TO THE MEMBERS OF INTERNATIONAL PAPER APPM LIMITED
Report on the Audit of the Financial Statements
We have audited the accompanying financial statements of International Paper APPM Limited (the Company) which comprise the Balance Sheet as at March 31 2019 and the Statement of Profit and Loss (including Other Comprehensive Income) the Cash Flow Statement and the Statement of Changes in Equity for the year then ended and a summary of significant accounting policies and other explanatory information.
In our opinion and to the best of our information and according to the explanations given to us the aforesaid financial statements give the information required by the Companies Act 2013 (the Act) in the manner so required and give a true and fair view in conformity with the Indian Accounting Standards prescribed under Section 133 of the Act read with the Companies (Indian Accounting Standards) Rules 2015 as amended (Ind AS) and other accounting principles generally accepted in India of the state of affairs of the Company as at March 31 2019 and its profit total comprehensive income its cash flows and the changes in equity for the year ended on that date.
Basis for Opinion
We conducted our audit of the financial statements in accordance with the Standards on Auditing specified under Section 143(10) of the Act (SAs). Our responsibilities under those Standards are further described in the Auditor's Responsibility for the Audit of the Financial Statements section of our report. We are independent of the Company in accordance with the Code of Ethics issued by the Institute of Chartered Accountants of India (ICAI) together with the ethical requirements that are relevant to our audit of the financial statements under the provisions of the Act and the Rules made thereunder and we have fulfilled our other ethical responsibilities in accordance with these requirements and the ICAI's Code of Ethics. We believe that the audit evidence obtained by us is sufficient and appropriate to provide a basis for our audit opinion on the financial statements.
Emphasis of Matter
We draw attention to Note 53 of the financial statements regarding the ongoing litigation with respect to the levy of electricity duty by the State Government on consumption of electricity by captive generating units and the interim orders of the Hon'ble Supreme Court of India on hearing the Special Leave Petition filed by the Company in respect of which the Company on grounds of prudence and abundant caution created a provision amounting to Rs. 2357.43 lakhs during the year ended March 31 2017 in view of the inherent uncertainty in predicting the final outcome of the above litigation. Additionally an amount of Rs. 1571.62 lakhs has been disclosed as contingent liability. Based on the legal advice obtained in the opinion of the Management no further provision would be required in relation to this disputed matter. Our report is not modified in respect of this matter.
Key Audit Matters
Key audit matters are those matters that in our professional judgment were of most significance in our audit of the financial statements of the current period. These matters were addressed in the context of our audit of the financial statements as a whole and in forming our opinion thereon and we do not provide a separate opinion on these matters. We have determined the matters described below to be the key audit matters to be communicated in our report.
|Sr. No.||Key Audit Matter||Auditor's Response|
|1||Provisions and Contingent Liabilities (including income tax)||We obtained an understanding of management's process to identify new obligations and changes in existing obligations for compliance with Ind AS 12 - Income taxes and Ind AS 37 - Provisions Contingent Liabilities and Contingent Assets.|
|Refer Notes 2C(e) 21 22 & 32A in the financial statements for the related disclosures.|
|The Company has ongoing litigations with various regulatory authorities and third parties. Where an outflow of funds is believed to be probable and a reliable estimate of the outcome of the dispute can be made based on management's assessment of specific circumstances of each dispute and relevant external advice management provides for its reliable estimate of the liability. Such accruals are by nature complex and can take number of years to resolve and can involve estimation uncertainty.||We analysed significant changes in material provisions from prior periods and obtained a detailed understanding of these changes and assumptions applied.|
|Our audit procedures related to material provisions recognised and contingent liabilities disclosed in the financial statements included:|
| Assessment of the recognition criteria for the liability;|
| Evaluation of the methodology adopted by management for the measurement of the liability;|
| Assessment of the other key measurement assumptions and inputs.|
| We have requested for confirmations from the legal counsel of the Company representing the litigation matters of the Company at applicable forums.|
| We reviewed the minutes of the Board meetings including other committees.|
| Testing of the mathematical accuracy of the measurement calculation;|
|Due to the level of judgement relating to recognition valuation and presentation of provisions and contingent liabilities this is considered to be a key audit matter.|| We have involved our internal experts with regard to direct and indirect taxes and they have also considered the legal precedence and other rulings in evaluating management position on the uncertain tax matters.|
| We assessed the appropriateness of the presentation of the most significant contingent liabilities in the financial statements.|
Information Other than the Financial Statements and Auditor's Report Thereon
The Company's Board of Directors is responsible for the other information. The other information comprises the information included in Management Discussion and Analysis Board's Report including Annexures to Board's Report Business Responsibility Report Corporate Governance and Shareholder's Information but does not include the financial statements and our auditor's report thereon. The Management Discussion and Analysis Board's Report including Annexures to Board's Report Business Responsibility Report Corporate Governance and Shareholder's Information report is expected to be made available to us after the date of this auditor's report.
