
272 Dr. Reddy's Laboratories Ltd. Pharmaceuticals & Chemicals Key Audit Matters 31st March, 2019 The Company and certain of its subsidiaries are involved in disputes, lawsuits, claims, anti-trust, governmental and / or regulatory inspections, inquiries, investigations and proceedings, including patent, tax and commercial matters that arise from time to time in the ordinary course of business. Most of the claims involve complex issues. The Company, assisted by their external legal counsel assesses the need to make provision or disclose a contingency on a case to-case basis considering the underlying facts of each litigation. The aforesaid assessment may result in an incorrect disclosure or provision in the books of account. This area is signi?cant to our audit, since the accounting and disclosure for contingent legal and tax liabilities is complex and judgemental (due to the difficulty in predicting the outcome of the matter and estimating the potential impact if the outcome is unfavourable), and the amounts involved are, or can be, material to the consolidated Ind AS financial statements. We evaluated the design and tested the operating effectiveness of controls relating to identi?cation and evaluation of claims, proceedings and investigations at different levels in the group, and the measurement of provisions for disputes, potential claims and litigation, contingent liabilities and disclosures. We obtained a list of ongoing litigations from the Companys in house legal counsel. We selected a sample of litigations based on materiality and performed inquiries with the said counsel on the legal evaluation of these litigations. We have compared the said evaluation with the provision or disclosure in the consolidated Ind AS ?nancial statements. We have tested the underlying computation of the management in relation to the measurement of provision or the contingency. We solicited legal letters from the Companys external legal advisors with respect to the matters included in the summary. Where appropriate we examined correspondences connected with the cases. We obtained the details of tax assessments and demands as at the year ended 31 March 2019. We inspected relevant communication with tax authorities. We involved tax experts in assessing the nature and amount of the tax exposures and assessed managements conclusions on whether exposures are probable, contingent or remote. Where exposures are assessed as probable, we evaluated the amounts provided with respect to those exposures. We also evaluated the disclosures in the consolidated Ind AS financial statements. S.R. Batliboi & Associates LLP Standalone
273 Dr. Reddy's Laboratories Ltd. Pharmaceuticals & Chemicals Key Audit Matters 31st March, 2019 Revenue is recognised net of accrual for sales returns and chargeback, rebates & discounts, etc. The estimates relating to the accruals are important given the signi?cance of revenue and also considering the distinctive terms of arrangement with customers. These estimates are complex and requires signi?cant judgement and estimation by the Company for establishing an appropriate accrual. Accuracy of revenues may deviate on account of change in judgements and estimates. Accordingly, the same has been considered as a key audit matter. We assessed and performed test of controls over the completeness, recognition and measurement of accruals. We obtained Managements calculations for accruals and assessed the assumptions used by reference to the companys stated commercial policies, the terms of the applicable contracts. We assessed management analysis of the historical pattern of charge back rates and the inventory information in order to validate managements assumption for creation of such provisions. We compared the assumptions to contracted prices, historical rebates, discounts, allowances and returns, where relevant and to current payment trends. We also considered the historical accuracy of the managements estimates in prior years. We have also performed procedures to test recording of revenue in appropriate period which includes: o Performing trend analysis over sales levels as compared to previous periods. o Testing managements monitoring process over distributors stocking levels. o Verifying sample sales transactions near period-end. o Evaluating the level of returns following the period end and compared to previous periods. S.R. Batliboi & Associates LLP Standalone
274 Dr. Reddy's Laboratories Ltd. Pharmaceuticals & Chemicals Key Audit Matters 31st March, 2019 The Group has adopted Ind AS 115, Revenue from Contracts with Customers, starting 1 April 2018. The adoption of the new revenue accounting standard involves application of certain key principles relating to identi?cation of performance obligations, determination of transaction price of the identi?ed performance obligations, the timing of transfer of control for recognition of revenue or the appropriateness of the basis used to measure revenue recognized over a period. Additionally, new revenue accounting standard contains new disclosures. We considered the groups revenue recognition accounting policies based on the principles in Ind AS 115. We evaluated the design, implementation and effective operation of the internal controls relating to implementation of the new revenue accounting standard. We selected samples of continuing and new contracts and performed the following procedures: o Read, analysed and identi?ed the distinct performance obligations in these contracts. o Compared these performance obligations with that identi?ed and recorded by the Company. o Considered the terms of the contracts to determine the transaction price including any variable consideration to verify the transaction price used to compute revenue. o Evaluated management assessment of point of recognition of revenue based on transfer of control or satisfaction of obligations over time. We evaluated the adequacy of financial statement disclosures, pursuant to new revenue accounting standard. S.R. Batliboi & Associates LLP Standalone
275 Dr. Reddy's Laboratories Ltd. Pharmaceuticals & Chemicals Other Matters 31st March, 2019 We did not audit the financial statements and other financial information, in respect of two subsidiaries, whose Ind AS financial statements include total assets of Rs.19,515 million as at 31 March 2019, and total revenues of Rs. 21,954 million and net cash outflows of Rs.10 million for the year ended on that date. These Ind AS financial statement and other financial information have been audited by other auditors, which financial statements, other financial information and auditors reports have been furnished to us. Our opinion on the consolidated Ind AS financial statements, in so far as it relates to the amounts and disclosures included in respect of these subsidiaries, and our report in terms of sub-sections (3) of Section 143 of the Act, in so far as it relates to the aforesaid subsidiaries, is based solely on the report(s) of such other auditors. These subsidiaries are located outside India whose financial statements and other financial information have been prepared in accordance with accounting principles generally accepted in their respective countries and which have been audited by other auditors under generally accepted auditing standards applicable in their respective countries. The Companys management has converted the financial statements of such subsidiaries located outside India from accounting principles generally accepted in their respective countries to accounting principles generally accepted in India. We have audited these conversion adjustments made by the Companys management. Our opinion in so far as it relates to the balances and affairs of such subsidiaries located outside India is based on the report of other auditors and the conversion adjustments prepared by the management of the Company and audited by us. Our opinion above on the consolidated Ind AS financial statements, and our report on Other Legal and Regulatory Requirements below, is not modi?ed in respect of the above matters with respect to our reliance on the work done and the reports of the other auditors and the financial statements and other financial information certi?ed by the Management. S.R. Batliboi & Associates LLP Standalone
276 Equitas Holdings Ltd. NBFCs & Housing Finance Key Audit Matters 31st March, 2019 Assessment of Impairment of Investment in Equitas Technologies India Private Limited, a subsidiary Company: The Companys investments are subject to assessment of impairment, which process involves significant judgments and assessments, including over determination of the amount of impairment provision, if any, that needs to be recognised. As at March 31, 2019, the financial statements of Equitas Technologies India Private Limited (ETPL), a subsidiary company indicates risk of impairment. The Company has made investments of Rs. 2,000lakh (2018 Rs. 2,000 akh) in ETPL. In testing for impairment, the Company estimates the value in use of its cash generating units based on: Revenue and cost forecasts, which are affected by ETPLs expansion plans, business and strategic changes underway and the changing competitive environment; and Key assumptions used in the recoverability and valuation assessments (discount rates, growth rates, macroeconomic assumptions, etc.) Due to significance of judgements and estimate used in assessing the impairment provision, this audit areas is considered a key audit risk In respect of investments in ETPL, where the management determined that there were indicators of impairment, we performed the following procedures: We gained an understanding of the entitys process of assessing impairment of its investments. We tested controls over the value in use of the investment, including the significant assumptions, inputs, calculations, methodologies and judgements. We tested the key assumptions used in forecasting revenues and costs, having regard to supporting documentation, agreements, and past experience,. We compared the discount rates and long-term growth rates used by management, with external market data.. We assessed, understood, and tested where relevant, the method followed by EHL to determine realisable value for valuation of the subsidiary, including method of valuations used to assess impairment, input data used, external market information on market valuation, comparable transactions in market space etc. We read and assessed minutes of management internal meetings and presentations where key judgements were discussed, including those used in the value in use model and the carrying value of deferred tax assets. We read and assessed Board and Audit Committee minutes to assess the effectiveness of managements review process and the appropriateness of the conclusions reached. S.R. Batliboi & Associates LLP Standalone
277 Equitas Holdings Ltd. NBFCs & Housing Finance Key Audit Matters 31st March, 2019 Impairment for Financial Instruments based on expected credit loss model : The Company provides various loans and guarantees to group companies and trusts as part of its operations. The Company has in the past not recovered / provided for / written of the exposure to group companies / trusts. As per the expected credit loss model prescribed under Ind- AS 109, companies are required to estimate the probability of loss / expected loss based on past experience and future considerations. There is a risk that inappropriate impairment provisions are booked, whether from the use of inaccurate underlying data, or the use of unreasonable assumptions. Due to the significance of the judgments used in classifying loans and advances into various stages stipulated in Ind-AS 109 and determining related provision requirements, this audit area is considered a key audit risk. As at March 31, 2019, the Companys gross advance and non funded exposures amounted to Rs.3.07 crore (Previous year Rs. 130.00 crore) and the related impairment provisions / write off amounted to Rs. Nil (Previous year Rs. 1.31 crore). The impairment provision policy is presented in the accounting policies, and in Note 3.5 to the financial statements. We gained an understanding of the Companys key credit processes comprising granting, booking, monitoring and provisioning and tested the operating effectiveness of key controls over these processes We read the Companys Ind-AS 109 impairment provisioning policy and compared it with the requirements of Ind-AS 109 as well as relevant regulatory guidelines and pronouncements We obtained an understanding of the Companys provisioning methodology, the underlying assumptions and the sufficiency of the data used by management We tested on a sample basis, the Exposure at Default used in the ECL calculation Obtained an understanding of the basis and methodology adopted by management to determine 12 month and life-time probability of defaults and the loss given defaults for various homogenous segments and verified the same on a test basis; We enquired with the management regarding significant judgments and estimates involved in the impairment computation and evaluated the reasonability of such estimates made in accordance with Ind AS 109; and We performed analytical reviews of disaggregated data to identify any unusual trends warranting additional audit procedures S.R. Batliboi & Associates LLP Standalone
278 Equitas Holdings Ltd. NBFCs & Housing Finance Key Audit Matters 31st March, 2019 Provision for Financial Instruments based on expected credit loss model : The Company and Equitas Small Finance Bank Limited, a subsidiary of EHL, provides loans and advances to its customers and other entities in the Group, which form a material portion of the Groups assets. As per the expected credit loss model prescribed under Ind-AS 109, entities are required to estimate the probability of loss / expected loss based on past experience and future considerations. There is a risk that inappropriate impairment provisions are booked, whether from the use of inaccurate underlying data, or the use of unreasonable assumptions. Due to the significance of the judgments used in classifying loans and advances into various stages stipulated in Ind-AS 109 and determining related provision requirements, this audit area is considered a key audit risk. As at March 31, 2019, the Groups gross advance and nonfunded exposures amounted to Rs.11,844 crore and the related impairment provisions / write off amounted to Rs. 156 crore. The impairment provision policy is presented in the accounting policies, and in Note 3.5 to the financial statements We gained an understanding of the Groups credit processes comprising granting, booking, monitoring and provisioning and tested the operating effectiveness of key controls over these processes We read the Groups Ind-AS 109 impairment provisioning policy and compared it with the requirements of Ind-AS 109 as well as relevant regulatory guidelines and pronouncements For expected credit loss provision against outstanding exposures classified across various stages, we obtained an understanding of the Groups provisioning methodology, the underlying assumptions and the sufficiency of the data used by management. We performed sample tests of the staging of outstanding exposures prepared by management as compared to the Groups policy We tested on a sample basis, the Exposure at Default used in the ECL calculation We obtained an understanding of the basis and methodology adopted by management to determine 12 month and life-time probability of defaults and the loss given defaults for various homogenous segments and tested the same on a sample basis; We obtained an understanding of the basis and methodology adopted by management to determine loss given defaults for various homogenous segments based on past recovery experience, qualitative factors etc., and tested the same on a sample basis We discussed with management, the assumptions used in their Expected Credit Loss (ECL) calculations, and compared them to publicly available information We tested the data used in the impairment computation (including the data integrity of information extracted from the Groups IT systems) We enquired with the management regarding significant judgments and estimates involved in the impairment computation and evaluated the reasonability of such estimates made in accordance with Ind AS 109; and We performed analytical reviews of disaggregated data to identify any unusual trends warranting additional audit procedures S.R. Batliboi & Associates LLP Consolidated
279 Equitas Holdings Ltd. NBFCs & Housing Finance Key Audit Matters 31st March, 2019 IT Systems and Controls: There has been a major enhancement in the information technology (IT) infrastructure of the Equitas Small Finance Banks (a subsidiary company) (the Bank), in the current year. During the current year, as the IT systems and processes continue to mature in view of the evolving business and regulatory landscape, frequent changes in the technology environment have been carried out by the Bank. The IT infrastructure is critical for effective and efficient functioning of the Banks business operations as well as for timely and accurate financial reporting. Accordingly, the Bank has continued to invest in its IT infrastructure in the current year as well. Due to the pervasive nature and complexity of the IT environment and considering that several systems and process have been implemented in recent past, and as a result the IT control environment may not have matured, it is considered a key audit matter We included specialized IT auditors as part of our audit team for testing IT general controls, application controls and IT dependent manual controls implemented by the Bank, and testing the information produced by the Banks IT systems. We tested the design and operating effectiveness of the Banks IT access controls over the key information systems that are related to financial reporting. We tested IT general controls in the nature of controls over logical access, changes management, and other aspects of IT operational controls. These included testing that requests for access to systems were reviewed and authorized. We considered the control environment relating to various interfaces, configuration and other application controls identified as key to our audit. In addition, we tested the key application controls to evaluate their operating effectiveness. If deficiencies were identified, we tested compensating controls or performed alternate procedures S.R. Batliboi & Associates LLP Consolidated
280 Equitas Holdings Ltd. NBFCs & Housing Finance Other Matters 31st March, 2019 We did not audit the financial statements and other financial information, in respect of one subsidiary, whose Ind AS financial statements include total assets of Rs. 1.22 crore as at March 31, 2019, and total revenues of Rs. 1.81 crore and net cash outflows/(inflows) of Rs. 3.31 crore for the year ended on that date. These Ind AS financial statement and other financial information have been audited by other auditors, which financial statements, other financial information and auditors reports have been furnished to us by the management. Our opinion on the consolidated Ind AS financial statements, in so far as it relates to the amounts and disclosures included in respect of these subsidiaries, and our report in terms of sub-sections (3) of Section 143 of the Act, in so far as it relates to the aforesaid subsidiary, is based solely on the report of such other auditor. Our opinion above on the consolidated Ind AS financial statements, and our report on Other Legal and Regulatory Requirements below, is not modified in respect of the above matters with respect to our reliance on the work done and the reports of the other auditors and the financial statements and other financial information certified by the Management. S.R. Batliboi & Associates LLP Consolidated
281 Exide Industries Ltd. Auto Parts & equipments Key Audit Matters 31st March, 2019 The Companys business involves the sale of products under warranty. Accordingly, the Company has recorded significant warranty provisions which are inherently judgmental in nature. These provisions are required for the Company to record an appropriate estimate of the ultimate costs of repairing and replacing product that is ascertained to be faulty. Our audit procedures included, among other things, the evaluation of the process to calculate the provision for product warranties and the evaluation of the relevant assumptions and their derivation for the measurement of the provisions. Based on historical data used by the Company to estimate its provisions for product warranties, we assessed the permanence of methods used, the relevance and reliability of underlying data and calculations applied. We also compared costs incurred to the previously recognized provisions to assess the quality of the management estimates. Based on evidence obtained, we concluded that managements process for identifying and quantifying warranty provisions was appropriate and that the resulting provision was reasonable. B S R & Co. LLP Standalone
282 Exide Industries Ltd. Auto Parts & equipments Key Audit Matters 31st March, 2019 Revenue is measured taking into account, the incentives earned by the dealers on the Companys sales. Due to the multitude and variety of contractual terms across the Companys markets, the estimation of incentives recognised based on sales made during the year is considered to be complex. We determined this matter to be a key audit issue due to the variety of incentives offered, the absolute amount of such incentive as well as the complexity associated with the estimates that management has to make, to record them at year end. Our audit procedures included considering the appropriateness of the Companys accounting policies pertaining to revenue recognition, including those relating to incentives and assessing compliance with the applicable accounting standards. We tested the effectiveness of the Companys controls over calculation of incentives, actual pay-out against such incentive provisions and appropriateness of the timing of revenue recognition. Based on historical data used by the Company to estimate its accruals for dealers incentive, we assessed the permanence of methods used, the relevance and reliability of underlying data and calculations applied. We also compared amounts paid with previously recognized corresponding provisions to assess the quality of the management estimates. Based on evidence obtained, we concluded that managements process for identifying and quantifying incentive provisions and recognition of revenue was appropriate. B S R & Co. LLP Standalone
283 Exide Industries Ltd. Auto Parts & equipments Key Audit Matters 31st March, 2019 The Companys business involves the sale of products under warranty. Accordingly, the Company has recorded significant warranty provisions which are inherently judgmental in nature. These provisions are required for the Company to record an appropriate estimate of the ultimate costs of repairing and replacing product that is ascertained to be faulty. Our audit procedures included, among other things, the evaluation of the process to calculate the provision for product warranties and the evaluation of the relevant assumptions and their derivation for the measurement of the provisions. Based on historical data used by the Company to estimate its provisions for product warranties, we assessed the permanence of methods used, the relevance and reliability of underlying data and calculations applied. We also compared costs incurred to the previously recognized provisions to assess the quality of the management estimates. Based on evidence obtained, we concluded that managements process for identifying and quantifying warranty provisions was appropriate and that the resulting provision was reasonable. B S R & Co. LLP Consolidated
284 Exide Industries Ltd. Auto Parts & equipments Key Audit Matters 31st March, 2019 Revenue is measured taking into account, the incentives earned by the dealers on the Companys sales. Due to the multitude and variety of contractual terms across the Companys markets, the estimation of incentives recognised based on sales made during the year is considered to be complex. We determined this matter to be a key audit issue due to the variety of incentives offered, the absolute amount of such incentive as well as the complexity associated with the estimates that management has to make, to record them at year end. Our audit procedures included considering the appropriateness of the Companys accounting policies pertaining to revenue recognition, including those relating to incentives and assessing compliance with the applicable accounting standards. We tested the effectiveness of the Companys controls over calculation of incentives, actual pay-out against such incentive provisions and appropriateness of the timing of revenue recognition. Based on historical data used by the Company to estimate its accruals for dealers incentive, we assessed the permanence of methods used, the relevance and reliability of underlying data and calculations applied. We also compared amounts paid with previously recognized corresponding provisions to assess the quality of the management estimates. Based on evidence obtained, we concluded that managements process for identifying and quantifying incentive provisions and recognition of revenue was appropriate. B S R & Co. LLP Consolidated
285 Exide Industries Ltd. Auto Parts & equipments Key Audit Matters 31st March, 2019 The valuation of the actuarially determined life insurance liabilities (present value of expected future outflow including benefits to policyholders and future expenses less present value of expected future premium) by Exide Life Insurance Company Limited (ELI), a subsidiary, is based on complex actuarial methodologies and models involving comprehensive assumption setting processes with regards to future events. Actuarial assumptions selected by the aforesaid subsidiary with respect to interest rates, investment returns, mortality, morbidity, longevity, persistency, expenses, stock market volatility and future policyholder behaviour which may result in material impacts on the valuation of actuarially determined life insurance liabilities. The statutory auditors of ELI have performed the following audit procedures: a. Tested the completeness and accuracy of material underlying data to source documentation. b. Reviewed the consistency of actuarial methods used by the Company in determining the life insurance liabilities. Further, the statutory auditors of ELI have relied upon Appointed Actuarys certificate for forming their opinion on the valuation of liabilities for life policies in force and for policies in respect of which premium has been discontinued but liability exists on financial statements of the Company. B S R & Co. LLP Consolidated
286 Exide Industries Ltd. Auto Parts & equipments Key Audit Matters 31st March, 2019 Investments in various securities are made by ELI for shareholders and policyholders. Such investments include investments in debt securities of various corporates. ELIs management determines whether objective evidence of impairment exists for these investments. Given the inherent subjectivity in the assessment of impairment, this is considered to be a key audit matter. The statutory auditors of ELI have verified the latest rating reports obtained by ELI, on a sample basis. They have also tested the operating effectiveness of certain key controls performed by the Investment team for reviewing the quality of the investments made. Further, the statutory auditors of ELI have also evaluated the managements assessment of indications of impairment and challenged the managements rationale for identifying significant decline in the fair value. No material variances arose from performing this work. B S R & Co. LLP Consolidated
287 Exide Industries Ltd. Auto Parts & equipments Other Matters 31st March, 2019 We did not audit the financial statements/ financial information of seven subsidiaries, whose financial statements/financial information reflect total assets of Rs.15,764.96 crores as at 31 March 2019, total revenues of Rs.6,338.45 crores and net cash flows amounting to Rs.38.36 crores for the year ended on that date, as considered in the consolidated financial statements. These financial statements/financial information have been audited by other auditors whose reports have been furnished to us by the Management and our opinion on the consolidated financial statements, in so far as it relates to the amounts and disclosures included in respect of these subsidiaries and our report in terms of sub-section (3) of Section 143 of the Act, in so far as it relates to the aforesaid subsidiaries is based solely on the audit reports of the other auditors. B S R & Co. LLP Consolidated
288 Exide Industries Ltd. Auto Parts & equipments Other Matters 31st March, 2019 Certain of these subsidiaries are located outside India whose financial statements and other financial information have been prepared in accordance with accounting principles generally accepted in their respective countries and which have been audited by other auditors under generally accepted auditing standards applicable in their respective countries. The Companys management has converted the financial statements of such subsidiaries located outside India from accounting principles generally accepted in their respective countries to accounting principles generally accepted in India. We have audited these conversion adjustments made by the Companys management. Our opinion in so far as it relates to the balances and affairs of such subsidiaries located outside India is based on the report of other auditors and the conversion adjustments prepared by the management of the Company and audited by us B S R & Co. LLP Consolidated
289 Exide Industries Ltd. Auto Parts & equipments Other Matters 31st March, 2019 Our opinion on the consolidated financial statements, and our report on Other Legal and Regulatory Requirements below, is not modified in respect of the above matters with respect to our reliance on the work done and the reports of the other auditors. B S R & Co. LLP Consolidated
290 Finolex Cables Ltd. Power utilities and equipments Key Audit Matters 31st March, 2019 As at 31 March, 2019, the Company held investment with a carrying amount of Rs. 52.01 crores (net of impairment Rs. 100.63 crores including Rs. 18.17 crores impaired during the year) in a joint venture - Finolex J-power Systems Private Limited. This investment is carried at cost less impairment in the Companys standalone financial statements. Due to continuous losses being incurred by the joint venture, the Companys management has tested this investment for impairment in accordance with Ind AS 36 by comparing its recoverable amount with its carrying amount as at 31 March, 2019 The recoverable amount of the investment in joint venture is assessed based on future discounted cash flows of the joint venture (Enterprise Value). We considered this as a key audit matter due to significant judgement involved in estimating future cash flows of the joint venture and in determining the discount rate to be used. Changes in these inputs and assumptions could impact the results of the impairment assessment. We obtained an understanding of the Companys policies and procedures to identify impairment indicators for investment in joint venture and performed the following procedures in relation to the Companys management impairment assessment: We tested the design and operating effectiveness of the Companys management controls over review of the impairment assessment including those over the forecasts of future cash flows and the selection of the discount rate. We evaluated the reasonableness of forecasts of future cash flows of the joint venture provided to us by the Companys management by comparing the forecasts to historical trend analysis With the assistance of our fair value specialists, we evaluated the reasonableness of the valuation methodology and discount rate. We evaluated managements sensitivity analysis around the key assumptions, to ascertain the extent of change in those assumptions that would be required for the investment in joint venture to be impaired further. P.G.Bhagwat Standalone
291 Finolex Cables Ltd. Power utilities and equipments Key Audit Matters 31st March, 2019 The Company has investment in equity shares of a joint venture, Finolex J-power Systems Private Limited, which has been accounted for using the equity method in the consolidated financial statements. Under the equity method, an investment in a joint venture is recognised initially in the consolidated balance sheet at cost and adjusted thereafter to recognize the companys share of the profit or loss and other comprehensive income of the joint venture. The carrying amount of equity accounted investments are tested for impairment in accordance with Ind AS 36. The joint venture is making continuous losses and is dependent on continuing support from its two joint venture partners. Due to the presence of impairment indicators, the companys management has tested this investment (carrying value of Rs. 52.01 crore) for impairment in accordance with Ind AS 36 by comparing its recoverable amount with its carrying amount as at 31 March, 2019. The companys management has determined the recoverable amount based on the discounted cash flows of the joint venture and has concluded that no impairment is required. We considered this as a key audit matter due to significant judgement involved in estimating future cash flows of the joint venture and in determining the discount rate to be used. Changes in these inputs and assumptions could impact the results of the impairment assessment. We tested the design and operating effectiveness of the companys management controls over review of the impairment testing including those over the forecasts of future cash flows of the joint venture and the selection of the discount rate. We assessed the commitment provided by the Company and the other joint venture partner for the infusion of funds. We also assessed the history of fund infusion by the Company and the other joint venture partner in the joint venture in the past. We evaluated the reasonableness of forecasts of future cash flows of the joint venture provided to us by the companys management by comparing the forecasts to historical trend analysis. With the assistance of our fair value specialists, we evaluated the reasonableness of the valuation methodology and discount rate. We evaluated the company managements sensitivity analysis around the key assumptions, to ascertain the extent of change in those assumptions that would be required for the investment in the joint venture to be impaired. P.G.Bhagwat Consolidated
292 Finolex Cables Ltd. Power utilities and equipments Other Matters 31st March, 2019 The consolidated financial statements also include the Companys share of net profit of Rs. 100.38 crore and total comprehensive income of Rs. 99.35 crore for the year ended 31 March, 2019, as considered in the consolidated financial statements, in respect of 1 associate and 2 joint ventures, whose financial statements have not been audited by us. These financial statements have been audited by other auditors whose reports have been furnished to us by the Management and our opinion on the consolidated financial statements, in so far as it relates to the amounts and disclosures included in respect of these joint ventures and associate, and our report in terms of subsection (3) of Section 143 of the Act, in so far as it relates to the aforesaid joint ventures and associate is based solely on the reports of the other auditors. Our opinion on the consolidated financial statements above and our report on Other Legal and Regulatory Requirements below, is not modified in respect of the above matter with respect to our reliance on the work done and the reports of other auditors. P.G.Bhagwat Consolidated
293 Firstsource Solutions Ltd. IT Consulting & Software Key Audit Matters 31st March, 2019 Revenue recognition and measurement in respect of un-invoiced amounts The Company, in its contract with customers, promises to transfer distinct services to its customers which may be rendered in the form of customer management, transaction processing and debt collection services including revenue cycle management in the healthcare industry. The recognition of revenue is on the basis of contractual terms of agreed unit price, time and material, contingency basis and variable consideration. At each reporting date, revenue is accrued for work performed that may not have been invoiced. Identifying whether the Companys performance have resulted in a billable service that is collectable where the service deliveries have not been acknowledged by customers as of the reporting date involves a fair amount of judgment. Recognition of revenue before acknowledgment of receipt of services by customer could lead to an over or understatement of revenue and profit, whether intentionally or in error. Principal audit procedures performed a) We gained an understanding of the Companys processes in collating the evidence supporting delivery of services for each disaggregated type of revenue. We also obtained an understanding of the design of key controls for quantifying units of services that would be invoiced and the application of appropriate prices for each of such services. b) We tested the design and operating effectiveness of managements key controls in collating the units of services delivered and in the application of accurate prices for each of such services for a sample of the uninvoiced revenue entries, which included testing of access and change management controls exercised in respect of related information systems. c) We have tested a sample of uninvoiced revenue entries with reference to the reports from the information system that record the inputs relating to the services delivered to confirm the units of services delivered and contractual rates for the application of appropriate price for each of services. We also tested the adjustments on account of volume discounts and committed service levels of performance. With regard to incentives, our tests were focused to ensure that accruals were restricted to only those items where contingencies were minimal. d) We have performed substantive analytical procedures to evaluate the reasonableness of uninvoiced revenues recognised. Un-invoiced revenues from fixed fee based service contracts were not significant resulting in lover risk relating to cut off and accuracy. Therefore, we focused our attention on time and unit priced based service contracts in performing substantive analytical procedures. These procedures involved developing sufficiently precise expectations using a plausible and predictable relationship among appropriately disaggregated data. e) We also extended our testing upto the date of approval of financial statements by the Board of Directors of the Company to verify adjustments, if any, that may have been necessary upon receipt of approvals from customers for services delivered prior to the reporting date and / or collections against those. f) We have reviewed the delivery and collection history of customers against whose contracts uninvoiced revenue is recognized. g) We tested cut-offs for revenue recognized against un-invoiced amounts by matching the revenue accrual against accruals for corresponding cost. Deloitte Haskins & Sells LLP Standalone
294 Firstsource Solutions Ltd. IT Consulting & Software Key Audit Matters 31st March, 2019 Assessment of recoverability of Minimum Alternate Tax (MAT) Credit for Special Economic Zone (SEZ) units Under the provisions of the Income Tax Act, 1961, (the Income Tax Act) Minimum Alternate Tax (MAT) is payable by companies where 18.5% (plus applicable surcharge and cess) of its book profit as defined under section 115JB of the Income Tax Act exceeds the income tax payable on the total taxable income computed in accordance with the Income Tax Act. A credit equal to the excess of MAT paid on book profit over the normal income tax payable on the total taxable income is allowed as a credit (MAT credit). The MAT credit is allowed to be carried forward for a period of fifteen succeeding assessment years following the assessment year in which the MAT credit becomes allowable. MAT credit can be set off only in the year in which the Company is liable to pay normal income tax on the total taxable income to the extent such tax is in excess of the MAT for that year. The Company has recognised deferred tax asset in respect of MAT credit to the extent of Rs. 2,061.29 million. The Companys evaluation of the recoverability of deferred tax asset in respect of MAT credit requires Management to make significant estimates and assumptions related to forecasts of future taxable profits. Also, a significant portion of the Companys profits in the past have arisen from export of services from delivery centres set up in Special Economic Zones (SEZs). Export profits derived from SEZs are entitled to a 100% deduction in determining the total taxable income for the first five years. The deduction is reduced to 50% for the next ten years (subject to meeting certain additional conditions in the last five years). Given, the proportion of export profits and the tax benefits attached to export profits from SEZs, forecast of future taxable income involves significant subjective judgement. Principal audit procedures performed We obtained the financial projections compiled by the management and performed audit procedures related to forecasts of future tax liabilities and operating margin: a) We evaluated managements ability to accurately forecast future revenues, operating margins and taxable profits by comparing actual results to managements historical forecast by delivery centre (including the ratio of deliveries from SEZs and Non-SEZ centres) to arrive at forecast tax liabilities. b) We have reviewed the assumptions on use of SEZ delivery centres with governments policies on awarding licenses for SEZs and for withdrawing deductions / exemptions under the Income Tax Act. c) We performed through sensitivity analysis on the key assumptions to ascertain the extent of change in those assumptions that would impact any impairment to the MAT Credit. Deloitte Haskins & Sells LLP Standalone
295 Fortis Healthcare Ltd. Healthcare Emphasis of Matter 31st March, 2019 Basis for Qualified Opinion The matters stated below were also subject matter of qualification in predecessor auditors audit opinion on the standalone financial statements as at 31 March 2018:1 As explained in Note 29 of the standalone financial statements, pursuant to certain events/transactions, the erstwhile Audit and Risk Management Committee (the ARMC) of the Company had initiated an independent investigation by an external legal firm and special audits by professional firms on matters relating to systematic lapses/override of internal controls as described in Note 29 of the standalone financial statements. The report has since been submitted and is subject to the limitations on the information available to the external legal firm and their qualifications and disclaimers as described in their Investigation report. B S R & Co. LLP Standalone
