To the Members of 3M India Limited
Report on the Audit of the Standalone Financial Statements
We have audited the standalone financial statements of 3M India Limited ("theCompany") which comprise the standalone balance sheet as at 31 March 2020 and thestandalone statement of profit and loss (including other comprehensive income) standalonestatement of changes in equity and standalone statement of cash flows for the year thenended and notes to the standalone financial statements including a summary of thesignificant accounting policies and other explanatory information.
In our opinion and to the best of our information and according to the explanationsgiven to us the aforesaid standalone financial statements give the information requiredby the Companies Act 2013 ("Act") in the manner so required and give a true andfair view in conformity with the accounting principles generally accepted in India of thestate of affairs of the Company as at 31 March 2020 and its profit and othercomprehensive income changes in equity and its cash flows for the year ended on thatdate.
Basis for Opinion
We conducted our audit in accordance with the Standards on Auditing (SAs) specifiedunder section 143(10) of the Act. Our responsibilities under those SAs are furtherdescribed in the Auditor's Responsibilitiesfor the Audit of the Standalone FinancialStatements section of our report. We are independent of the Company in accordance withthe Code of Ethics issued by the Institute of Chartered Accountants of India together withthe ethical requirements that are relevant to our audit of the standalone financialstatements under the provisions J of the Act and the Rules thereunder and we havefulfilled our other ethical responsibilities in accordance with these requirements and )the Code of Ethics. We believe that the audit evidence we have obtained is sufficient andappropriate to provide a basis for our opinion on the Standalone financial statements.
Key Audit Matters
Key audit matters are those matters that in our professional judgment were of mostsignificance in our audit of the standalone financial statements of the current period.These matters were addressed in the context of our audit of the standalone financialstatements as a whole and in forming our opinion thereon and we do not provide aseparate opinion on these matters.
Description of Key Audit Matter
See note 3 (h) and 20 to the standalone financial statements
|The key audit matter ||How the matter was addressed in our audit |
|The products of the Company are mainly sold through distributors modern trade and direct sale channels amongst others. Revenue from sale of goods is recognised when control of the product is transferred to the customer i.e. on delivery to customer. The Company tracks proof of delivery and reverses the value of goods not delivered by the balance sheet date. ||To obtain sufficient and appropriate audit evidence our principal audit procedures included amongst others: |
|We identified revenue recognition as a key audit matter given it is a key performance indicator of the Company. Pressure to achieve targets earning expectations or incentive schemes linked to performance could create an incentive for revenue to be overstated or recognised before control has been transferred. || Evaluated the appropriateness of the revenue recognition accounting policies in compliance with the accounting standards. |
| || Tested the design and operating effectiveness of relevant key controls with respect to revenue recognition on a sample basis. |
| || Tested the design implementation and operating effectiveness of the Company's general IT controls and key application controls over the Company's IT systems which govern revenue recognition in the general ledger accounting system. |
| || Performed substantive testing of selected samples of revenue transactions recorded during the year by testing the underlying documents. |
| || Analytical procedures on revenue recognised during the year to identify and inquire on unusual variances if any. |
| || Independent confirmation on a sample basis of customer balances at the balance sheet date. |
| || Obtaining supporting documentation on a sample basis for sales transactions recorded near to balance sheet date to determine whether revenue was recognised in the correct period. |
| || Tested on a sample basis manual journal entries relating to revenues to identify and inquire on unusual items if any. |
Impairment testing of investment in 3M Electro & Communication India PrivateLimited
See note 3(d) 3(e)(i) 6 and 40(B)(iv) to the standalone financial statements
|The key audit matter ||How the matter was addressed in our audit |
|During the previous year the Company acquired 100% stake in 3M Electro & Communication India Private Limited from its existing shareholders (related parties of the Company) at a consideration of INR 58470 lakhs. The Company has carried out impairment testing of such investment and have recognized impairment provision of INR 7990 lakhs. ||To obtain sufficient and appropriate audit evidence our principal audit procedures included amongst others: |