Our opinion on the financial statements does not cover the other information and we will not express any form of assurance conclusion thereon.
In connection with our audit of the financial statements our responsibility is to read the other information identified above when it becomes available and in doing so consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained during the course of our audit or otherwise appears to be materially misstated.
When we read the Management Discussion and Analysis Board's Report including Annexures to Board's Report Business Responsibility Report Corporate Governance and Shareholder's Information if we conclude that there is a material misstatement therein we are required to communicate the matter to those charged with governance as required under SA 720 `The Auditor's responsibilities Relating to Other Information'.
Management's Responsibility for the Financial Statements
The Company's Board of Directors is responsible for the matters stated in Section 134(5) of the Act with respect to the preparation of these financial statements that give a true and fair view of the financial position financial performance including other comprehensive income cash flows and changes in equity of the Company in accordance with the Ind AS and other accounting principles generally accepted in India. This responsibility also includes maintenance of adequate accounting records in accordance with the provisions of the Act for safeguarding the assets of the Company and for preventing and detecting frauds and other irregularities; selection and application of appropriate accounting policies; making judgments and estimates that are reasonable and prudent; and design implementation and maintenance of adequate internal financial controls that were operating effectively for ensuring the accuracy and completeness of the accounting records relevant to the preparation and presentation of the financial statements that give a true and fair view and are free from material misstatement whether due to fraud or error.
In preparing the financial statements management is responsible for assessing the Company's ability to continue as a going concern disclosing as applicable matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company or to cease operations or has no realistic alternative but to do so. Those Board of Directors are also responsible for overseeing the Company's financial reporting process.
Auditor's Responsibility for the Audit of the Financial Statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement whether due to fraud or error and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance but is not a guarantee that an audit conducted in accordance with SAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if individually or in the aggregate they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. As part of an audit in accordance with SAs we exercise professional judgment and maintain professional skepticism throughout the audit. We also:
Identify and assess the risks of material misstatement of the financial statements whether due to fraud or error design and perform audit procedures responsive to those risks and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error as fraud may involve collusion forgery intentional omissions misrepresentations or the override of internal control.
Obtain an understanding of internal financial control relevant to the audit in order to design 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 has adequate internal financial controls system in place and the operating effectiveness of such controls.
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the management.
Conclude on the appropriateness of management's use of the going concern basis of accounting and based on the audit evidence obtained whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company's ability to continue as a going concern. If we conclude that a material uncertainty exists we are required to draw attention in our auditor's report to the related disclosures in the financial statements or if such disclosures are inadequate to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor's report. However future events or conditions may cause the Company to cease to continue as a going concern.
Evaluate the overall presentation structure and content of the financial statements including the disclosures and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation.
Materiality is the magnitude of misstatements in the financial statements that individually or in aggregate makes it probable that the economic decisions of a reasonably knowledgeable user of the financial statements may be influenced. We consider quantitative materiality and qualitative factors in (i) planning the scope of our audit work and in evaluating the results of our work; and (ii) to evaluate the effect of any identified misstatements in the financial statements.
We communicate with those charged with governance regarding among other matters the planned scope and timing of the audit and significant audit findings including any significant deficiencies in internal control that we identify during our audit. We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence and where applicable related safeguards.
From the matters communicated with those charged with governance we determine those matters that were of most significance in the audit of the financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor's report unless law or regulation precludes public disclosure about the matter or when in extremely rare circumstances we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.