296 Fortis Healthcare Ltd. Healthcare Emphasis of Matter 31st March, 2019 Additionally, different regulatory authorities are currently undertaking their own investigations, details of which are described in Note 29 and 30 of the standalone financial statements and stated below:SEBI has initiated an investigation in respect of the various issues. On 17 October 2018 and 21 December 2018 and 19 March 2019, SEBI passed Orders (Orders) and further investigations by regulatory authorities is continuing. In its Orders, SEBI observed that certain inter-corporate deposits (ICDs) made by Fortis Hospitals Limited (FHsL), a wholly owned subsidiary of the Company, with certain identified entities were so structured that they seem to be prima facie fictitious and fraudulent in nature resulting in inter alia diversion of funds from the Fortis Group (Group) for the ultimate benefit of erstwhile promoters (and certain entities controlled by them) resulting in a misrepresentation in the financial statements of the Company in an earlier period. Further, SEBI issued certain interim directions inter alia directing the Company and FHsL to take all necessary steps to recover Rs. 40,300 lacs along with the due interest from erstwhile promoters and various other entities, as mentioned in the Orders. It has also directed the erstwhile promoter and the said entities to repay the sums due. The aforesaid ICDs were fully provided for in the books as at 31 March 2018. SEBI, in its Orders also directed erstwhile promoters and the said entities that pending completion of the investigation and till further order, they shall not dispose off or alienate any of their assets or divert any funds, except for the purposes for meeting expenses of day to day business operations, without any prior permission of SEBI. Erstwhile promoters have also been directed not to associate themselves with the affairs of the Company in any manner whatsoever, till further directions. The initial directions issued by SEBI have been confirmed by SEBI in their order dated 19 March 2019.Serious Fraud Investigation Office (SFIO), Ministry of Corporate Affairs, under Section 217(1)(a) of the Companies Act, 2013, inter alia, has initiated an investigation and has been seeking information in relation to the Company, its material subsidiaries, joint ventures and associates to which as informed to us the Company has responded. Since, the investigation and enquiries carried out by regulators as aforesaid are currently ongoing, need for additional procedures/ enquiries, if any, and an overall assessment of the impact of the investigations on the standalone financial statements of the Company is yet to be concluded. Based on investigations carried out by an external legal firm, Orders by SEBI and other information available currently, as per the management, all identified/required adjustments/ disclosures arising from the findings in the Investigation Report and the Orders by SEBI, were made in the standalone financial statements of the Company for the year ended 31 March 2018.Following matter was included in the investigation report and highlighted by predecessor auditor in their audit report for the year ended on 31 March 2018:Provisions of Rs. 4,743 lacs towards amount paid as security deposit, advances towards lease of office space and expenditure incurred towards capital work-in-progress due to uncertainty of recovery of these balances (refer note 25 to the standalone financial statements). No additional adjustments/ disclosures were required to be made in the standalone financial statements for the year ended 31 March 2019 in respect of the above. As explained in Note 29(e) and 6(4) of the standalone financial statements, related party relationships prior to loss of control of erstwhile promoters/ directors in the year ended 31 March 2018 were identified by the management taking into account the information available with the management and including the findings and limitations in the Investigation Reports. In this regard, specific declarations from the erstwhile directors/promoters, especially considering the substance of the relationship rather than the legal form, were not available. Therefore, the possibility cannot be ruled out that there may be additional related parties of erstwhile promoters/ directors whose relationships may not have been disclosed to the Company and, hence, not known to the Management. Further, as explained in Note 12 of the standalone financial statements, a Civil Suit was filed by a third party against various entities including the Company relating to Fortis, SRL and La-Femme brands. The Company has received four demand notices aggregating to Rs. 25,344 lacs in respect to this Civil Suit. Allegations made by 23rd Annual Report 2018-19 | 177Independent Auditors Report third party has been duly responded to by the Company denying i) execution of any binding agreement with third party; and ii) liability of any kind whatsoever. Based on legal advice of external legal counsel, the Management believes that the claims are without legal basis and not tenable. The matter is currently sub-judice. Due to the ongoing nature of the various inquiries/investigations, we are unable to comment on the adjustments/ disclosures which may become necessary as a result of further findings of the ongoing regulatory investigations on the standalone financial statements including completeness/accuracy of the related party transactions which relate to or which originated before 31 March 2018, the regulatory non-compliances, if any, and the consequential impact, if any, on the standalone financial statements. 2 As explained in Note 32 of the standalone financial statements, during the year ended 31 March 2018, the Company having considered all necessary facts and taking into account external legal advice, concluded that it had paid amount aggregating to Rs. 2,002 lacs to erstwhile Executive Chairman during his tenure (ended during the year ended 31 March 2018) in excess of amounts approved by the Central Government under Section 197 of the Companies Act, 2013 for his remuneration and other reimbursements. This is accordingly a non-compliance with the provision of Section 197 of the Companies Act, 2013. In the current year, the Company has taken requisite actions to recover this amount. Due to uncertainty involved on recoverability of the said amounts a provision for this amount has also been recorded. B S R & Co. LLP Standalone
297 Fortis Healthcare Ltd. Healthcare Emphasis of Matter 31st March, 2019 We draw attention to the following matters in the Notes forming part of the consolidated financial statements: a) Note 14(II) relating to outcome of income tax assessments in respect of Escorts Heart Institute and Research Centre Limited (EHIRCL), one of the subsidiaries in the Group, regarding amalgamation of two Societies and its subsequent conversion to EHIRCL. b) Note 14(II) relating to the outcome of the civil suit/arbitrations with regard to termination of certain land leases allotted by Delhi Development Authority (DDA) and the matter related to non-compliance with the order of the Honourable High Court of Delhi in relation to provision of free treatment/beds to poor by EHIRCL. c) Note 14(III) regarding matter relating to termination of Hospital lease agreement of Hiranandani Healthcare Private Limited, one of the subsidiaries in the Group, by Navi Mumbai Municipal Corporation (NMMC) vide order dated 18 January 2018. Based on the advice given by external legal counsel, the likelihood of outflow in the above litigations is remote and accordingly no provision/adjustment has been considered necessary by the management with respect to the above matters in the consolidated financial statements. Our opinion is not modified in respect of these matters. B S R & Co. LLP Consolidated
298 Fortis Healthcare Ltd. Healthcare Key Audit Matters 31st March, 2019 Goodwill As set out in Note 5(ii), the Company carries Goodwill of Rs. 2,722 lacs. Management performs an annual impairment review of goodwill as at 31 March. There are judgments used in this, such as forecast cash flows, discount rates and growth rates We have assessed the Companys current and forecast performance and considered whether any other factors exist that would suggest the goodwill is impaired. We have performed following procedures: challenged managements identification of CGUs against our understanding of the business and the definition as set out in the accounting standards;assessed the appropriateness of the calculation of the value in use of each CGU and the associated headroom, performing recalculations to test the mechanical accuracy of those amounts;forecast inputs and growth assumptions were compared against historical trends to assess the reliability of managements forecast, in addition to comparing forecast assumptions to external market analysis; with the assistance of specialists, we recalculated the discount rate applied to the future cash flows and benchmarked this against other companies in the industry; andperformed sensitivity analysis. In doing so we have involved our valuation specialists to assist us in carrying out aforesaid procedures as considered appropriate. We have also evaluated the accounting and respective disclosures made in the standalone financial statements B S R & Co. LLP Standalone
299 Fortis Healthcare Ltd. Healthcare Key Audit Matters 31st March, 2019 Legal matters There are a number of threatened and actual legal, regulatory and tax cases against the Company. These include those relating to land and related commitments, tax matters, claims made by or against the Company on account of medical matters and other civil suits etc. There is a high level of judgment required in assessing consequential impact and disclosures thereof on the standalone financial statements. Refer to the Note 3 Critical estimates and judgments, Note 5(xviii) Provisions and Note 11 Contingent liabilities and legal proceedings. Our procedures included the following: Testing key controls surrounding litigation, regulatory and tax cases; External legal opinions obtained by management and confirmations obtained by us; Reading correspondences including those of subsequent period; Discussing open matters with the management including but not limited to Company legal counsel, tax teams, regional and financial teams; and Assessing and challenging managements conclusions through understanding precedents set in similar cases. Based on the evidence obtained, managements assessment of such legal, regulatory and tax matters, the provision carried in the books of accounts in respect of such matters as on 31 March 2019 (while noting the inherent uncertainty of such matters) and related disclosures seem to be reasonable . B S R & Co. LLP Standalone
300 Fortis Healthcare Ltd. Healthcare Key Audit Matters 31st March, 2019 As explained in Note 26 of the Consolidated Financial Statements, the Group acquired business of RHT Health Trust (formerly known as Religare Health Trust) for a consideration of Rs. 466,630 lacs and basis preliminary purchase price allocation recorded goodwill of Rs. 180,070 lacs. The contractual arrangements for such transactions can be complex and require management to apply judgement in determining whether a transaction represents an acquisition of an asset or a business combination and there are estimates and judgments made in any such purchase price allocation. In view of the significance of the matter we evaluated the accounting for the acquisition, including: Assessed the judgements applied in determining whether this acquisition represented an acquisition of an asset or a business combination. This involved assessing whether or not the entities and the assets acquired constitute the carrying on of a business, i.e. whether there are inputs and processes applied to those inputs that have the ability to create outputs; Inspected the agreements to determine whether the appropriate intangible assets (including termination of pre-existing relationship) have been identified and that no unusual terms exist that have not been accounted for; The audit procedures in relation to consideration payable, accounting of fair valuation of the separately identifiable acquired assets and assumed liabilities; and Tested the valuation assumptions such as projected cash flows growth, discount and tax rates by reviewing assumptions used in such calculations and recalculating on sample basis. In doing so we have involved independent valuation specialists to assist us in carrying out aforesaid procedures as considered appropriate. We have also evaluated the accounting and respective disclosures made in the consolidated financial statements. B S R & Co. LLP Consolidated
301 Fortis Healthcare Ltd. Healthcare Key Audit Matters 31st March, 2019 Goodwill and Investment As set out in Note 6(ii) and 6(iv), the Group carries Goodwill of Rs. 372,076 lacs and Investments in associates and joint ventures of Rs. 19,031 lacs. Management performs an annual impairment review of Goodwill as at 31 March. Investments are tested for impairment in case an indicator of potential impairment is identified. There are judgments used in this, such as forecast cash flows, discount rates and growth rates. We have assessed the Groups current and forecast performance and considered whether any other factors exist that would suggest that the Goodwill/ Investment is impaired. We have performed the following procedures: challenged managements identification of Cash Generating Units (CGUs) against our understanding of the business and the definition as set out in the accounting standards; assessed the appropriateness of the calculation of the value in use of each CGU and the associated headroom, performing recalculations to test the mechanical accuracy of those amounts; forecast inputs and growth assumptions were compared against historical trends to assess the reliability of managements forecast, in addition to comparing forecast assumptions to external market analysis; with the assistance of specialists, we compared the discount rate applied to the future cash flows and benchmarked it against other companies in the industry; and performed sensitivity analysis. In doing so we have involved our valuation specialists to assist us in carrying out aforesaid procedures as considered appropriate. We have also evaluated the accounting and respective disclosures made in the consolidated financial statements. B S R & Co. LLP Consolidated
302 Fortis Healthcare Ltd. Healthcare Key Audit Matters 31st March, 2019 Legal matters There are a number of threatened and actual legal, regulatory and tax cases against the Group. These include those relating to land and related commitments, tax matters, claims made by or against the group on account of medical matters and other civil suits etc. There is a high level of judgment required in assessing consequential impact and disclosures thereof on the Consolidated Financial Statements. Refer to the Note 3 Critical estimates and judgments, Note 6(xx) Provisions and Note 13 - Contingent liabilities and legal proceedings. Our procedures included the following: Testing key controls surrounding litigation, regulatory and tax cases; External legal opinions obtained by management and independent confirmations obtained by us; Reading correspondences including those of subsequent period; Discussing open matters with the management including but not limited to Company legal counsel, tax teams, regional and financial teams; and Assessing and challenging managements conclusions through understanding precedents set in similar cases. Based on the evidence obtained, managements assessment of such legal, regulatory and tax matters, the provision carried in the books of accounts in respect of such matters as on 31 March 2019 (while noting the inherent uncertainty of such matters) and related disclosures seem to be reasonable. B S R & Co. LLP Consolidated
303 Fortis Healthcare Ltd. Healthcare Other Matters 31st March, 2019 a) We did not audit the financial statements of 7 subsidiaries, whose financial statements reflect total assets of Rs. 583,850 lacs (26% of total assets of the Group before intercompany eliminations) as at 31 March 2019, total income of Rs. 48,889 lacs (7% of total income of the Group before intercompany eliminations) and net cash outflows amounting to Rs. 2,908 lacs for the year ended on that date, as considered in the consolidated financial statements. The consolidated financial statements also include the Groups share of net profit (and other comprehensive income) of Rs. 574 lacs for the year ended 31 March 2019, in respect of 2 joint ventures, whose financial statements have not been audited by us. These financial statements have been audited by other auditors whose reports have been furnished to us by the Management and our opinion on the consolidated financial statements, in so far as it relates to the amounts and disclosures included in respect of these subsidiaries and joint ventures, and our report in terms of sub-section (3) of Section 143 of the Act, in so far as it relates to the aforesaid subsidiaries and joint ventures is based solely on the audit reports of the other auditors. Certain of these subsidiaries and joint ventures are located outside India whose financial statements and other financial information have been prepared in accordance with accounting principles generally accepted in their respective countries and which have been audited by other auditors under generally accepted auditing standards applicable in their respective countries. The Companys management has converted the financial statements of such subsidiaries and joint ventures located outside India from accounting principles generally accepted in their respective countries to accounting principles generally accepted in India. We have audited these conversion adjustments made by the Companys management. Our opinion in so far as it relates to the balances and affairs of such subsidiaries and joint ventures located outside India is based on the report of other auditors and the conversion adjustments prepared by the management of the Company and audited by us. b) The financial information of 11 subsidiaries, whose financial information reflect total assets of Rs. 98,598 lacs (4% of total assets of the Group before intercompany eliminations) as at 31 March 2019, total income of Rs. 20,653 lacs (3% of total income of the Group before intercompany eliminations) and net cash inflows amounting to Rs. 9,328 lacs for the year ended on that date, as considered in the consolidated financial statements, have not been audited either by us or by other auditors. The consolidated financial statements also include the Groups share of net profit (and other comprehensive income) of Rs. 35,950 lacs for the year ended 31 March 2019, as considered in the consolidated financial statements, in respect of 3 associates and 1 joint venture, whose financial statements/financial information have not been audited by us or by other auditors. These unaudited financial information have been furnished to us by the Management and our opinion on the consolidated financial statements, in so far as it relates to the amounts and disclosures included in respect of these subsidiaries, joint ventures and associates, and our report in terms of sub-sections (3) of Section 143 of the Act in so far as it relates to the aforesaid subsidiaries, joint ventures and associates, is based solely on such unaudited financial information. In our opinion and according to the information and explanations given to us by the Management, these financial statements/financial information are not material to the Group. c) The consolidated financial statements of the Group for the year ended 31 March 2018 were audited by the predecessor auditor who expressed a qualified opinion on those statements on 7 July 2018. Our opinion on the consolidated financial statements, and our report on Other Legal and Regulatory Requirements below, is not modified in respect of the above matters with respect to our reliance on the work done and the reports of the other auditors and the financial information certified by the Management. B S R & Co. LLP Consolidated
304 Future Lifestyle Fashions Ltd. Retail & FMCG Key Audit Matters 31st March, 2019 Revenue Recognition Accuracy of recognition, measurement, presentation and disclosures of revenues and other related balances in view of adoption of Ind AS 115 Revenue from Contracts with Customers (new revenue accounting standard) Principal Audit Procedures We assessed the appropriateness of the revenue recognition accounting policies, including those relating to discounts by comparing with new revenue accounting standard. Tested the relevant information technology systems access and change management controls which govern revenue recognition interfaces between different systems and key management controls over revenue recognition to assess the completeness of the revenue entries being recorded in the accounting system. We performed substantive testing by selecting samples of discount transactions recorded during the year and comparing the parameters used in the calculation of discounts with the relevant source documents (including schemes) to assess whether the methodology adopted in the calculation of discounts was in accordance with the terms and conditions defined in the corresponding schemes. Performed analytical procedures for reasonableness of revenues NGS & Co. LLP Standalone
305 Future Lifestyle Fashions Ltd. Retail & FMCG Key Audit Matters 31st March, 2019 Valuation of Inventory We identified this matter as key in our audit due to the materiality of the value of inventories, and the numerous SKUs and high volume of movement in the inventory. Principal Audit Procedures Assessment of the design, implementation and operational effectiveness of the relevant controls in place in the inventory management and measurement process. Evaluation of the inventory costing methodology and valuation policy established by management, including compliance with the applicable accounting standard. Assessment of the inventory costing methodology and valuation policy maintained and applied in the IT system. Assessing the analysis and assessment made by the management with respect to slow moving and obsolete inventory. Verification of the determination of net realisable value on a representative sample basis. NGS & Co. LLP Standalone
306 Gateway Distriparks Ltd. Transportation - Logistics Key Audit Matters 31st March, 2019 As of March 31, 2019, the Company has disclosed contingent liabilities of INR 12,731.21 lakhs relating to tax and legal claims. Taxation, arbitration and litigation exposures have been identified as a key audit matter due to the large number of complex tax and legal claims across the Company. Due to complexity of cases, timescales for resolution and need to negotiate with various authorities, there is significant judgement required by management in assessing the exposure of each case and thus a risk that such cases may not be adequately provided for or disclosed in the standalone Ind AS financial statements. Accordingly, claims, litigations, arbitrations and contingent liabilities was determined to be a key audit matter in our audit of the standalone Ind AS financial statements Gained an understanding of the process of identification of claims, litigations, arbitrations and contingent liabilities, and evaluated the design and tested the operating effectiveness of key controls. Obtained the Companys legal and tax cases summary and critically Assessed managements position through discussions with the legal head, tax head and Company management, on both the probability of success in significant cases, and the magnitude of any potential loss. Obtained confirmation, where appropriate, from relevant third party legal counsel and conducted discussions with them regarding material cases. Evaluated the objectivity, independence, competence and relevant experience of third party legal counsel. Inspected external legal opinions, where appropriate and other evidence to corroborate managements assessment of the risk profile in respect of legal claims. Engaged tax specialists to assess managements application and interpretation of tax legislation affecting the Company, and to consider the quantification of exposures and settlements arising from disputes with tax authorities. Checked the adequacy of the disclosures with regard to facts and circumstances of the legal and litigation matters. S R Batliboi & Co. Standalone
307 Gateway Distriparks Ltd. Transportation - Logistics Key Audit Matters 31st March, 2019 For the year ended 31 March 2019, the Company has recognized revenue from operations of INR 36,670.76 lakhs. Revenue from rendering of container handling services is recognized based on the container handled and accrued with reference to the throughput handled and the terms of agreements for such service where the recovery of consideration is probable. The tariff applied is the rate agreed with customers or estimated by management based on the latest terms of the agreement or latest negotiation with customers and other industry considerations as appropriate. Due to the large variety and complexity of contractual terms, as well as ongoing negotiations with customers, significant judgements are required to estimate the tariff rates applied. If the actual rate differs from the estimated rate applied, this will have an impact on the accuracy of revenue recognised in the current year and accrued as at year end. Revenue is also an important element of how the Company measures its performance, upon which the management is incentivized. The Company focuses on revenue as a key performance measure, which could create an incentive for revenue to be recognized before meeting the requirement of revenue recognition under Ind AS 115. Accordingly, due to significant risk associated with revenue recognition, it was determined to be a key audit matter in our audit of the Standalone Ind AS financial statement. Assessed the Companys revenue recognition policy and its compliance in terms of Ind AS 115 Revenue from contracts with customers. Understood, evaluated and tested the operating effectiveness of key controls related to revenue recognition. Performed sample tests of individual sales transaction and traced to sales invoices and other related documents. Further, in respect of the samples tested ensured that the revenue has been recognized as per the tariff agreed to the customers or latest correspondence with customer. Performed sample tests of individual sales transaction and traced to sales invoices and other related documents. Further, in respect of the samples tested ensured that the revenue has been recognized as per the tariff agreed to the customers or latest correspondence with customer. Selected sample of sales transactions made pre- and post-year end, agreeing the period of revenue recognition to supporting documentation and assessed that sales and corresponding trade receivables are properly recorded in the correct period. Checked the bank advices and credit notes on a sample basis for the net settlement and reviewed aged items for any disputed amounts. We assessed the Companys revenue recognition accounting policies including those related to discounts and rebates and ensured that same are in compliance with Ind AS. We inspected underlying documentation for any journal entries which were considered to be material related to revenue recognition. S R Batliboi & Co. Standalone
308 Gateway Distriparks Ltd. Transportation - Logistics Key Audit Matters 31st March, 2019 As at March 31, 2019 the Company has a investment in Chandra CFS and Terminal Operators Private Limited a wholly owned subsidiary of INR 4,508.44 lakhs. The subsidiary has losses in the current and earlier years. As a result, an impairment assessment was required to be performed by the Company by comparing the carrying value of the investments to their recoverable amount to determine whether an impairment was required to be recognized. For the purpose of the above impairment testing, value in use has been determined by forecasting and discounting future cash flows. Furthermore, the value in use is highly sensitive to changes in some of the inputs used for forecasting the future cash flows. Further, the determination of the recoverable amount of the investments involved judgment due to inherent uncertainty in the assumptions supporting the recoverable amount of these investments. Accordingly, the impairment of investment in subsidiary was determined to be a key audit matter in our audit. Gained an understanding of the impairment assessment process, and evaluated the design and tested the operating effectiveness of controls in respect of process of comparing the carrying value of the investments to their recoverable amount to determine whether an impairment was required to be recognised. Evaluated the valuation methodology of the Company applied in determining the recoverable amount. In making this assessment, we also evaluated the objectivity, independence, competence and relevant experience of Companys specialists involved in the process. Assessed the assumptions around the key drivers of the cash flow forecasts including estimated reserved, discount rates, expected growth rates and terminal growth rates used. Evaluated the recoverable value headroom by performing sensitivity testing of key assumptions used. Discussed potential changes in key drivers as compared to previous year / actual performance with management in order to evaluate whether the inputs and assumptions used in the cash flow forecasts were suitable. Involved specialists to assist us in auditing the valuation methodologies used by management and the external valuation expert determining the recoverable amount. Tested the arithmetical accuracy of the models. Checked the disclosures made in the standalone Ind AS financial statements. S R Batliboi & Co. Standalone
309 Gateway Distriparks Ltd. Transportation - Logistics Key Audit Matters 31st March, 2019 The Group acquired additional shares in Gateway Rail Freight Limited. As a result of this transaction the Groups interest increased from 50.01 % to 99.93%. As of March 29, 2019, the Group no longer has joint control over Gateway Rail Freight Limited and stopped accounting for its interest using the equity method of accounting in its consolidated financial statements. From March 29, 2019, the results of Gateway Rail Freight Limited are included in the consolidated statement of Profit and Loss, including the statement of Other Comprehensive Income in accordance with Ind AS 110, Consolidated Financial Statements. The identification and valuation of the acquired net assets can have a material impact on the consolidated financial statements and is an area that involves judgement. Because this is a non-routine transaction and the accounting treatment is complex we consider this a key audit matter for our audit. Our audit procedures included the following: Ind AS 103 Business Combinations requires that assets and liabilities acquired in a business combination are measured at their fair value. This requires the Group to identify and recognise assets and liabilities in the acquired net assets of Gateway Rail Freight Limited at fair value. We analysed the transaction and the acquisition of control and discussed it with the Directors and management. To assess whether the accounting treatment complies with the requirements of Ind AS 103, we reviewed relevant underlying documents, including the share purchase contracts. Our audit procedures included among others, an assessment of the acquisition accounting, evaluating the procedures applied to identify and value additional assets and liabilities on acquisition and evaluating the key judgements. In performing these procedures, we obtained and reviewed the most recent external valuation report done on the land and building, which is the most significant asset of Gateway Rail Freight Limited. We also considered the adequacy of the Groups disclosures about the acquisition of Gateway Rail Freight Limited within the consolidated Ind AS financial statements. S R Batliboi & Co. Consolidated
310 Gateway Distriparks Ltd. Transportation - Logistics Key Audit Matters 31st March, 2019 The Groups balance sheet includes INR 32,276.47 lakhs of goodwill, representing 14% of total Group assets. In accordance with Ind AS, these balances are allocated to Cash Generating Units (CGUs) which are tested annually for impairment using discounted cash-flow models of each CGUs recoverable value compared to the carrying value of the assets. A deficit between the recoverable value and the CGUs net assets would result in impairment. The inputs to the impairment testing model which have the most significant impact on CGU recoverable value include: - Projected revenue growth, operating margins and operating cash-flows in the years 1-5; Stable long-term growth rates till perpetuity; and Business specific discount rates (pre-tax). The impairment test model includes sensitivity testing of key assumptions, including revenue growth, operating margin and discount rate. The annual impairment testing is considered a significant accounting judgement and estimate and a key audit matter because the assumptions on which the tests are based are highly judgmental and are affected by future market and economic conditions which are inherently uncertain, and because of the materiality of the balances to the financial statements as a whole. Our audit procedures included the following: We assessed the appropriateness of the Groups methodology applied in determining the CGUs to which goodwill is allocated. In making this assessment, we also evaluated the objectivity and independence of Groups internal specialists involved in the process. We assessed the assumptions around the key drivers of the cash flow forecasts including discount rates, expected growth rates and terminal growth rates used. We also assessed the recoverable value headroom by performing sensitivity testing of key assumptions used. We discussed potential changes in key drivers as compared to previous year / actual performance with management in order to evaluate whether the inputs and assumptions used in the cash flow forecasts were suitable. We tested the arithmetical accuracy of the models. Checked the adequacy of the disclosures in the consolidated Ind AS financial Statements. S R Batliboi & Co. Consolidated
311 Gateway Distriparks Ltd. Transportation - Logistics Key Audit Matters 31st March, 2019 As of March 31, 2019, the Group has disclosed contingent liabilities of INR 13,833.58 lakhs relating to tax and legal claims. Taxation, arbitration and litigation exposures have been identified as a key audit matter due to the large number of complex tax and legal claims across the Group. Due to complexity of cases, timescales for resolution and need to negotiate with various authorities, there is significant judgement required by management in assessing the exposure of each case and thus a risk that such cases may not be adequately provided for or disclosed in the Ind AS financial statements. Accordingly, claims, litigations, arbitrations and contingent liabilities was determined to be a key audit matter. Our audit procedures included the following: Gained an understanding of the process of identification of claims, litigations, arbitrations and contingent liabilities, and evaluated the design and tested the operating effectiveness of key controls. Obtained legal and tax cases summary and critically assessed managements position through discussions with the legal head, tax head and management, on both the probability of success in significant cases, and the magnitude of any potential loss. Obtained confirmation, where appropriate, from relevant third party legal counsel and conducted discussions with them regarding material cases. Evaluated the objectivity, independence, competence and relevant experience of third party legal counsel. Inspected external legal opinions, where appropriate and other evidence to corroborate managements assessment of the risk profile in respect of legal claims. Engaged tax specialists to assess managements application and interpretation of tax legislation affecting the Group, and to consider the quantification of exposures and settlements arising from disputes with tax authorities. Checked the adequacy of the disclosures with regard to facts and circumstances of the legal and litigation matters S R Batliboi & Co. Consolidated
312 Gateway Distriparks Ltd. Transportation - Logistics Key Audit Matters 31st March, 2019 For the year ended 31 March 2019, the Group has recognized revenue from operations of INR 43,061.22 lakhs. Revenue from rendering of container handling services is recognized based on the container handled and accrued with reference to the throughput handled and the terms of agreements for such service where the recovery of consideration is probable. The tariff applied is the rate agreed with customers or estimated by management based on the latest terms of the agreement or latest negotiation with customers and other industry considerations as appropriate. Due to the large variety and complexity of contractual terms, as well as ongoing negotiations with customers, significant judgements are required to estimate the tariff rates applied. If the actual rate differs from the estimated rate applied, this will have an impact on the accuracy of revenue recognised in the current year and accrued as at year end. Revenue is also an important element of how the Group measures its performance, upon which the management is incentivized. The Group focuses on revenue as a key performance measure, which could create an incentive for revenue to be recognized before meeting the requirement of revenue recognition under Ind AS 115. Accordingly, due to significant risk associated with revenue recognition, it was determined to be a key audit matter in our audit of the Ind AS financial statement. Our audit procedures included the following: Assessed the Groups revenue recognition policy and its compliance in terms of Ind AS 115 Revenue from contracts with customers Understood, evaluated and tested the operating effectiveness of key controls related to revenue recognition. Performed sample tests of individual sales transaction and traced to sales invoices and other related documents. Further, in respect of the samples tested ensured that the revenue has been recognized as per the tariff agreed to the customers or latest correspondence with customer. Selected sample of sales transactions made pre- and post-year end, agreeing the period of revenue recognition to supporting documentation and assessed that sales and corresponding trade receivables are properly recorded in the correct period. Checked the bank advices and credit notes on a sample basis for the net settlement and reviewed aged items for any disputed amounts. We assessed the Groups revenue recognition accounting policies including those related to discounts and rebates and ensured that same are in compliance with Ind AS. We inspected underlying documentation for any journal entries which were considered to be material related to revenue recognition. S R Batliboi & Co. Consolidated
313 Gateway Distriparks Ltd. Transportation - Logistics Key Audit Matters 31st March, 2019 Deferred tax assets are recognized for MAT credit available to the extent that it is probable that the Group will pay normal income tax during the specified period, i.e. the period for which MAT credit is allowed to be carried forward. The Groups ability to recognize deferred tax assets on MAT credit entitlement is assessed by management at the end of each reporting period, considering forecasts of future normal taxable profits and if required the Group will write down the asset to the extent that it is no longer probable that it will pay normal tax during the specified period. The assumptions on which these projections are determined by management. As at March 31, 2019 deferred tax assets in respect of MAT credit entitlement recognized in the consolidated financial statements is INR 2,054.11 lakhs. Given the degree of estimation and judgement involved in projection of future taxable normal profits and the fact that if the MAT credit is not utilized within the block of 15 years (immediately succeeding the assessment year in which the credit was generated) it will lapse, managements decision to create deferred tax assets in respect of MAT credit entitlement determined to be a key audit matter in our audit of the consolidated Ind AS financial statements. Our audit procedures included the following: Developed an understanding of the nature of the Groups tax structure and of the key tax positions. Obtained the future business plan approved by the Board of Directors and assessed the MAT credit position by inter alia agreeing key inputs to supporting documentation and by assessing the significant judgments made by management in this respect. Assessed the Group tax planning in relation to the recovery of MAT credit assets by amongst others, comparing the forecasted taxable profit with historical data and budgets approved by the board of directors. Analysed and tested managements projections and corresponding assumptions used to determine the likelihood that MAT Credit recognized as on the reporting date will be recovered through future tax as per normal provisions. Checked the consistency of business plan with the latest management estimates prepared as a part of the budgeting process and also the reliability of the process by which the estimates were computed, by assessing the reasons for differences between projected and actual performances. Assessed the appropriateness of related disclosures made in the consolidated Ind AS financial statements with respect to the recognition of deferred tax assets in respect of MAT credit entitlement. S R Batliboi & Co. Consolidated
314 Gateway Distriparks Ltd. Transportation - Logistics Key Audit Matters 31st March, 2019 As at March 31, 2019, the associate company has recognized deferred tax assets on carry forward tax losses in its financial statements of INR 5,325.98 lakhs. Deferred tax assets are recognized on carried forward tax losses when it is probable that taxable profit will be available against which the tax losses can be utilized. The Companys ability to recognize deferred tax assets on carried forward tax losses is assessed by management at the end of each reporting period, taking into account forecasts of future taxable profits and the law and jurisdiction of the taxable items and assumptions. Given the degree of estimation based on the projection of future taxable profits, managements decision to create deferred tax assets on tax losses was identified to be a key audit matter Our audit procedures included the following: Gained an understanding of the deferred tax assessment process, and evaluated the design and tested the operating effectiveness of controls in respect of process of recognizing deferred tax on carried forward tax losses. We evaluated the appropriateness of the methodology applied by the Company with current accounting standards along with future business plan duly approved by board of directors. We assessed the likelihood of the Company to utilize deferred tax assets in the future with underlying projections and assumptions, We checked the consistency of business plan with the latest management estimates as calculated during the budget process and the reliability of the process by which the estimates were calculated and assessed reasons for differences between projected and actual performances. Tested the arithmetical accuracy of the model. Checked the adequacy of the disclosures in the notes regarding the recognition of deferred tax assets based on unused tax losses. S R Batliboi & Co. Consolidated
315 GIC Housing Finance Ltd. NBFCs & Housing Finance Key Audit Matters 31st March, 2019 The impairment of the loans is based on expected credit loss (ECL) model as per Ind AS-109- Financial Instruments. The Companys impairment allowance is based on certain management estimates including the historical default rates and loss ratios. The recognition and measurement of impairment of loans and advances involve significant management judgement. The areas where the management has exercised significant judgements are: Segmentation of loan book The impairment of the loans is based on expected Calculation of probability of default / Loss given default Consideration of forward looking macro-economic factors. The ECL requires a large variety of data as an input to the model. This increases the risk of completeness and accuracy of the data that has been used to create assumptions in the model. The Company has evaluated loans for impairment on a collective basis grouping loans by product into similar exposure groups. For collective impairment provisions we identified that the key judgment areas which could result in a material misstatement are the determination of probabilities of default (PDs) and loss given default(LGD) and the periods considered for capturing the underlying data as base to the PD and LGD calculations in calculating the provision. The determination of loan impairment provisions is inherently judgmental and relies on managements 'best estimate of a variety of inputs. The impact of the impairment provision is one of the significant items in the financial statement and hence we have considered this as a Key Audit Matter. Our audit procedures included understanding and assessing the design and implementation of controls in respect of the Companys loan impairment process such as the timely recognition of impairment provisions, the completeness and accuracy of reports used in the loan impairment process and management review processes over the calculation of impairment provisions. We have understood the process and system for calculation of impairment allowance. We have evaluated the appropriateness of the impairment principles Our audit procedures included understanding and understanding and industry practice. Further we evaluated the loan impairment methodology to confirm it was consistent with the Ind AS 109requirements and then confirmed that the calculations are performed in accordance with the approved methodology. On test check basis, we have verified the accuracy of key inputs used in the calculation and independently evaluated the reasonableness of the assumptions made. We have also tested the periods considered for capturing underlying data as base to PD and LGD calculations are in line with the past observed trends of the portfolio. We tested the PD and LGD calculation workings performed by management, including testing the data used in the assessment and evaluation of whether the results support the appropriateness of the PDs at the portfolio level. We have also reviewed the work done by other experts like Independent valuers, Lawyers, Legal Experts and other such professionals who have rendered services to the company, in accordance with SA 620 Using the Work of an Auditors Expert. CNK & Associates LLP Standalone
