Kernex Microsystems (India) Limited
1. Report on the Financial Statements
We have audited the accompanying financial statements of KERNEX MICROSYSTEMS (INDIA)LIMITED ("The Company") which comprise the Balance Sheet as at March 31 2017the Statement of Profit and Loss and Cash Flow Statement for the year then ended and asummary of significant accounting policies and other explanatory information.
2. Management's Responsibility for the Financial Statements
The Company's Board of Directors is responsible for the matters stated in Section134(5) of the Companies Act 2013 ("the Act") with respect to the preparation ofthese standalone financial statements that give a true and fair view of the financialposition financial performance and in accordance with the accounting principles generallyaccepted in India including the Accounting Standards specified under Section 133 of theAct read with Rule 7 of the Companies (Accounts) Rules 2014.
This responsibility also includes maintenance of adequate accounting records inaccordance with the provisions of the Act for safeguarding of the assets of the Companyand for preventing and detecting frauds and other irregularities; selection andapplication of appropriate accounting policies; making judgments and estimates that arereasonable and prudent; and design implementation and maintenance of adequate internalfinancial controls that were operating effectively for ensuring the accuracy andcompleteness of the accounting records relevant to the preparation and presentation ofthe financial statements that give a true and fair view and are free from materialmisstatement whether due to fraud or error.
3. Auditor's Responsibility
Our responsibility is to express an opinion on these financial statements based on ouraudit.
We have taken into account the provisions of the Act the accounting and auditingstandards and matters which are required to be included in the audit report under theprovisions of the Act and the Rules made there under.
We conducted our audit in accordance with the Standards on Auditing specified underSection 143(10) of the Act. Those Standards require that we comply with ethicalrequirements and plan and perform the audit to obtain reasonable assurance about whetherthe financial s tatementsarefreefrommaterialmisstatement.
An audit involves performing procedures to obtain audit evidence about the amounts andthe disclosures in the financial statements. The procedures selected depend on theauditor's judgment including the assessment of the risks of material misstatement of thefinancial statements whether due to fraud or error. In making those risk assessments theauditor considers internal financial control relevant to the Company's preparation of thefinancial statements that give a true and fair view in order to design audit proceduresthat are appropriate in the circumstances. An audit also includes evaluating theappropriateness of the accountingpoliciesusedand t h e reasonableness of the accountingestimates made by the Company's Directors as well as evaluating the overall presentationof the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate toprovide a basis for our audit opinion on the financial statements.
4. Basis for Qualified Opinion
We draw your attention to Note No. 39 of the standalone financial statements - Out ofthe total debtors outstanding for more than six months of Rs.35.24 Crores which areunsecured and considered good. The above debtors are slow moving as partly received ornon-moving and subject to confirmations and subsequent reconciliation. In some casesinvoices raised by the company on railways are yet to be recognized by the customer.
In view of non availability of confirmations and reconciliation and ongoing arbitrationproceedings in the case of dues from KRCL we are unable to comment of the effect of thesame on financial statements.
5. Qualified Opinion
In our opinion and to the best of our information and according to the explanationsgiven to us except for the possible effects of the matters described in the Basis forQualified Opinion the standalone financial statements give the information required bythe Act in the manner so required and give a true and fair view in conformity with theaccounting principles generally accepted in India of the state of affairs of the Companyas at 31st March 2017 and its loss and its cash flows for the year ended on that date.
6. Other Matters
We did not audit the financial statements/ information of Egypt Branch included in thestandalone financial statements of the Companywhosefinancialstatements/information reflecttotal assets of Rs.62713581 as at 31st March 2017 and total revenues of Rs.6619350for the year ended on that date as considered in the standalone financial statements. Thefinancial statements/information of this foreign branch have been audited by the branchauditors whose reports have been furnished to us and our opinion in so far as it relatesto the amounts and disclosures included in respect of this branch is based solely on thereport of such branch auditors and the returns submitted at the branch.
Our opinion is not modified in respect of this matter.
7. Report on Other Legal and Regulatory Requirements
1. As required by the Companies (Auditor's Report) Order 2016 ("the Order")issued by the
Central Government of India in terms of sub- section (11) of section 143 of the Act wegive in the Annexure A a statement on the matters specified in the paragraph 3 and 4 ofthe order.
2. As required by section 143(3) of the Act we report that: (a) We have sought andobtained all the information and explanations which to the best of our knowledge andbelief were necessary for the purposes of our audit;
(b) In our opinion proper books of account as required by law have been kept by theCompany so far as appears from our examination of those books.
(c) The Balance Sheet the Statement of Profit and Loss and the cash flow statementdealt with by this Report are in agreement with the books of account.