|Company's assessment of impairment contains a number of parameters which involve significant judgments and estimates including revenue growth cash flow forecasting and weighted average cost of capital. Changes in these assumptions could lead to an impact over fair value of investment and accordingly impairment provision. || Tested the design of key internal financial controls and operating effectiveness of the relevant key controls around the review of the assessment of impairment of investment in subsidiary. |
|The annual impairment testing was significant to our audit because of the financial quantum of the assets it supports as well as the fact that the testing relies on critical judgments estimates and assumptions. || Performed a retrospective review to assess the reasonableness of Company's past projections by comparing historical forecast to actual results. |
| || Tested reasonability of projections used by the Company relating to the sales growth operating costs cash flow forecast. |
| || Engaged our valuation specialists to assist us in providing overall reasonableness of the valuation by evaluating the assumptions approaches and methodologies used by the Company in particular those relating to the weighted average cost of capital (WACC) terminal growth rate etc. |
| || Tested whether the management analysis about the sensitivity of the outcome of the impairment assessment to changes in key assumptions reflect the risks inherent in the valuation of investment in subsidiary. |
| || Evaluated the appropriateness of the disclosure in the financial statements including key assumptions and sensitivities. |
The Company's management and Board of Directors are responsible for the otherinformation. The other information comprises the information included in the Company'sannual report but does not include the financial statements and our auditors' reportthereon.
Our opinion on the standalone financial statements does not cover the other informationand we do not express any form of assurance conclusion thereon.
In connection with our audit of the standalone financial statements our responsibilityis to read the other information and in doing so consider whether the other informationis materially inconsistent with the standalone financial statements or our knowledgeobtained in the audit or otherwise appears to be materially misstated. If based on thework we have performed we conclude that there is a material misstatement of this otherinformation we are required to report that fact. We have nothing to report in thisregard.
Management's and Board of Directors' Responsibility for the Standalone FinancialStatements
The Company's Management and Board of Directors are responsible for the matters statedin section 134(5) of the Act with respect to the preparation of these standalone financialstatements that give a true and fair view of the state of affairs profit/loss and othercomprehensive income changes in equity and cash flows of the Company in accordance withthe accounting principles generally accepted in India including the Indian AccountingStandards (Ind AS) specified under section 133 of the Act. This responsibility alsoincludes maintenance of adequate accounting records in accordance with the provisions ofthe Act for safeguarding of the assets of the Company and for preventing and detectingfrauds and other irregularities; selection and application of appropriate accountingpolicies; making judgments and estimates that are reasonable and prudent; and designimplementation and maintenance of adequate internal financial controls that were operatingeffectively for ensuring accuracy and completeness of the accounting records relevant tothe preparation and presentation of the standalone financial statements that give a trueand fair view and are free from material misstatement whether due to fraud or error.
In preparing the standalone financial statements the Management and Board of Directorsare responsible for assessing the Company's ability to continue as a going concerndisclosing as applicable matters related to going concern and using the going concernbasis of accounting unless the Board of Directors either intends to liquidate the Companyor to cease operations or has no realistic alternative but to do so.
The Board of Directors is also responsible for overseeing the Company's financialreporting process.
Auditor's Responsibilities for the Audit of the Standalone Financial Statements
Our objectives are to obtain reasonable assurance about whether the standalonefinancial statements as a whole are free from material misstatement whether due to fraudor error and to issue an auditor's report that includes our opinion. Reasonable assuranceis a high level of assurance but is not a guarantee that an audit conducted in accordancewith SAs will always detect a material misstatement when it exists. Misstatements canarise from fraud or error and are considered material if individually or in theaggregate they could reasonably be expected to influence the economic decisions of userstaken on the basis of these standalone financial statements.