316 GIC Housing Finance Ltd. NBFCs & Housing Finance Key Audit Matters 31st March, 2019 The Company financial accounting and reporting systems are highly dependent on the effective working of the operating and accounting system. Extensive volume, variety and complexity of transactions are processed daily and there is a risk that automated accounting procedures and related internal controls may not be accurately designed and operating effectively. Particular areas of focus relate to the logic that is fed into the system, sanctity and reliability of the data, access management and segregation of duties. The Company financial accounting and reporting systems they ensure that changes to applications and data are appropriate, authorized, cleansed and monitored, so that the system generates accurate and reliable reports/returns and other financial and non-financial information that is used for the preparation and presentation of the financial statements. We have relied on the consistent and accurate functioning of System for the following: Recording Interest and Fees Income on Loan Portfolio: Identification of Loan Portfolio and its maturity pattern in various brackets; Recording the Expenses i.e. Legal Fees, Commission, Valuer Fees and other such related expenses; Various Report Generated, including the report for Asset Classification & Provision, for onwards Submission to National Housing Bank As per the requirement of Housing Finance Companies (NHB)Directions, 2010 Our audit procedures included verifying, testing and reviewing the design and operating effectiveness of the IT system by verifying the reports/returns and other financial and non-financial information generated from the system on a test check basis. Our audit procedures included: Ensuring that deficiencies noticed in our verification on test check basis were informed to the management for corrective action; Carrying out independent alternative audit Our audit procedures included verifying, testing and deficiencies were noticed; Analytical procedures like ratio analysis, trend analysis, reasonable tests, comparative analysis; Reviewed the reliability, effectiveness and accuracy of manual interventions on test check basis. Our audit procedures also included the assessment of controls over the approval, disbursements and monitoring of loans, and reviewing the logic and assumptions used in the operating systems and other related IT systems for compliance of the NHB Directions, 2010. CNK & Associates LLP Standalone
317 GIC Housing Finance Ltd. NBFCs & Housing Finance Key Audit Matters 31st March, 2019 On 1 April 2018 the Company adopted the Indian Accounting Standard (Ind AS) notified by the Ministry of Corporate Affairs with effect from 1 April 2017 being transition date. The Company has followed Ind AS notified under Section133 of the Companies Act 2013 (the Act), read with the relevant rules for preparation of the Financial Statement. As a part of the transition from previous GAAP to Ind AS, the major areas of impact for the Company are: On 1 April 2018 the Company adopted the Indian ? Fair valuation of financial instruments ? Recognition of deferred tax liabilities ? Presentation and disclosures of the Financial Statements. Our audit procedures included the following: Understood the methodology planned by the management to give impact to the transition adjustments. Assessed that the adjustments made for the financial statements are in lines with the Ind AS requirements. Tested the accuracy of key inputs used in the calculation and independently evaluated the reasonableness of the assumptions made for the Our audit procedures included the following: We assessed the accuracy of the computations. Verified the appropriateness of the disclosures required for the first-time adoption of Ind AS. Tested management review controls over completeness and measurement of disclosures in Financial Statements. CNK & Associates LLP Standalone
318 GlaxoSmithKline Consumer Healthcare Ltd. Retail & FMCG Emphasis of Matter 31st March, 2019 We draw attention to Note 34 of the financial statements which describes the status of Scheme of amalgamation and the basis of preparation of these financial statements on a going concern basis. Our opinion is not modified in respect of this matter. Deloitte Haskins & Sells LLP Standalone
319 GlaxoSmithKline Consumer Healthcare Ltd. Retail & FMCG Key Audit Matters 31st March, 2019 Revenue recognition Revenue includes both fixed and variable consideration. Variable consideration arises on the sale of goods as a result of discounts and incentives given and accruals for estimated future returns and rebates. Revenue is not recognised in full until it is highly probable that a significant reversal in the amount of cumulative revenue recognised will not occur. The methodology and assumptions used to estimate rebates and returns are monitored and adjusted regularly in the light of contractual and legal obligations, historical trend and past experience. Once the uncertainty associated with the returns and rebates is resolved, revenue is adjusted accordingly. Therefore, there is a risk of revenue being misstated as a result of incorrect estimations over returns and allowances, trade discounts and volume rebates. Refer note 2(d) and note 2A to the financial statements Principal Audit Procedures - Assessed the appropriateness of the Companys revenue recognition accounting policies, including those relating to returns and incentives, trade discounts and rebates by comparing with applicable accounting standards; - Tested the design and implementation and operating effectiveness of the Companys controls over the calculation of returns and incentives, discounts and rebates; - Tested the charges/additions to the provision and reversals of the provision made by validating underlying documents; Performed retrospective reviews of provisions and related calculations; - Evaluated the trend with respect to incentives, rebates, discounts and sales return for expired/near to expiry products and compared the same with the estimates made by the Managemnt. Deloitte Haskins & Sells LLP Standalone
320 GlaxoSmithKline Consumer Healthcare Ltd. Retail & FMCG Key Audit Matters 31st March, 2019 Provisions for contingencies - tax matters The Company has provisions for probable claims arising out of certain tax matters under various statutes, which are inherently judgemental and could change substantially over time as each matter progresses. Refer note 2(o), note 2A and 13 to the financial statements Principal Audit Procedures - Assessed the appropriateness of the Companys accounting policies relating to provisions for tax litigations by comparing with applicable accounting standards; - Tested the design, implementation and operating effectiveness of controls around recording and re -assessment of tax provisions; - Analysed managements claim case summaries, which involved discussing the status of selected outstanding and settled legal cases with internal legal counsel, evaluating source documents and corroborating relevant matters with external counsel wherever applicable; - Obtained direct confirmation from Management experts and compared the responses with the details provided by the management; - Understood and challenged managements rationale and the appropriateness of selected factors in estimating provisions; Involved internal tax specialists to examine litigations outcome, factors in estimating provisions; - Assessed reasonableness of the provision related tax matters and the presentation and classification of items. Deloitte Haskins & Sells LLP Standalone
321 GMR Infrastructure Ltd. Power utilities and equipments Emphasis of Matter 31st March, 2019 Note 5(10) and 5(11) with regard to the ongoing arbitration for compensation of losses being incurred by GMR Ambala Chandigarh Expressways Private Limited (GACEPL) and GMR Hyderabad Vijayawada Expressways Private Limited (GHVEPL), subsidiaries of the Company since the commencement of commercial operations. Pending outcome of the arbitration proceedings, finalisation of the proposed resolution plan with the lenders by GHVEPL and external legal opinion obtained by the management of GACEPL and GHVEPL, the management of the Company is of the view that the carrying value of the investments (including loans and advances and other receivables)/obligations as at March 31, 2019 in GACEPL and GHVEPL is appropriate. S.R. Batliboi & Associates LLP Standalone
322 GMR Infrastructure Ltd. Power utilities and equipments Emphasis of Matter 31st March, 2019 Note 5(9) regarding the cessation of construction of the 300 MW hydro based power plant on Alaknanda river, Uttarakhand which was being constructed by GMR Badrinath Hydro Power Generation Private Limited (GBHPL), a joint venture of the Company. The Honble Supreme Court of India (the Supreme Court), while hearing a civil appeal in the matters of another hydro power company, directed that no further construction work shall be undertaken until further orders. Based on a business plan and valuation assessment by an external expert during the year ended March 31, 2019 management is of the view that the carrying value of the investments in GBHPL as at March 31, 2019 is appropriate. S.R. Batliboi & Associates LLP Standalone
323 GMR Infrastructure Ltd. Power utilities and equipments Emphasis of Matter 31st March, 2019 Note 5(7) and 5(8) in connection with certain claims, receivables and counter claims from customers of GMR Warora Energy Limited (GWEL) and GMR Kamalanga Energy Limited (GKEL), joint ventures of the Company, pending settlement / realisation as at March 31, 2019. The management of the Group based on its internal assessment, legal expert advice and certain interim favourable regulatory orders has not made any adjustments in the accompanying standalone Ind AS financial statements for the year ended March 31, 2019. S.R. Batliboi & Associates LLP Standalone
324 GMR Infrastructure Ltd. Power utilities and equipments Emphasis of Matter 31st March, 2019 Note 5(6) as regards the process of change of control of GMR Chhattisgarh Energy Limited (GCEL), an associate of the Company, initiated by Consortium of lenders of GCEL, who are also the majority shareholders. The Company has accounted for investments in GCEL at fair value and is of the view that no consequential liability would arise pertaining to (a) settlement of dues to the EPC contractor (b) exposure relating to deposits and guarantees given by the Company along with its subsidiaries and (c) surrender of coal mines and transmission lines and other matters for reasons as detailed in the aforesaid note. S.R. Batliboi & Associates LLP Standalone
325 GMR Infrastructure Ltd. Power utilities and equipments Emphasis of Matter 31st March, 2019 As detailed in note 5(5) to the accompanying standalone Ind AS financial statements for the year ended March 31, 2019, GMR Energy Limited (GEL), GMR Vemagiri Power Generation Limited (GVPGL) and GMR Rajahmundry Energy Limited (GREL) have ceased operations and have been incurring significant losses with a consequential erosion of net worth resulting from the continued unavailability of adequate supply of natural gas. Further, GREL has rescheduled the repayment of project loans due to implementation of the Strategic Debt Restructuring Scheme to convert part of the debt outstanding into equity and has signed a Resolution Plan with the lenders to restructure its debt obligations during the year. The carrying value of the investments/obligations in these entities is significantly dependent on the achievement of key assumptions around availability of natural gas, future tariff and the outcome of the sale of the Barge mounted power plant. Accordingly, we are unable to comment on the carrying value of the investments (including advances)/obligations in these entities as at March 31, 2019. In respect of the above matter, our audit report for the year ended March 31, 2018 was also similarly qualified. S.R. Batliboi & Associates LLP Standalone
326 GMR Infrastructure Ltd. Power utilities and equipments Key Audit Matters 31st March, 2019 Fair value measurement of investments in equity shares (including other equity) During the year ended March 31, 2019, the Company has voluntarily changed its accounting policy to measure its equity investments in subsidiaries, associates and joint ventures from cost as per Ind AS 27 Separate Financial Statements to fair value as per Ind AS 109 Financial instruments with retrospective effect. The Company has total non-current investment of Rs. 18,419.03 crore as at March 31, 2019. The determination of recoverable amounts of the Companys investments in subsidiaries, associates and joint ventures relies on managements estimates of future cash flows and their judgment with respect to conclusion of tariff rates, operational performance of the plants and coal mines, life extension plans, availability and market prices of gas, coal and other fuels, restructuring of loans etc. in case of investments in entities in the energy business, estimation of passenger and vehicle traffic and rates and favourable outcomes of litigations etc. in the airport and expressway business. Fair value of investment in SEZ sector is determined based on available data for similar immovable property/investment or observable market prices less incremental cost for disposing off the immovable properties/investments. Significant judgements are required to determine the aforesaid assumptions used in the discounted cash flow models. Due to the uncertainty of forecasting and discounting future cash flows, being inherently subjective, the level of managements judgement involved and the significance of the Companys investment as at March 31, 2019, we have considered this as a key audit matter. Our audit procedures to assess the reasonableness of fair valuation of equity investments included the following: We have carried out assessment of forecasts of future cash flows prepared by the management, evaluating the assumptions and comparing the estimates to externally available industry, economic and financial data; We have evaluated the Companys valuation methodology in determining the fair value of the investment. In making this assessment, we also assessed the professional competence, objectivity and capabilities of the valuation specialist engaged by the management; We also assessed the key assumptions adopted in the cash flow forecasts with the support of our in-house valuation experts and performed sensitivity analysis on aforesaid key assumptions; We have carried out discussions with management on the performance of the Companys investments as compared to previous year in order to evaluate whether the inputs and assumptions used in the cash flow forecasts were suitable; We tested the arithmetical accuracy of the models We have reviewed the related disclosures in the standalone Ind AS financial statements as required by the relevant accounting standards; S.R. Batliboi & Associates LLP Standalone
327 GMR Infrastructure Ltd. Power utilities and equipments Key Audit Matters 31st March, 2019 Revenue recognition and measurement of upfront losses on Long-term construction contracts For the year ended March 31, 2019, the Company recognized revenue from Engineering, procurement and construction (EPC) contracts of Rs. 763.04 Crore and has made provisions for upfront losses amounting to Rs. 148.06 crore as at March 31, 2019. Revenue from these contracts is recognized over a period of time in accordance with the requirements of Ind AS 115, Revenue from Contracts with Customers. Due to the nature of the contracts, revenue recognition involves usage of percentage of completion method which is determined based on proportion of contract costs incurred to date compared to estimated total contract costs, which involves significant judgments, identification of contractual obligations and the Companys rights to receive payments for performance completed till date, changes in scope and consequential revised contract price and recognition of the liability for loss making contracts/onerous obligations. Accuracy of revenues, onerous obligations and profits/loss may deviate significantly on account of change in judgements and estimates. For this reason, we identified revenue recognition and provision for upfront losses from EPC contracts as a key audit matter. Our audit procedures included the following: We evaluated the Companys accounting policies pertaining to revenue recognition and assessed compliance with the policies in terms of Ind AS 115- Revenue from Contracts with Customers. We identified and tested controls related to revenue recognition and our audit procedure focused on determination of progress of completion, recording of costs incurred and estimation of costs to complete the remaining contract obligations through inspection of evidence of performance of these controls. The measurement of revenue recognition requires managements estimates in respect of revenue, budgeted costs as well as the percentage of completion for construction works. In our testing of the revenue recognition and provision for upfront losses for the reporting period, we selected EPC contracts on a sample basis and: discussed with management and the respective project teams about the progress of the projects; reviewed the managements evaluation process to recognize revenue over a period of time, the status of completion for projects and total cost estimates. assessed managements estimates of the impact to revenue and budgeted costs arising from scope changes made to the original contracts, claims, disputes and liquidation damages with reference to supporting documents including variation orders and correspondence between the Company and the customers. tested on a sample basis the actual costs incurred on construction works during the reporting period; recalculated the revised percentage of completion based on the latest budgeted final costs and the total actual costs incurred; recalculated the revenue recognised based on the revised percentage of completion. We have reviewed the related disclosures in the standalone Ind AS financial statements as required by the relevant accounting standards; S.R. Batliboi & Associates LLP Standalone
328 GMR Infrastructure Ltd. Power utilities and equipments Key Audit Matters 31st March, 2019 Assessment of going concern basis - (as described in note 2.1 of the financial statements) As at March 31, 2019, the Company along with its subsidiaries, associates and joint ventures (the Group) have incurred losses with a consequent erosion of its net worth, lover credit ratings for some of its borrowings and has net current liabilities of Rs. 2,408.26 crore. As disclosed in the assessment of liquidity risk in note 38 to the standalone Ind AS financial statements, the Company has financial liabilities of Rs. 3,978.12 crore to be settled within one year from March 31, 2019. Further, the Company has commitments towards funding support to its Group Companies and Corporate guarantees issued to lenders / outsiders on behalf of its Group Companies as detailed in Note 37. The Company has prepared cash flow forecast for next twelve months which involves judgement and estimation around sources of funds to meet the financial obligations and cash flow requirements over the next twelve months. Considering the above, we have identified the assessment of going concern assumption as a key audit matter considering that the Company has net current liabilities. Our audit procedures included the following: We have obtained an understanding of the process of management assessment of going concern and also assessed the same. We read the management assessment in Note 2.1 which states: Management is taking various initiatives including monetisation of assets, sale of stake in certain assets, raising finances from financial institutions and strategic investors, refinancing of existing debt and other strategic initiatives for reduction of debt. Pursuant to such initiatives the Group had successfully divested its stake in certain assets in the highway sector, airport sector and energy sector in last few years. Further, as detailed in note 5(2), the management has signed a binding term sheet with certain investors to divest equity stake in GMR Airport Limited (GAL) on a fully diluted basis for a consideration of Rs. 8,000 crore. The divestment is subject to obtaining requisite approvals as stated in the aforesaid note and once successfully completed will enable the Group to meet their financial obligations and cash flow requirements. We have obtained the future cash flows of the Company, which are largely based on the expected proceeds upon successful closure of divestment of equity stake in GAL for which a binding term sheet has already been signed. We have considered the same for our assessment of the Companys capability to meet its financial obligation falling due within next twelve months. We have reviewed the binding term sheet to divest stake in GAL as detailed in note 5(2) to the financial statement to meet the cash flow requirement of the Company. We have assessed the disclosures made by the Company in relation to this matter. S.R. Batliboi & Associates LLP Standalone
329 Godfrey Phillips India Ltd. Retail & FMCG Key Audit Matters 31st March, 2019 Recoverability of carrying value of property, plant and equipment, leasehold land under operating lease and capital work in progress relating to retail and chewing business. As at March 31, 2019, the carrying value of property, plant and equipment including leasehold land under operating lease and capital work in progress relating to retail and chewing business was Rs. 7,451.70 lakhs and Rs. 7,271.23 lakhs respectively. Recoverability of carrying value of assets relating to retail and chewing business have been identified as a key audit matter due to: - The significance of the carrying value of assets being assessed. - Significant losses being incurred in the retail business despite increase in the number of stores in the current year and continuing losses in the chewing business. - The assessment of the recoverable amount of the Companys Cash Generating Units (CGUs) involves significant judgements and estimates. The key judgements and estimates centred on identification of indicators of impairment and future projections relating to the aforesaid business. Our procedures amongst others included the following: -Obtained and assessed management analysis of internal and external factors impacting the Companys retail and chewing business in line with Ind AS 36. -In relation to the retail business where impairment indicators were identified by the management, obtained and evaluated the valuation report of management appointed expert for the purpose of testing the key assumptions and methodologies used to determine the recoverable amount by engaging valuation specialists. In case of chewing business, critically evaluated the management basis of concluding with no indicators of impairment as at March 31, 2019 which require further analysis for determination of the recoverable amount by obtaining the business projections, holding discussions with the business heads and corroborating the explanations provided by the management in respect of the current year performance of the said business. -Assessed the independence, competence and objectivity of the management experts used for determining the recoverable amount. -Compared the recoverable amount of the assets relating to retail business to the carrying value in books. -Assessed the disclosures made in the financial statements by the Company in this regard. S.R. Batliboi & Co. LLP Standalone
330 Godfrey Phillips India Ltd. Retail & FMCG Key Audit Matters 31st March, 2019 As at March 31, 2019, the carrying value of Companys investment in subsidiaries amounted to Rs. 7,459.65 lakhs. Management reviews on a periodical basis whether there are any indicators of impairment of any of its investments. For investments where impairment indicators exist, management estimated the recoverable amounts of the investments, being higher of fair value less costs of disposal and value in use. Significant judgements are required to determine the key assumptions used in determination of fair value / value in use. As the impairment assessment involves significant assumptions and judgement, we regard this as a key audit matter. We focused our effort on those investments where there are impairment indicators. The Company identified impairment in carrying value of investment in one of its subsidiary Flavours & More Inc. Owing to its decision for closure of business operations of the said subsidiary. Impairment charge of Rs. 1,508.50 lakhs has been recorded in the current year. Our procedures in assessing the impairment of investments included the following: -Obtained and assessed management analysis of impairment of investment in subsidiaries. Assessed factors considered by the management as impacting such analysis of impairment assessment in line with Ind AS 36. -Specifically, in relation to those investments where impairment indicators were identified, tested the methodologies used by the management to determine the recoverable amount of such investments. -Compared the recoverable amount of the subject investment to the carrying value in books. -Assessed the disclosures made in the financial statements by the Company regarding such investments. S.R. Batliboi & Co. LLP Standalone
331 Godfrey Phillips India Ltd. Retail & FMCG Key Audit Matters 31st March, 2019 For the year ended March 31, 2019 the Company has recognized revenue from operations of Rs. 259,203.25 lakhs. Revenue recognition has been recognized as a key audit matter due to the following consideration: - Cut-off: The variety of terms that define when control is transferred to the customer. Further the Company focuses on revenue as a key performance measure, which could create an incentive for revenue to be recognised before the control is transferred. This give rise to the risk that revenue is not recognized in the correct period. - Measurement: Revenue is measured net of pricing allowances, other trade discounts, and price promotions to customers (collectively trade spend). There is a risk that trade spend accruals are incorrectly recorded as its also requires a certain degree of estimation, resulting in understatement of the associated expenses and accrual. As part of our audit procedures, our procedures included the following: - Read and assessed the Companys revenue recognition accounting policies including the recognition and classification criteria for trade spend in accordance with the requirements of Ind AS 115. - Performed walkthroughs and test of controls, assisted by our IT specialists, of the revenue recognition processes and assessed the design and operating effectiveness of key controls. -Selected a sample of transactions taking place at either side of the balance sheet date to evaluate whether revenue was recognised in the correct period by agreeing the date of revenue recognition to third party supports such as bill of lading, lorry receipts etc. - Tested the provision calculations related to trade spend by agreeing a sample of amounts recognised to underlying arrangements and other supporting documents. Compared the year end rebate provisions and rebate costs in the year to prior year amounts and expectations in order to identify unusual trends. S.R. Batliboi & Co. LLP Standalone
332 Godfrey Phillips India Ltd. Retail & FMCG Key Audit Matters 31st March, 2019 The Company has undertaken transactions with its related parties. These include sale of goods to related parties, purchase of goods and services from related parties. We identified accuracy and completeness of the said related party transactions as a key audit matter due to significance of related party transactions, risk of transactions entered not transacted on an arms length basis and risk of such transactions remaining undisclosed. As part of our audit procedures, our procedures included the following: - Obtained and read the Companys policies, processes and procedures in respect of identifying related parties, obtaining approval, recording and disclosing related party transactions. - Read minutes of shareholder meetings, board meetings and audit committee minutes regarding Companys assessment of related party transactions being in the ordinary course of business at arms length. - Tested, on a sample basis, related party transactions with the underlying contracts, confirmation letters and other supporting documents. - Agreed the related party information disclosed in the financial statements with the underlying supporting documents, on a sample basis. - Assessed the related party disclosures in the financial statements through review of statutory information, books and records and other documents obtained during the course of our audit. S.R. Batliboi & Co. LLP Standalone
333 Godfrey Phillips India Ltd. Retail & FMCG Key Audit Matters 31st March, 2019 Recoverability of carrying value of property, plant and equipment, leasehold land under operating lease and capital work in progress relating to retail and chewing business. As at March 31, 2019, the carrying value of property, plant and equipment including leasehold land under operating lease and capital work in progress relating to retail and chewing business was Rs. 7,451.70 lakhs and Rs. 7,271.23 lakhs respectively. Recoverability of carrying value of assets relating to retail and chewing business have been identified as a key audit matter due to: - The significance of the carrying value of assets being assessed. - Significant losses being incurred in the retail business despite increase in the number of stores in the current year and continuing losses in the chewing business. - The assessment of the recoverable amount of the Companys Cash Generating Units (CGUs) involves significant judgements and estimates. The key judgements and estimates centred on identification of indicators of impairment and future projections relating to the aforesaid business. Our procedures amongst others included the following: -Obtained and assessed management analysis of internal and external factors impacting the Companys retail and chewing business in line with Ind AS 36. -In relation to the retail business where impairment indicators were identified by the management, obtained and evaluated the valuation report of management appointed expert for the purpose of testing the key assumptions and methodologies used to determine the recoverable amount by engaging valuation specialists. In case of chewing business, critically evaluated the management basis of concluding with no indicators of impairment as at March 31, 2019 which require further analysis for determination of the recoverable amount by obtaining the business projections, holding discussions with the business heads and corroborating the explanations provided by the management in respect of the current year performance of the said business. -Assessed the independence, competence and objectivity of the management experts used for determining the recoverable amount. -Compared the recoverable amount of the assets relating to retail business to the carrying value in books. -Assessed the disclosures made in the financial statements by the Company in this regard. S.R. Batliboi & Co. LLP Consolidated
334 Godfrey Phillips India Ltd. Retail & FMCG Key Audit Matters 31st March, 2019 For the year ended March 31, 2019 the Group has recognized revenue from operations of Rs. 261,222.10 lakhs. Revenue recognition has been recognized as a key audit matter due to the following consideration: - Cut-off: The variety of terms that define when control is transferred to the customer. Further the Group focuses on revenue as a key performance measure, which could create an incentive for revenue to be recognised before the control is transferred. This give rise to the risk that revenue is not recognized in the correct period. - Measurement: Revenue is measured net of pricing allowances, other trade discounts, and price promotions to customers (collectively trade spend). There is a risk that trade spend accruals are incorrectly recorded as its also requires a certain degree of estimation, resulting in understatement of the associated expenses and accruals. As part of our audit procedures, our procedures included the following: - Read and assessed the Groups revenue recognition accounting policies including the recognition and classification criteria for trade spend in accordance with the requirements of Ind AS 115. - Performed walkthroughs and test of controls, assisted by our IT specialists, of the revenue recognition processes and assessed the design and operating effectiveness of key controls. - Selected a sample of transactions taking place at either side of the balance sheet date to evaluate whether revenue was recognised in the correct period by agreeing the date of revenue recognition to third party supports such as bill of lading, lorry receipts etc. - Tested the provision calculations related to trade spend by agreeing a sample of amounts recognised to underlying arrangements and other supporting documents. Compared the year end rebate provisions and rebate costs in the year to prior year amounts and expectations in order to identify unusual trends. S.R. Batliboi & Co. LLP Consolidated
335 Godfrey Phillips India Ltd. Retail & FMCG Key Audit Matters 31st March, 2019 The Company has undertaken transactions with its related parties. These include sale of goods to related parties, purchase of goods and services from related parties. We identified accuracy and completeness of the said related party transactions as a key audit matter due to significance of related party transactions, risk of transactions entered not transacted on an arms length basis and risk of such transactions remaining undisclosed. As part of our audit procedures, our procedures included the following: - Obtained and read the Companys policies, processes and procedures in respect of identifying related parties, obtaining approval, recording and disclosing related party transactions. - Read minutes of shareholder meetings, board meetings and audit committee minutes regarding Companys assessment of related party transactions being in the ordinary course of business at arms length. - Tested, on a sample basis, related party transactions with the underlying contracts, confirmation letters and other supporting documents. - Agreed the related party information disclosed in the financial statements with the underlying supporting documents, on a sample basis. - Assessed the related party disclosures in the financial statements through review of statutory information, books and records and other documents obtained during the course of our audit. S.R. Batliboi & Co. LLP Consolidated
336 Godfrey Phillips India Ltd. Retail & FMCG Key Audit Matters 31st March, 2019 As at March 31, 2019, one of the subsidiary company of the Group holds 91,875 unquoted equity shares of Rs. 10 each in KK Modi Investments & Financial Services Private Limited (KKMIF). As on the balance sheet date these shares have been accounted at fair value of Rs. 12,669.56 lakhs. The fair valuation of investment in KKMIF has been considered as key audit matter due to the following reason: - Significance of the amounts involved - Estimation and judgement involved in carrying out the fair valuation Our audit procedures including the procedures of the component auditor included the following: - Obtained the valuation report of the management expert and assessed the independence, competence and objectivity of the management experts used for determining the fair valuation. - Engaged valuation specialist to review the methodology used for carrying out the valuation. - Assessed the disclosures made in the financial statements by the Group in this regard. S.R. Batliboi & Co. LLP Consolidated
337 Godfrey Phillips India Ltd. Retail & FMCG Other Matters 31st March, 2019 (a). We did not audit the financial statements and other financial information, in respect of eight subsidiaries, whose Ind AS financial statements include total assets of Rs. 27,392.81 lakhs and net assets of Rs. 21,087.83 lakhs as at March 31, 2019, and total revenues of Rs.16,496.81 lakhs and net cash inflows of Rs. 989.51 lakhs for the year ended on that date. These Ind AS financial statement and other financial information have been audited by other auditors, which financial statements, other financial information and auditors reports have been furnished to us by the management. S.R. Batliboi & Co. LLP Consolidated
338 Godfrey Phillips India Ltd. Retail & FMCG Other Matters 31st March, 2019 (b) The consolidated Ind AS financial statements also include the Groups share of net profit of Rs. 44.27 lakhs for the year ended March 31, 2019, as considered in the consolidated Ind AS financial statements, in respect of four associates, out of these, the financial statements and other financial information in respect of three associates have been audited by other auditors and whose reports have been furnished to us by the management. In respect of remaining one of the associate, whose financial statements and other financial information have not been audited and whose unaudited financial statements, other unaudited financial information have been furnished to us by the management. In our opinion and according to the information and explanations given to us by the management, the financial statements and other financial information in respect to the said associate are not material to the Group. Certain of these subsidiaries and associates are located outside India whose financial statements and other financial information have been prepared in accordance with accounting principles generally accepted in their respective countries and which have been audited by other auditors under generally accepted auditing standards applicable in their respective countries. The Companys management has converted the financial statements of such subsidiaries and associates located outside India from accounting principles generally accepted in their respective countries to accounting principles generally accepted in India. We have audited these conversion adjustments made by the Companys management. Our opinion in so far as it relates to the balances and affairs of such subsidiaries and associates located outside India is based on the report of other auditors and the conversion adjustments prepared by the management of the Company and audited by us. Our opinion on the consolidated Ind AS financial statements, in so far as it relates to the amounts and disclosures included in respect of these subsidiaries and associates, and our report in terms of sub-sections (3) of Section 143 of the Act, in so far as it relates to the aforesaid subsidiaries and associates, is based solely on the reports of such other auditors and on such unaudited financial statement and other unaudited financial information. Our opinion above on the consolidated Ind AS financial statements, and our report on Other Legal and Regulatory Requirements below, is not modified in respect of the above matters with respect to our reliance on the work done and the reports of the other auditors and the financial statements and other financial information certified by the management. S.R. Batliboi & Co. LLP Consolidated
339 Godrej Consumer Products Ltd. Retail & FMCG Key Audit Matters 31st March, 2019 Revenue recognition : Revenue is measured net of discounts and rebates/schemes earned by customers on the Companys sales. Due to the Companys presence across different marketing regions within the country and the competitive business environment, the estimation of the various types of discounts, incentives and rebate schemes to be recognized based on sales made during the year is material and considered to be judgmental. Therefore, there is a risk of revenue being misstated as a result of faulty estimations over discounts, incentives and rebates. Revenue is recognized when the control of the products being sold has transferred to the customer. There is a risk of revenue being overstated due to fraud through manipulation on the timing of transfer of control resulting from the pressure on management to achieve performance targets at the reporting period end. Our audit procedures included: Assessing the appropriateness of the revenue recognition accounting policies, including those relating to discounts and rebates/schemes by comparing with applicable accounting standards. Testing the design, implementation and operating effectiveness of the Companys general IT controls and key IT/manual application controls over the Companys systems which govern recording of revenue and rebates/schemes in the general ledger accounting system. Performing substantive testing (including year-end cut-off testing) by selecting samples of revenue transactions recorded during the year (and before and after the financial year end) by verifying the underlying documents, which included sales invoices/contracts and shipping documents. We compared the historical discounts, rebates/schemes and allowances to current payment trends. We also considered the historical accuracy of the Companys estimates in previous years. l Performing substantive testing by checking samples of rebate/schemes transactions to supporting documentation. We assessed manual journals posted to revenue to identify unusual items. - Considering the adequacy of the Companys disclosures in respect of revenue. B S R and Co. Standalone
340 Godrej Consumer Products Ltd. Retail & FMCG Key Audit Matters 31st March, 2019 Intangible Assets - impairment evaluation of indefinite life intangibles: The carrying amount of indefinite life intangible assets represent 12 % of the Companys total assets. We consider the recoverability assessment of such intangible assets, including the review of indefinite useful life by management to involve significant estimates and judgement, due to the inherent uncertainty involved in forecasting and discounting future cash flows. Further due to their materiality in the context of total assets of the Company this is considered significant to our overall audit strategy and planning. Our audit procedures included: Assessing the valuation methodology and evaluating and challenging the reasonableness of the assumptions used, in particular those relating to forecast revenue growth, discount rate and royalty rates, with the assistance of our valuations team; Performing sensitivity analysis on the assumptions noted above; and Considering the adequacy of disclosures in respect of these intangible assets. B S R and Co. Standalone
341 Godrej Consumer Products Ltd. Retail & FMCG Key Audit Matters 31st March, 2019 Investments in Subsidiaries and Associates impairment evaluation: The carrying amount of the investments in subsidiaries and associates held at cost less impairment represents 44 % of the Companys total assets. We do not consider the valuation of these investments to be at a high risk of significant misstatement, or to be subject to a significant level of judgement. Further due to their materiality in the context of total assets of the Company, this is considered to be significant to our overall audit strategy and planning. Our audit procedures included: Comparing the carrying amount of investments with the relevant subsidiaries / associates balance sheet to identify whether their net assets, being an approximation of their minimum recoverable amount, were in excess of their carrying amount and assessing whether those subsidiaries/associates have historically been profit-making; Considering the adequacy of disclosures in respect of investments in subsidiaries and associates B S R and Co. Standalone
342 Godrej Consumer Products Ltd. Retail & FMCG Key Audit Matters 31st March, 2019 Impairment evaluation of Intangible assets: The carrying amount of intangible assets (other than goodwill) represent 16 % of the Groups total assets. We consider the impairment evaluation of intangible assets by management to involve significant estimates and judgement, due to the inherent uncertainty involved in forecasting and discounting future cash flows. Further due to their materiality in the context of total assets of the Group, this is considered significant to our overall audit strategy and planning. Our audit procedures included: Assessing the valuation methodology and evaluating and challenging the reasonableness of the assumptions used, in particular those relating to forecast revenue growth and royalty rates, with the assistance of our valuations team; Performing sensitivity analysis on the assumptions noted above; and considering the adequacy of disclosures in respect of the intangible assets. B S R and Co. Consolidated