Report on Other Legal and Regulatory Requirements
1. As required by Section 143(3) of the Act based on our audit we report that:
a) We have sought and obtained all the information and explanations which to the best of 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 the Company so far as it appears from our examination of those books.
c) The Balance Sheet the Statement of Profit and Loss including Other Comprehensive Income the Cash Flow Statement and the Statement of Changes in Equity dealt with by this Report are in agreement with the relevant books of account.
d) In our opinion the aforesaid financial statements comply with the Ind AS specified under Section 133 of the Act.
e) On the basis of the written representations received from the directors as on March 31 2019 taken on record by the Board of Directors none of the directors is disqualified as on March 31 2019 from being appointed as a director in terms of Section 164(2) of the Act.
f) With respect to the adequacy of the internal financial controls over financial reporting of the Company and the operating effectiveness of such controls refer to our separate Report in Annexure A. Our report expresses an unmodified opinion on the adequacy and operating effectiveness of the Company's internal financial controls over financial reporting.
g) With respect to the other matters to be included in the Auditor's Report in accordance with the requirements of Section 197(16) of the Act as amended in our opinion and to the best of our information and according to the explanations given to us the remuneration paid / provided by the Company to its directors during the year is in accordance with the provisions of Section 197 of the Act.
h) With respect to the other matters to be included in the Auditor's Report in accordance with Rule 11 of the Companies (Audit and Auditors) Rules 2014 as amended in our opinion and to the best of our information and according to the explanations given to us:
i. The Company has disclosed the impact of pending litigations on its financial position in its financial statements.
ii. The Company did not have any long-term contracts including derivative contracts for which there were any material foreseeable losses.
iii. There has been no delay in transferring amounts required to be transferred to the Investor Education and Protection Fund by the Company.
2. As required by the Companies (Auditor's Report) Order 2016 (the Order) issued by the Central Government in terms of Section 143(11) of the Act we give in Annexure B a statement on the matters specified in paragraphs 3 and 4 of the Order.
ANNEXURE A TO THE INDEPENDENT AUDITOR'S REPORT
(Referred to in paragraph 1(f) under `Report on Other Legal and Regulatory Requirements' section of our report of even date)
Report on the Internal Financial Controls Over Financial Reporting under Clause (i) of Sub-section 3 of Section 143 of the Companies Act 2013 (the Act)
We have audited the internal financial controls over financial reporting of International Paper APPM Limited (the Company) as of March 31 2019 in conjunction with our audit of the financial statements of the Company for the year ended on that date.
Management's Responsibility for Internal Financial Controls
The Company's management is responsible for establishing and maintaining internal financial controls based on the internal control over financial reporting criteria established by the Company considering the essential components of internal control stated in the Guidance Note on Audit of Internal Financial Controls Over Financial Reporting issued by the Institute of Chartered Accountants of India. These responsibilities include the design implementation and maintenance of adequate internal financial controls that were operating effectively for ensuring the orderly and efficient conduct of its business including adherence to company's policies the safeguarding of its assets the prevention and detection of frauds and errors the accuracy and completeness of the accounting records and the timely preparation of reliable financial information as required under the Companies Act 2013.
Our responsibility is to express an opinion on the Company's internal financial controls over financial reporting based on our audit. We conducted our audit in accordance with the Guidance Note on Audit of Internal Financial Controls Over Financial Reporting (the Guidance Note) issued by the Institute of Chartered Accountants of India and the Standards on Auditing prescribed under Section 143(10) of the Companies Act 2013 to the extent applicable to an audit of internal financial controls. Those Standards and the Guidance Note require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether adequate internal financial controls over financial reporting was established and maintained and if such controls operated effectively in all material respects.
Our audit involves performing procedures to obtain audit evidence about the adequacy of the internal financial controls system over financial reporting and their operating effectiveness. Our audit of internal financial controls over financial reporting included obtaining an understanding of internal financial controls over financial reporting assessing the risk that a material weakness exists and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. The procedures selected depend on the auditor's judgement including the assessment of the risks of material misstatement of the financial statements whether due to fraud or error.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion on the Company's internal financial controls system over financial reporting.