As part of an audit in accordance with SAs we exercise professional judgment andmaintain professional skepticism throughout the audit. We also:
Identify and assess the risks of material misstatement of the standalonefinancial statements whether due to fraud or error design and perform audit proceduresresponsive to those risks and obtain audit evidence that is sufficient and appropriate toprovide a basis for our opinion. The risk of not detecting a material misstatementresulting from fraud is higher than for one resulting from error as fraud may involvecollusion forgery intentional omissions misrepresentations or the override of internalcontrol.
Obtain an understanding of internal control relevant to the audit in order todesign audit procedures that are appropriate in the circumstances. Under section 143(3)(i)of the Act we are also responsible for expressing our opinion on whether the company hasadequate internal financial controls with reference to financial statements in place andthe operating effectiveness of such controls.
Evaluate the appropriateness of accounting policies used and the reasonablenessof accounting estimates and related disclosures in the standalone financial statementsmade by the Management and Board of Directors.
Conclude on the appropriateness of the Management and Board of Directors use ofthe going concern basis of accounting and based on the audit evidence obtained whether amaterial uncertainty exists related to events or conditions that may cast significantdoubt on the Company's ability to continue as a going concern. If we conclude that amaterial uncertainty exists we are required to draw attention in our auditor's report tothe related disclosures in the standalone financial statements or if such disclosures areinadequate to modify our opinion. Our conclusions are based on the audit evidenceobtained up to the date of our auditor's report. However future events or conditions maycause the Company to cease to continue as a going concern.
Evaluate the overall presentation structure and content of the standalonefinancial statements including the disclosures and whether the standalone financialstatements represent the underlying transactions and events in a manner that achieves fairpresentation.
We communicate with those charged with governance regarding among other matters theplanned scope and timing of the audit and significant audit findings including anysignificant deficiencies in internal control that we identify during our audit.
We also provide those charged with governance with a statement that we have compliedwith relevant ethical requirements regarding independence and to communicate with themall relationships and other matters that may reasonably be thought to bear on ourindependence and where applicable related safeguards.
From the matters communicated with those charged with governance we determine thosematters that were of most significance in the audit of the standalone financial statementsof the current period and are therefore the key audit matters. We describe these mattersin our auditors' report unless law or regulation precludes public disclosure about thematter or when in extremely rare circumstances we determine that a matter should not becommunicated in our report because the adverse consequences of doing so would reasonablybe expected to outweigh the public interest benefits of such communication.
Report on Other Legal and Regulatory Requirements
1. As required by the Companies (Auditors' Report) Order 2016 ("the Order")issued by the Central Government in terms of section 143 (11) of the Act we give in the"Annexure A" a statement on the matters specified in paragraphs 3 and 4 of theOrder to the extent applicable.
2. (A) As required by Section 143(3) of the Act we report that:
a) We have sought and obtained all the information and explanations which to the bestof our knowledge and belief 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 it appears from our examination of those books.
c) The standalone balance sheet the standalone statement of profit and loss (includingother comprehensive income) the standalone statement of changes in equity and thestandalone statement of cash flows dealt with by this Report are in agreement with thebooks of account.
d) In our opinion the aforesaid standalone financial statements comply with the Ind ASspecified under section 133 of the Act.
e) On the basis of the written representations received from the directors as on 31March 2020 taken on record by the Board of Directors none of the directors isdisqualified as on 31 March 2020 from being appointed as a director in terms of Section164(2) of the Act.
f) With respect to the adequacy of the internal financial controls with reference tofinancial statements of the Company and the operating effectiveness of such controlsrefer to our separate Report in "Annexure B".
(B) With respect to the other matters to be included in the Auditors' Report inaccordance with Rule 11 of the Companies
(Audit and Auditors) Rules 2014 in our opinion and to the best of our information andaccording to the explanations given to us:
i. The Company has disclosed the impact of pending litigations as at 31 March 2020 onits financial position in its standalone financial statements - Refer Note 16 and 36 tothe standalone financial statements;
ii. The Company did not have any long-term contracts including derivative contracts forwhich there were any material foreseeable losses.
iii. There were no amounts which were required to be transferred to the InvestorEducation and Protection Fund by the Company.
iv. The disclosures in the standalone financial statements regarding holdings as wellas dealings in specified bank notes during the period from 8 November 2016 to 30 December2016 have not been made in these financial statements since they do not pertain to thefinancial year ended 31 March 2020.