343 Godrej Consumer Products Ltd. Retail & FMCG Key Audit Matters 31st March, 2019 Impairment evaluation of Goodwill: The carrying amount of Goodwill represents 35 % of the Groups total assets. We consider the annual impairment evaluation of Goodwill by management to involve significant estimates and judgement, due to the inherent uncertainty involved in forecasting and discounting future cash flows and in determining the recoverable amount. Further due to the materiality in the context of total assets of the Group, this is considered to be significant to our overall audit strategy and planning Our audit procedures included: Reviewing the appropriateness of managements basis to identify relevant Cash Generating Units (CGU) for which Goodwill is being tested; Involving our valuations team to assist in evaluating the appropriateness of the discount rates applied, which included comparing the weighted?average cost of capital with sector averages for the relevant markets in which the CGUs operate; Evaluating the appropriateness of the assumptions applied to key inputs such as sales volumes and prices, operating costs, inflation and long?term growth rates, Performing our own sensitivity analysis, which included assessing the effect of reasonably possible reductions in growth rates and forecast cash flows to evaluate the impact on the currently estimated headroom and Evaluating the adequacy of the consolidated financial statement disclosures, including disclosures of key assumptions, judgements and sensitivities. B S R and Co. Consolidated
344 Godrej Consumer Products Ltd. Retail & FMCG Other Matters 31st March, 2019 We did not audit the financial statements of 33 subsidiaries whose financial statements reflect total assets of Rs. 9,414.53 crore as at 31 March 2019, total revenues of Rs. 6,989.91 crore and net cash outflows amounting to Rs 162.90 crore for the year ended on that date, as considered in the consolidated financial statements. These financial statements have been audited by other auditors whose reports have been furnished to us by the Management and our opinion on the consolidated financial statements, in so far as it relates to the amounts and disclosures included in respect of these subsidiaries and our report in terms of sub-section (3) of Section 143 of the Act, in so far as it relates to the aforesaid subsidiaries is based solely on the audit reports of the other auditors. The consolidated financial statements also include the Groups share of net profit/ loss (and other comprehensive income) of Rs. 0.63 crore for the year ended 31 March 2019, as considered in the consolidated financial statements, in respect of an associate and a joint venture, whose financial statements have not been audited either by us or by other auditors. These unaudited financial statements have been furnished to us by the Management and our opinion on the consolidated financial statements, in so far as it relates to the amounts and disclosures included in respect of this joint venture and associate, and our report in terms of sub-section (3) of Section 143 of the Act in so far as it relates to the aforesaid joint venture and associate, is based solely on such unaudited financial statements. In our opinion and according to the information and explanations given to us by the Management, these financial statements are not material to the Group. Our opinion on the consolidated financial statements, and our report on Other Legal and Regulatory Requirements below, is not modified in respect of the above matters with respect to our reliance on the work done and the reports of the other auditors and the financial statements certified by the Management. B S R and Co. Consolidated
345 Godrej Industries Ltd. Pharmaceuticals & Chemicals Emphasis of Matter 31st March, 2019 We draw attention to Note 47 to the standalone financial statements, relating to remuneration paid to two Directors during the year ended 31 March 2019, which is in excess of the limits prescribed under Section 197 read with Schedule V of the Companies Act, 2013 by Rs. 7.96 crores, and is subject to the approval of the shareholders. Our opinion is not modified in respect of this matter B S R & Co. LLP Standalone
346 Godrej Industries Ltd. Pharmaceuticals & Chemicals Emphasis of Matter 31st March, 2019 (i) Note 61 (a) to the consolidated financial statements which mentions that the Holding Company has paid remuneration to two Directors during the year ended 31 March 2019, which is in excess of the limits given under Section 197 read with Schedule V of the Companies Act, 2013 by Rs. 7.96 crores and is subject to the approval of the shareholders. B S R & Co. LLP Consolidated
347 Godrej Industries Ltd. Pharmaceuticals & Chemicals Emphasis of Matter 31st March, 2019 (ii) Note 61 (b) to the consolidated financial statements which mention that one of the Holding Companys subsidiaries has paid remuneration to its Executive Chairman and the Managing Director & CEO for the financial year ended 31 March 2019, which is in excess of the limits prescribed under Section 197 of the Companies Act, 2013 by Rs. 5.81 crores, which is subject to the approval of the shareholders. B S R & Co. LLP Consolidated
348 Godrej Industries Ltd. Pharmaceuticals & Chemicals Emphasis of Matter 31st March, 2019 (iii) Note 18 IV (i) to the consolidated financial statements wherein the Honourable High Court of Judicature at Bombay had approved a Scheme of Arrangement whereby the assets and liabilities of the transferor companies (Godrej Oil Palm Limited, Godrej Gokarna Oil Palm Limited and Cauvery Palm Oil Limited) have been taken over and recorded by a Holding Companys subsidiary at their book values as on 1 April 2011. Amortisation amounting to Rs. 4.25 crores for the year ended 31 March 2019 and 31 March 2018 on Intangible Assets taken over as per the Scheme is charged against the balance in the General Reserve Account of the subsidiary company. Had this amount been charged to the Consolidated Statement of Profit and Loss, the profit for the years ended 31 March 2019 and 31 March 2018 would have been lover by Rs. 2.77 crores. Our opinion is not modified in respect of the above matters. B S R & Co. LLP Consolidated
349 Godrej Industries Ltd. Pharmaceuticals & Chemicals Key Audit Matters 31st March, 2019 Revenue is recognised when the control of the products being sold has been transferred to the customer. We have identified recognition of revenue as a key audit matter as revenue is a key performance indicator and there is a risk of revenue being fraudulently overstated through manipulation on the timing of transfer of control arising from pressure to achieve performance targets as well as meeting external expectations Assessing the appropriateness of the revenue recognition accounting policies, by comparing with applicable accounting standards. Testing the design, implementation and operating effectiveness of the Companys general IT controls and key IT/manual application controls over the Companys systems which govern recording of revenue in the general ledger accounting system. Performing substantive testing (including year-end cut-off testing) by selecting samples of revenue transactions recorded during the year (and before and after the financial year end) by verifying the underlying documents, which included sales invoices/contracts and shipping documents. We assessed manual journals posted to revenue to identify unusual items. Considering the adequacy of the Companys disclosures in respect of revenue. B S R & Co. LLP Standalone
350 Godrej Industries Ltd. Pharmaceuticals & Chemicals Key Audit Matters 31st March, 2019 The carrying amount of the investments in subsidiaries and associate held at cost less impairment represents 51 % of the Companys total assets. We do not consider the valuation of these investments to be at a high risk of significant misstatement, or to be subject to a significant level of judgement, except for the investment valuations based on discounted cash flows which involve significant estimates and judgement, due to the inherent uncertainty involved in forecasting and discounting future cash flows. Further due to their materiality in the context of total assets of the Company, this is considered to be significant to our overall audit strategy and planning. For subsidiaries and associate which are listed entities, comparing the carrying amount of investments with the Companys share of market value of such subsidiaries and associate to identify whether there were in excess of their carrying amount; For subsidiaries which are unlisted entities, comparing the carrying amount of investments with the relevant subsidiaries balance sheet to identify whether their net assets, being an approximation of their minimum recoverable amount, were in excess of their carrying amount and assessing whether those subsidiaries have historically been profit-making; For the investments where the carrying amount exceeded the net asset value, comparing the carrying amount of the investment with the expected value of the business based on a suitable multiple of the subsidiaries earnings or discounted cash flow analysis; Testing and challenging the assumptions used in the discounted cash flow analysis based on our knowledge of the Company and the markets in which the subsidiaries operate with the assistance of our valuations team; Considering the adequacy of disclosures in respect of investments in subsidiaries and associate. B S R & Co. LLP Standalone
351 Godrej Industries Ltd. Pharmaceuticals & Chemicals Key Audit Matters 31st March, 2019 Revenue from sale of goods is recognized when the control of the goods has transferred to the customer and when there are no longer any unfulfilled obligations to the customer. We have identified recognition of revenue as a key audit matter as revenue is a key performance indicator and there is a risk of revenue being fraudulently overstated through manipulation on the timing of transfer of control arising from pressure to achieve performance targets as well as meeting external expectations. Revenue is measured at the fair value of the consideration received or receivable. Revenue is adjusted for estimated sales returns, discounts and other similar allowances. Sales return estimation As disclosed in Note 2.18 to the consolidated financial statements, revenue is recognised net of estimated sales returns. Estimation of sales returns involves significant judgement and estimates since it is dependent on various internal and external factors. Accrual for rebates and schemes As disclosed in Note 2.18 to the consolidated financial statements, revenue is recognised net of trade discounts, volume rebates and other incentives given to the customer. The recognition and measurement of such discounts, rebates and incentives, including establishing an appropriate accrual at year end, involves significant judgement and estimates, particularly the expected level of claims of each of the customers. The value of rebates and schemes allowances together with the level of judgement involved make its accounting treatment a significant matter for our audit. Our audit procedures included the following: - Considering the appropriateness of the Groups accounting policies regarding to revenue recognition including those relating to accounting for rebates and schemes allowance, by comparing with applicable accounting standards. - Testing the design, implementation and operating effectiveness of the Groups general IT controls and key IT/manual application controls over the Companys systems which govern recording of revenue in the general ledger accounting system. - Performing substantive testing (including year - end cut -off testing) by selecting samples of revenue transactions recorded during the year (and before and after the financial year end) by verifying the underlying documents, which included sales invoices/contracts and shipping documents. - Understanding the process followed by the Group for the purpose of identifying and determining the amount of provision of sales returns; - Evaluating the data used by the Group for the purpose of calculation of the provision for sales returns and checking of its arithmetical accuracy; - Comparison between the estimate of the provision for sales returns created in the past with subsequent actual sales returns and analysis of the nature of any deviations to corroborate the effectiveness of the estimation process; - Testing the Groups process and controls over the calculation of discounts, rebates and customer incentives; - Selecting a sample on test check basis of revenue transactions and scheme circulars to re - check that scheme allowance as at year end were calculated in accordance with the eligibility criteria mentioned in the relevant circulars; - Selecting a sample (using statistical sampling) of credit note issued to the customers during the year and verifying the same is in accordance with the scheme; - Evaluating the assumptions and judgements used by the Group in calculating rebates and schemes allowances, including the level of expected claims, by comparing historical trends of claims; and - Examining manual journals posted to revenue, discounts, rebates and incentives to identify unusual or irregular items - Considering the adequacy of the Groups disclosures in respect of the revenue. B S R & Co. LLP Consolidated
352 Godrej Industries Ltd. Pharmaceuticals & Chemicals Key Audit Matters 31st March, 2019 Revenue from sale of residential and commercial units represents 23.98 % of the total revenue of the Group. Revenue is recognised upon transfer of control of residential and commercial units to customers for an amount that reflects the consideration which the Group expects to receive in exchange for those units. The trigger for revenue recognition is normally completion of the project or receipt of approvals on completion from relevant authorities or intimation to the customer of completion, post which the contract becomes non-cancellable by the parties. The Group records revenue over time till the actual possession to the customers or on actual possession to the customers, as determined by the terms of contract with customers. Revenue recognition prior to completion of the project Due to the Groups projects being spread across different regions within the country and the competitive business environment, there is a risk that revenue could be overstated (for example, through premature revenue recognition i.e. recording revenue without receipt of approval from authorities or its intimation to the customers) or understated (for example, through improperly shifting revenues to a later period) in order to present consistent financial results. Since revenue recognition has direct impact on the Groups profitability, the element of management bias is likely to be involved. Measurement of revenue recorded over time which is dependent on the estimates of the costs to complete Revenue recognition involves significant estimates related to measurement of costs to complete for the projects. Revenue from projects is recorded based on managements assessment of the work completed, costs incurred and accrued and the estimate of the balance costs to complete. Due to the inherent nature of the projects and significant judgment involved in the estimate of costs to complete, there is risk of overstatement or understatement of revenue. Our audit procedures included the following: - Evaluating that the Groups revenue recognition accounting policies are in line with the applicable accounting standards and their application to the key customer contracts including consistent application; - Sales cut -off procedures for determination of revenue in the correct reporting period; - Scrutinising all the revenue journals raised throughout the reporting period and comparing details of a sample of these journals, which met certain risk -based criteria, with relevant underlying documentation; - Conducting site visits during the year for selected projects to understand the scope and nature of the projects and to assess the progress of the projects; and - Considered the adequacy of the disclosures in note 2.19 to the consolidated financial statements in respect of the judgments taken in recognising revenue for residential and commercial property units. In addition, we have performed following procedures: Revenue recognition prior to receipt of OC/ similar approval and intimation to the customer - Discussing and challenging key management judgments in interpreting contractual terms including obtaining in -house legal interpretations; - Testing sample sales of units for projects with the underlying contracts, completion status and proceeds received from customers; - Identified and tested operating effectiveness of key controls around approvals of contracts, milestone billing, intimation of possession letters / intimation of receipt of occupation certificate and controls over collection from customers; and - We have obtained confirmations, on a sample basis, from major customers for selected projects to confirm revenue recognised during the year and, performing alternative procedures by comparing details with contracts, collection details and other underlying project related documentation for cases where confirmations are not received. Measurement of revenue recorded over time which is dependent on the estimates of the costs to complete - Compared, on a sample basis, revenue transactions recorded during the year with the underlying contracts, progress reports, invoices raised on customers and collections in bank accounts and whether the related revenue had been recognised in accordance with the Groups revenue recognition policies; - Identification and testing operating effectiveness of key controls over recording of actual costs incurred for the projects; - Review of the costs to complete workings, comparing the costs to complete with the budgeted costs and inquiring into reasons for variance; and - Sighting approvals for changes in budgeted costs with the rationale for the changes and assessment of contract costs to determine no revenue nature costs are taken to inventory. B S R & Co. LLP Consolidated
353 Godrej Industries Ltd. Pharmaceuticals & Chemicals Key Audit Matters 31st March, 2019 Certain of the Holding Companys subsidiaries have significant large number of individual small customers. Customers in different business segments and jurisdictions are subject to their independent business risk, climate risk, political risk, interest rate risk. The carrying amount of trade receivables of such subsidiaries as at 31 March 2019, represents 59.83% of the total trade receivables of the Group. The Management of the subsidiaries assesses the level of allowance for doubtful debts required at each reporting date after taking into account the ageing analysis of trade receivables and any other factors specific to individual debtors concerned or debtors at independent segment level and a collective element based on historical experience adjusted for certain current factors. Accordingly, the subsidiaries auditors identified the recoverability of trade receivables as a key audit matter because of the significance of such trade receivables to Groups balance sheet and because of the significant degree of management judgement involved in evaluating the adequacy of the allowance for doubtful debts. Our audit procedures to assess the recoverability of trade receivables included the following: - obtaining an understanding of and assessing the design, implementation and operating effectiveness of the subsidiaries key internal controls over the processes of credit control, collection of trade receivables and follow up of overdue balances; - evaluating the subsidiaries policy for making allowances for doubtful debts with reference to the requirements of the prevailing accounting standards; - assessing the classification of trade receivables in the trade receivable ageing report by comparison with sales invoices and other underlying documentation on a test check basis; - assessing the assumptions and estimates made by management for the allowance for doubtful debts calculated based on a collective assessment by performing a retrospective evaluation of the historical accuracy of these estimates and recalculating the allowance with reference to the subsidiaries policy for collective assessment; and - circulating and obtaining independent customers confirmation on the outstanding balances on sample (using statistical sampling) basis. Testing the reconciliation, if any between the balances confirmed by customer and balance in the books and inspecting subsequent bank receipts from customers and other relevant underlying documentation relating to trade receivable balances at 31 March 2019, on a sample basis (using statistical sampling). B S R & Co. LLP Consolidated
354 Godrej Industries Ltd. Pharmaceuticals & Chemicals Key Audit Matters 31st March, 2019 During the year, the Group acquired controlling stake in its erstwhile joint venture, Godrej Tyson Foods Limited and accounted for the acquisition as a business combination as per Ind AS 103 w.e.f 31 March 2019. The measurement of the identifiable assets and liabilities acquired at fair value is inherently judgmental. Fair value was determined by the Group with the assistance of an external valuation expert using various valuation models, which were applied according to the assets and liabilities being measured. Given the complexity and judgement involved in fair value measurements and magnitude of the acquisition made by the Group, this is a key audit matter. Our audit procedures included the following: - Obtaining the share purchase and shareholders agreement to evaluate the key terms and conditions, including rights of minority shareholders to determine that the Group has acquired control over Godrej Tyson Private Limited in accordance with relevant accounting standard. - Assessing the amounts for existing stake in Godrej Tyson Foods Limited pursuant to the acquisition of control, is in compliance with the requirements of relevant accounting standard. - Assessing the work performed by managements external valuation experts, including valuation methodology for each category of assets and liabilities, along with key judgements made in determining the fair values. - Involving our internal valuation specialists to consider and evaluate the appropriateness of the valuation methodologies applied to significant fair value adjustments and also, to evaluate the inputs to the valuation models used to determine the value of the intangible assets, including the discount rates, growth rates and useful economic lives, through comparing these against industry benchmarks on similar assets and business. - Testing appropriateness of the cash flow projections used in the valuations and assumptions of useful lives of assets. - Assessing the adequacy of the Groups disclosures in respect of the acquisition in accordance with the accounting standards. B S R & Co. LLP Consolidated
355 Godrej Industries Ltd. Pharmaceuticals & Chemicals Key Audit Matters 31st March, 2019 One of the Holding Companys subsidiaries has Inventories which comprise finished goods and construction-work-in progress representing 64.19% of the Groups total inventories. Assessing net realisable value The subsidiary recognises profit on each sale by reference to the overall project margin, which is the projected profit percentage for a phase that may comprise multiple units and can last a number of years. The recognition of profit is therefore dependent on the estimate of future selling prices and build costs including an allowance for risk. Further estimation uncertainty and exposure to cyclicality exists within the long term projects. Forecasts of future sales are dependent on market conditions, which can be difficult to predict and be influenced by political and economic factors. Inventory represents the capitalised project costs to date less amounts expensed on sales by reference to the aforementioned projections. It is held at the lover of cost and net realisable value, the latter also being based on the forecast for the project. As such inappropriate assumptions in these forecasts can impact the assessment of the carrying value of inventories. Further due to their materiality in the context of total inventories of the Group this is considered significant to our overall audit strategy and planning Our audit procedures to assess the net realisable value (NRV) of inventories included the following: - Discussion with the subsidiaries management to understand the basis of calculation and justification for the estimated recoverable amounts of the unsold units (the NRV assessment); - Evaluating the design and implementation of the subsidiaries internal controls over the NRV assessment. Our evaluation included assessing whether the NRV assessment was prepared and updated by appropriate personnel of the subsidiary and whether the key estimates, including estimated future selling prices and costs of completion for all property development projects, used in the NRV assessment, were discussed and challenged by management as appropriate; - Evaluating the subsidiaries managements valuation methodology and assessing the key estimates, data inputs and assumptions adopted in the valuations, which included comparing expected future average selling prices with available market data such as recently transacted prices for similar properties located in the nearby vicinity of each property development project and the sales budget plans maintained by the subsidiary; and - Re-performing the calculations of the NRV assessment and comparing the estimated construction costs to complete each development with the subsidiaries updated budgets. B S R & Co. LLP Consolidated
356 Godrej Industries Ltd. Pharmaceuticals & Chemicals Key Audit Matters 31st March, 2019 The carrying amount of the deferred tax assets for one of the Holding Companys subsidiaries represents 79.34 % of the Groups total deferred tax assets. Recognition and measurement of deferred tax assets The subsidiary has deferred tax assets in respect of brought forward losses and other temporary differences, as set out in note 44 to the consolidated financial statements. The recognition of deferred tax assets involves judgment regarding the likelihood of the reasonable certainty of realisation of these assets, in particular whether there will be taxable profits in future periods that support recognition of these assets. The subsidiaries Management records deferred tax assets in respect of brought forward business losses in cases where it is reasonably certain based on the projected profitability determined on the basis of approved business plans that sufficient taxable income will be available to absorb the brought forward business loss. Our audit procedures included: - Through discussions with the subsidiaries management, we understood the process for recording deferred tax assets; - We have obtained the approved business plans, projected profitability statements for the existing projects and the future projects which are confirmed through definitive agreements; - We have performed sensitivity analysis and inquired into the basis of the projections for the reasonable certainty of utilisation of the brought forward business losses and therefore recognition of deferred tax assets; and - We tested the underlying data for the key deferred tax and tax provision calculations. B S R & Co. LLP Consolidated
357 Godrej Industries Ltd. Pharmaceuticals & Chemicals Other Matters 31st March, 2019 (a) We did not audit the financial statements of 6 subsidiaries, whose annual financial statements reflect total assets of Rs. 268.58 crores as at 31 March 2019, total revenues of Rs. 336.15 crores and net cash flow amounting to Rs. (0.23) crores for the year ended on that date, as considered in the consolidated financial statements. The consolidated financial statements also include the Groups share of net profit (including other comprehensive income) of Rs. 2.91 crores for the year ended 31 March 2019, in respect of one joint venture and one associate (upto 26 March 2019), whose financial statements have not been audited by us. These financial statements have been audited by other auditors whose reports have been furnished to us by the Holding Companys Management, and our opinion on the consolidated financial statements, in so far as it relates to the amounts and disclosures included in respect of these subsidiaries, joint venture and associate, and our report in terms of sub-section (3) of Section 143 of the Act, in so far as it relates to the aforesaid subsidiaries, joint venture and associate is based solely on the audit reports of the other auditors. B S R & Co. LLP Consolidated
358 Godrej Industries Ltd. Pharmaceuticals & Chemicals Other Matters 31st March, 2019 (b) The consolidated financial statements include the financial statements of two subsidiaries which reflect total assets of Rs. 0.07 crores as at 31 March 2019, total revenues of Rs. 0.04 crores and net cash flow amounting to Rs. 0.01 crores for the year ended on that date, as considered in the consolidated financial statements, which have not been audited either by us or by other auditors. The consolidated financial statements also include the Groups share of net profit (including other comprehensive income) of Rs. 6.79 crores for the year ended 31 March 2019, as considered in the consolidated financial statements, in respect of one associate and one joint venture whose financial statements have not been audited by us or by other auditors. These unaudited financial statements have been furnished to us by the Holding Companys Management and our opinion on the consolidated financial statement, in so far as it relates to the amounts and disclosures included in respect of these subsidiaries, associate and joint venture, and our report in terms of sub section (3) of Section 143 of the Act in so far as relates to the aforesaid subsidiaries, associate and joint venture is based on solely on such unaudited financial statements. In our opinion and according to the information and explanations given to us by the Holding Companys Management, these financial statements are not material to the Group. Our opinion on the consolidated financial statements, and our report on Other Legal and Regulatory Requirements below, is not modified in respect of the above matters with respect to our reliance on the work done and the reports of the other auditors and the financial statements certified by the Management. B S R & Co. LLP Consolidated
359 Granules India Ltd. Pharmaceuticals & Chemicals Key Audit Matters 31st March, 2019 The Company has a receivable of INR 70,420.94 lakhs as at 31 March 2019. The Companys operations comprise wide ranging characteristics of individual customers across locations, some customers having a higher days sales outstanding than the average days sales outstanding. Consequently, there is an inherent exposure to credit risk for these customers. Allowances for credit loss on receivables are determined based on the managements estimate of the expected credit losses, considering the payment history of the companys customers, customer specific conditions and relevant current factors in terms of liquidity and profitability of customers. We considered allowances for receivables as a key audit matter because of the inherent uncertainty in assessing recoveries in full and the management judgement involved in relation to assessment of the allowance required for overdue trade receivables. Our audit procedures in this area included the following: Obtaining an understanding of and testing key controls over receivables collection process and credit control process over aged receivables and customer credit approvals. Assessing the classification of the balances in the receivables ageing by performing an independent re-computation of the aged receivables. For a sample of customer balances, verified the subsequent receipts against the outstanding year end balances. Obtaining an understanding of the basis of the managements judgement and testing assumptions used to determine the allowance required for overdue customer balances. This included testing the modelling techniques and methodology used by management to be in compliance with the applicable accounting standards. Assess the accuracy of the disclosure in the financial statements. B S R & Associates LLP Standalone
360 Granules India Ltd. Pharmaceuticals & Chemicals Key Audit Matters 31st March, 2019 The Company has significant intangible assets including products under development. - Commencement of capitalization involves significant judgement. For products in development the main risk is achieving successful trial results and obtaining required clinical and regulatory approvals. For new products that are to be launched, the key risk is the ability to successfully commercialise the individual product concerned. Managements assessment of recoverable value to test for impairment contain assumptions that involve significant judgements and estimates including revenue growth, expected market share and price erosion which are inherently subjective and changes in these assumptions could lead to an impairment to the carrying value of these intangible assets. We have therefore considered this as a key audit matter. Our procedures with respect to carrying value of intangibles amongst other procedures included the following: Obtaining an understanding of and assessing the internal controls surrounding intangible asset capitalisation, impairments and evaluating assumptions used in assessing the recoverability of intangible assets, in particular revenue and cash flow projections and the probability of obtaining regulatory approval for assets under development. Reviewing managements assumptions in relation to key inputs by considering third party sources to the extent available to corroborate the expected future cash inflows due to actions by competitors or due to changes in relevant markets. Carrying out an analysis around key estimates to assess the level of sensitivity to key assumptions used in Managements assessment. Verifying the mathematical accuracy of the model. For products in development, assessing the reasonableness of the Companys assumptions regarding probability of obtaining regulatory approval through comparison to general industry practice and consideration of trial readouts, regulatory announcements and the Companys internal approved policies. B S R & Associates LLP Standalone
361 Granules India Ltd. Pharmaceuticals & Chemicals Key Audit Matters 31st March, 2019 The Holding Company and Granules Pharmaceutical Inc., one of its subsidiary (GPI) has substantial intangible assets and intangible assets under development as at 31 March 2019. The Holding Company and GPI is required to complete an impairment review of its portfolio of finite-lived intangible assets, where there are indicators of impairment and intangible assets under development. The determination of carrying values requires judgement on the part of management in identifying and then estimating the higher of the value in use and a fair value less costs to dispose. These amounts are based on managements assessment of discounted future cash flow forecasts and external market conditions such as future pricing, probability of technical and regulatory success which are inherently subjective. There is a risk that the carrying value of intangible assets may be higher than the recoverable amount thereby indicating an impairment. With regard to the Holding Companys intangible assets, our procedures included the following: Obtaining an understanding of and testing the key controls surrounding capitalization and assessment of indicators for impairment including internal policies Reviewing managements assumptions in relation to key inputs by considering third party sources to the extent available to corroborate the expected future cash inflows due to actions by competitors or due to changes in relevant markets. Carrying out an analysis around key estimates to assess the level of sensitivity to key assumptions used in Managements assessment. With regard to impairment assessment of GPI, we have obtained the audit report from the other auditor. Per the audit report provided by the other auditor, the following procedures were performed: Obtained the Companys impairment analysis and tested the integrity of the calculations, reasonableness of key assumptions, including product profit and cash flow growth or decline, terminal values and discount rates. Challenged management to substantiate its assumptions, including comparing relevant assumptions to industry forecasts. performed procedures on the Companys impairment analysis, with significant involvement from senior engagement team members. Procedures included but were not limited to: obtaining an understanding of the key controls associated with the preparation of the valuation models used to assess the recoverable amount of Companys developed product intangibles & intangible assets under development; Understanding managements process for forecasting cash flows, which include a product- by-product analysis. Understanding and testing market and pricing assumptions by comparing them to historical and third party market data; critically evaluated managements methodologies and their documented basis for key assumptions utilised in the valuation models; in respect of costs and resulting profit margins in managements model, we challenged management on forecasted trends and assumed cost savings in the context of the Companys plans for ongoing product development. Relied on the weighted average cost of capital determined by an external valuer in computing fair value of Companys equity. Performed sensitivity analysis around the key drivers of growth rates used in the cash flow forecasts and the discount rate used Assessed managements consideration of the sensitivity to a change in key assumptions that both individually or collectively would be required for assets to be impaired and considered the likelihood of such a movement in those key assumptions arising. Assessed the appropriateness of disclosures included in the notes to financial statements. B S R & Associates LLP Consolidated
362 Granules India Ltd. Pharmaceuticals & Chemicals Other Matters 31st March, 2019 We did not audit the financial statements / financial information of two subsidiaries, whose financial statements/financial information reflect total assets of Rs. 74,084.22 lakhs as at 31 March 2019, total revenues of Rs. 56,842.14 lakhs and net cash inflows amounting to Rs. 846.76 lakhs for the year ended on that date, as considered in the consolidated financial statements. The consolidated financial statements also include the Groups share of net profit (and other comprehensive income) of Rs. 4,805.48 lakhs for the year ended 31 March 2019, in respect of one associate and one joint venture, whose financial statements/financial information have not been audited by us. These financial statements/financial information have been audited by other auditors whose reports have been furnished to us by the Management and our opinion on the consolidated financial statements, in so far as it relates to the amounts and disclosures included in respect of these subsidiaries, joint venture and associate, and our report in terms of sub-section (3) of Section 143 of the Act, in so far as it relates to the aforesaid subsidiaries, joint venture and associate is based solely on the audit reports of the other auditors. The associate located outside India whose financial statements and other financial information have been prepared in accordance with accounting principles generally accepted in the associates country and which have been audited by other auditors under generally accepted auditing standards applicable in the associates country. The Holding Companys management has converted the financial statements of the associate located outside India from accounting principles generally accepted in the associates country to accounting principles generally accepted in India. We have audited these conversion adjustments made by the Companys management. Our opinion in so far as it relates to the balances and affairs of the associate located outside India is based on the report of other auditors and the conversion adjustments prepared by the management of the Company and audited by us. The financial statement/financial information of one subsidiary, whose financial statement/financial information reflect total assets of Rs. 17.47 lakhs as at 31 March 2019, total revenue of Nil and net cash out flows amounting to Rs. 8.69 lakhs for the year ended on that date, as considered in the consolidated financial statements, have not been audited either by us or by other auditors. This unaudited financial statement/financial information have been furnished to us by the Management and our opinion on the consolidated financial statements, in so far as it relates to the amounts and disclosures included in respect of this subsidiary, and our report in terms of sub-sections (3) of Section 143 of the Act in so far as it relates to the aforesaid subsidiary is based solely on such unaudited financial statement / financial information. In our opinion and according to the information and explanations given to us by the Management, this financial statement/financial information is not material to the Group. Our opinion on the consolidated financial statements, and our report on Other Legal and Regulatory Requirements below, is not modified in respect of the above matters with respect to our reliance on the work done and the reports of the other auditors and the financial statements/financial information certified by the Management. B S R & Associates LLP Consolidated
363 Greaves Cotton Ltd. Construction & Engineering Key Audit Matters 31st March, 2019 Revenue is recognized when performance obligations are satisfied by transferring promised goods to customers. Goods are considered transferred when the customer obtains control of the promised goods. Control is the ability to direct the use of and obtain, substantially all the benefits from the goods. There is a risk of revenue not being recorded in the correct accounting period on account of the inability to establish with certainty, the point of time when control passes. (Refer note 2.4 and 22 to the standalone financial statements) (1) Assessed the appropriateness of the relevant accounting policy. (2) Evaluated the design and implementation of internal controls over managements assertion with respect to cut off, to establish that control of promised goods has passed to customers. (3) Tested the operating effectiveness of controls over revenue recognition with a focus on those related to the timing of revenue recognition. (4) Performed testing on a sample of sales to confirm that cut - off has been properly applied, in particular, the sales made before the year end Deloitte Haskins & Sells LLP Standalone
364 Greaves Cotton Ltd. Construction & Engineering Key Audit Matters 31st March, 2019 INR72.47 Crore (excluding Rs. 5 Crore paid towards non-compete fees)and recognised goodwill and intangible assets of Rs. 29.84 Crore and Rs. 44.51 Crore. The transaction is a business combination as defined in Ind AS 103 and has been accounted for by applying the acquisition method which requires the recognition and measurement of the identifiable assets acquired and the liabilities assumed at their acquisition-date fair values. Management has determined the fair values with the assistance of an external expert (management expert).Significant judgements and estimates are involved in the determination of the fair value of the assets acquired and liabilities assumed includingINR72.47 Crore (excluding Rs. 5 Crore paid towards non-compete fees)The purchase price allocation has been performed by management, assisted by an external expert and accordingly the fair values of intangible assets (brand, process knowhow, distribution network and assembled workforce), other assets and liabilities and deferred tax have been assessed. principal audit procedures performed include:Evaluated the competence, capability and objectivity of the experts used by the management and our in-house expertsRead and analysed the report of the management expert supporting the identification and valuation of intangible assets such as brand, process knowhow, distribution network and assembled workforce intangible assets.With the assistance of our in-house experts , we evaluated the appropriateness of the valuation methodologies and principal audit procedures performed include: made by the management and valuers;Evaluated whether appropriate disclosures have been included in the consolidated financial statements. Deloitte Haskins & Sells LLP Consolidated