Meaning of Internal Financial Controls Over Financial Reporting
A company's internal financial control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal financial control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles and that receipts and expenditures of the company are being made only in accordance with authorisations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorised acquisition use or disposition of the company'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 financial reporting including the possibility of collusion or improper management override of controls material misstatements due to error or fraud may occur and not be detected. Also projections of any evaluation of the internal financial controls over financial reporting to future periods are subject to the risk that the internal financial control over financial reporting may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion to the best of our information and according to the explanations given to us the Company has in all material respects an adequate internal financial controls system over financial reporting and such internal financial controls over financial reporting were operating effectively as at March 31 2019 based on the criteria for internal financial control over financial reporting established by the Company considering the essential components of internal control stated in the Guidance Note on Audit of Internal Financial Controls Over Financial Reporting issued by the Institute of Chartered Accountants of India.
ANNEXURE B TO THE INDEPENDENT AUDITOR'S REPORT
(Referred to in paragraph 2 under `Report on Other Legal and Regulatory Requirements' section of our report of even date)
(i) (a) The Company has maintained proper records showing full particulars including quantitative details and situation of the fixed assets.
(b) The Company has a program of verification of fixed assets to cover all the items in a phased manner over a period of three years which in our opinion is reasonable having regard to the size of the Company and the nature of its assets. Pursuant to the program certain fixed assets were physically verified by the Management during the year. According to the information and explanations given to us no material discrepancies were noticed on such verification.
(c) According to the information and explanations given to us and the records examined by us and based on the examination of the registered sale deed / transfer deed provided to us we report that the title deeds comprising all the immovable properties of land and buildings which are freehold are held in the name of the Company as at the balance sheet date.
(ii) As explained to us the inventories were physically verified during the year by the Management at reasonable intervals and no material discrepancies were noticed on physical verification.
(iii) The Company has not granted any loans secured or unsecured to companies firms Limited Liability Partnerships or other parties covered in the register maintained under Section 189 of the Companies Act 2013.
(iv) In our opinion and according to the information and explanations given to us and having regard to the legal opinion obtained by the Company (refer foot notes to Note 6 of the financial statements) on which we have relied the Company has complied with the provisions of Section 185 and 186 of the Companies Act 2013 in respect of grant of loans. The Company has not made investments provided guarantees and securities.
(v) According to the information and explanations given to us the Company has not accepted any deposit during the year. In respect of unclaimed deposits the Company has complied with the provisions of Sections 73 to 76 or any other relevant provisions of the Companies Act 2013.
(vi) The maintenance of cost records has been specified by the Central Government under Section 148(1) of the Companies Act 2013. We have broadly reviewed the cost records maintained by the Company pursuant to the Companies (Cost Records and Audit) Rules 2014 as amended and prescribed by the Central Government under sub-section (1) of the Section 148 of the Companies Act 2013 and are of the opinion that prima facie the prescribed cost records have been made and maintained. We have however not made a detailed examination of the cost records with a view to determine whether they are accurate or complete.
(vii) According to the information and explanations given to us in respect of statutory dues:
(a) The Company has been regular in depositing undisputed statutory dues including Provident Fund Employees' State Insurance Income-tax Sales Tax Service Tax Customs Duty Excise Duty Value Added Tax cess and other material statutory dues applicable to it with the appropriate authorities.
(b) There were no undisputed amounts payable in respect of Provident Fund Employees' State Insurance Income-tax Sales Tax Service Tax Customs Duty Excise Duty Value Added Tax cess and other material statutory dues in arrears as at March 31 2019 for a period of more than six months from the date they became payable.