(d) In our opinion the aforesaid financial statements comply with the AccountingStandards specified under Section 133 of the Act read with Rule 7 of the Companies(Accounts) Rules 2014; (e) On the basis of written representations received from thedirectors as on 31st l March2017 and taken on record by the Board of Directors none ofthe directors is disqualified as on 31st March 2017 from being appointed to act as adirector in terms of Section 164(2) of the Act;
(f) With respect to the adequacy of the internal financial controls over financialreporting of thecompanyandtheoperating effectiveness of such controls refer to ourseparate report in the "Annexure B" and (g) With respect to other matters to beincluded in the Auditor's Report in accordance with Rule 11 of the Companies (Audit andAuditors) Rules 2014 in our opinion and to the best of our information and according tothe explanations given to us:
i. the company has disclosed the impact of pending litigations on its financialposition in its financial statements- Refer Note No. 29 to the standalone financialstatements;
ii. the company has made provision as required under the applicable law or accountingstandards for material foreseeable losses if any on long-term contracts includingderivative contracts- Refer Note 29 to the standalone financial statements;
iii.There has been no delay in transferring amounts required to be transferred to theInvestor Education and Protection Fund by the Company.
iv. The company has provided requisite disclosures in standalone financial statementsas to holdings as well as dealings in Specified Bank Notes during the period 8 November2016 to 30 December 2016. Based on audit procedures and relying on managementrepresentation we report that the disclosures are in accordance with books of accountmaintained by the Company and produced to us by the Management - Refer Note 40 to thestandalone financial statements.
ANNEXURE-A TO THE INDEPENDENT AUDITOR'S REPORT
1. a) The Company has maintained requisite records showing required particularsincluding quantitative details and situation of its fixed assets.
b) According to the information and explanation given to us by the management most ofthe fixed assets of the company have been physically verified by the management during theyear and the intervals of such verification had also been reasonable.
c) According to the information and explanations given to us and on the basis of ourexamination of the records of the Company the title deeds of immovable properties areheld in the name of the company.
2. As explained to us by the management and as observed by us the inventory of rawmaterial finished goods stores and spares etc. has been physically verified during theyear and specifically at the year-end by the management and no material discrepancies wereobserved in the inventories.
3. Based on our scrutiny and as per information and explanations provided to us by themanagement the company has not granted any loans during the period under review coveredin the registers maintained under section 189 of the Companies Act 2013. Since there areno loans granted sub-clauses b c and d are not applicable.
4. Based on our scrutiny and as per the information provided by the management thecompany does not have any transactions in respect of loans investments guarantees andsecurities granted to be complied with the provisions of Sections 185 and 186 of theCompanies Act 2013.
5. Based on our scrutiny and as per the information provided by the management thecompany has not accepted any deposits during the year under review attracting the sections73 to 76 of the Companies Act 2013 and rules made there under.
6. According to the information and explanations given the maintenance of cost recordsas specified under sub-section (1) of Section 148 of the Companies Act 2013 are notapplicable for the year under review.
7. a) According to the books and records as produced and examined by us in accordancewith Generally Accepted Auditing Practices in India and also based on managementrepresentations undisputed statutory dues in respect of provident fund employees stateinsurance income tax service tax sales tax value added tax excise duty cess andother material statutory dues have not been regularly deposited by the company during theyear with appropriate authorities and the outstanding statutory dues as at the end of thefinancial year outstanding for more than 6 months are as follows:
|Nature of Statutory Dues ||Amount |
| ||(Rs. In Lakhs) |
|Service Tax ||69.07 |
|CST Payable ||22.07 |
|Works Contract Tax ||9.90 |
|TOTAL ||101.04 |
b) According to information and explanations given to us disputed amounts payable inrespect of Income Tax and Sales Tax were outstanding as on 31st March 2017 are asfollows:
|Name of the Statute ||Amount (Rs. In lakhs) ||Period to which the amount relates ||Forum where dispute is pending |
|Income Tax Act 1961 ||8.00 ||F.Y. 1997-98 ||A.Y. 1998-99 High Court of Judicature at |
| || || ||Hyderabad for the state of Telangana and state of |
| || || ||Andhra Pradesh |
| ||257.47 ||F.Y. 2013-14 ||Income Tax Commissioner (Appeals) |
| || ||A.Y. 2014-15 || |
|APGST Act 1957 ||4.13 ||F.Y. 2002-03 ||Sales Tax Appellate Tribunal |
8. As observed by us and as per the information and explanations given by themanagement we are of the opinion that the company has not defaulted in repayment of duesto its financial institution or bank during the year under audit.
9. As observed by us the company has not availed any Term Loans from Banks during theyear. The company has not raised any monies by way of IPO or FPO during the year underreview.
10. Based upon the audit procedures performed and information and explanations given bythe management we report that no material fraud on or by the company by its officers oremployees has been noticed or reported during the course of our audit.
11. According to the information and explanations given to us and based on ourexamination of the records of the company the managerial remuneration paid/providedduring the year by the company is as per the provisions of section 197 read with ScheduleV of the Companies Act 2013.
12. In our opinion and according to the information and explanations given to us thecompany is not a nidhi company. Accordingly paragraph 3(xii) of the Order is notapplicable.