365 Greaves Cotton Ltd. Construction & Engineering Key Audit Matters 31st March, 2019 Revenue is recognized when performance obligations are satisfied by transferring promised goods to customers. Goods are considered transferred when the customer obtains control of the promised goods. Control is the ability to direct the use of and obtain, substantially all the benefits from the goods. There is a risk of revenue not being recorded in the correct accounting period on account of the inability to establish with certainty, the point of time when control passes.(Refer note 2.5 and 23 to the consolidated financial statements)Revenue is recognized when performance obligations are satisfied Principal audit procedures performed include: Assessed the appropriateness of the relevant accounting policy. Evaluated the design and implementation of internal controls over managements assertion with respect to 'cut off, to establish that control of promised goods has passed to customers. Tested the operating effectiveness of controls over revenue recognition with a focus on those related to the timing of revenue recognition. Principal audit procedures performed include: 'cut - off has been properly applied, in particular, the sales made before the year end. Deloitte Haskins & Sells LLP Consolidated
366 Greaves Cotton Ltd. Construction & Engineering Other Matters 31st March, 2019 We did not audit the financial statements of two subsidiaries, whose financial statements reflect total assets of Rs. 5.18 Crore as at 31st March 2019, total revenues of Rs. 0.23 Crore and net cash inflows amounting to Rs. 0.43 Crore for the year ended on that date, as considered in the consolidated financial statements. These financial statements have been audited by other auditors whose reports have been furnished to us by the Management and our opinion on the consolidated financial statements, in so far as it relates to the amounts and disclosures included in respect of these subsidiaries and our report in terms of sub-section (3) of Section 143 of the Act, in so far as it relates to the aforesaid subsidiaries is based solely on the reports of the other auditors. Our opinion on the consolidated financial statements above and our report on Other Legal and Regulatory Requirements below, is not modified in respect of the above matters with respect to our reliance on the work done and the reports of the other auditors. Deloitte Haskins & Sells LLP Consolidated
367 Gujarat Alkalies & Chemicals Ltd. Pharmaceuticals & Chemicals Key Audit Matters 31st March, 2019 The Company measures its investments in Equity Instruments (Unquoted) at FairValue through Other Comprehensive Income as at the Balance Sheet date. Fair value is determined using valuation approach / methodology for which significant inputs are unobservable inputs(Level 3 inputs).The valuation approach/methodology adopted by the management in certain The Company measures its investments and in some cases multiple valuation approaches, and hence involve significant judgement as regards the methods and inputs used. Our audit procedures included the following: a) Evaluated and tested the design and operating effectiveness of the key controls implemented by the Company with respect to the valuation of Investments in Equity instruments (unquoted),inter alia controls around: periodic review by management of the risks of the valuation approach/ methodology; the verification and validation of unobservable inputs; the determination of value adjustments; selection and competence evaluation of external valuer. b) Involved the Internal fair value experts and: Assessed the reasonableness of the valuation approach/methodology and inputs used; Assessed the reasonableness of the valuation results determined by the external valuer. Deloitte Haskins & Sells Standalone
368 Gujarat Alkalies & Chemicals Ltd. Pharmaceuticals & Chemicals Key Audit Matters 31st March, 2019 The Company measures its investments in Equity Instruments (Unquoted) at FairValue through Other Comprehensive Income as at the Balance Sheet date. Fair value is determined using valuation approach / methodology for which significant inputs are unobservable inputs(Level 3 inputs).The valuation approach/methodology adopted by the management in certain The Company measures its investments and in some cases multiple valuation approaches, and hence involve significant judgement as regards the methods and inputs used. Our audit procedures included the following: a) Evaluated and tested the design and operating effectiveness of the key controls implemented by the Company with respect to the valuation of Investments in Equity instruments (unquoted),inter alia controls around: periodic review by management of the risks of the valuation approach/ methodology; the verification and validation of unobservable inputs; the determination of value adjustments; selection and competence evaluation of external valuer. b) Involved the Internal fair value experts and: Assessed the reasonableness of the valuation approach/methodology and inputs used; Assessed the reasonableness of the valuation results determined by the external valuer. Deloitte Haskins & Sells Consolidated
369 Gujarat Alkalies & Chemicals Ltd. Pharmaceuticals & Chemicals Other Matters 31st March, 2019 The consolidated financial statements include the Groups share of net profit of Rs. 122.86 Lakhs for the year ended March 31, 2019, as considered in the consolidated financial statements, in respect of one joint venture company, whose financial statements have not been audited by us. These financial statements have been audited by other auditor whose report has been furnished to us by the Management and our opinion on the consolidated financial statements, in so far as it relates to the amounts and disclosures included in respect of this joint venture company is based solely on the report of the other auditor. Our opinion on the consolidated financial statements above and our report on Other Legal and Regulatory Requirements below, is not modified in respect of the above matter with respect to our reliance on the work done and the report of the other auditor. Deloitte Haskins & Sells Consolidated
370 Gujarat Gas Ltd. Oil & Gas Key Audit Matters 31st March, 2019 Accuracy of Recognition, measurement, presentation and disclosure of revenues and other related balance in view of adoption of Ind AS 115 " revenue from contracts with customers " We assessed the Companys process to identify the impact of adoption of the new revenue accounting standard. We evaluated the accounting policy and internal controls followed by the Company while accounting of connection charges from customers, which is deferred over the period when the performance obligation is satisfied, as per the new accounting standard. Further, we test checked some of the contracts and carried out a combination of procedures involving enquiry and observation, and inspection of evidence in respect of operation of these controls. We also performed analytical procedures for reasonableness of revenues disclosed as per the new accounting standard. S.R.Goyal & Co. Standalone
371 Gujarat Gas Ltd. Oil & Gas Key Audit Matters 31st March, 2019 Evaluation of material claims against the company not acknowledge as debt. There are various claims disputed by the Company including matters under dispute with one of the suppliers in respect of use of domestic allocated gas other than specified purpose which involves significant judgment to determine the possible outcome and Future Cash outflow of these disputes. Obtained details of all the claims disputed by the company as on 31st March 2019 from the management. We have discussed the managements underlying assumptions in estimating that the claims are erroneous and the possible outcome of the disputes. We have also evaluated these underlying assumptions to determine the Legal Liability / Obligation of the company as defined in applicable Indian Accounting Standards (Ind AS 37) and also evaluated whether any change was required to managements position on these uncertainties vis a vis past year with reference to new claims disputed by the company. S.R.Goyal & Co. Standalone
372 Gujarat Gas Ltd. Oil & Gas Key Audit Matters 31st March, 2019 Accuracy of Recognition, measurement, presentation and disclosure of revenues and other related balance in view of adoption of Ind AS 115 " revenue from contracts with customers " We assessed the Companys process to identify the impact of adoption of the new revenue accounting standard. We evaluated the accounting policy and internal controls followed by the Company while accounting of connection charges from customers, which is deferred over the period when the performance obligation is satisfied, as per the new accounting standard. Further, we test checked some of the contracts and carried out a combination of procedures involving enquiry and observation, and inspection of evidence in respect of operation of these controls. We also performed analytical procedures for reasonableness of revenues disclosed as per the new accounting standard. S.R.Goyal & Co. Consolidated
373 Gujarat Gas Ltd. Oil & Gas Key Audit Matters 31st March, 2019 Evaluation of material claims against the company not acknowledge as debt. There are various claims disputed by the Company including matters under dispute with one of the suppliers in respect of use of domestic allocated gas other than specified purpose which involves significant judgment to determine the possible outcome and Future Cash outflow of these disputes. Obtained details of all the claims disputed by the company as on 31st March 2019 from the management. We have discussed the managements underlying assumptions in estimating that the claims are erroneous and the possible outcome of the disputes. We have also evaluated these underlying assumptions to determine the Legal Liability / Obligation of the company as defined in applicable Indian Accounting Standards (Ind AS 37) and also evaluated whether any change was required to managements position on these uncertainties vis a vis past year with reference to new claims disputed by the company. S.R.Goyal & Co. Consolidated
374 Gujarat Gas Ltd. Oil & Gas Other Matters 31st March, 2019 We did not audit the financial statements of Gujarat Gas Limited Employee Stock Option Welfare Trust (Controlled Trust), whose financial statements reflect total assets of Rs. 4.02 Crores as at 31st March 2019, total revenues of Rs. 0.27 Crores and net cash inflow amounting to Rs. 0.21 Crores for the year ended on that date, as considered in the consolidated Ind AS financial statements. The consolidated financial statements also includes the Groups share of total comprehensive income of Rs. 1.46 Crores for the financial year 2018-19 and share of accumulated retained earnings of Rs. 24.65 Crores upto 31st March 2018, as considered in the consolidated Ind AS financial statements, in respect of the financial statements of Guj Info Petro Limited (associate of the holding company), whose financial statements have not been audited by us. The financial statement of the associate company and controlled trust have been audited by other auditors whose reports have been furnished to us by the Management, and our opinion on the consolidated Ind AS financial statements, in so far as it relates to the amounts and disclosures included in respect of the associate company and controlled trust, and our report in terms of sub-section (3) of section 143 of the Act, in so far as it relates to the aforesaid associate company and controlled trust, is based solely on the reports of other auditors. Our opinion on the Consolidated Ind AS Financial Statement, and our report on Other Legal and Regulatory Requirements below, is not modified in respect of the above matters with respect to our reliance on the work done and the reports of the other auditors. S.R.Goyal & Co. Consolidated
375 Gujarat State Fertilizers & Chemicals Ltd. Fertilizers Key Audit Matters 31st March, 2019 The Company has material uncertain tax positions for liability of Rs.31,803.00 Lakhs including matters under dispute which involves significant judgment to determine the possible outcome of these disputes. Refer Notes 39 to the Standalone Financial Statements. The Company has material uncertain tax positions We evaluated the related accounting policy for provisioning for tax exposures and found it to be appropriate. We have obtained details of completed tax assessments and demands up to the year ended March 31, 2019 from management. We evaluated auditees response / opinion taken from various tax experts by auditee to challenge the underlying assumptions in estimating the tax provision and the possible outcome of the disputes. We also considered legal precedence and other rulings in evaluating managements position on these Principal Audit Procedures of new information in respect of uncertain tax positions as at March 31, 2019 to evaluate whether any change was required to managements position on these uncertainties. From the evidence obtained and in the context of the financial statements, taken as a whole, we consider the provisions in relation to uncertain tax positions as at 31 March 2019 to be appropriate. T R Chadha & Co. LLP Standalone
376 Gujarat State Fertilizers & Chemicals Ltd. Fertilizers Key Audit Matters 31st March, 2019 During the year, company has discontinued its operations at Fiber unit due to non-viability of its products. Gross block of the assets of the Fiber unit and its carrying value as on 31st March 2019works out to Rs.23,814.93 Lakhs & Rs.6,268.05Lakhs. Further, methanol plant having Gross Block and its carrying value as on 31st March of Rs.26,126.42 Lakhs & Rs.20,327.73 Lakhs is operating for less than 5% of installed capacity sinceApril15. We have considered this issue to be a During the year, company has discontinued its by management requires the use of complex estimates and judgments regarding the future earnings performances recoverable amount of the CGUs to which the aforementioned assets belongs. We evaluated the managements various viable proposals, impairment calculations, assessing the net recoverable value of the CGU used in the models, and the process by which they were drawn up, including comparing them to the latest circle rates of the Land, and testing the underlying calculations. Based on our audit procedures, we found managements assessment in determining the carrying value of the property, plant and equipment of Fiber unit & Methanol Plant to be reasonable. Refer Notes 6 to the Standalone Financial Statements. T R Chadha & Co. LLP Standalone
377 Gujarat State Fertilizers & Chemicals Ltd. Fertilizers Key Audit Matters 31st March, 2019 Government Subsidy Receivable forms a significant part of the Companys assets, amounting to Rs.1,72,948.97 Lakhs as at March 31,2019. Given the size of the subsidy balance relative to the total assets of the company and the estimates and judgements described in Note 12to the Standalone Financial statements, the fair value assessment requires significant audit attention. Government Subsidy Receivable forms a Our audit procedure includes verification of subsidy rate notified by department of Fertilizers (DOF), communication letters for escalation / de-escalation in subsidy rates, input price escalation / de-escalation as estimated by the management in case of urea subsidy, quantity supplied at first point sale. Company has accounted subsidy income in books in line with rates approved by DOF including escalation / de-escalations estimated by the management. Negligible variances have been noticed in the input price escalation /de-escalation as estimated by the management and Our audit procedure includes verification of subsidy rate subsequently as approved by the DOF. As subsidy receivables outstanding from Department of Fertilizer (i.e. sovereign Authority) and is backed by the approved claims generated from MFMS (Mobile Fertilizer Management System), amount outstanding as on date has not been impaired. T R Chadha & Co. LLP Standalone
378 Gujarat State Fertilizers & Chemicals Ltd. Fertilizers Key Audit Matters 31st March, 2019 Company manufactures and sells a number of fertilizer and chemical products to its customers, mainly through its own distribution network. Sales contracts specifically w.r.t Bill and Hold transaction contains constructive obligation for transfer of control to the buyer. As per the terms of the contract with the customers, company use to recognize the sale based on the invoicing and considering the transfer of control and other criteria set out in para B81 of Ind AS 115. Our audit procedure focused on transactions occurring within proximity of the year end in the Fertilizer segment, obtaining evidence to support the appropriate timing of revenue recognition based on terms and conditions set out in sales contracts, delivery documents and dealers confirmation. T R Chadha & Co. LLP Standalone
379 Gujarat State Fertilizers & Chemicals Ltd. Fertilizers Key Audit Matters 31st March, 2019 The Company has material uncertain tax positions for liability of Rs.31,803.00 Lakhs including matters under dispute which involves significant judgment to determine the possible outcome of these disputes. Refer Notes 39 to the Standalone Financial Statements. The Company has material uncertain tax positions We evaluated the related accounting policy for provisioning for tax exposures and found it to be appropriate. We have obtained details of completed tax assessments and demands up to the year ended March 31, 2019 from management. We evaluated auditees response / opinion taken from various tax experts by auditee to challenge the underlying assumptions in estimating the tax provision and the possible outcome of the disputes. We also considered legal precedence and other rulings in evaluating managements position on these Principal Audit Procedures of new information in respect of uncertain tax positions as at March 31, 2019 to evaluate whether any change was required to managements position on these uncertainties. From the evidence obtained and in the context of the financial statements, taken as a whole, we consider the provisions in relation to uncertain tax positions as at 31 March 2019 to be appropriate. T R Chadha & Co. LLP Consolidated
380 Gujarat State Fertilizers & Chemicals Ltd. Fertilizers Key Audit Matters 31st March, 2019 During the year, company has discontinued its operations at Fiber unit due to non-viability of its products. Gross block of the assets of the Fiber unit and its carrying value as on 31st March 2019works out to Rs.23,814.93 Lakhs & Rs.6,268.05Lakhs. Further, methanol plant having Gross Block and its carrying value as on 31st March of Rs.26,126.42 Lakhs & Rs.20,327.73 Lakhs is operating for less than 5% of installed capacity sinceApril15. We have considered this issue to be a During the year, company has discontinued its by management requires the use of complex estimates and judgments regarding the future earnings performances recoverable amount of the CGUs to which the aforementioned assets belongs. We evaluated the managements various viable proposals, impairment calculations, assessing the net recoverable value of the CGU used in the models, and the process by which they were drawn up, including comparing them to the latest circle rates of the Land, and testing the underlying calculations. Based on our audit procedures, we found managements assessment in determining the carrying value of the property, plant and equipment of Fiber unit & Methanol Plant to be reasonable. Refer Notes 6 to the Standalone Financial Statements. T R Chadha & Co. LLP Consolidated
381 Gujarat State Fertilizers & Chemicals Ltd. Fertilizers Key Audit Matters 31st March, 2019 Government Subsidy Receivable forms a significant part of the Companys assets, amounting to Rs.1,72,948.97 Lakhs as at March 31,2019. Given the size of the subsidy balance relative to the total assets of the company and the estimates and judgements described in Note 12to the Standalone Financial statements, the fair value assessment requires significant audit attention. Government Subsidy Receivable forms a Our audit procedure includes verification of subsidy rate notified by department of Fertilizers (DOF), communication letters for escalation / de-escalation in subsidy rates, input price escalation / de-escalation as estimated by the management in case of urea subsidy, quantity supplied at first point sale. Company has accounted subsidy income in books in line with rates approved by DOF including escalation / de-escalations estimated by the management. Negligible variances have been noticed in the input price escalation /de-escalation as estimated by the management and Our audit procedure includes verification of subsidy rate subsequently as approved by the DOF. As subsidy receivables outstanding from Department of Fertilizer (i.e. sovereign Authority) and is backed by the approved claims generated from MFMS (Mobile Fertilizer Management System), amount outstanding as on date has not been impaired. T R Chadha & Co. LLP Consolidated
382 Gujarat State Fertilizers & Chemicals Ltd. Fertilizers Key Audit Matters 31st March, 2019 Company manufactures and sells a number of fertilizer and chemical products to its customers, mainly through its own distribution network. Sales contracts specifically w.r.t Bill and Hold transaction contains constructive obligation for transfer of control to the buyer. As per the terms of the contract with the customers, company use to recognize the sale based on the invoicing and considering the transfer of control and other criteria set out in para B81 of Ind AS 115. Our audit procedure focused on transactions occurring within proximity of the year end in the Fertilizer segment, obtaining evidence to support the appropriate timing of revenue recognition based on terms and conditions set out in sales contracts, delivery documents and dealers confirmation. T R Chadha & Co. LLP Consolidated
383 Gujarat State Fertilizers & Chemicals Ltd. Fertilizers Other Matters 31st March, 2019 We did not audit, the financial results / statements and other financial information, in respect of 1 subsidiary, whose financial information reflects total assets of Rs. 22,513.11 Lakhs as at 31 March, 2019, total revenue of Rs. 42,584.65 Lakhs, total net profit after tax of Rs. 647.19 Lakhs and total Comprehensive Income of Rs. 647.19 Lakhs for the year ended 31 March, 2019, as considered in the consolidated financial results. These financial results / statements and other financial information have been audited by other auditor whose report has been furnished to us by the management and our opinion on the consolidated Ind AS financial statements, in so far as it relates to the affairs of this subsidiary is based solely on the report of other auditor. Our opinion is not modified in respect of this matter. T R Chadha & Co. LLP Consolidated
384 Gujarat State Fertilizers & Chemicals Ltd. Fertilizers Other Matters 31st March, 2019 The consolidated financial results includes financial results / statements and other financial information, in respect of 1 subsidiary, whose financial information reflects total assets of Rs. 253.10 Lakhs as at 31 March, 2019, total revenue of Rs. 0.34 Lakhs, total net loss after tax of Rs. 5.95 Lakhs and total Comprehensive loss of Rs. 5.95 Lakhs for the year ended 31 March, 2019 respectively and the consolidated financial results / statements of 3 associates which reflects Groups share of net profit after tax of Rs. 2.20 Lakhs and total comprehensive profit of Rs. 2.20 Lakhs for the year ended 31 March, 2019, whose financial statements / financial information have not been audited by us. These financial statements / financial information are unaudited and have been furnished to us by the Management and our opinion on the consolidated Ind AS financial statements, in so far as it relates to the amounts and disclosures included in respect of these associates, is based solely on such unaudited financial statements / financial information. In our opinion and according to the information and explanations given to us by the Management, these financial statements / financial information are not material to the Group. Our opinion on the consolidated Ind AS financial statements above, and our report on Other Legal and Regulatory Requirements below, is not modified in respect of the above matters with respect to our reliance on the work done and the report of the other auditors and the financial statements / financial information certified by the Management. T R Chadha & Co. LLP Consolidated
385 Gujarat State Petronet Ltd. Oil & Gas Other Matters 31st March, 2019 We did not audit the financial results/statements and other financial information of one subsidiary, two jointly controlled companies and one associate company included in the consolidated annual financial results, whose financial statements reflect for the year ended 31st March, 2019: These annual financial statements and other financial information have been audited by other auditors whose reports have been furnished to us, and our opinion on the annual consolidated Ind AS financial results, to the extent they have been derived from such annual financial statements of subsidiaries is based solely on the report of such other auditors. Our opinion is not modified in respect of these matters. Anoop Agarwal & Co. Consolidated
386 Havells India Ltd. Power utilities and equipments Key Audit Matters 31st March, 2019 As at March 31, 2019 the Company balance sheet includes investment in subsidiaries of Rs. 58.26 crores, Goodwill of Rs. 310.47 crores and intangible assets having indefinite useful life of Rs. 1029.00 crores. In accordance with Indian Accounting Standards (Ind-AS), the management has allocated these balances to their respective cash generating units (CGU) and tested these for impairment using a discounted cash flow model. The management compares the carrying value of these assets with their respective recoverable amount. A deficit between the recoverable amount and CGUs net assets would result in impairment. The inputs to the impairment testing model which have most significant impact on the model includes: a) Sales growth rate; b) Operating margin; c) Working capital requirements; d) Capital expenditure; and e) Discount rate applied to the projected cash flows. The impairment test model includes sensitivity testing of key assumptions. The annual impairment testing is considered a significant accounting judgement and estimate (Note 2.28 to the standalone Ind-AS financial statements) and a key audit matter because the assumptions on which the tests are based are highly judgmental and are affected by future market and economic conditions which are inherently uncertain, and because of the materiality of the balances to the financial statements as a whole. As a part of our audit we have, carried out the following procedures: a) We assessed the Companys methodology applied in determining the CGUs to which these assets are allocated. b) We assessed the assumptions around the key drivers of the cash flow forecasts including discount rates, expected growth rates and terminal growth rates used; c) Compared the cash flow forecasts to approved budget and other relevant market and economic information, as well as testing the underlying calculations. We discussed potential changes in key drivers as compared to previous year / actual performance with management in order to evaluate whether the inputs and assumptions used in the cash flow forecasts were suitable; d) We also assessed the recoverable value headroom by performing sensitivity testing of key assumptions used. e) We engaged expert to assess the assumption and methodology used by the management to determine the recoverable amount. f) We tested the arithmetical accuracy of the models g) Performed analysis of the disclosures related to the impairment tests and their compliance with Indian Accounting Standard (Ind-AS). S.R. Batliboi & Co. LLP Standalone
387 Havells India Ltd. Power utilities and equipments Key Audit Matters 31st March, 2019 As at March 31, 2019 the Group balance sheet includes Goodwill of Rs. 324.15 crores and intangible assets having indefinite useful life of Rs. 1036.02 crores In accordance with Indian Accounting Standards (Ind AS), the management has allocated these balances to their respective cash generating units (CGU) and tested these for impairment using a discounted cash flow model. The management compares the carrying value of these assets with their respective recoverable amount. A deficit between the recoverable amount and CGUs net assets would result in impairment. The inputs to the impairment testing model which have most significant impact on the model includes: a) Sales growth rate; b) Operating margin; c) Working capital requirements; d) Capital expenditure; and e) Discount rate applied to the projected cash flows. The impairment test model includes sensitivity testing of key assumptions. The annual impairment testing is considered a significant accounting judgement and estimate (Note 2.29 to the Consolidated Ind-AS financial statements) and a key audit matter because the assumptions on which the tests are based are highly judgmental and are affected by future market and economic conditions which are inherently uncertain, and because of the materiality of the balances to the financial statements as a whole. As a part of our audit we have carried out the following procedures: a) We assessed the Groups methodology applied in determining the CGUs to which these assets are allocated. b) We assessed the assumptions around the key drivers of the cash flow forecasts including discount rates, expected growth rates and terminal growth rates used; c) Compared the cash flow forecasts to approved budget and other relevant market and economic information, as well as testing the underlying calculations. We discussed potential changes in key drivers as compared to previous year / actual performance with management in order to evaluate whether the inputs and assumptions used in the cash flow forecasts were suitable; d) We also assessed the recoverable value headroom by performing sensitivity testing of key assumptions used. e) We engaged expert to assess the assumption and methodology used by the management to determine the recoverable amount. f) We tested the arithmetical accuracy of the models g) Performed analysis of the disclosures related to the impairment tests and their compliance with Indian accounting standard (Ind-AS). S.R. Batliboi & Co. LLP Consolidated
388 Havells India Ltd. Power utilities and equipments Other Matters 31st March, 2019 (a) We did not audit the financial statements and other financial information, in respect of 7 subsidiaries whose Ind AS financial statements include total assets of Rs 26.28 crores as at March 31, 2019, and total revenues of Rs 12.57 crores and net cash outflows of Rs 10.82 crores for the year ended on that date. These Ind AS financial statement and other financial information have been audited by other auditors, which financial statements, other financial information and auditors reports have been furnished to us by the management. Our opinion on the consolidated Ind AS financial statements, in so far as it relates to the amounts and disclosures included in respect of these subsidiaries and our report in terms of sub-sections (3) of Section 143 of the Act, in so far as it relates to the aforesaid subsidiaries is based solely on the reports of such other auditors. Certain of these subsidiaries are located outside India whose financial statements and other financial information have been prepared in accordance with accounting principles generally accepted in their respective countries and which have been audited by other auditors under generally accepted auditing standards applicable in their respective countries. The Companys management has converted the financial statements of such subsidiaries located outside India from accounting principles generally accepted in their respective countries to accounting principles generally accepted in India. We have audited these conversion adjustments made by the Companys management. Our opinion in so far as it relates to the balances and affairs of such subsidiaries located outside India is based on the report of other auditors and the conversion adjustments prepared by the management of the Company and audited by us. S.R. Batliboi & Co. LLP Consolidated
389 Havells India Ltd. Power utilities and equipments Other Matters 31st March, 2019 (b) The accompanying consolidated Ind AS financial statements include unaudited financial statements and other unaudited financial information in respect of 2 subsidiaries (1 subsidiary ceased to be subsidiary w.e.f . 29-06-2018 and 1 subsidiary is under liquidation) whose financial statements and other financial information reflect total assets of Rs Nil as at March 31, 2019, and total revenues of Rs Nil and net cash outflows of Rs 0.77 crores for the year ended on that date. These unaudited financial statements and other unaudited financial information have been furnished to us by the management. Our opinion, in so far as it relates amounts and disclosures included in respect of these subsidiaries and our report in terms of subsections (3) of Section 143 of the Act in so far as it relates to the aforesaid subsidiaries, is based solely on such unaudited financial statement and other unaudited financial information. In our opinion and according to the information and explanations given to us by the Management, these financial statements and other financial information are not material to the Group. Our opinion above on the consolidated Ind AS financial statements, and our report on Other Legal and Regulatory Requirements below, is not modified in respect of the above matters with respect to our reliance on the work done and the reports of the other auditors and the financial statements and other financial information certified by the Management. S.R. Batliboi & Co. LLP Consolidated
390 Heritage Foods Ltd. Retail & FMCG Key Audit Matters 31st March, 2019 The recoverable amount of Brand has been assessed based on its value in use. Value in use is calculated as the net present value of projected post-tax cash flows plus a terminal value. Significant judgement is required in forecasting the future cash flows of such intangible asset, together with the rate at which it is discounted. Considering the significance of the above matter to the financial statements, complexities and judgement involved, and the significant auditor attention required to test such managements judgement, we have identified this as a key audit matter for current year audit. Our principal audit procedures included testing the Companys controls surrounding intangible asset Brand impairment and evaluating the Companys assumptions used in assessing the recoverability of such intangible asset, in particular, revenue, cash flow projections and discount rates. We also performed sensitivity analysis over intangible asset Brand, where we considered there to be a higher risk of impairment, to assess the level of sensitivity to key assumptions and focus our work on those areas. Our procedures also included challenging internally generated evidence by reviewing forecasts, and retrospective assessment of the accuracy of Companys projections. We also assessed the adequacy of related disclosures in the Companys standalone financial statements. Walker Chandiok & Co. LLP Standalone
391 Heritage Foods Ltd. Retail & FMCG Key Audit Matters 31st March, 2019 The recoverable amount of Brand has been assessed based on its value in use. Value in use is calculated as the net present value of projected post-tax cash flows plus a terminal value. Significant judgement is required in forecasting the future cash flows of such intangible asset, together with the rate at which it is discounted. Considering the significance of the above matter to the financial statements, complexities and judgement involved, and the significant auditor attention required to test such managements judgement, we have identified this as a key audit matter for current year audit. Our principal audit procedures included testing the Companys controls surrounding intangible asset Brand impairment and evaluating the Companys assumptions used in assessing the recoverability of such intangible asset, in particular, revenue, cash flow projections and discount rates. We also performed sensitivity analysis over intangible asset Brand, where we considered there to be a higher risk of impairment, to assess the level of sensitivity to key assumptions and focus our work on those areas. Our procedures also included challenging internally generated evidence by reviewing forecasts, and retrospective assessment of the accuracy of Companys projections. We also assessed the adequacy of related disclosures in the Companys standalone financial statements. Walker Chandiok & Co. LLP Consolidated
392 Heritage Foods Ltd. Retail & FMCG Other Matters 31st March, 2019 We did not audit the financial statements of a subsidiary, whose financial statements reflect total assets of Rs. 1,014.91 lakhs and net assets of Rs. 984.07 lakhs as at 31 March 2019, total revenues of Rs. 731.03 lakhs and net cash inflows amounting to Rs. 145.05 lakhs for the year ended on that date, as considered in the consolidated financial statements. The consolidated financial statements also include the Groups share of net loss (including other comprehensive income) of Rs. 38.35 lakhs for the year ended 31 March 2019, as considered in the consolidated financial statements, in respect of a joint venture, whose financial statements has not been audited by us. These financial statements have been audited by other auditors whose reports have been furnished to us by the management and our opinion on the consolidated financial statements, in so far as it relates to the amounts and disclosures included in respect of this subsidiary and joint venture, and our report in terms of sub-section (3) of Section 143 of the Act, in so far as it relates to the aforesaid subsidiary and joint venture, is based solely on the reports of the other auditors. Our opinion above on the consolidated financial statements, and our report on other legal and regulatory requirements below, are not modified in respect of the above matter with respect to our reliance on the work done by and the reports of the other auditors. 16. We did not audit the financial information of a subsidiary, whose financial information reflect total assets of Rs. 227.91 lakhs and net assets of Rs. 186.52 lakhs as at 31 March 2019, total revenues of Nil and net cash outflows amounting to Rs. 115.56 lakhs for the year ended on that date, as considered in the consolidated financial statements. This financial information is unaudited and have been furnished to us by the management and our opinion on the consolidated financial statements, and matters identified and disclosed under key audit matters section above and our report in terms of sub-section (3) of Section 143 of the Act in so far as it relates to the aforesaid subsidiary, is based solely on such financial information. In our opinion and according to the information and explanations given to us by the management, this financial information is not material to the Group. Our opinion above on the consolidated financial statements, and our report on other legal and regulatory requirements below, are not modified in respect of the above matter with respect to our reliance on the financial information certified by the management. Walker Chandiok & Co. LLP Consolidated
393 Himalaya Food International Ltd. Agro products Key Audit Matters 31st March, 2019 The application of the new revenue accounting standard involves certain key judgements relating to identification of distinct performance obligations, determination of transaction price of the identified performance obligations, the appropriateness of the basis used to measure revenue recognised over a period. Additionally, new revenue accounting standard contains disclosures which involves collation of information in respect of disaggregated revenue and periods over which the remaining performance obligations will be satisfied subsequent to the balance sheet date. We assessed the Companys process to identify the impact of adoption of the new revenue accounting standard. Our audit approach consisted testing of the design and operating effectiveness of the internal controls and substantive testing as follows: Evaluated the design of internal controls relating to implementation of the new revenue accounting standard. Selected a sample of continuing and new contracts, and tested the operating effectiveness of the internal control, relating to identification of the distinct performance obligations and determination of transaction price. We carried out a combination of procedures involving enquiry and observation, re performance and inspection of evidence in respect of operation of these controls. Tested the relevant information technology systems access and change management controls relating to contracts and related information used in recording and disclosing revenue in accordance with the new revenue accounting standard. Selected a sample of continuing and new contracts and performed the following procedures: Read, analysed and identified the distinct performance obligations in these contracts. Compared these performance obligations with that identified and recorded by the Company. Considered the terms of the contracts to determine the transaction price including any variable consideration to verify the transaction price used to compute revenue and to test the basis of estimation of the variable consideration. Samples in respect of revenue recorded for time and material contracts were tested using a combination of approved time sheets including customer acceptances, subsequent invoicing and historical trend of collections and disputes. In respect of samples relating to fixed price contracts, progress towards satisfaction of performance obligation used to compute recorded revenue was verified with actual and estimated efforts from the time recording and budgeting systems. We also tested the access and change management controls relating to these systems. Sample of revenues disaggregated by type and service offerings was tested with the performance obligations specified in the underlying contracts. Performed analytical procedures for reasonableness of revenues disclosed by type and service offerings. We reviewed the collation of information and the logic of the report generated from the budgeting system used to prepare the disclosure relating to the periods over which the remaining performance obligations will be satisfied subsequent to the balance sheet date. Satnam Associates Standalone
394 Himalaya Food International Ltd. Agro products Key Audit Matters 31st March, 2019 Estimated effort is a critical estimate to determine revenues and liability for onerous obligations. This estimate has a high inherent uncertainty as it requires consideration of progress of the contract, efforts incurred till date and efforts required to complete the remaining contract performance obligations. Our audit approach was a combination of test of internal controls and substantive procedures which included the following: Evaluated the design of internal controls relating to recording of efforts incurred and estimation of efforts required to complete the performance obligations. Tested the access and application controls pertaining to time recording, allocation and budgeting systems which prevents unauthorised changes to recording of efforts incurred. Selected a sample of contracts and through inspection of evidence of performance of these controls, tested the operating effectiveness of the internal controls relating to efforts incurred estimated. Selected a sample of contracts and performed a retrospective review of efforts incurred with estimated efforts to identify significant variations and verify whether those variations have been considered in estimating the remaining efforts to complete the contract. Reviewed a sample of contracts with unbilled revenues to identify possible delays in achieving milestones, which require change in estimated efforts to complete the remaining performance obligations. Performed analytical procedures and test of details for reasonableness of incurred and estimated efforts. Satnam Associates Standalone
395 Himalaya Food International Ltd. Agro products Key Audit Matters 31st March, 2019 The Company has material uncertain tax positions including matters under dispute which involves significant judgment to determine the possible outcome of these disputes Obtained details of completed tax assessments and demands for the year ended March 31, 2019 from management. We involved our internal experts to challenge the managements underlying assumptions in estimating the tax provision and the possible outcome of the disputes. Our internal experts also considered legal precedence and other rulings in evaluating managements position on these uncertain tax positions. Additionally, we considered the effect of new information in respect of uncertain tax positions as at April 1, 2018 to evaluate whether any change was required to managements position on these uncertainties. Satnam Associates Standalone