(c) Details of dues of Income-tax Sales Tax Service Tax Custom Duty Excise Duty and Value Added Tax which have not been deposited as on March 31 2019 on account of disputes are given below:
|Name of Statute||Nature of Dues||Forum where Dispute is pending||Period to which the amount relates||Amount Involved ||Amount Unpaid |
|(Rs. lakhs)||(Rs. lakhs)|
|Income Tax Act1961||Tax||Commissioner of Income Tax (Appeals) Visakhapatnam||2010-11 and 2011-12||17.34||17.34|
|High Court of Andhra Pradesh||2001-02 to 2003-04||12.64||12.64|
|Income Tax Appellate Tribunal||2001-02||14.26||14.26|
|Interest||High Court of Andhra Pradesh||1979-80||24.96||24.96|
|Central Sales Tax Act 1956||Tax||Appellate Deputy Commissioner Visakhapatnam||2008-09||21.54||21.54|
|Sales Tax Appellate Tribunal Visakhapatnam||2005-06||33.82||16.91|
|Andhra Pradesh General Sales Tax Act 1957 & Central Sales Tax Act 1956||Tax||Sales Tax Appellate Tribunal Visakhapatnam||1995-96 to 1999-2000||27.41||27.41|
|Andhra Pradesh General Sales Tax Act 1957||Tax||High Court of Andhra Pradesh||1990-99 and 2000-05||126.78||126.78|
|Sales Tax Appellate Tribunal Visakhapatnam||1996-97||10.82||6.57|
|AP Value Added Tax Act 2005||Penalty||Appellate Deputy Commissioner Visakhapatnam||2009-2012||1.81||1.77|
|Tax||Sales Tax Appellate Tribunal Visakhapatnam||2009 - 2011||23.66||11.84|
|Appellate Deputy Commissioner Visakhapatnam||2012-13 and 2014-15||211.77||105.90|
|Penalty||Appellate Deputy Commissioner Vijayawada||2012-2015||21.17||18.52|
|Madhya Pradesh Value Added Tax Act 2002||Tax||High Court Madhya Pradesh||1997-98||15.00||15.00|
|West Bengal Value Added Tax 2005||Tax||Additional Commissioner of Commercial Taxes||2009-10||1.78||1.78|
|Orissa Entry Tax Act 1999||Tax||Deputy Commissioner of Commercial Taxes||2006-07 to 2009-10||4.24||3.38|
|Central Excise Act 1944||Duty||1996-97 and 1997-98||10.90||10.90|
|High Court of Andhra Pradesh ||February 1994||0.36||0.36|
|Duty & Penalty||Customs Excise & Service Tax Appellate Tribunal Bangalore||2001 to 2012||1669.75||1669.75|
|2005-06 to 2008-09||1302.65||1302.65|
|Commissioner of Central Excise (Appeals) Visakhapatnam||2006||140.36||140.36|
|2010-11 to 2015-16||0.23||0.23|
|High Court of Andhra Pradesh||2000-01 to 2007-08||385.15||385.15|
|Finance Act 1994 ||Service Tax||High Court of Andhra Pradesh||2004-05 and 2005-06||51.10||51.10|
|Service Tax & Penalty||Commissioner of Central Excise (Appeals) Visakhapatnam||2004-05 to 2012-13||347.28||347.28|
|Customs Excise & Service Tax Appellate Tribunal Bangalore||March 2012||105.11||105.11|
(viii) In our opinion and according to the information and explanations given to us the Company has not defaulted in the repayment of loans or borrowings to banks and government. The Company has not issued any debentures and does not have any borrowings from the financial institutions.
(ix) The Company has not raised moneys by way of initial public offer or further public offer (including debt instruments) or term loans and hence reporting under clause (ix) of the Order is not applicable.
(x) To the best of our knowledge and according to the information and explanations given to us no fraud by the Company and no material fraud on the Company by its officers or employees has been noticed or reported during the year.
(xi) In our opinion and according to the information and explanations given to us the Company has paid / provided managerial remuneration in accordance with the requisite approvals mandated by the provisions of Section 197 read with Schedule V to the Companies Act 2013.
(xii) The Company is not a Nidhi Company and hence reporting under clause (xii) of the Order is not applicable.
(xiii) In our opinion and according to the information and explanations given to us the Company is in compliance with Section 177 and 188 of the Companies Act 2013 where applicable for all transactions with the related parties and the details of related party transactions have been disclosed in the financial statements etc. as required by the applicable Indian accounting standards.
(xiv) During the year the Company has not made any preferential allotment or private placement of shares or fully or partly convertible debentures and hence reporting under clause (xiv) of Order is not applicable to the Company.
(xv) In our opinion and according to the information and explanations given to us during the year the Company has not entered into any non-cash transactions with its directors or directors of its holding or subsidiary company or persons connected with him and hence provisions of Section 192 of the Companies Act 2013 are not applicable. The Company does not have an associate company.
(xvi) The Company is not required to be registered under section 45-IA of the Reserve Bank of India Act 1934.
|For Deloitte Haskins & Sells|
|(Firm's Registration No. 008072S)|
|May 2 2019||(Membership No. 209354)|