TO THE MEMBERS OF
ARVIND FASHIONS LIMITED
Report on the Audit of the Standalone Financial Statements
We have audited the accompanying standalone financial statements ofArvind Fashions Limited ("the Company") which comprise the Balance Sheet as atMarch 31 2020 the Statement of Profit and Loss (including Other Comprehensive Income)the Statement of Changes in Equity and the Statement of Cash Flows for the year ended onthat date and a summary of the significant accounting policies and other explanatoryinformation (hereinafter referred to as "the standalone financial statements").
In our opinion and to the best of our information and according to theexplanations given to us the aforesaid standalone financial statements give theinformation required by the Companies Act 2013 ("the Act") in the manner sorequired and give a true and fair view in conformity with the Indian Accounting Standardsprescribed under section 133 of the Act read with the Companies (Indian AccountingStandards) Rules 2015 as amended ("Ind AS") and other accounting principlesgenerally accepted in India of the state of affairs of the Company as at March 31 2020the profit and total comprehensive income changes in equity and its cash flows for theyear ended on that date.
Basis for Opinion
We conducted our audit of the standalone financial statements inaccordance with the Standards on Auditing specified under section 143(10) of the Act(SAs). Our responsibilities under those Standards are further described in theAuditor's Responsibilities for the Audit of the Standalone Financial Statementssection of our report. We are independent of the Company in accordance with the Code ofEthics issued by the Institute of Chartered Accountants of India (ICAI) together with theindependence requirements that are relevant to our audit of the standalone financialstatements under the provisions of the Act and the Rules made thereunder and we havefulfilled our other ethical responsibilities in accordance with these requirements and theICAI's Code of Ethics. We believe that the audit evidence we have obtained issufficient and appropriate to provide a basis for our audit opinion on the standalonefinancial statements.
Emphasis of Matter Paragraph
We draw your attention to Note 25 of the standalone financialstatements which explains the uncertainties and management's assessment of thefinancial impact due to the lockdown and other restrictions imposed by the Government ofIndia and other conditions related to the COVID-19 pandemic situation for which adefinitive assessment in the subsequent period is highly dependent upon circumstances asthey evolve.
Our opinion is not modified in respect of this matter.
Key Audit Matters
Key audit matters are those matters that in our professional judgmentwere of most significance in our audit of the standalone financial statements of thecurrent period. These matters were addressed in the context of our audit of the standalonefinancial statements as a whole and in forming our opinion thereon and we do not providea separate opinion on these matters. We have determined the matters described below to bethe key audit matters to be communicated in our report.
A. Recognition of Revenue from Contracts with Customers Key AuditMatter Description
Revenue recognition involves certain key judgements relating toidentification of distinct performance obligations determination of transaction price ofthe identified performance obligations the appropriateness of the basis used to measurerevenue recognised over a period estimate of variable consideration reduction of revenueon the basis of consideration payable to customers in the form of loyalty pointsdetermination of Principal versus agent consideration recognition of contract assets andrefund liability that is amount of returns and discounts that have been incurred and notyet settled with the customer. Additionally new revenue accounting standard containsdisclosures which involves collation of information in respect of disaggregated revenueand periods over which the remaining performance obligations will be satisfied subsequentto the balance sheet date.
Refer Note 4 and 16 to the Standalone Financial Statements How the KeyAudit Matter Was Addressed in the Audit
We assessed the Company's process to identify the impact ofadoption of the new revenue accounting standard. Our audit approach consisted testing ofthe design and operating effectiveness of the internal controls and substantive testing asfollows:
Evaluated the design of internal controls relating toimplementation of the new revenue accounting standard.
Selected a sample of continuing and new contracts and testedthe operating effectiveness of the internal control relating to identification of thedistinct performance obligations and determination of transaction price. We carried out acombination of procedures involving enquiry and observation re-performance and inspectionof evidence in respect of operation of these controls.
Selected a sample of continuing and new contracts and performedthe following procedures:
- Read analyzed and identified the distinct performance obligations inthese contracts and compared these performance obligations with that identified andrecorded by the Company.
- Considered the terms of the contracts to determine
(a) the transaction price including any variable consideration toverify the transaction price used to compute revenue and to test the basis of estimationof the variable consideration;
(b) for determination of Principal versus agent considerationrecognition of contract assets and refund liability including historical trend of returns.
- Sample of revenues disaggregated by type and service offerings wastested with the performance obligations specified in the underlying contracts.
- Performed analytical procedures for reasonableness of revenuesdisclosed by type and service offerings.
- Analysed returns and discounts and held discussions with managementto understand changes in provisioning norms/additional provisions made based onmanagement's assessment of market conditions.