13. According to the information and explanations given to us and based on ourexamination of the records of the company transactions with related parties are incompliance with section
177 and 188 of the Act wherever applicable and details of such transactions have beendisclosed in the financial statements as required by the applicable accounting standards.
14. According to the information and explanations given to us and based on ourexamination of the records of the company the company has not made any preferentialallotment or private placement of shares or fully or partly convertible debentures duringthe year.
15. As observed by us and as per the information and explanations given by themanagement the company has not entered into any non-cash transactions with the directorsor persons connected with him during the period under review.
16. The Company is not required to be registered under Section 45-IA of the ReserveBank of India Act 1934.
ANNEXURE-B TO THE INDEPENDENT AUDITOR'S REPORT
Report on the Internal Financial Controls under Clause (i) of Sub-section 3 of Section143 of the Companies Act 2013 ("the act")
We have audited the internal financial controls over financial reporting of KernexMicrosystems (India) Limited ("the company'') as of 31 March 2017 in conjunction withour audit of the standalone financial statements of the company for the year ended on thatdate.
Management's Responsibility for Internal Financial Controls
The company's management is responsible for establishing and maintaining internalfinancial controls based on the internal controls over financial reporting criteriaestablished by the Company considering the essential components of internal control statedin the Guidance Note on Audit of Internal Financial Control over Financial Reportingissued by the Institute of Chartered Accountants of India (ICAI') .Theseresponsibilities include the design implementation and maintenance of adequate internalfinancial controls that were operating effectively for ensuring the orderly and efficientconduct of its business including adherence to company's policies the safeguarding of itsassets the prevention and detection of frauds and errors the accuracy and completenessof the accounting records and the timely preparation of reliable financial informationas required under the Companies Act 2013.
Our responsibility is to express an opinion on the company's internal financialcontrols over financial reporting based on our audit. We conducted our audit in accordancewith the Guidance Note on Audit of Internal Financial controls over Financial Reporting("the Guidance Note") and the standards on Auditing issued by ICAI and deemedto be prescribed under section143 (10) of the Companies Act 2013 to the extentapplicable to an audit of internal financial controls both applicable to an audit ofInternal Financial Controls and both issued by the Institute of Chartered Accountants ofIndia. Those Standards and the
Guidance Note require that we comply with ethical requirements and plan and performthe audit to obtain reasonable assurance about whether adequate internal financialcontrols over financial reporting was established and maintained and if such controlsoperated effectively in all material respects.
Our audit involves performing procedures to obtain audit evidence about the adequacy ofthe internal financial controls system over financial reporting and their operatingeffectiveness. Our audit of internal financial controls over financial reporting includedobtaining an understanding of internal financial controls over financial reportingassessing the risk that a material weakness exists and testing and evaluating the designand operating effectiveness of internal control based on the assessed risk. The proceduresselected depend on the auditor's judgment including the assessment of the risks ofmaterial misstatement of the financial statements whether due to fraud or error.
We believe that the audit evidence we have obtained is sufficient and appropriate toprovide a basis for our audit opinion on the company's internal financial controls systemover financial reporting.
Meaning of Internal Financial controls over Financial Reporting
A company's internal financial control over financial reporting is a process designedto provide reasonable assurance regarding the reliability of financial reporting and thepreparation of financial statements for external purposes in accordance with generallyaccepted accounting principles. A company's internal financial control over financialreporting includes those policies and procedures that (1) pertain to the maintenance ofrecords that in reasonable detail accurately and fairly reflect the transaction anddispositions of the assets of the company; (2) provide reasonable assurance thattransactions are recorded as necessary to permit preparation of financial statements inaccordance with generally accepted accounting principle and that receipts andexpenditures of the company are being made only in accordance with authorizations ofmanagement and directors of the company; and (3) provide reasonable assurance regardingprevention or timely detection of unauthorized acquisition use or disposition of thecompany's assets that could have a material effect on the financial statements.
Inherent Limitations of Internal financial Controls over Financial Reporting
Because of the inherent limitations of internal financial controls over financialreporting including the possibility of collusion or improper management override ofcontrols material misstatements due to error or fraud may occur and not be detected.Also projections of any evaluation of the internal financial controls over financialreporting to future periods are subject to the risk that the internal financial controlover financial reporting may become inadequate because of changes in conditions or thatthe degree of compliance with the policies or procedures may deteriorate.
In our opinion the company has in all material respects an adequate internalfinancial controls system over financial reporting and such internal financial controlsover financial reporting were operating effectively as at 31 March 2017 based on theinternal control over financial reporting criteria established by the company consideringthe essential components of internal control stated in the Guidance Note on Audit ofInternal Financial Controls Over Financial reporting issued by the institute of CharteredAccountants of India.
| ||For GMK Associates |
| ||Chartered Accountants |
| ||Firm Regn. No. 006945S |
| ||G Satyanarayana Murty |
|Place: Hyderabad ||Partner |
|Date: 09.05.2017 ||Membership No. 029919 |