(C) With respect to the matter to be included in the Auditors' Report under section197(16):
In our opinion and according to the information and explanations given to us theremuneration paid by the company to its directors during the current year is in accordancewith the provisions of Section 197 of the Act. The remuneration paid to any director isnot in excess of the limit laid down under Section 197 of the Act. The Ministry ofCorporate Affairs has not prescribed other details under Section 197(16) which arerequired to be commented upon by us.
ANNEXURE - A TO THE INDEPENDENT AUDITORS' REPORT
With reference to the Annexure A referred to in paragraph 1 in Report on Other Legaland Regulatory Requirements of the Independent Auditor's Report to the Members of theCompany on the Standalone financial statements for the year ended 31 March 2020 we reportthat:
(i) (a) The Company has maintained proper records showing full particulars includingquantitative details and situation of fixed assets.
(b) The Company has a regular programme of physical verification of its fixed assets bywhich all fixed assets are physically verified in a phased manner over a period of threeyears. In our opinion the periodicity of physical verification is reasonable havingregard to the size of the Company and the nature of its assets. Pursuant to the programmecertain fixed assets have been physically verified during the year and no materialdiscrepancies were noticed on such verification.
(c) In our opinion and according to the information and explanations given to us and onthe basis of our examination of the records of the Company the title deeds of immovableproperties included in property plant and equipment are held in the name of the Company.
In respect of immovable properties been taken on lease and disclosed as property plantand equipment in the standalone financial statements the lease agreements are in the nameof the Company.
(ii) The inventory except goods-in-transit and stocks lying with third parties hasbeen physically verified by the Management during the year. In our opinion the frequencyof such physical verification is reasonable. The discrepancies noticed on physicalverification between the physical stock and the book records were not material and havebeen appropriately dealt with in the books of accounts. For stocks lying with thirdparties at the year end written confirmations have been obtained.
(iii) According to the information and explanations given to us the Company has notgranted any loans secured or unsecured to companies firms limited liabilitypartnerships or other parties covered in the register maintained under Section 189 of theAct. Accordingly the provisions of clause 3(iii) (a) (b) and (c) of the Order are notapplicable to the Company.
(iv) In our opinion and according to the information and explanations given to us theCompany has complied with the provisions of section 186 of the Act in respect ofinvestments made. Further there are no loans guarantees and security given in respect ofwhich provisions of Sections 185 and 186 of the Act are applicable.
(v) According to the information and explanations given to us the Company has notaccepted any deposits from the public in accordance with the provisions of Sections 73 to76 or any other relevant provisions of the Act and the rules framed there under.Accordingly the provisions of clause 3(v) of the Order are not applicable to the Company.
(vi) We have broadly reviewed the books of account maintained by the Company pursuantto the rules prescribed by the Central Government of India for maintenance of cost recordsunder section 148(1) of the Act in respect of products manufactured and are of the opinionthat prima facie the prescribed accounts and records have been made and maintained.However we have not made a detailed examination of the records.
(vii) (a) According to the information and explanations given to us and on the basis ofour examination of the records of the Company amounts deducted/ accrued in the books ofaccount in respect of undisputed statutory dues including Provident fund Employees StateInsurance Income-tax Duty of customs Goods and Services tax Cess and any othermaterial statutory dues have been regularly deposited during the year by the Company withthe appropriate authorities. As explained to us the Company did not have any dues onaccount of Sales-tax Service-tax Duty of excise and Value added tax during the year.Also refer note 36 to the financial statements.