396 Hindustan Unilever Ltd. Retail & FMCG Key Audit Matters 31st March, 2019 Revenue from sale of goods is recognised when control of the products being sold is transferred to the customer and when there are no longer any unfulfilled obligations. The performance obligations in the contracts are fulfilled at the time of dispatch, delivery or upon formal customer acceptance depending on customer terms. Revenue is measured at fair value of the consideration received or receivable, after deduction of any trade discounts, volume rebates and any taxes or duties collected on behalf of the government such as goods and services tax, etc. Accumulated experience is used to estimate the provision for discounts and rebates. Revenue is only recognised to the extent that it is highly probable a significant reversal will not occur. Rebates and discounts are material and have arrangements with varying terms which are based on annual contracts or shorter term arrangements. In addition, the value and timing of promotions for products varies from period to period, and the activity can span over a year end. There is a risk of revenue being overstated due to fraud, including through manipulation of rebates and discounts, resulting from pressure the management may feel to achieve performance targets at the reporting period end. We assessed the appropriateness of the revenue recognition accounting policies, including those relating to rebates and discounts by comparing with applicable accounting standards. We tested the design, implementation and operating effectiveness of managements general IT controls and key application controls over the Companys IT systems which govern revenue recognition, including access controls, controls over program changes, interfaces between different systems and key manual internal controls over revenue recognition to assess the completeness of the revenue entries being recorded in the general ledger accounting system. We tested the design, implementation and operating effectiveness of controls over the calculation of discounts and rebates. We performed substantive testing by selecting samples of revenue transactions recorded during the year by verifying the underlying documents, which included goods dispatch notes and shipping documents. We inspected, on a sample basis, key customer contracts to identify terms and conditions relating to goods acceptance and rebates and assessing the Companys revenue recognition policies with reference to the requirements of the applicable accounting standards. We performed substantive testing by selecting samples of rebate and discount transactions recorded during the year and comparing the parameters used in the calculation of the rebate and discounts with the relevant source documents (including invoices, schemes and contracts) to assess whether the methodology adopted in the calculation of the rebates and discounts was in accordance with the terms and conditions defined in the schemes and corresponding customer contract. We performed cut-off testing for samples of revenue transactions recorded before and after the financial year end date by comparing with relevant underlying documentation, which included goods dispatch notes and shipping documents, to assess whether the revenue was recognized in the correct period. We assessed manual journals posted to revenue to identify unusual items. B S R & Co. LLP Standalone
397 Hindustan Unilever Ltd. Retail & FMCG Key Audit Matters 31st March, 2019 Accrual for tax and other contingencies requires the Management to make judgements and estimates in relation to the issues and exposures arising from a range of matters relating to direct tax, indirect tax, transfer pricing arrangements, claims, general legal proceedings, environmental issues and other eventualities arising in the regular course of business. The key judgement lies in the estimation of provisions where they may differ from the future obligations. By nature, provision is difficult to estimate and includes many variables. Additionally, depending on timing, there is a risk that costs could be provided inappropriately that are not yet committed. We tested the effectiveness of controls around the recognition of provisions. We used our subject matter experts to assess the value of material provisions in light of the nature of the exposures, applicable regulations and related correspondence with the authorities. We challenged the assumptions and critical judgements made by management which impacted their estimate of the provisions required, considering judgements previously made by the authorities in the relevant jurisdictions or any relevant opinions given by the Companys advisors and assessing whether there was an indication of management bias. We discussed the status in respect of significant provisions with the Companys internal tax and legal team. We performed retrospective review of management judgements relating to accounting estimate included in the financial statement of prior year and compared with the outcome. B S R & Co. LLP Standalone
398 Hindustan Unilever Ltd. Retail & FMCG Key Audit Matters 31st March, 2019 The Company is periodically subject to challenges/scrutiny on range of matters relating to direct tax, indirect tax and transfer pricing arrangements. Further, potential exposures may also arise from general legal proceedings, environmental issues etc. in the normal course of business. Assessment of contingent liabilities disclosure requires Management to make judgements and estimates in relation to the issues and exposures. Whether the liability is inherently uncertain, the amounts involved are potentially significant and the application of accounting standards to determine the amount, if any, to be provided as liability, is inherently subjective We tested the effectiveness of controls around the recording and re-assessment of contingent liabilities. We used our subject matter experts to assess the value of material contingent liabilities in light of the nature of exposures, applicable regulations and related correspondence with the authorities. We discussed the status and potential exposures in respect of significant litigation and claims with the Companys internal legal team including their views on the likely outcome of each litigation and claim and the magnitude of potential exposure and sighted any relevant opinions given by the Companys advisors. We assessed the adequacy of disclosures made. We discussed the status in respect of significant provisions with the Companys internal tax and legal team. We performed retrospective review of management judgements relating to accounting estimate included in the financial statement of prior year and compared with the outcome. B S R & Co. LLP Standalone
399 Hindustan Unilever Ltd. Retail & FMCG Key Audit Matters 31st March, 2019 Revenue from sale of goods is recognised when control of the products being sold is transferred to the customer and when there are no longer any unfulfilled obligations. The performance obligations in the contracts are fulfilled at the time of dispatch, delivery or upon formal customer acceptance depending on customer terms. Revenue is measured at fair value of the consideration received or receivable, after deduction of any trade discounts, volume rebates and any taxes or duties collected on behalf of the government such as goods and services tax, etc. Accumulated experience is used to estimate the provision for discounts and rebates. Revenue is only recognised to the extent that it is highly probable a significant reversal will not occur. Rebates and discounts are material and have arrangements with varying terms which are based on annual contracts or shorter term arrangements. In addition, the value and timing of promotions for products varies from period to period, and the activity can span over a year end. There is a risk of revenue being overstated due to fraud, including through manipulation of rebates and discounts, resulting from pressure the management may feel to achieve performance targets at the reporting period end. We assessed the appropriateness of the revenue recognition accounting policies, including those relating to rebates and discounts by comparing with applicable accounting standards. We tested the design, implementation and operating effectiveness of managements general IT controls and key application controls over the Groups IT systems which govern revenue recognition, including access controls, controls over program changes, interfaces between different systems and key manual internal controls over revenue recognition to assess the completeness of the revenue entries being recorded in the general ledger accounting system. We tested the design, implementation and operating effectiveness of controls over the calculation of discounts and rebates. We performed substantive testing by selecting samples of revenue transactions recorded during the year by verifying the underlying documents, which included goods dispatch notes and shipping documents. We inspected, on a sample basis, key customer contracts to identify terms and conditions relating to goods acceptance and rebates and assessing the Groups revenue recognition policies with reference to the requirements of the applicable accounting standards. We performed substantive testing by selecting samples of rebate and discount transactions recorded during the year and comparing the parameters used in the calculation of the rebate and discounts with the relevant source documents (including invoices, schemes and contracts) to assess whether the methodology adopted in the calculation of the rebates and discounts was in accordance with the terms and conditions defined in the schemes and corresponding customer contract. We performed cut-off testing for samples of revenue transactions recorded before and after the financial year end date by comparing with relevant underlying documentation, which included goods dispatch notes and shipping documents, to assess whether the revenue was recognized in the correct period. We assessed manual journals posted to revenue to identify unusual items. B S R & Co. LLP Consolidated
400 Hindustan Unilever Ltd. Retail & FMCG Key Audit Matters 31st March, 2019 Accrual for tax and other contingencies requires the Management to make judgements and estimates in relation to the issues and exposures arising from a range of matters relating to direct tax, indirect tax, transfer pricing arrangements, claims, general legal proceedings, environmental issues and other eventualities arising in the regular course of business. The key judgement lies in the estimation of provisions where they may differ from the future obligations. By nature, provision is difficult to estimate and includes many variables. Additionally, depending on timing, there is a risk that costs could be provided inappropriately that are not yet committed. We tested the effectiveness of controls around the recognition of provisions. We used our subject matter experts to assess the value of material provisions in light of the nature of the exposures, applicable regulations and related correspondence with the authorities. We challenged the assumptions and critical judgements made by management which impacted their estimate of the provisions required, considering judgements previously made by the authorities in the relevant jurisdictions or any relevant opinions given by the Groups advisors and assessing whether there was an indication of management bias. We discussed the status in respect of significant provisions with the Groups internal tax and legal team. We performed retrospective review of management judgements relating to accounting estimate included in the financial statement of prior year and compared with the outcome. B S R & Co. LLP Consolidated
401 Hindustan Unilever Ltd. Retail & FMCG Key Audit Matters 31st March, 2019 The Group is periodically subject to challenges/scrutiny on range of matters relating to direct tax, indirect tax and transfer pricing arrangements. Further, potential exposures may also arise from general legal proceedings, environmental issues etc. in the normal course of business. Assessment of contingent liabilities disclosure requires Management to make judgements and estimates in relation to the issues and exposures. Whether the liability is inherently uncertain, the amounts involved are potentially significant and the application of accounting standards to determine the amount, if any, to be provided as liability, is inherently subjective. We tested the effectiveness of controls around the recording and re-assessment of contingent liabilities. We used our subject matter experts to assess the value of material contingent liabilities in light of the nature of exposures, applicable regulations and related correspondence with the authorities. We discussed the status and potential exposures in respect of significant litigation and claims with the Groups internal legal team including their views on the likely outcome of each litigation and claim and the magnitude of potential exposure and sighted any relevant opinions given by the Groups advisors. We assessed the adequacy of disclosures made. We discussed the status in respect of significant provisions with the Groups internal tax and legal team. We performed retrospective review of management judgements relating to accounting estimate included in the financial statement of prior year and compared with the outcome. B S R & Co. LLP Consolidated
402 Hindustan Unilever Ltd. Retail & FMCG Other Matters 31st March, 2019 We did not audit the financial statements of one subsidiary whose financial statements reflect total assets of Rs. 389 crores as at 31 March 2019, total revenues of Rs. 393 crores and net cash outflows amounting to Rs. 5 crores for the year ended on that date, as considered in the consolidated financial statements. These financial statements have been audited by other auditor whose report has been furnished to us by the Management and our opinion on the consolidated financial statements, in so far as it relates to the amounts and disclosures included in respect of this subsidiary, and our report in terms of section 143(3) of the Act, in so far as it relates to the aforesaid subsidiary is based solely on the audit report of the other auditor. B S R & Co. LLP Consolidated
403 Hipolin Ltd. Retail & FMCG Key Audit Matters 31st March, 2019 Revenue from contracts with customers is recognized on transfer of control of promised goods or services to a customer at an amount that reflects the consideration to which the Company is expected to be entitled to in exchange for those goods or services. The Revenue standard establishes comprehensive framework for determining whether, how much and when revenue should be recognized. This involves certain key judgments relating to identification of distinct performance obligations, determination of the transaction price, allocation of the transaction price to identified performance obligations, and the appropriateness of the revenue recognition methodology. Additionally, The standard mandates robust disclosures in respect of revenue and periods over which the remaining performance obligations will be satisfied subsequent to the balance sheet date. Revenue is one of the key profit drivers and is therefore susceptible to misstatement. Cut-off is the key assertion in so far as revenue recognition is concerned, since an inappropriate cut-off can result in material misstatement of results for the year. Our audit procedures on adoption of Ind AS 115, Revenue from contracts with Customers ('Ind AS 115'), the new standard on revenue recognition, includes the following Evaluated the design and implementation of the processes and internal controls relating to implementation of the new revenue recognition standard. Evaluated the detailed analysis performed by the management across revenue streams by selecting samples for the existing contracts with customers and verified the appropriateness of identification of distinct performance obligations, determination of the transaction price, allocation of the transaction price to identified performance obligations and the appropriateness of the revenue recognition methodology and, Evaluated the appropriateness of the accounting policy and disclosures provided under the new revenue standard and assessed the completeness and mathematical accuracy of the relevant disclosures. Borkar & Muzumdar Standalone
404 Honeywell Automation India Ltd. Power utilities and equipments Key Audit Matters 31st March, 2019 Accuracy of recognition, measurement, presentation and disclosure of revenues in view of adoption of Ind AS 115 Revenue from Contracts with Customers (i) The application of the new revenue accounting standard involves certain key judgements relating to identification of distinct performance obligations, determination of transaction price of the identified performance obligations, the appropriateness of the basis used to measure revenue recognised over a period. Additionally, new revenue accounting standard contains disclosures which involves collation of information in respect of disaggregated revenue and periods over which the remaining performance obligations will be satisfied subsequent to the balance sheet date. (ii) Additionally, significant management estimates relating to contract amendments could lead to management bias that could potentially affect POC contracts and thus the related revenue recognition. Principal audit procedures performed: We assessed the process to identify the impact of adoption of the new revenue accounting standard. Further, our audit procedures related to assessment of managements estimates of total costs and profit for the performance obligations used to recognize revenue for certain long-term contracts included : 1) Evaluation of the design of internal controls relating to implementation of the new revenue accounting standard; 2) Testing the effectiveness of controls over contract revenue including but not limited to long-term contracts, including those over the estimates of total costs and profit for performance obligations, amendments/ modifications made to contracts and SAP generated reports. 3) Tested a sample of contracts for : a) whether the contracts were properly included in managements calculation of long-term contract revenue based on the terms and conditions of each contract. b) managements identification of distinct performance obligations by evaluating whether the underlying goods, services, or both were highly interdependent and interrelated. c) in case of multiple performance obligation; we tested the allocation of the transaction price to each distinct performance obligation by comparing the relative standalone selling prices (SSP) to the selling prices of similar goods or services. d) the accuracy and completeness of the costs incurred to date for the performance obligation. e) the estimates of total cost and profit for the H36performance obligation by: - Comparing costs incurred to date to the costs management estimated to be incurred to date. - Comparing managements estimates for the selected contracts to costs and profits of similar performance obligations, when applicable. Deloitte Haskins & Sells LLP Standalone
405 Honeywell Automation India Ltd. Power utilities and equipments Key Audit Matters 31st March, 2019 The expected credit loss (ECL) in respect of trade receivable and unbilled revenue for goods and services represents managements best estimate of the loss allowance. The ECL allowance is computed based on a simplified model based on judgement considering past experience. The calculation of ECL allowance is a complex area and requires management to make significant assumptions on customer payment behaviour and other relevant risk characteristics when assessing the historical information and estimating the level and timing of expected future cash flows. Refer Note 2(O)(iv) and footnotes to Note 7 and Note 10 to the financial statements. Principal audit procedures performed: We tested the key controls relating to calculation of provision for credit losses of trade receivable and unbilled revenue for goods and services. The computation is based on standard debtors and unbilled ageing reports derived from SAP. We tested the methodology applied in credit loss provision calculation and compared it to the requirements of Ind AS 109 - Financial Instruments to ensure that the higher of the two was considered for provision. We also tested the mathematical accuracy and assessed the judgements used in the managements model used to calculate provision for credit losses. We understood and critically assessed the Companys policy for credit loss provisioning. We assessed whether the historic experience on which the policy was determined is representative of current circumstances and the whether the bad debts incurred were within the provisions created. Deloitte Haskins & Sells LLP Standalone
406 Honeywell Automation India Ltd. Power utilities and equipments Key Audit Matters 31st March, 2019 The Company operates in different state level jurisdictions within India and is therefore subject to tax regimes with different rules and regulations. As described in note 3 to the financial statements on significant accounting estimates and judgements, significant judgement is required in determining provisions for uncertain tax positions including estimates of interest and penalties wherever appropriate. Refer Note 2(L) and note 34 to the financial statements. Principal audit procedures performed: We assessed managements processes and tested the internal controls implemented for the identification, recognition and measurement of uncertain tax positions and its assessment of the potential impact on the Company. For all the claims and assessments against the company, management evaluated the possibility, probability and remoteness (PPR) of the claims. We evaluated managements assessments with respect to prospects of success of appeals and tax proceedings. In proceedings involving material amounts, we examined the possibility, probability and remoteness of the claim/ cases for which, we have involved internal specialist to challenge the managements position on these uncertain Direct/Indirect tax positions. Our internal experts also considered legal precedence and other rulings in evaluating managements position on these uncertain tax positions. Further, we obtained independent external confirmations from the Companys legal advisors/consultants. We discussed the status of significant known actual and potential litigation with in-house legal. Deloitte Haskins & Sells LLP Standalone
407 Housing Development & Infrastructure Ltd. Realty Key Audit Matters 31st March, 2019 Disclosure of revenue in view of adoption of Ind AS 115 Revenue Recognition by Real Estate Entities The application of the new revenue accounting standard needs to determine revenue recognition on the basis of whether performance obligations are satisfied over time or at a point of time. The Revenue from the projects is to be recognized by applying Percentage of Completion Method as per the Guidance Note on Accounting for Real Estate Transaction (Revised 2012) issued by the Institute of the Chartered Accountants of India. However, as per the Boards resolution passed by the Management, for all the ongoing projects as on the date of introduction of Guidance Note and also where Company has already commenced the recognition of the revenue from the projects before such enactment, the Company will follow completed project method of accounting (Project Completion Method of Accounting).Since none of the projects were commenced after the introduction of the Guidance Note on Accounting for Real Estate Transaction (Revised 2012) and after implementation of Ind AS 115, the Revenue is recognized as per Project Completion Method of Accounting which is in consistence with the companys accounting policy Rajeswari & Associates Standalone
408 Housing Development & Infrastructure Ltd. Realty Key Audit Matters 31st March, 2019 Evaluation of uncertain tax positions The company has material uncertain tax positions including matters under dispute which involves significant judgment to determine the possible outcome of these disputes Principal Audit Procedures We had obtained details of completed tax assessments and demands pending till March 31, 2019 from the Management. We had discussed the matters with the concerned professionals to whom the matters were assigned, to verify the managements underlying assumptions in estimating the tax provision and the possible outcome of the disputes and also considered the legal precedence and other rulings in evaluating Managements position on these uncertain tax positions Rajeswari & Associates Standalone
409 Housing Development & Infrastructure Ltd. Realty Key Audit Matters 31st March, 2019 Disclosure of revenue in view of adoption of Ind AS 115 Revenue Recognition by Real Estate Entities The application of the new revenue accounting standard needs to determine revenue recognition on the basis of whether performance obligations are satisfied over time or at a point of time. The Revenue from the projects is to be recognized by applying Percentage of Completion Method as per the Guidance Note on Accounting for Real Estate Transaction (Revised 2012) issued by the Institute of the Chartered Accountants of India. However, as per the Boards resolution passed by the Management of the Group companies, for all the ongoing projects as on the date of introduction of Guidance Note and also where Group companies has already commenced the recognition of the revenue from the projects before such enactment, the Group companies will follow completed project method of accounting (Project Completion Method of Accounting). Since none of the projects were commenced after the introduction of the Guidance Note on Accounting for Real Estate Transaction (Revised 2012) and after implementation of Ind AS 115, the Revenue is recognized as per Project Completion Method of Accounting which is in consistence with the Group companys accounting policy. Rajeswari & Associates Consolidated
410 Housing Development & Infrastructure Ltd. Realty Key Audit Matters 31st March, 2019 Evaluation of uncertain tax positions The Group has material uncertain tax positions including matters under dispute which involves significant judgment to determine the possible outcome of these disputes Principal Audit Procedures We had obtained details of completed tax assessments and demands pending till March 31, 2019 from the Management of all the Group companies. We had discussed the matters with the concerned professionals to whom the matters were assigned, to verify the Group companies managements underlying assumptions in estimating the tax provision and the possible outcome of the disputes and also considered the legal precedence and other rulings in evaluating Group companies Managements position on these uncertain tax positions. Rajeswari & Associates Consolidated
411 Housing Development & Infrastructure Ltd. Realty Other Matters 31st March, 2019 (a) We did not audit the Ind AS financial statements of one subsidiary of the Company Lashkaria Construction Private Limited whose Ind AS financial statements reflect total assets of Rs. 7014.01 lakhs as at 31st March, 2019, total revenue of 0.02 lakhs and net cash flows amounting to Rs. (1.91) lakhs for the year then ended, as considered in the consolidated Ind AS financial statements. This Ind AS financial statements/financial information has been audited by other auditor whose report has been furnished to us by the Management and our opinion on the consolidated Ind AS financial statements, in so far as it relates to the amounts and disclosures included in respect of this subsidiary and our report in terms of sub-sections (3) and (11) of Section 143 of the Act, insofar as it relates to the aforesaid subsidiary, is based solely on the report of such other auditor. (b) Our opinion on the consolidated Ind AS financial statements is not modified in respect of the above matters with respect to our reliance on the reports of the other auditor and the Ind AS financial statements /financial information certified by the Management. Rajeswari & Associates Consolidated
412 ICICI Bank Banks Key Audit Matters 31st March, 2019 The IT environment of the Bank is complex and involves a large number of independent and interdependent IT systems used in the operations of the Bank for processing and recording a large volume of transactions at numerous locations. As a result, there is a high degree of reliance and dependency on such IT systems for the financial reporting process of the Bank. Appropriate IT general controls and application controls are required to ensure that such IT systems are able to process the data, as required, completely, accurately and consistently for reliable financial reporting. The accuracy and reliability of the financial reporting process depends on the IT systems and the related control environment, including: - IT general controls over user access management and change management across applications, networks, database, and operating systems; - IT automated application controls. Due to the importance of the impact of the IT systems and related control environment on the Banks financial reporting process, we have identified testing of such IT systems and related control environment as a key audit matter for the current year audit. In assessing the integrity of the IT systems, we involved our IT experts to obtain an understanding of the IT infrastructure and IT systems relevant to the Banks financial reporting process for evaluation and testing of IT general controls and IT automated controls existing in such IT systems. Access rights were tested over applications, operating systems, networks, and databases, which are relied upon for financial reporting. We also assessed the operating effectiveness of controls over granting, removal and periodical review of access rights. We further tested segregation of duties, including preventive controls to ensure that access to change applications, the operating system or databases in the production environment were granted only to authorized personnel. Other areas that were assessed under the IT control environment, included password policies, security configurations, and controls around change management. We also evaluated the design and tested the operating effectiveness of key automated controls within various business processes. This included testing the integrity of system interfaces, the completeness and accuracy of data feeds, and automated calculations. Walker Chandiok & Co. LLP Standalone
413 ICICI Bank Banks Key Audit Matters 31st March, 2019 The identification of NPAs and provisioning for advances is made in accordance with the extant RBI regulations or host country regulations, in the case of international branches. Based on our risk assessment, the following are significant in assessment of the NPA provisions: - Recognition of defaults, in accordance with the criteria set out in the RBI Prudential norms on Income Recognition, Asset Classification and Provisioning pertaining to Advances (IRAC norms) or in accordance with the host country regulations, as applicable. Further, the Bank is also required to apply its judgement to determine the identification of NPAs by applying certain qualitative aspects; - The measurement of provision under RBI guidelines is dependent on the ageing of overdue balances, secured/ unsecured status of advances, stress and liquidity concerns in certain sectors, and valuation of collateral. The provision on NPAs at certain overseas branches requires estimation of amounts and timing of expected future cash flows and exit values. Considering the significance of the above matter to the financial statements, the heightened regulatory inspections, and significant auditor attention required, we have identified this as a key audit matter for the current year audit. We tested the design and operating effectiveness of key controls, including IT based controls, focusing on the following: - Identification and classification of NPAs in line with RBI IRAC norms and certain qualitative aspects; - Periodic internal reviews of asset quality; - Assessment of adequacy of NPA provisions; and - Periodic valuation of collateral for NPAs. To test the identification of loans with default events and other triggers, we selected a sample of performing loans and independently assessed as to whether there was a need to classify such loans as NPAs. With respect to provisions recognised towards NPAs, we selected samples based on high risk industry sectors, such as shipping, rigs, power, mining, and oil and gas exploration. For the samples selected, we reperformed the provision calculations and compared our outcome to that prepared by the management and challenged various assumptions and judgements which were used by the management. We assessed the appropriateness and adequacy of disclosures against the relevant accounts. Considering the significance of the above matter to the financial statements, the heightened regulatory inspections, and significant auditor attention required, we have identified this as a key audit matter for the current year audit. Walker Chandiok & Co. LLP Standalone
414 ICICI Bank Banks Key Audit Matters 31st March, 2019 As at 31 March 2019, the Bank has ongoing legal and tax cases with varied degrees of complexities. This indicates that a significant degree of management judgements involved in determining the appropriateness of provisions and related disclosures. Significant management judgement is needed in determining whether an obligation exists and whether a provision should be recognised as at the reporting date, in accordance with the accounting criteria set under Accounting Standard 29 - Provisions, Contingent Liabilities and Contingent Assets (AS 29), or whether it needs to be disclosed as a contingent liability. Further, significant judgements are also involved in measuring such obligations, the most significant of which are: - Assessment of liability: Judgement is involved in the determination of whether an outflow in respect of identified material matters are probable and can be estimated reliably; - Adequacy of provisions: The appropriateness of assumptions and judgements used in the estimation of significant provisions; and - Adequacy of disclosures of provision for liabilities and charges, and contingent liabilities. Considering the significance of the above matter to the financial statements, and significant auditor attention required to test such estimates, we have identified this as a key audit matter for current year audit Our audit procedures included, but were not limited to, the following: We tested the design and operating effectiveness of the Bank's key controls over the estimation, monitoring and disclosure of provisions and contingent liabilities. For significant legal matters, we sought external confirmations and also reviewed the confirmations obtained by the management from external legal counsels and corroborated with management's documented conclusions on the assessment of outstanding litigations against the Bank. In respect of taxation matters, we involved our tax specialists to gain an understanding of the current status of the outstanding tax litigations, including understanding of various orders / notices received by the Bank and the managements grounds of appeals before the relevant appellate authorities, and critically evaluated the managements assessment of the likelihood of the liability devolving upon the Bank, in accordance with the principles of AS 29.For the significant provisions made, we understood, assessed and challenged the adequacy of provisions recognised by the management. We also reviewed the historical accuracy of the provisions recognised to determine the efficacy of the process of estimation by the management. Further, we assessed whether the disclosures related to significant litigations and taxation matters were fairly presented. Walker Chandiok & Co. LLP Standalone
415 ICICI Bank Banks Key Audit Matters 31st March, 2019 Derivatives are valued through models with external inputs. The derivatives portfolio of the Bank primarily includes transactions which are carried out on behalf of its clients (and are covered on a back-to-back basis)and transactions to hedge the Banks interest and foreign currency risk. A significant degree of management judgement is involved in the application of valuation techniques through which the value of the Banks derivatives is determined. The financial statement risk arises particularly with respect to complex valuation models, parameters, and inputs that are used in determining fair values. Considering the significance of the above matter to the financial statements, significant management estimates and judgements, and auditor attention required to test such estimates and judgements, we have identified this as a key audit matter for current year audit. Our audit procedures included, but were not limited to, the following: We included our valuation experts as a part of our audit team to obtain an understanding, evaluate the design, and test the operating effectiveness of the key controls over the valuation processes, including: - independent price verification performed by a management expert; and - model governance and validation. On a sample basis, our valuation experts performed an independent reassessment of the valuation of derivatives, to ensure compliance with the relevant RBI regulations, reasonableness of the valuation methodology and the inputs used. We also challenged the appropriateness of significant models and methodologies used in valuation. Walker Chandiok & Co. LLP Standalone
416 ICICI Bank Banks Key Audit Matters 31st March, 2019 The IT environment of the Bank is complex and involves a large number of independent and interdependent IT systems used in the operations of the Bank for processing and recording a large volume of transactions at numerous locations. As a result, there is a high degree of reliance and dependency on such IT systems for the financial reporting process of the Bank. Appropriate IT general controls and application controls are required to ensure that such IT systems are able to process the data, as required, completely, accurately and consistently for reliable financial reporting. The accuracy and reliability of the financial reporting process depends on the IT systems and the related control environment, including: - IT general controls over user access management and change management across applications, networks, database, and operating systems; - IT automated application controls. Due to the importance of the impact of the IT systems and related control environment on the Banks financial reporting process, we have identified testing of such IT systems and related control environment as a key audit matter for the current year audit. In assessing the integrity of the IT systems, we involved our IT experts to obtain an understanding of the IT infrastructure and IT systems relevant to the Banks financial reporting process for evaluation and testing of IT general controls and IT automated controls existing in such IT systems. Access rights were tested over applications, operating systems, networks, and databases, which are relied upon for financial reporting. We also assessed the operating effectiveness of controls over granting, removal and periodical review of access rights. We further tested segregation of duties, including preventive controls to ensure that access to change applications, the operating system or databases in the production environment were granted only to authorised personnel. Other areas that were assessed under the IT control environment, included password policies, security configurations, and controls around change management. We also evaluated the design and tested the operating effectiveness of key automated controls within various business processes. This included testing the integrity of system interfaces, the completeness and accuracy of data feeds, and automated calculations. Walker Chandiok & Co. LLP Consolidated
417 ICICI Bank Banks Key Audit Matters 31st March, 2019 The identification of NPAs and provisioning for advances is made in accordance with the extant RBI regulations or host country regulations, in the case of international branches. Based on our risk assessment, the following are significant in assessment of the NPA provisions: - Recognition of defaults, in accordance with the criteria set out in the RBI Prudential norms on Income Recognition, Asset Classification and Provisioning pertaining to Advances (IRAC norms) or in accordance with the host country regulations, as applicable. Further, the Bank is also required to apply its judgement to determine the identification of NPAs by applying certain qualitative aspects; - The measurement of provision under RBI guidelines is dependent on the ageing of overdue balances, secured/unsecured status of advances, stress and liquidity concerns in certain sectors, and valuation of collateral. The provision on NPAs at certain overseas branches requires estimation of amounts and timing of expected future cash flows and exit values. Considering the significance of the above matter to the financial statements, the heightened regulatory inspections, and significant auditor attention required, we have identified this as a key audit matter for the current year audit. We tested the design and operating effectiveness of key controls, including IT based controls, focusing on the following: - Identification and classification of NPAs in line with RBI IRAC norms and certain qualitative aspects; - Periodic internal reviews of asset quality; - Assessment of adequacy of NPA provisions; and - Periodic valuation of collateral for NPAs. To test the identification of loans with default events and other triggers, we selected a sample of performing loans and independently assessed as to whether there was a need to classify such loans as NPAs. With respect to provisions recognised towards NPAs, we selected samples based on high risk industry sectors, such as shipping, rigs, power, mining, and oil and gas exploration. For the samples selected, we reperformed the provision calculations and compared our outcome to that prepared by the management and challenged various assumptions and judgements which were used by the management. We assessed the appropriateness and adequacy of disclosures against the relevant accounting standards and RBI requirements relating to NPAs. Walker Chandiok & Co. LLP Consolidated
418 ICICI Bank Banks Key Audit Matters 31st March, 2019 As at 31 March 2019, the Bank has ongoing legal and tax cases with varied degrees of complexities. This indicates that a significant degree of management judgement is involved in determining the appropriateness of provisions and related disclosures. Significant management judgement is needed in determining whether an obligation exists and whether a provision should be recognised as at the reporting date, in accordance with the accounting criteria set under Accounting Standard 29 - Provisions, Contingent Liabilities and Contingent Assets (AS 29), or whether it needs to be disclosed as a contingent liability. Further, significant judgements are also involved in measuring such obligations, the most significant of which are: - Assessment of liability: Judgement is involved in the determination of whether an outflow in respect of identified material matters are probable and can be estimated reliably; - Adequacy of provisions: The appropriateness of assumptions and judgements used in the estimation of significant provisions; and - Adequacy of disclosures of provision for liabilities and charges, and contingent liabilities. Considering the significance of the above matter to the financial statements, and significant auditor attention required to test such estimates, we have identified this as a key audit matter for current year audit. Our audit procedures included, but were not limited to, the following: We tested the design and operating effectiveness of the Banks key controls over the estimation, monitoring and disclosure of provisions and contingent liabilities. For significant legal matters, we sought external confirmations and also reviewed the confirmations obtained by the management from external legal counsels and corroborated with managements documented conclusions on the assessment of outstanding litigations against the Bank. In respect of taxation matters, we involved our tax specialists to gain an understanding of the current status of the outstanding tax litigations, including understanding of various orders/notices received by the Bank and the managements grounds of appeals before the relevant appellate authorities, and critically evaluated the managements assessment of the likelihood of the liability devolving upon the Bank, in accordance with the principles of AS 29. For the significant provisions made, we understood, assessed and challenged the adequacy of provisions recognised by the management. We also reviewed the historical accuracy of the provisions recognised to determine the efficacy of the process of estimation by the management. Further, we assessed whether the disclosures related to significant litigations and taxation matters were fairly presented Walker Chandiok & Co. LLP Consolidated
419 ICICI Bank Banks Key Audit Matters 31st March, 2019 Derivatives are valued through models with external inputs. The derivatives portfolio of the Bank primarily includes transactions which are carried out on behalf of its clients (and are covered on a back-to-back basis) and transactions to hedge the Banks interest and foreign currency risk. A significant degree of management judgement is involved in the application of valuation techniques through which the value of the Banks derivatives is determined. The financial statement risk arises particularly with respect to complex valuation models, parameters, and inputs that are used in determining fair values. Considering the significance of the above matter to the financial statements, significant management estimates and judgements, and auditor attention required to test such estimates and judgements, we have identified this as a key audit matter for current year audit Our audit procedures included, but were not limited to, the following: We included our valuation experts as a part of our audit team to obtain an understanding, evaluate the design, and test the operating effectiveness of the key controls over the valuation processes, including: - independent price verification performed by a management expert; and - model governance and validation. On a sample basis, our valuation experts performed an independent reassessment of the valuation of derivatives, to ensure compliance with the relevant RBI regulations, reasonableness of the valuation methodology and the inputs used. We also challenged the appropriateness of significant models and methodologies used in valuation Walker Chandiok & Co. LLP Consolidated
420 ICICI Bank Banks Key Audit Matters 31st March, 2019 The Companys key financial accounting and reporting processes are highly dependent on information systems including automated controls in systems, such that there exists a risk that gaps in the IT control environment could result in the financial accounting and reporting records being misstated. The Company uses several systems for its overall financial reporting. Information technology systems has been identified as a key audit matter because of the high level automation, significant number of systems being used by the management and the complexity of the IT architecture T specialists were involved to: - Understand General IT Control (GITC) i.e. Access Controls, Program/System Change, Program Development, Computer Operations (i.e. Job Processing, Data/System Backup Incident Management) over key financial accounting and reporting systems, and supporting control systems (referred to as in-scope systems); - Test the General IT Controls for design and operating effectiveness for the audit period over the in-scope systems; - Understand IT application controls covering: user access and roles, segregation of duties; and key interfaces, reports, reconciliations and system processing. - Test the IT application controls for design and operating effectiveness for the audit period; - Test the controls to determine whether these controls remained unchanged during the audit period or were changed following the standard change management process; - Understand IT infrastructure i.e. operating systems and databases supporting the in-scope systems; and - Test controls over the IT infrastructure covering user access (including privilege users), data centre and system change (e.g. patches). Walker Chandiok & Co. LLP Consolidated
421 ICICI Bank Banks Key Audit Matters 31st March, 2019 The Companys investment portfolio represents substantial portion of the Companys total assets as at March 31, 2019 which are valued in accordance with accounting policy framed as per the extent of the regulatory guidelines. Investment in Non-linked and shareholders portfolio All debt securities are valued at amortised cost and investment property is valued in accordance with Companys valuation policy. The listed equity shares, preference shares, liquid mutual fund and Equity Exchange Traded Funds (ETF) investments are valued using quoted prices as per stock exchanges. These investments are tested for impairment in accordance with the Companys impairment policy. Investment in unit linked portfolio Government securities are valued at prices provided by CRISIL. Other debt securities are valued on a yield to maturity basis, by using spread over the benchmark rate. The listed equity shares, preference shares, liquid mutual fund and ETF investments are valued using quoted prices as per stock exchanges. The valuation of these investments was considered to be one of the areas which required significant auditor attention and was one of the matter of most significance in the financial statements due to the materiality of total value of investments to the financial statements. Key audit procedures for this area included, but were not limited to the following: - Tested the design, implementation and operating effectiveness of key controls over the valuation process, including the Companys review and approval of the estimates and assumptions used for the valuation including key authorisation and data input controls; - Assessed appropriateness of the valuation methodologies with reference to Investment Regulations issued by Insurance Regulatory and Development Authority of India (IRDAI) and Companys own valuation policy; - For listed equity shares, preference shares, liquid mutual fund and ETF investments, performed independent price checks using external quoted prices and by agreeing the observable inputs that were used in the Companys valuation techniques to external data; and - For other investments, critically evaluated the valuation assessment and resulting conclusions by the Company in order to determine the reasonableness of the valuations recorded. This included an evaluation of the methodology and assumptions used in the valuation with reference to the Companys valuation policy. Walker Chandiok & Co. LLP Consolidated
422 ICICI Bank Banks Key Audit Matters 31st March, 2019 During the current year, the Company has introduced Long Term Motor Insurance Policies providing multiyear coverage which constitutes significant portion of the business segment. The Company has designed the scheme of accounting entries for recognition of revenue, advance premium, commissions and related indirect taxes based on relevant regulations. This implementation was a major one-time activity during the year which was prone to interpretation errors/omissions. Key audit procedures for this area included, but were not limited to the following: - Obtained a thorough understanding of the regulatory prescriptions and reviewed the process adopted by the Company. - Validated the accounting policies adopted with the relevant regulatory prescriptions. - Verified the premium allocation for sample transactions over policy periods. - Verified the actual scheme of entries for sample period with the designed scheme. - Verified the overall reconciliation of balance sheet amounts with related feed systems Walker Chandiok & Co. LLP Consolidated
423 ICICI Bank Banks Other Matters 31st March, 2019 We did not audit the financial statements of 3 international branches included in the standalone financial statements of the Bank whose financial statements reflects total assets of Rs. 657,940 million as at 31 March 2019, and total revenue and net cash outflows of Rs. 22,507 million and Rs. 5,168 million respectively for the year ended on that date, as considered in the standalone financial statements. The financial statements of these branches have been audited by the branch auditors whose reports have been furnished to us by the management, and our opinion on the standalone financial statements, in so far as it relates to the amounts and disclosures included in respect of branches, is based solely on the report of such branch auditors. Walker Chandiok & Co. LLP Standalone
424 ICICI Bank Banks Other Matters 31st March, 2019 The financial statements of the Bank for the year ended 31 March 2018 were audited by the predecessor auditors, who have expressed an unmodified opinion on those financial statements vide their audit report dated 7 May 2018. Walker Chandiok & Co. LLP Standalone
425 ICICI Bank Banks Other Matters 31st March, 2019 1. We did not audit the financial statements of 3 international branches of the Bank included in the consolidated financial statements, whose financial statements reflects total assets of Rs. 657,940 million as at 31 March 2019, and total revenue and net cash outflows of Rs. 22,507 million and Rs. 5,168 million respectively for the year ended on that date, as considered in the consolidated financial statements. The financial statements of these branches have been audited by the branch auditors whose reports have been furnished to us by the management, and our opinion on the consolidated financial statements, in so far as it relates to the amounts and disclosures included in respect of such branches, is based solely on the report of their branch auditors. Walker Chandiok & Co. LLP Consolidated
426 ICICI Bank Banks Other Matters 31st March, 2019 2. We did not audit the financial statements of 14 subsidiaries, whose financial statements reflect total assets of Rs. 1,260,437 million as at 31 March 2019 and total revenue and net cash inflows of Rs. 194,388 million and Rs. 8,156 million, respectively, for the year ended on that date. The consolidated financial statements also include the Groups share of net profit of Rs. 767 million for the year ended 31 March 2019, in respect of 1 associate, whose financial statements have not been audited by us. These financial statements have been audited by other auditors, whose reports have been furnished to us by the management and our opinion on the consolidated financial statements, in so far as it relates to the amounts and disclosures included in respect of these subsidiaries and associate, is based solely on the reports of the other auditors. Walker Chandiok & Co. LLP Consolidated
427 ICICI Bank Banks Other Matters 31st March, 2019 3. The consolidated financial statements also include the Groups share of net profit of Rs. 36 million for the year ended 31 March 2019, in respect of 6 associates, whose financial statements/information have not been audited. These financial statements/information have been furnished to us by the management and our report on the consolidated financial statements, in so far as it relates to the amounts and disclosures included in respect of these associates, is based solely on such management certified financial statements/information. In our opinion and according to the information and explanation given to us by the management, these financial statements/information are not material to the Group. Walker Chandiok & Co. LLP Consolidated
428 ICICI Bank Banks Other Matters 31st March, 2019 4. We have jointly audited with another auditor, the financial statements of one subsidiary, whose financial statements reflect total assets of Rs. 1,629,322 million as at 31 March 2019 and total revenue and net cash inflows of Rs. 366,993 million and Rs. 8,084 million, respectively, for the year ended on that date. For the purpose of our opinion on the consolidated financial statements, we have relied upon the work of such other auditors, to the extent of work performed by them. Walker Chandiok & Co. LLP Consolidated
429 ICICI Bank Banks Other Matters 31st March, 2019 5. The joint auditors, Walker Chandiok & Co. LLP, Chartered Accountants, and B S R & Co LLP, Chartered Accountants, of ICICI Prudential Life Insurance Company Limited, vide their audit report dated 24 April 2019, have expressed an unmodified opinion and have reported in the Other Matter section that, The actuarial valuation of liabilities for life policies in force and policies in respect of which premium has been discontinued but liability exists as at 31 March 2019 is the responsibility of the Companys Appointed Actuary (the Appointed Actuary). The actuarial valuation of these liabilities for life policies in force and for policies in respect of which premium has been discontinued but liability exists as at 31 March 2019, has been duly certified by the Appointed Actuary and in her opinion, the assumptions for such valuation are in accordance with the guidelines and norms issued by the IRDAI and the Institute of Actuaries of India, in concurrence with the Authority. The joint auditors have relied upon the Appointed Actuarys certificate in this regard for forming their opinion on the valuation of liabilities for life policies in force and for policies in respect of which premium has been discontinued but liability exists on the financial statements of the Company Walker Chandiok & Co. LLP Consolidated
430 ICICI Bank Banks Other Matters 31st March, 2019 6. The joint auditors of ICICI Lombard General Insurance Company Limited, vide their audit report dated 18 April 2019, have expressed an unmodified opinion and have reported in the Other Matter section that, The actuarial valuation of liabilities in respect of Incurred But Not Reported (IBNR), Incurred But Not Enough Reported (IBNER) and Premium Deficiency Reserve (the PDR) is the responsibility of the Companys Appointed Actuary (the Appointed Actuary). The actuarial valuation of these liabilities, that are estimated using statistical methods as at 31 March 2019, has been duly certified by the Appointed Actuary and in his opinion, the assumptions considered by him for such valuation, are in accordance with the guidelines and norms issued by the IRDAI and the Institute of Actuaries of India, in concurrence with IRDAI. The joint auditors have relied upon the Appointed Actuarys certificate in this regard for forming their opinion on the valuation of liabilities for outstanding claims reserves and the PDR contained in the financial statements of the Company. Walker Chandiok & Co. LLP Consolidated
431 ICICI Bank Banks Other Matters 31st March, 2019 7. The consolidated financial statements of the Bank for the year ended 31 March 2018 were audited by the predecessor auditors, who have expressed an unmodified opinion on those financial statements, vide their audit report dated 7 May 2018. Walker Chandiok & Co. LLP Consolidated
432 ICICI Bank Banks Other Matters 31st March, 2019 8. Our opinion above on the consolidated financial statements, and our report on Other Legal and Regulatory requirements below, is not modified in respect of the above matters with respect to our reliance on the work done and the reports of the other auditors and the financial statements/financial information certified by the management. Walker Chandiok & Co. LLP Consolidated
433 ICICI Lombard General Insurance Company Ltd. Insurance Key Audit Matters 31st March, 2019 Crop insurance premium is accounted based on management estimates that are progressively actualised on receipt of information. Further the coverage data is based on information received / updated in the Software system maintained under the schemes which may have backlogs / reconciliation issues / duplicate information. Further, the corrections to area covered under insurance and consequent premium adjustments are carried out progressively based on receipt of information which may be after the policy period ends. There is a risk of under/over estimation of revenue due to error or management bias. We reviewed the process adopted for policy booking for consistency in approach between accounting periods. Our tests included: Obtaining confirmation from concerned controlling function of the company on information received, if any, pending accounting Carrying out substantive tests on income recognition from past data, where available. Verification of various reconciliations carried out with the government portal system and validating reconciling items Discussing with senior management and obtaining their confirmations on booking of policies where information has been received Studying the impact of information under processing and ensuring financial statements are adjusted for material impacts. Conclusion: Results of our tests did not indicate any material deviations. Chaturvedi & Co. Standalone
434 ICICI Lombard General Insurance Company Ltd. Insurance Key Audit Matters 31st March, 2019 During the year, the Company has introduced Long Term Motor Insurance Policies providing multi-year coverage which constitutes significant portion of the business segment. The Company has designed the scheme of accounting entries for recognition of revenue, advance premium, commissions and related indirect taxes based on relevant regulations. This implementation was major one-time activity during the year which was prone to interpretation errors/ omissions. We obtained thorough understating of the regulatory prescriptions and reviewed the process adopted and carried out the following tests: Validating the accounting policies adopted with the relevant regulatory prescriptions. Verifying the premium allocation for sample transactions over the policy periods Verifying the actual scheme of entries for sample period with the designed scheme. Verifying the overall reconciliation of balance sheet amounts with related feed systems. Conclusion: Our procedures did not identify any material exceptions. Chaturvedi & Co. Standalone
435 ICICI Lombard General Insurance Company Ltd. Insurance Other Matters 31st March, 2019 The actuarial valuation of liabilities in respect of Incurred But Not Reported (the IBNR), Incurred But Not Enough Reported (the IBNER) and Premium Deficiency Reserve (the PDR) is the responsibility of the Companys Appointed Actuary (the Appointed Actuary). The actuarial valuation of these liabilities, that are estimated using statistical methods as at March 31, 2019 has been duly certified by the Appointed Actuary and in his opinion, the assumptions considered by him for such valuation are in accordance with the guidelines and norms issued by the IRDAI and the Institute of Actuaries of India in concurrence with the IRDAI. We have relied upon the Appointed Actuarys certificate in this regard for forming our opinion on the valuation of liabilities for outstanding claims reserves and the PDR contained in the financial statements of the Company. Chaturvedi & Co. Standalone
436 ICICI Prudential Life Insurance Company Ltd. Insurance Key Audit Matters 31st March, 2019 The Companys key financial accounting and reporting processes are highly dependent on information systems including automated controls in systems, such that there exists a risk that gaps in the IT control environment could result in the financial accounting and reporting records being misstated. The Company uses several systems for it overall financial reporting. We have identified Information Technology systems as key audit matter because of the high level automation, significant number of systems being used by the management and the complexity of the IT architecture. We involved our IT Specialist to: Understand General IT Control (GITC) i.e. Access Controls, Program/ System Change, Program Development, Computer Operations (i.e. Job Processing, Data/System Backup Incident Management) over key financial accounting and reporting systems, and supporting control systems (referred to as in-scope systems); Test the General IT Controls for design and operating effectiveness for the audit period over the in-scope systems; Understand IT application controls covering: o user access and roles, segregation of duties; and o key interfaces, reports, reconciliations and system processing; Test the IT application controls for design and operating effectiveness for the audit period; Test the controls to determine whether these controls remained unchanged during the audit period or were changed following the standard change management process; Understand IT infrastructure i.e. operating systems and databases supporting the in-scope systems; and Test the controls over the IT infrastructure covering user access (including privilege users), data centre and system change (e.g. patches). B S R & Co. LLP, Walker Chandiok & Co LLP Standalone
437 ICICI Prudential Life Insurance Company Ltd. Insurance Key Audit Matters 31st March, 2019 The Companys investment portfolio represents substantial portion of the Companys total assets as at March 31, 2019 which are valued in accordance with accounting policy framed as per the extent of the regulatory guidelines. Investment in Non-linked and shareholders portfolio: All debt securities are valued at amortised cost and investment property is valued in accordance with Companys valuation policy. The listed equity shares, preference shares, liquid mutual fund and Equity Exchange Traded Funds (ETF) investments are valued using quoted prices as per stock exchanges. These investments are tested for impairment in accordance with the Companys impairment policy. Investment in unit linked portfolio: Government securities are valued at prices provided by CRISIL. Other debt securities are valued on a yield to maturity basis, by using spread over the benchmark rate. The listed equity shares, preference shares, liquid mutual fund and ETF investments are valued using quoted prices as per stock exchanges. The valuation of these investments was considered to be one of the areas which required significant auditor attention and was one of the matter of most significance in the standalone financial statements due to the materiality of total value of investments to the financial statements Our audit procedures for this area included but were not limited to the following: Tested the design, implementation and operating effectiveness of key controls over the valuation process, including the Companys review and approval of the estimates and assumptions used for the valuation including key authorisation and data input controls; Assessed appropriateness of the valuation methodologies with reference to Investment Regulations issued by Insurance Regulatory and Development Authority of India (IRDAI/ Authority) and Companys own valuation policy; For listed equity shares, preference shares, liquid mutual fund and ETF investments, performed independent price checks using external quoted prices and by agreeing the observable inputs that were used in the Companys valuation techniques to external data; and For other investments, critically evaluated the valuation assessment and resulting conclusions by the Company in order to determine the reasonableness of the valuations recorded. This included an evaluation of the methodology and assumptions used in the valuation with reference to the Companys valuation policy. B S R & Co. LLP, Walker Chandiok & Co LLP Standalone
438 ICICI Prudential Life Insurance Company Ltd. Insurance Key Audit Matters 31st March, 2019 The Groups key financial accounting and reporting processes are highly dependent on information systems including automated controls in systems, such that there exists a risk that gaps in the IT control environment could result in the financial accounting and reporting records being misstated. The Group uses several systems for it overall financial reporting. We have identified Information Technology systems as key audit matter because of the high level automation, significant number of systems being used by the management and the complexity of the IT architecture. We involved our IT Specialist to: Understand General IT Control (GITC) i.e. Access Controls, Program/ System Change, Program Development, Computer Operations (i.e. Job Processing, Data/System Backup Incident Management) over key financial accounting and reporting systems, and supporting control systems (referred to as in-scope systems); Test General IT Controls for design and operating effectiveness for the audit period over the in-scope systems; Understand IT application controls covering: o user access and roles, segregation of duties; and o key interfaces, reports, reconciliations and system processing; Test the IT application controls for design and operating effectiveness for the audit period; Test the controls to determine whether these controls remained unchanged during the audit period or were changed following the standard change management process; Understand IT infrastructure i.e. operating systems and databases supporting the in scope systems; and Test the controls over the IT infrastructure covering user access (including privilege users), data centre and system change (e.g. patches). B S R & Co. LLP, Walker Chandiok & Co LLP Consolidated
439 ICICI Prudential Life Insurance Company Ltd. Insurance Key Audit Matters 31st March, 2019 The Groups investment portfolio represents substantial portion of the Groups total assets as at March 31, 2019 which are valued in accordance with accounting policy framed as per the extent of the regulatory guidelines. Investment in non-linked and shareholders portfolio: All debt securities are valued at amortised cost and investment property is valued in accordance with Groups valuation policy. The listed equity shares, preference shares, liquid mutual fund and Equity Exchange Traded Funds (ETF) investments are valued using quoted prices as per stock exchanges. These investments are tested for impairment in accordance with the Groups impairment policy. Investment in unit linked portfolio: Government securities are valued at prices provided by CRISIL. Other debt securities are valued on a yield to maturity basis, by using spread over the benchmark rate. The listed equity shares, preference shares, liquid mutual fund and ETF investments are valued using quoted prices as per stock exchanges. The valuation of these investments was considered to be one of the areas which required significant auditor attention and was one of the matter of most significance in the financial statements due to the materiality of total value of investments to the financial statements Our audit procedures for this area included but were not limited to the following: Tested the design, implementation and operating effectiveness of key controls over the valuation process, including the Groups review and approval of the estimates and assumptions used for the valuation including key authorisation and data input controls; Assessed appropriateness of the valuation methodologies with reference to Investment Regulations issued by Insurance Regulatory and Development Authority of India (IRDAI/ Authority) and Groups own valuation policy; For listed equity shares, preference shares, liquid mutual fund and ETF investments, performed independent price checks using external quoted prices and by agreeing the observable inputs that were used in the Groups valuation techniques to external data; and For other investments, critically evaluated the valuation assessment and resulting conclusions by the Group in order to determine the reasonableness of the valuations recorded. This included an evaluation of the methodology and assumptions used in the valuation with reference to the Groups valuation policy. B S R & Co. LLP, Walker Chandiok & Co LLP Consolidated
440 ICICI Prudential Life Insurance Company Ltd. Insurance Other Matters 31st March, 2019 The actuarial valuation of liabilities for life policies in force and policies in respect of which premium has been discontinued but liability exists as at March 31, 2019 is the responsibility of the Companys Appointed Actuary (the Appointed Actuary). The actuarial valuation of these liabilities for life policies in force and for policies in respect of which premium has been discontinued but liability exists as at March 31, 2019 has been duly certified by the Appointed Actuary and in her opinion, the assumptions for such valuation are in accordance with the guidelines and norms issued by the IRDAI and the Institute of Actuaries of India in concurrence with the Authority. Accordingly, we have relied upon the Appointed Actuarys certificate in this regard for forming our opinion on the valuation of liabilities for life policies in force and for policies in respect of which premium has been discontinued but liability exists in the standalone financial statements of the Company. Our opinion is not modified in this respect of this matter. B S R & Co. LLP, Walker Chandiok & Co LLP Standalone
441 ICICI Prudential Life Insurance Company Ltd. Insurance Other Matters 31st March, 2019 (a) The actuarial valuation of liabilities for life policies in force and policies in respect of which premium has been discontinued but liability exists as at March 31, 2019 is the responsibility of the Holding Companys Appointed Actuary (the "Appointed Actuary"). The actuarial valuation of these liabilities for life policies in force and for policies in respect of which premium has been discontinued but liability exists as at March 31, 2019 has been duly certified by the Appointed Actuary and in her opinion, the assumptions for such valuation are in accordance with the guidelines and norms issued by IRDAI and the Institute of Actuaries of India in concurrence with the Authority. We have relied upon the Appointed Actuarys certificate in this regard for forming our opinion on the valuation of liabilities for life policies in force and for policies in respect of which premium has been discontinued but liability exists for these financial statements. B S R & Co. LLP, Walker Chandiok & Co LLP Consolidated
442 ICICI Prudential Life Insurance Company Ltd. Insurance Other Matters 31st March, 2019 We did not audit the financial statements / financial information of a subsidiary company, whose financial statements/financial information reflect total assets of Rs. 357,471 thousands as at March 31, 2019, total revenues of Rs. 27,585 thousands and net cash outflows amounting to Rs. 475 thousands for the year ended on that date, as considered in the consolidated financial statements. These financial statements/financial information have been audited by other auditor whose report has been furnished to us by the Management and our opinion on the consolidated financial statements, in so far as it relates to the amounts and disclosures included in respect of such subsidiary and our report in terms of sub-section (3) of Section 143 of the Act, in so far as it relates to the aforesaid subsidiary, is based solely on the audit report of the other auditor. Our opinion on the consolidated financial statements, and our report on Other Legal and Regulatory Requirements below, is not modified in respect of the above matters with respect to our reliance on the work done and the report of the other auditor B S R & Co. LLP, Walker Chandiok & Co LLP Consolidated
443 IDFC First Bank Ltd. Banks Key Audit Matters 31st March, 2019 1. Identification of and provisioning for non performing advances in accordance with the Reserve bank of India ( RBI ) guidelines and bank's board approved policy . (Refer Schedule 9 read with Note 17.2) The Bank has net advances amounting to Rs. 86,30,22,859 thousands as at 31 March 2019. Identification of and provisioning for non-performing advances in accordance with relevant prudential norms issued by the RBI in respect of income recognition, asset classification and provisioning pertaining to advances (herein after referred as Relevant RBI guidelines) and as per the Banks Board approved policy is a key audit matter due to materiality of balances involved, which requires management estimates, judgement, manual interventions and level of regulatory and other stakeholders focus. Accordingly, our audit was focused on income recognition, asset classification and provisioning pertaining to advances. Our audit approach included testing the design, operating effectiveness of internal controls and substantive audit procedures in respect of income recognition, asset classification and provisioning pertaining to advances. In particular: we have evaluated the Banks internal control system in adhering to the Relevant RBI guidelines and regulations; we have evaluated key IT systems/ applications used and tested the design and implementation as well as operational effectiveness of relevant controls, including manual controls in relation to income recognition, asset classification and provisioning pertaining to advances; we tested a selection of advances to examine the validity of the recorded amounts, loan documentation, examined the statement of accounts, indicators of impairment, provision for non-performing advances, and compliance with Relevant RBI guidelines; and we evaluated the governance process and review controls over calculations of provision of non-performing advances, basis of re provisioning approved in accordance with the Board approved policy by the Chief Risk Officer and Chief Finance Officer. We discussed the provisions made with senior management including the Chief Executive Officer, Chief Finance Officer, Chief Risk Officer and with those charged with governance. Deloitte Haskins & Sells LLP Standalone
444 IDFC First Bank Ltd. Banks Key Audit Matters 31st March, 2019 2. Accounting for Amalgamation As set out in note 17A and 18.01, the Bank completed its Amalgamation with Capital First Limited, Capital First Home Finance Limited and Capital First Securities Limited (together referred to as the CFL Group) with appointed date as October 1, 2018 and effective date as December 18, 2018. The Bank has accounted for the amalgamation by Purchase method as per AS 14 - Accounting for Amalgamations. The amalgamation resulted in recognition of Intangible assets (Brand and Goodwill) aggregating to Rs. 2,599.35 crore which have been subjected to accelerated amortisation through Profit and Loss Account during the year ended 31 March 2019. The aforesaid intangible assets have been considered to be eligible for tax depreciation, consequently deferred tax asset has been recognised on timing difference. The Bank was also required to integrate internal controls over financial reporting of the merged entity. Due to the complexity of the transaction and the associated significant risk of misstatement involved in integration of internal controls over financial reporting of the merged entity; assumptions and estimates required to be made by the Management to determine the value of Intangible Assets which is based on independent valuers report engaged by the management; subsequent accelerated amortisation of these Intangible assets; and significant management judgements involved regarding the future profit forecasts and application of tax laws for the recognition and measurement of deferred tax asset on amortised intangible assets The Accounting for Amalgamation is considered as key audit matter. Our audit approach for testing of accounting of amalgamation included in particular : we evaluated the Scheme of Amalgamation approved by the National Company Law Tribunal (NCLT); we evaluated appropriateness of the Banks selection of amalgamation accounting by Purchase method against the compliance with each of the conditions stipulated in AS 14 - Accounting for Amalgamation; we tested internal controls over financial reporting of the merged entity; we obtained managements workings for the accounting of the amalgamation and evaluated managements determination of the fair value of the net assets acquired, focusing on the valuation of intangible asset which is based on independent valuers report engaged by the Management; we evaluated the fair value of the acquired assets, focusing on the valuation methodologies and key assumptions applied; we evaluated the competence of independent valuer engaged by management and involved our valuation specialists to assist in our assessment of the fair value of the acquired assets; we evaluated the reasonableness of key assumptions based on our knowledge of the business and industry; we evaluated the basis determined by the Management for accelerated amortisation of Intangible Assets through Profit and Loss Account during the year ended 31 March 2019; with the support of our taxation specialists we performed evaluation of tax laws applicable to the Bank and verification of the managements assessment with respect to eligibility of intangible assets for tax depreciation; we evaluated managements assessment of future revenues and operating margins by comparing actual results and with the help our internal valuation specialists we assessed the reasonableness of the revenue forecast by performing sensitivity analysis of the growth rates compared to peer banks. Deloitte Haskins & Sells LLP Standalone
445 IDFC First Bank Ltd. Banks Key Audit Matters 31st March, 2019 3. Evaluation of General Information Technology (IT) Controls for Key IT systems used in financial reporting process along with the integration of IT systems acquired on Amalgamation. The Banks operational and financial processes are highly dependent on IT systems due to large volume of transactions that are processed daily. The Bank has also acquired IT systems of CFL Group on amalgamation which were integrated with the financial reporting application of the Bank. The Bank has constituted an IT Strategy Committee at the Board level to oversee implementation of IT strategy. Accordingly, our audit was focussed on key IT systems and controls along with the integration of IT systems acquired on amalgamation, due to the pervasive nature and complexity of the IT environment. We involved our IT specialists to obtain an understanding of the Banks IT related control environment including the systems acquired during the course of amalgamation. Furthermore, we conducted an assessment and identified key IT applications, databases and operating systems, applications used in accounting for and recording of Advances, Treasury transactions and the systems used in financial reporting process, that are relevant to our audit. For the key IT systems, applications and databases that are relevant to our audit and used in preparation of accounting and financial information, our areas of audit focus included Access Security (including controls over privileged access), Program Change controls, database management and Network Operations. In particular: We obtained an understanding of the Banks IT control environment and key changes if any during the audit period that may be relevant to the audit and reviewed the minutes of IT strategy committee meetings; We tested the design, implementation and operating effectiveness of the Banks General IT controls over the key IT systems. This included evaluation of banks controls to evaluate segregation of duties and access rights being provisioned / modified based on duly approved requests, access for exit cases being revoked in a timely manner and access of all users being re-certified during the period of audit; We also tested key automated and manual business cycle controls, integration of IT systems of the CFL Group with the financial reporting application of the Bank and report logic for system generated reports relevant to the audit; including testing of alternate procedures to assess whether there were any unaddressed IT risks that would materially impact the financial statements. Deloitte Haskins & Sells LLP Standalone
446 IDFC First Bank Ltd. Banks Key Audit Matters 31st March, 2019 1. Identification of and provisioning for non performing advances in accordance with the Reserve bank of India ( RBI ) guidelines and bank's , board approved policy . The Bank has net advances amounting to Rs. 86,30,22,859 thousands as at 31st March 2019. Identification of and provisioning for non performing advance in accordance with relevant prudential norms issued by the RBI in respect of income recognition, asset classification and provisioning pertaining to advances (herein after referred as "Relevant RBI guidelines") and as per Bank's Board approved policy is a key audit matter due to materiality of balances involved, which requires management estimates, judgement, manual interventions and level of regulatory and other stakeholders focus. Accordingly, our audit was focused on income recognition, asset classification and provisioning pertaining to advances. Our audit approach included testing the design, operating effectiveness of internal controls and substantive audit procedures in respect of income recognition, asset classification and provisioning pertaining to advances. In particular: We have evaluated the Banks internal control system in adhering to the Relevant RBI guidelines and regulations; We have evaluated key IT systems/ applications used and tested the design and implementation as well as operational effectiveness of relevant controls, including manual controls in relation to income recognition, asset classification and provisioning pertaining to advances; We tested a selection of advances to examine the validity of the recorded amounts, loan documentation, examined the statement of accounts, indicators of impairment, provision for non-performing advances, and compliance with Relevant RBI guidelines; and We evaluated the governance process and review controls over calculations of provision of non-performing advances, basis of re provisioning approved in accordance with the Board approved policy by the Chief Risk Officer and Chief Finance Officer. We discussed the provisions made with senior management including the Chief Executive Officer, Chief Finance Officer, Chief Risk Officer and with those charged with governance. Deloitte Haskins & Sells LLP Consolidated
447 IDFC First Bank Ltd. Banks Key Audit Matters 31st March, 2019 2. Accounting for Amalgamation As set out in Note 17A and 18.01, the Bank completed its Amalgamation with Capital First Limited, Capital First Home Finance Limited and Capital First Securities Limited (together referred to as the CFL Group) with appointed date as October 1, 2018 and effective date as December 18, 2018. The Bank has accounted for the amalgamation by Purchase method as per AS 14 - Accounting for Amalgamations. The amalgamation resulted in recognition of Intangible assets (Brand and Goodwill) aggregating to Rs. 2,599.35 crore which have been subjected to accelerated amortisation through Profit and Loss Account during the year ended 31 March 2019. The aforesaid intangible assets have been considered to be eligible for tax depreciation, consequently deferred tax asset has been recognised on timing difference. The Bank was also required to integrate internal controls over financial reporting of the merged entity. Due to the complexity of the transaction and the associated significant risk of misstatement involved in Integration of internal controls over financial reporting of the merged entity; Assumptions and estimates required to be made by the Management to determine the value of Intangible Assets which is based on independent valuers report engaged by the management; Subsequent accelerated amortisation of these Intangible assets; and Significant management judgements involved regarding the future profit forecasts and application of tax laws for the recognition and measurement of deferred tax asset on amortised intangible assets the Accounting for Amalgamation is considered as key audit matter. Our audit approach for testing of accounting of amalgamation included in particular : We evaluated the Scheme of Amalgamation approved by the National Company Law Tribunal (NCLT); We evaluated appropriateness of the Banks selection of amalgamation accounting by Purchase method against the compliance with each of the conditions stipulated in AS 14 - Accounting for Amalgamation; We tested internal controls over financial reporting of the merged entity; We obtained managements workings for the accounting of the amalgamation and evaluated managements determination of the fair value of the net assets acquired, focusing on the valuation of intangible asset which is based on independent valuers report engaged by the Management; We evaluated the fair value of the acquired assets, focusing on the valuation methodologies and key assumptions applied; We evaluated the competence of independent valuer engaged by management and involved our valuation specialists to assist in our assessment of the fair value of the acquired assets; We evaluated the reasonableness of key assumptions based on our knowledge of the business and industry; We evaluated the basis determined by the Management for accelerated amortisation of Intangible Assets through Profit and Loss Account during the year ended 31 March 2019; With the support of our taxation specialists we performed evaluation of tax laws applicable to the Bank and verification of the managements assessment with respect to eligibility of intangible assets for tax depreciation; We evaluated managements assessment of future revenues and operating margins by comparing actual results and with the help our internal valuation specialists we assessed the reasonableness of the revenue forecast by performing sensitivity analysis of the growth rates compared to peer banks. Deloitte Haskins & Sells LLP Consolidated