According to the information and explanations given to us no undisputed amountspayable in respect of Provident fund Employees State Insurance Income-tax Duty ofcustoms Goods and Services tax Cess and any other material statutory dues were inarrears as at 31 March 2020 for a period of more than six months from the date they becamepayable.
(b) According to the information and explanations given to us the particulars of duesof Income-tax Sales-tax Service-tax Duty of customs Duty of excise and Value added taxas at 31 March 2020 which have not been deposited by the Company on account of disputesare mentioned in Appendix-1.
(viii) In our opinion and according to the information and explanations given to usthe Company did not have any loans or borrowings from financial institutions or banks orgovernment and there were no dues to debenture holders during the year.
(ix) The Company did not raise any money by way of initial public offer or furtherpublic offer (including debt instrument) and term loans during the year. Accordingly para3(ix) of the Order is not applicable to the Company.
(x) According to the information and explanations given to us no material fraud on theCompany by its officers and employees or fraud by the Company has been noticed or reportedduring the course of our audit.
(xi) According to the information and explanations given to us and based on examinationof the records of the Company the Company has paid/ provided for managerial remunerationin accordance with the requisite approvals mandated by the provisions of Section 197 readwith Schedule V to the Act.
(xii) According to the information and explanations given to us in our opinion theCompany is not a Nidhi Company as prescribed under Section 406 of the Act. Accordinglypara 3(xii) of the Order is not applicable to the Company.
(xiii) According to the information and explanations given to us and based on ourexamination of the records of the Company all transactions with the related parties arein compliance with Section 177 and 188 of the Act where applicable and details of alltransactions have been disclosed in the Standalone financial statements as required by theapplicable accounting standards.
(xiv) 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 issued fully or partly convertible debenturesduring the year. Accordingly para 3(xiv) of the Order is not applicable to the Company.
(xv) According to the information and explanations given to us and based on ourexamination of the records of the Company the Company has not entered into non-cashtransactions with directors or persons connected with him/ her. Accordingly para 3(xv) ofthe Order is not applicable to the Company.
(xvi) According to the information and explanations given to us and in our opinion theCompany is not required to be registered under section 45-IA of the Reserve Bank of IndiaAct 1934.
Appendix-1 to the Annexure 'A' to the Independent Auditor's Report
|Statute / Nature of dues ||Demand amount (Rs. in lakhs) ||Payment under protest/ adjusted (Rs. in lakhs) ||Net amount (Rs. in lakhs) ||Period to which it pertains ||Forum where the dispute is pending |
| ||16219.12 ||2872.82 ||13346.30 ||2005-2006 2010-2011 2012-2013 to 2016-17 ||Commissioner of Income Tax (Appeals) |
|Tax ||399.35 ||322.17 ||77.18 ||2006-07 ||Assessing officer |
| ||1974.08 ||1540.15 ||433.93 ||2007-2010 and 2011-2013 ||Income Tax Appellate Tribunal |
|Sales tax/ Value added tax/ ||9679.19 ||1815.76 ||7863.43 ||2005-2009 and 2010-2016 ||Appellate Authority up to Commissioner's level |
|Central Sales tax ||1595.85 ||800.54 ||795.31 ||2007-2012 ||Sales Tax Appellate Tribunal |
|Excise (including service tax) ||282.06 ||5.15 ||276.91 ||2010-2014 ||Commissioner- Appeals |
| ||1956.61 ||117.26 ||1839.35 ||2006-2015 ||Customs Excise and service tax appellate tribunal |
| ||1961.51 || |
|1961.51 ||2005-2010 ||Customs Excise and Service tax appellate tribunal |
|Custom duty ||16387.03 ||577.01 ||15810.02 ||2011-2014 ||Directorate of Revenue Intelligence |
Annexure-B to the Independent Auditors' report on the standalone financial statementsof 3M India Limited for the period ended 31 March 2020
Report on the internal financial controls with reference to the aforesaid standalonefinancial statements under Clause (i) of Sub-section 3 of Section 143 of the CompaniesAct 2013
(Referred to in paragraph 1 (A)(f) under 'Report on Other Legal and RegulatoryRequirements' section of our report of even date) Opinion We have audited the internalfinancial controls with reference to financial statements of 3M India Limited ("theCompany") as of 31 March 2020 in conjunction with our audit of the standalonefinancial statements of the Company for the year ended on that date.
In our opinion the Company has in all material respects adequate internal financialcontrols with reference to financial statements and such internal financial controls wereoperating effectively as at 31 March 2020 based on the internal financial controls withreference to financial statements criteria established by the Company considering theessential components of internal control stated in the Guidance Note on Audit of InternalFinancial Controls Over Financial Reporting issued by the Institute of CharteredAccountants of India (the "Guidance Note").
Management's Responsibility for Internal Financial Controls
The Company's management and the Board of Directors are responsible for establishingand maintaining internal financial controls based on the internal financial controls withreference to financial statements criteria established by the Company considering theessential components of internal control stated in the Guidance Note. 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 ofits assets the prevention and detection of frauds and errors the accuracy andcompleteness of the accounting records and the timely preparation of reliable financialinformation as required l under the Companies Act 2013 (hereinafter referred toas "the Act").
Our responsibility is to express an opinion on the Company's internal financialcontrols with reference to financial statements based on our audit. We conducted our auditin accordance with the Guidance Note and the Standards on Auditing prescribed undersection 143(10) of the Act to the extent applicable to an audit of internal financialcontrols with reference to financial statements. Those Standards and the Guidance Noterequire that we comply with ethical requirements and plan and perform the audit to obtain lreasonable assurance about whether adequate internal financial controls with reference tofinancial statements were established . and maintained and whether such controls operatedeffectively in all material respects.
Our audit involves performing procedures to obtain audit evidence about the adequacy ofthe internal financial controls with reference I to financial statements and theiroperating effectiveness. Our audit of internal financial controls with reference tofinancial statements included obtaining an understanding of such internal financialcontrols assessing the risk that a material weakness exists and testing and evaluatingthe design and operating effectiveness of internal control based on the assessed risk. Theprocedures selected depend on the auditor's judgement including the assessment of therisks of material misstatement of the standalone financial statements whether due tofraud 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 withreference to financial statements.
Meaning of Internal Financial controls with Reference to Financial Statements
A company's internal financial controls with reference to financial statements is aprocess designed to provide reasonable assurance regarding the reliability of financialreporting and the preparation of financial statements for external purposes in accordancewith generally accepted accounting principles. A company's internal financial controlswith reference to financial statements include those policies and procedures that
(1) pertain to the maintenance of records that in reasonable detail accurately andfairly reflect the transactions and dispositions of the assets of the company;
(2) provide reasonable assurance that transactions are recorded as necessary to permitpreparation of financial statements in accordance with generally accepted accountingprinciples and that receipts and expenditures of the company are being made only inaccordance with authorisations of management and directors of the company; and
(3) provide reasonable assurance regarding prevention or timely detection ofunauthorised acquisition use or disposition of the company's assets that could have amaterial effect on the financial statements.
Inherent Limitations of Internal Financial controls with Reference to FinancialStatements
Because of the inherent limitations of internal financial controls with reference tofinancial statements including the possibility of collusion or improper managementoverride of controls material misstatements due to error or fraud may occur and not bedetected. Also projections of any evaluation of the internal financial controls withreference to financial statements to future periods are subject to the risk that theinternal financial controls with reference to financial statements may become inadequatebecause of changes in conditions or that the degree of compliance with the policies orprocedures may deteriorate.
| ||For B S R & Co. LLP |
| ||Chartered Accountants |
| ||Firm Registration No: 101248W/W-100022 |
| ||Vikash Gupta |
| ||Partner |
|Place : Bangalore ||Membership Number: 064597 |
|Date : 29 May 2020 ||UDIN No. : 20064597AAAABW1819 |