448 IDFC First Bank Ltd. Banks Key Audit Matters 31st March, 2019 3. Evaluation of General Information Technology (IT) Controls for Key IT systems used in financial reporting process along with the integration of IT systems acquired on Amalgamation The Banks operational and financial processes are highly dependent on IT systems due to large volume of transactions that are processed daily. The Bank has also acquired IT systems of CFL Group on amalgamation which were integrated with the financial reporting application of the Bank. The Bank has constituted an IT Strategy Committee at the Board level to oversee implementation of IT strategy. Accordingly, our audit was focussed on key IT systems and controls along with the integration of IT systems acquired on amalgamation, due to the pervasive nature and complexity of the IT environment. We involved our IT specialists to obtain an understanding of the Banks IT related control environment including the systems acquired during the course of amalgamation. Furthermore, we conducted an assessment and identified key IT applications, databases and operating systems, applications used in accounting for and recording of Advances, Treasury transactions and the systems used in financial reporting process, that are relevant to our audit. For the key IT systems, applications and databases that are relevant to our audit and used in preparation of accounting and financial information , our areas of audit focus included Access Security (including controls over privileged access), Program Change controls, database management and Network Operations. In particular: We obtained an understanding of the Banks IT control environment and key changes if any during the audit period that may be relevant to the audit and reviewed the minutes of IT strategy committee meetings; We tested the design, implementation and operating effectiveness of the Banks General IT controls over the key IT systems. This included evaluation of banks controls to evaluate segregation of duties and access rights being provisioned / modified based on duly approved requests, access for exit cases being revoked in a timely manner and access of all users being re-certified during the period of audit; We also tested key automated and manual business cycle controls, integration of IT systems of the CFL Group with the financial reporting application of the Bank and report logic for system generated reports relevant to the audit; including testing of alternate procedures to assess whether there were any unaddressed IT risks that would materially impact the financial statements. Deloitte Haskins & Sells LLP Consolidated
449 IDFC First Bank Ltd. Banks Other Matters 31st March, 2019 The audit of special purpose financial information of Capital First Limited and its subsidiaries Capital First Home Finance Limited and Capital First Securities Limited (together referred to as the CFL Group) as at and for the period ended 30 September 2018, as considered for the merger accounting as on the appointed date, was carried out by the statutory auditors of the CFL Group. Our Opinion is not modified in respect of this matter. Deloitte Haskins & Sells LLP Standalone
450 IDFC First Bank Ltd. Banks Other Matters 31st March, 2019 We did not audit the financial statements of one subsidiary, whose financial statements reflect total assets of Rs. 20,548.86 lacs as at 31 March 2019, total revenues of Rs. 26,202.04 lacs and net cash (outflows) amounting to Rs. (30.26) lacs for the year ended on that date, as considered in the consolidated financial statements. The consolidated financial statements also include the Groups share of net loss of Rs. 2,786.25 lacs for the year ended 31 March 2019, as considered in the consolidated financial statements, in respect of one associate, whose financial statements have not been audited by us. These financial statements are unaudited and have been furnished to us by the Management and our opinion on the consolidated financial statements, in so far as it relates to the amounts and disclosures included in respect this associate, is based solely on such unaudited financial statements. In our opinion and according to the information and explanations given to us by the Management, these financial statements are not material to the Group. Our opinion on the consolidated financial statements above and our report on Other Legal and Regulatory Requirements below, is not modified in respect of the above matters with respect to our reliance on the work done and the reports of the other auditors and the financial statements certified by the Management. The audit of special purpose financial information of Capital First Limited and its subsidiaries Capital First Home Finance Limited and Capital First Securities Limited (together referred to as the CFL Group) as at and for the period ended 30 September 2018, as considered for the merger accounting as on the appointed date, was carried out by the statutory auditors of the CFL Group. Our Opinion is not modified in respect of this matter. Deloitte Haskins & Sells LLP Consolidated
451 IDFC Ltd. NBFCs & Housing Finance Emphasis of Matter 31st March, 2019 In respect to IDFC Foundation (a subsidiary of the Holding Company), we draw your attention to Note 45(b) to the Consolidated Financial Statement regarding non laying of Consolidated Financial Statements for the year ended March 31, 2018 in the Annual General Meeting held on September 28, 2018 as required under Section 129(3) of the Act and consequent to which there is a non-compliance with the provisions of Section 137(1) of the Act to the extent this section is applicable to the consolidated financial statements. The consequential impact of these non-compliances is presently not ascertainable pending disposal of application filed by IDFC Foundation for compounding of these contraventions before the Regional Director. Price Waterhouse & Co. LLP Consolidated
452 IDFC Ltd. NBFCs & Housing Finance Emphasis of Matter 31st March, 2019 In respect IDFC Financial Holding Company Limited (IDFC FHCL) (a subsidiary of the Holding Company), we draw your attention to Note 45(d) to the Consolidated Financial Statement regarding non-compliance with section 203 of the Act read with Rule 8 of Companies (Appointment and Remuneration of Managerial Personnel) Rules,2014. IDFC FHCL has not appointed Key Managerial Personnel (Managing Director / CS / Chief Executive Officer / Manager) and Chief Financial Officer during the year ended March 31, 2018 and March 31, 2019. Subsequent to the year end, the Board of Directors of IDFC FHCL have appointed the Chief Financial Officer and the Company secretary and has recommended appointment of Chief Executive Officer which is subject to approval of Reserve Bank of India and accordingly, is in the process of taking necessary actions to ensure compliance with the respective provisions of the Act. Price Waterhouse & Co. LLP Consolidated
453 IDFC Ltd. NBFCs & Housing Finance Emphasis of Matter 31st March, 2019 In respect of IDFC Alternatives Limited, IDFC Trustee Company Limited and IDFC Projects Limited (subsidiaries of the Holding Company), we draw attention to Note 45(a) to the Consolidated Financial Statement regarding preparation of the financial statements of these companies on a realisable value basis, pursuant to the Groups decision to discontinue the operations of these companies. Price Waterhouse & Co. LLP Consolidated
454 IDFC Ltd. NBFCs & Housing Finance Emphasis of Matter 31st March, 2019 We draw attention to following paragraph included in the audit report on the consolidated special purpose financial information of IDFC FIRST Bank Limited (an associate of the Holding Company), its subsidiary and its associate, issued by an independent firm of chartered accountants vide its report dated May 28,2019: We draw attention to Note 4 of the Reporting Package, which explains the accounting of the merger of Capital First Limited and its wholly owned subsidiaries, Capital First Home Finance Limited and Capital First Securities Limited (the CFL Group) with the Bank (IDFC - CFL Merger) approved by the Reserve Bank of India, the Competition Commission of India, the Securities and Exchange Board of India, Stock Exchanges, the respective Shareholders and Creditors of each entities and the National Company Law Tribunal (NCLT), resulting in recognition and accelerated amortization of Intangible assets through Profit and Loss Account during the year ended 31 March 2019. Price Waterhouse & Co. LLP Consolidated
455 IDFC Ltd. NBFCs & Housing Finance Emphasis of Matter 31st March, 2019 We conducted our audit in accordance with the Standards on Auditing (SAs) specified under section 143(10) of the Act. 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, its associates and joint ventures in accordance with the ethical requirements that are relevant to our audit of the consolidated financial statements in India in terms of the Code of Ethics issued by ICAI and the relevant provisions of the Act, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained and the audit evidence obtained by the other auditors in terms of their reports referred to in sub-paragraphs24, 25 and 27of the Other Matters paragraph below, other than the unaudited financial statements/ financial information as certified by the management and referred to in sub-paragraph 26of the Other Matters paragraph below, is sufficient and appropriate to provide a basis for our qualified opinion. Price Waterhouse & Co. LLP Consolidated
456 IDFC Ltd. NBFCs & Housing Finance Emphasis of Matter 31st March, 2019 We draw your attention to Note 45(c)to the consolidated financial statements regarding payment of interim dividend by IDFC Financial Holding Company (a wholly owned subsidiary) to the Holding Company to the extent of INR 120.99 crore during the year, which is not in accordance with the provisions of section 123 of the Act. Price Waterhouse & Co. LLP Consolidated
457 IDFC Ltd. NBFCs & Housing Finance Key Audit Matters 31st March, 2019 The Company has Investments amounting to Rs. 650.08 crore valued on fair value, where no listed price in an active market is available. The corresponding fair value change is recognised in either statement of profit and loss or other comprehensive income in accordance with related Accounting Standard (Ind-AS 109). In measuring these Investments, valuation methods are used based on inputs that are not directly observable from market information and certain other unobservable inputs. The Management has also used the services of an independent professional valuer. Key inputs used in the valuation of above investments are cash flow projections, market multiples and growth rate, terminal rate, discount rate etc The valuation of these assets is important to our audit as it is highly dependent on estimates (various assumptions and techniques used) which contain assumptions that are not observable in the market. Given the inherent subjectivity in the valuation of the above investments, relative significance of these investments to the financial statements and the nature and extent of audit procedures involved, we determined this to be a key audit matter. The following procedures were performed by us, to test the valuation of certain types of investments We understood and tested the design and operating effectiveness of the Companys control over the assessment of valuation of investments. We evaluated the independence, competence, capabilities and objectivity of Managements expert. We evaluated together with the auditors expert the reasonableness of the valuation methodology and underlying assumptions relating to cash flow projections, market multiples and growth rate, discount rate used by the independent professional valuer to estimate the fair value of investments. We validated the source data on sample basis and tested the arithmetical accuracy of the calculation of valuation of investments. We performed sensitivity analysis and evaluating whether any reasonably foreseeable change in assumptions We assessed the adequacy of the disclosures in the financial statements Based on our above audit procedures we consider that the managements assessment of the investment for which no listed price in an active market is available is reasonable. Price Waterhouse & Co. LLP Standalone
458 IDFC Ltd. NBFCs & Housing Finance Key Audit Matters 31st March, 2019 The Company has filed an application with the Central Board of Direct Taxes (CBDT) seeking exemption under section 10(47) of Income-tax Act, 1961 (the IT Act) on March 17, 2015, contending that it is exempt under the said section being an Infrastructure Debt Fund Non-Banking Financial Company (IDF-NBFC) registered with the Reserve Bank of India (RBI). One of the conditions to obtain the exemption under section 10(47) is to comply with relevant Guidelines and directions issued by RBI including those related adherence to the sponsor holding guidelines limits. Based on the facts and tax consultants advice obtained, the Management has concluded that in view of adherence to the relevant RBI Guidelines, the Company continues to be entitled to seek tax exemption under section 10(47) of the IT Act. We considered this as a key audit matter given the application with CBDT for notification of tax exemption under section 10(47) is under process. The audit procedures performed by us to check the exemption under section 10(47) and application to CBDT for notification: We understood, assessed and tested the design and operating effectiveness of internal controls around assessment of tax position with respect to application of section 10(47). We along with our auditors expert, : analysed, the management representation and the external tax consultants opinions obtained by the management; evaluated the rational provided by the Company and by the assessing authority against the Company, the similar tax legislation, the verdict of the tax court in similar matters and existing jurisprudence to assess the appropriateness of the tax position; evaluated the income tax assessment orders received by the Company for earlier assessment years. We also assessed the independence, objectivity, competence and capabilities of the tax consultant engaged by the management We assessed the adequacy of the disclosures in the financial statements. Based on the above procedures performed, we did not identify any significant exceptions to the managements assessment of tax position in view of pending application with CBDT for notification of tax exemption under section 10(47) of the Income Act, 1961. Price Waterhouse & Co. LLP Consolidated
459 IDFC Ltd. NBFCs & Housing Finance Key Audit Matters 31st March, 2019 The Company has Investments amounting to Rs. 1,045.22 crore valued on fair value, where no listed price in an active market is available. The corresponding fair value change is recognised in accordance with related Accounting Standard (Ind-AS 109). In measuring these Investments, valuation methods are used based on inputs that are not directly observable from market and certain other unobservable inputs. The Management has also used the services of an independent professional valuer. Key inputs used in the valuation of above investments are cash flow projections, market multiples and growth rate, terminal rate, discount rate. The valuation of these assets is important to our audit as it is highly dependent on estimates (various assumptions and techniques used) which contain assumptions that are not observable in the market. Given the inherent subjectivity in the valuation of the above investments, relative significance of these investments to the financial statements and the nature and extent of audit procedures involved, we determined this to be a key audit matter. The following procedures were performed by us, to test the valuation of certain types of investments We understood and tested the design and operating effectiveness of the Companys control over the assessment of valuation of investments. We evaluated the independence, competence, capabilities and objectivity of Managements expert. We evaluated together with the auditors expert the reasonableness of the valuation methodology and underlying assumptions relating to cash flow projections, market multiples and growth rate, discount rate used by the independent professional valuer to estimate the fair value of investments. We validated the source data on sample basis and tested the arithmetical accuracy of the calculation of valuation of investments. We performed sensitivity analysis and evaluating whether any reasonably foreseeable change in assumptions We assessed the adequacy of the disclosures in the financial statements Based on our above audit procedures we consider that the managements assessment of the investment for which no listed price in an active market is available is reasonable. Price Waterhouse & Co. LLP Consolidated
460 IDFC Ltd. NBFCs & Housing Finance Key Audit Matters 31st March, 2019 The loan balances and the associated impairment allowances are significant to the financial statements and also involves judgement around the calculation of the impairment allowance. Impairment allowances represent managements estimate of the losses incurred within the loan portfolios at the balance sheet date and are inherently judgmental. Impairment, based on Expected Credit Loss (ECL) model, is calculated using two main variables viz. Probability of Default and Loss Given Default as specified under the related Accounting Standard (Ind-AS 109). Quantitative factors like days past due and macro-economic data points and qualitative factors like deterioration in credit quality, reduction in the value of security, uncertainty over realisability of security, nature of loan etc. and related RBI notifications have been taken into account in the ECL computation. There is an inherent risk that qualitative triggers relating to impairment may not be identified on a timely basis. Given the inherent judgmental nature and the complexity of audit procedures involved, we determined this to be a key audit matter. The audit procedures performed by us to check the impairment allowance on loans include the following: We understood and tested the design and operating effectiveness of the key controls over the completeness and accuracy of the key inputs and assumptions into the impairment models, the identification of impaired loans and key systems reconciliations. We, along with the help of our auditors expert, validated the appropriateness of the Companys impairment methodologies used to derive significant variables viz. probability of Default, Loss Given Default, Exposure at default and Staging of Loan etc. We also checked the completeness and accuracy of source data used and tested the reasonableness of the key assumptions. We recomputed the impairment provision for sample of loans across the portfolio, to ensure arithmetical accuracy and compliance with the requirements of related accounting standard (Ind-AS 109) used in the ECL computation. Based on the procedures performed above, we considered the credit impairment charge and provision recognized by the management to be reasonable. The audit procedures performed by us to check the interest income computed using EIR method include the following: Price Waterhouse & Co. LLP Consolidated
461 IDFC Ltd. NBFCs & Housing Finance Key Audit Matters 31st March, 2019 The Company calculates interest income by applying the EIR to the gross carrying amount of financial assets, other than credit-impaired assets. The EIR is the rate that discounts estimated future cash receipts through the expected life of the financial asset to the gross carrying amount of a financial asset (i.e. its amortised cost before any impairment allowance). The calculation does not consider expected credit losses and includes transaction costs, premiums or discounts and fees paid or received that are integral to the EIR, such as origination fees. We understood and tested the design and operating effectiveness of the Companys spreadsheet controls over computation of EIR. We considered the expertise of the Companys personnel reviewing the interest income computed using EIR method. We recomputed the interest income for sample of loans across the portfolio, to ensure arithmetical accuracy and compliance with the requirements of related accounting standards (Ind-AS 109). We, along with the help of our auditors expert, validated the appropriateness of the Companys EIR methodologies used to compute the interest income. Based on the procedures performed above, we considered the interest income using EIR method, recognized by the management, to be reasonable. Price Waterhouse & Co. LLP Consolidated
462 IDFC Ltd. NBFCs & Housing Finance Key Audit Matters 31st March, 2019 The Company calculates interest income by applying the EIR to the gross carrying amount of financial assets, other than credit-impaired assets. The EIR is the rate that discounts estimated future cash receipts through the expected life of the financial asset to the gross carrying amount of a financial asset (i.e. its amortised cost before any impairment allowance). The calculation does not consider expected credit losses and includes transaction costs, premiums or discounts and fees paid or received that are integral to the EIR, such as origination fees. We understood and tested the design and operating effectiveness of the Companys spreadsheet controls over computation of EIR. We considered the expertise of the Companys personnel reviewing the interest income computed using EIR method. We recomputed the interest income for sample of loans across the portfolio, to ensure arithmetical accuracy and compliance with the requirements of related accounting standards (Ind-AS 109). We, along with the help of our auditors expert, validated the appropriateness of the Companys EIR methodologies used to compute the interest income. Based on the procedures performed above, we considered the interest income using EIR method, recognized by the management, to be reasonable. Price Waterhouse & Co. LLP Consolidated
463 IDFC Ltd. NBFCs & Housing Finance Other Matters 31st March, 2019 The comparative financial information of the Company for the transition date opening balance sheet as at April 1, 2017 included in these Ind-AS financial statements, are based on the previously issued statutory financial statements for the years ended March 31, 2017 prepared in accordance with the Companies (Accounting Standards) Rules, 2006 (as amended) which were audited by the predecessor auditor who expressed an unmodified opinion vide reports dated April 28, 2017. The adjustments to those financial statements for the differences in accounting principles adopted by the Company on transition to the Ind-AS have been audited by us. Price Waterhouse & Co. LLP Standalone
464 IDFC Ltd. NBFCs & Housing Finance Other Matters 31st March, 2019 The financial information of the Company for the year ended March 31, 2018 included in these Ind-AS financial statements, are based on the previously issued statutory financial statements for the years ended March 31, 2018 prepared in accordance with the Companies (Accounting Standards) Rules, 2006 (as amended) which were audited by us, on which we expressed an unmodified opinion dated April 27, 2018. The adjustments to this financial statements for the differences in accounting principles adopted by the Company on transition to the Ind-AS have been audited by us. Price Waterhouse & Co. LLP Standalone
465 IDFC Ltd. NBFCs & Housing Finance Other Matters 31st March, 2019 The transition date opening balance sheet as at April 1, 2017 included in these consolidated financial statements, are based on the previously issued statutory consolidated financial statements for the year ended March 31, 2017 prepared in accordance with the Companies (Accounting Standards) Rules, 2006 (as amended) which were audited by the predecessor auditor, who expressed an unmodified opinion vide their report dated April 27, 2017. The adjustments to those consolidated financial statements for the differences in accounting principles adopted by the Group on transition to the Ind-AS have been audited by us. Price Waterhouse & Co. LLP Consolidated
466 IDFC Ltd. NBFCs & Housing Finance Other Matters 31st March, 2019 The comparative financial statements of the Group for the year ended March 31, 2018 included in this consolidated financial statements, are based on the previously issued statutory consolidated financial statements for the year ended March 31, 2018 prepared in accordance with the Companies (Accounting Standards) Rules, 2006 (as amended) which were audited by us, on which we expressed an unmodified opinion dated April 27, 2018. The adjustments to those consolidated financial statements for the differences in accounting principles adopted by the Group on transition to the Ind-AS have been audited by us. Price Waterhouse & Co. LLP Consolidated
467 IDFC Ltd. NBFCs & Housing Finance Other Matters 31st March, 2019 We did not audit the financial statements/financial information of two subsidiaries considered in the preparation of the consolidated financial statements and which constitute total assets of Rs. 86.54 crore and net assets of Rs. 84.31 crore as at March 31, 2019 and total revenue of Rs. 3.85 crore and total comprehensive income (comprising of profit and other comprehensive income) of Rs. 1.85 crore and net cash flows amounting to Rs. 13.76 crore, as considered in the consolidated financial statements. The consolidated financial statements also include the Groups share of total comprehensive income (comprising of profit and other comprehensive income) of Rs. 6.42 crore for the year ended March 31, 2019 as considered in the consolidated financial statements in respect of one joint venture, whose financial statements/financial information have not been audited by us. These financial statements/financial information have been audited by other auditors whose reports have been furnished to us by the Management, and our opinion on the consolidated financial statements insofar as it relates to the amount included in respect of these subsidiaries and joint venture, is based solely on the report of other auditors. Price Waterhouse & Co. LLP Consolidated
468 IDFC Ltd. NBFCs & Housing Finance Other Matters 31st March, 2019 We did not audit the financial information of one associate company, whose financial information reflect Groups share of total comprehensive income (comprising of loss and other comprehensive income) of Rs. 891.65 crore for the year ended March 31, 2019. This financial information has been audited by other auditor whose unmodified report have been furnished to us by the Management. As mentioned by the other auditors in their report, this financial information have been prepared as per the recognition and measurement principles of Ind-AS to the extent not contradicting with the provisions of the Banking Regulation Act, 1949 in relation to accelerated amortisation of intangible assets as detailed in Note45(e) in the consolidated financial statements, and our opinion on the consolidated financial statements insofar as it relates to the amount included in respect of this associate, is based solely on the report of other auditor. Price Waterhouse & Co. LLP Consolidated
469 IDFC Ltd. NBFCs & Housing Finance Other Matters 31st March, 2019 We did not audit the financial statements/financial information of one subsidiary, whose financial statements/ financial information reflect total assets of Rs. 0.03 crore and net liabilities of Rs. 1.02 crore as at March 31, 2019, total revenue of Rs. Nil, total comprehensive income (comprising of loss and other comprehensive income) of Rs. 0.17 crore and net cash flows amounting to Rs. Nil for the year ended on that date, as considered in the consolidated financial statements. The consolidated financial statements also include the Groups share of total comprehensive income (comprising of profit and other comprehensive income) of Rs. 2.73 crore for the year ended March 31, 2019 as considered in the consolidated financial statements, in respect of two associate companies, whose financial statements/financial information have not been audited by us. These financial statements/ financial information are unaudited and have been furnished to us by the Management, and our opinion on the consolidated financial statements insofar as it relates to the amounts and disclosures included in respect of this subsidiary and associate companies, is based solely on such unaudited financial statements/financial information. In our opinion and according to the information and explanations given to us by the Management, these financial statements/ financial information are not material to the Group. Price Waterhouse & Co. LLP Consolidated
470 IDFC Ltd. NBFCs & Housing Finance Other Matters 31st March, 2019 The financial statements of four subsidiaries located outside India, included in the consolidated financial statements, which constitute total assets of Rs. 236.58 crore and net assets of Rs. 235.28 crore as at March 31, 2019, total revenue of Rs. 24.78 crore, total comprehensive income (comprising of profit and other comprehensive income) of Rs. 9.60 crore and net cash flows amounting to Rs. 37.67 crore for the year then ended, have been prepared in accordance with accounting principles generally accepted in their respective countries and have been audited by other auditors under generally accepted auditing standards applicable in their respective countries. The Holding Companys management has converted the financial statements of such subsidiaries located outside India from the accounting principles generally accepted in their respective countries to the accounting principles generally accepted in India. We have audited these conversion adjustments made by the Holding Companys management. Our opinion in so far as it relates to the balances and affairs of such subsidiaries located outside India, is based on the report of other auditors and the conversion adjustments prepared by the management of the Holding Company and audited by us. Price Waterhouse & Co. LLP Consolidated
471 IDFC Ltd. NBFCs & Housing Finance Other Matters 31st March, 2019 We draw attention to following paragraphs included in the audit report on the consolidated special purpose financial information of IDFC FIRST Bank Limited (an associate of the Holding Company) and its subsidiary and its associate, issued by an independent firm of chartered accountants vide its report dated May 28,2019: The Reporting Package also include the Groups share of net loss of Rs. 28 crore for the year ended 31 March 2019, as considered in the Reporting Package, in respect of one associate, whose financial statements have not been audited by us. These financial statements are unaudited and have been furnished to us by the Management and our opinion on the Reporting Package, in so far as it relates to the amounts and disclosures included in respect this associate, is based solely on such unaudited financial statements. In our opinion and according to the information and explanations given to us by the Management, these financial information statements are not material to the Group. We did not audit the financial statements of one subsidiary, whose financial statements reflect total assets of Rs. 205 crore as at 31 March 2019 and total revenues of Rs. 262 crore for the year ended on that date, as considered in the Reporting Package. These financial statements have been audited by other auditors whose report has been furnished to us by the Management and our opinion on the Reporting Package, in so far as it relates to the amounts and disclosures included in respect this subsidiary, is based solely on the report of the other auditors. The comparative financial information for the year ended 31 March 2018 in respect of its subsidiary and the related transition date opening balance sheet as at 1 April 2017 prepared in accordance with the GRI, accounting policies approved by the Board of Directors of the Bank, as per the recognition and measurement principles of Ind-AS and other accounting principles generally accepted in India and included in this reporting package has been audited by other auditors, whose reports have been furnished to us by the Management and in so far as it relates to the comparative amounts included in respect of this subsidiary in this reporting package, is based solely on the reports of the other auditors. The comparative financial information of the Group for the year ended 31 March 2018, which includes its share of loss in its associates and the related transition date opening balance sheet as at 1 April 2017 included in this reporting package, whose financial statements have not been audited by us. These financial statements are unaudited and have been furnished to us by the Management and have been prepared after adjusting the previously issued consolidated financial statements prepared in accordance with the Companies (Accounting Standards) Rules, 2006 to comply with Ind-AS. In our opinion and according to the information and explanations given to us by the Management, these financial statements are not material to the Group Adjustments made to the previously issued consolidated financial statements to comply with Ind-AS have been audited by us. The audit of special purpose financial information of Capital First Limited and its subsidiaries Capital First Home Finance Limited and Capital First Securities Limited (together referred to as the CFL Group) as at and for the period ended 30 September 2018, as considered for the merger accounting as on the appointed date, was carried out by the statutory auditors of the CFL Group. Price Waterhouse & Co. LLP Consolidated
472 IDFC Ltd. NBFCs & Housing Finance Other Matters 31st March, 2019 In respect of the consolidated special purpose financial information of Infrastructure Development Corporation (Karnataka) Limited (iDeCK) (a jointly controlled entity of the Holding Company), we draw attention to the following: We did not audit the financial statements and the financial information of a Trust (subsidiary controlled by iDeCK), whose financial statements reflect total assets of Rs. 0.19 crore and net assets of Rs. 0.16 crore as at March 31, 2019, total revenue of Rs. 0.04 crore, total comprehensive income (comprising of profit and other comprehensive income) of Rs. 0.01 crore and net cash outflows of Rs. 0.01 for the year ended on that date and consequently due to Holding Companys joint control over iDeCK, reflecting Groups share of total comprehensive income (comprising of loss and other comprehensive income) of Rs. 0.005 crore, as considered in the Statement. This financial information has been audited by another auditor whose report has been furnished to us by the Management of the iDeCK and our opinion on the Statement in so far as it relates to the amounts and disclosures included in respect of the said Trust is based solely on the report of the other auditor. We did not audit the financial information of one associate company of iDeCK, whose financial information reflect Groups share of total comprehensive income (comprising of loss and other comprehensive income) of Rs. 0.06 crore for the year ended March 31, 2019. This financial information is based on the unaudited financial information as certified and provided to us by the management of iDeCK, and our opinion on the Statement insofar as it relates to the amounts and disclosures included in respect of this associate company of iDeCK, is based solely on such unaudited financial information. In our opinion and according to the information and explanations given to us by the Management of the Holding Company, these financial statements/ financial information are not material to the Group. The comparative Consolidated Special Purpose Financial Information of iDeCK for the year ended March 31, 2018 and the transition date Consolidated Opening Balance Sheet as at April 1, 2017 included in the Consolidated Special Purpose Financial Information of iDeCK, are based on the previously issued statutory consolidated financial statements for the years ended March 31, 2018 and March 31, 2017 prepared in accordance with the Companies (Accounting Standards) Rules, 2006 (as amended). The previously issued statutory consolidated financial statements of iDeCK for the year ended March 31, 2018 prepared in accordance with the Companies (Accounting Standard) Rules, 2006 (as amended) were audited by us, on which we expressed an unmodified opinion dated June 29, 2018. The previously issued statutory consolidated financial statements of iDeCK for the year ended March 31, 2017, prepared in accordance with the Companies (Accounting Standard) Rules, 2006 (as amended), were audited by the predecessor auditor who expressed an unmodified opinion dated June 21, 2017. The adjustments to those consolidated financial statements of iDeCK for the differences in accounting principles adopted by iDeCK on transition to the Ind-AS in respect of the standalone financial information of iDeCK, have been audited by us and in respect of the Trust, are based on the financial statements audited by the other auditor, whose report have been furnished to us by the Management of iDeCK, and in respect of the associate company of iDeCK, are based on the unaudited financial information as certified and provided to us by the management of iDeCK. Price Waterhouse & Co. LLP Consolidated
473 IDFC Ltd. NBFCs & Housing Finance Other Matters 31st March, 2019 We draw attention to following paragraphs included in the audit report on the special purpose financial information of Delhi Integrated Multi-Modal Transit System Limited (a joint venture of the Holding Company) and its branches, issued by an independent firm of chartered accountants vide its report dated May 27,2019: We have incorporated the unaudited financial statements/ information of one branch included in the standalone Ind-AS financial statements of the company whose financial statements/financial information reflect total assets of Rs. 381.27 Lacs as at 31st March 2019 and the total revenue of Rs. 370.50 Lacs for the year ended on that date. Price Waterhouse & Co. LLP Consolidated
474 IDFC Ltd. NBFCs & Housing Finance Other Matters 31st March, 2019 Our aforesaid report under Section 143(3)(i) of the Act on the adequacy and operating effectiveness of the internal financial controls with reference to consolidated financial statements insofar as it relates to two subsidiaries, one associate company and one joint venture, which is a company incorporated in India, is based on the corresponding report of the auditor of such company incorporated in India. Our opinion is not modified in respect of this matter. Price Waterhouse & Co. LLP Consolidated
475 IIFL Finance Ltd. NBFCs & Housing Finance Emphasis of Matter 31st March, 2019 We draw attention Note No. 1.1 of the Financial Statements which describes the implementation of the Composite Scheme of Arrangement amongst the Company, IIFL Holdings Limited, India Infoline Media and Research Services Limited, IIFL Wealth Management Limited, India Infoline Finance Limited, IIFL Distribution Services Limited and their respective shareholders, under Sections 230 - 232 and other applicable provisions of the Companies Act, 2013 (the Scheme),in Parts, based on the legal opinion obtained by the Company. The Scheme has been approved by the National Company Law Tribunal vide its order dated 07 March 2019 and ?led with the Registrar of Companies on 11 April 2019. V. Sankar Aiyar & Co. Standalone
476 IIFL Finance Ltd. NBFCs & Housing Finance Other Matters 31st March, 2019 The comparative ?nancial information of the Company for the year ended 31st March, 2018 and the transition date opening balance sheet as at 1st April, 2017 included in these ?nancial statements, are based on the previously issued statutory ?nancial statements prepared in accordance with Companies (Accounting Standards) Rules, 2016 audited by us for the year ended 31st March 2018, our report dated 1st May, 2018 and audited by the predecessor auditor for the year ended 31st March, 2017 whose report dated 3rd May, 2017 expressed an unmodi?ed opinion on those ?nancial statements, as adjusted for the di?erences in accounting principles adopted by the company on transition to the Ind AS, which have been audited by us except for the ?gures relating to Securities Business Undertaking included in these ?nancial statements which have been audited by other auditors whose reports have been furnished to us by the management. V. Sankar Aiyar & Co. Standalone
477 IIFL Finance Ltd. NBFCs & Housing Finance Other Matters 31st March, 2019 We did not audit the ?nancial statements of Securities Business Undertaking included in the ?nancial statements (consequent to the Composite Scheme of Arrangement as referred to in Note 1.1 of the ?nancial statements), whose ?nancial statements re?ect total assets of Rs 1444.73 Millions and net assets of Rs 1414.99 Millions as at 31st March, 2019, total revenues of Rs 406.77 Millions and net cash out?ows/(in?ows) amounting to Rs 140.75 Millions for the year ended on that date, as considered in the ?nancial statements. These ?nancial statements have been audited by other auditors whose reports have been furnished to us by the management and our opinion on the, in so far as it relates to the amounts and disclosures included in respect of the said undertaking and our report in terms of sub-sections (3) of Section 143 of the Act, in so far as it relates to the said undertaking is based solely on the reports of the other auditors. As required by Ind AS 103 on Business Combinations under Appendix C - Business Combinations of Entities under Common Control, the ?nancial information for the year ended 31st March, 2018 and as on 1st April, 2017 are restated for giving e?ect of the composite scheme of arrangement referred to in Note 1.1 to the ?nancial statements. V. Sankar Aiyar & Co. Standalone
478 IIFL Finance Ltd. NBFCs & Housing Finance Other Matters 31st March, 2019 We did not audit the ?nancial statements of Securities Business Undertaking included in the ?nancial statements of Holding Company (consequent to the Composite Scheme of Arrangement as referred to in Note 1.1 of the ?nancial statements), whose ?nancial statements re?ect total assets of Rs 1444.73 Millions and net assets of Rs 1414.99 Millions as at 31st March, 2019, total revenues of Rs 406.77 Millions and net cash out?ows/(in?ows) amounting to Rs 140.75 Millions for the year ended on that date, as considered in the ?nancial statements along with comparative ?nancial information of the said undertaking for the year ended 31st March, 2018 and the transition date opening balance sheet as at 1st April, 2017 included in these ?nancial statements, as adjusted for the di?erences in accounting principles adopted on transition to the Ind AS. These ?nancial statements have been audited by other auditors whose reports have been furnished to us by the management and our opinion on the, in so far as it relates to the amounts and disclosures included in respect of the said undertaking and our report in terms of sub-sections (3) of Section 143 of the Act, in so far as it relates to the said undertaking is based solely on the reports of the other auditors. V. Sankar Aiyar & Co. Consolidated
479 IIFL Finance Ltd. NBFCs & Housing Finance Other Matters 31st March, 2019 We did not audit the ?nancial statements of two wholly owned subsidiaries outside India included in the consolidated ?nancial statements, whose ?nancial statements re?ect total assets of Rs 151.57 Millions, net assets of Rs 108.34 Millions as at 31st March, 2019, total revenues of Rs 359.15 Millions and net cash out?ows amounting to Rs 18.63 Millions for the year ended on that date, as considered in the consolidated ?nancial statements. These ?nancial statements have been audited by other auditors whose reports have been furnished to us by the Holding Companys Management and our opinion on the consolidated ?nancial statements, in so far as it relates to the amounts and disclosures included in respect of these subsidiaries and our report in terms of sub-sections (3) of Section 143 of the Act, in so far as it relates to the aforesaid subsidiaries is based solely on the reports of the other auditors. The said subsidiaries are located outside India whose ?nancial statements and other ?nancial information have been prepared in accordance with accounting principles generally accepted in their respective countries and which have been audited by other auditors under generally accepted auditing standards applicable in their respective countries. The Companys management has converted the ?nancial statements of such subsidiaries located outside India from accounting principles generally accepted in their respective countries to accounting principles generally accepted in India. We have audited these conversion adjustments made by the Companys management. Our opinion in so far as it relates to the balances and a?airs of such subsidiaries located outside India is based on the reports of other auditors and the conversion adjustments prepared by the Management of the Company and audited by us. V. Sankar Aiyar & Co. Consolidated
480 IIFL Finance Ltd. NBFCs & Housing Finance Other Matters 31st March, 2019 The comparative ?nancial information of the company for the year ended 31st March 2018 and the opening balance sheet as at 1st Ap