- We reviewed the collation of information to prepare the disclosurerelating to the periods over which the remaining performance obligations will be satisfiedsubsequent to the balance sheet date.
B. Valuation of Inventory
Key Audit Matter Description
Valuation of inventory requires
(a) measurement of cost to be recognised as an inventory and carriedforward until the related revenues are recognised;
(b) any write-down to net realisable value;
(c) identification of slow moving stock; and
(d) accuracy of expected selling prices particularly for products withsignificant time lapse between manufacture and ultimate date of sale of product to theconsumer. These include inherently subjective judgements about forecast future demand withthe risk increased due to recent situation of COVID 19 and estimated net realisable valueat the time the product is expected to be sold based upon a detailed analysis of oldseason inventory.
Refer Note 4 and 9 to the Standalone Financial Statements How the KeyAudit Matter Was Addressed in the Audit
We assessed the Company's process to identify and measurement ofall costs which comprise of purchase costs of conversion and other costs incurred inbringing the inventories to their present location and condition. Our audit approachconsisted testing of the design and operating effectiveness of the internal controls andsubstantive testing as follows:
Evaluated the design of internal controls relating toidentification and measurement of cost of inventory slow moving goods and estimated netrealisable value;
Selected sample of Inventory to verify the correctness of costcomponents.
Tested the relevant information technology systems generatingreport of slow moving goods specifically in relation to validity and completeness of theinventory flags and season codes applied;
Performed sample testing for accuracy of net realizable value ofinventory including slow moving goods with sales invoices;
Validated cost write-down to estimated net realizable value.
Information Other than the Standalone Financial Statements andAuditor's Report Thereon
The Company's Board of Directors is responsible for thepreparation of the other information. The other information comprises the informationincluded in the Management Discussion and Analysis Board's Report includingAnnexures to Board's Report Business Responsibility Report Corporate Governance andShareholder's Information but does not include the standalone financial statementsand our auditor's report thereon.
Our opinion on the standalone financial statements does not cover theother information and we do not express any form of assurance conclusion thereon.
In connection with our audit of the standalone financial statementsour responsibility is to read the other information and in doing so consider whether theother information is materially inconsistent with the standalone financial statements orour knowledge obtained during the course of our audit or otherwise appears to bematerially misstated.
If based on the work we have performed we conclude that there is amaterial misstatement of this other information we are required to report that fact. Wehave nothing to report in this regard.
Management's Responsibility for the Standalone Financial Statements
The Company's Board of Directors is responsible for the mattersstated in section 134(5) of the Act with respect to the preparation of these standalonefinancial statements that give a true and fair view of the financial position financialperformance total comprehensive income changes in equity and cash flows of the Companyin accordance with the Ind AS and other accounting principles generally accepted in India.This responsibility also includes maintenance of adequate accounting records in accordancewith the provisions of the Act for safeguarding the assets of the Company and forpreventing and detecting frauds and other irregularities; selection and application ofappropriate accounting policies; making judgments and estimates that are reasonable andprudent; and design implementation and maintenance of adequate internal financialcontrols that were operating effectively for ensuring the accuracy and completeness ofthe accounting records relevant to the preparation and presentation of the standalonefinancial statements that give a true and fair view and are free from materialmisstatement whether due to fraud or error.
In preparing the standalone financial statements management isresponsible 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 management either intends to liquidate the Company or to ceaseoperations or has no realistic alternative but to do so.
The Board of Directors are responsible for overseeing theCompany's financial reporting process.
Auditor's Responsibilities for the Audit of the Standalone FinancialStatements
Our objectives are to obtain reasonable assurance about whether thestandalone financial statements as a whole are free from material misstatement whetherdue 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 auditconducted in accordance with SAs will always detect a material misstatement when itexists. Misstatements can arise from fraud or error and are considered material ifindividually or in the aggregate they could reasonably be expected to influence theeconomic decisions of users taken on the basis of these standalone financial statements.
As part of an audit in accordance with SAs we exercise professionaljudgment and maintain professional skepticism throughout the audit. We also:
Identify and assess the risks of material misstatement of thestandalone financial statements whether due to fraud or error design and perform auditprocedures responsive to those risks and obtain audit evidence that is sufficient andappropriate to provide a basis for our opinion. The risk of not detecting a materialmisstatement resulting from fraud is higher than for one resulting from error as fraudmay involve collusion forgery intentional omissions misrepresentations or the overrideof internal control.
Obtain an understanding of internal financial controls relevantto the audit in order to design audit procedures that are appropriate in thecircumstances. Under section 143(3)(i) of the Act we are also responsible for expressingour opinion on whether the Company has adequate internal financial controls system inplace and the operating effectiveness of such controls.
Evaluate the appropriateness of accounting policies used and thereasonableness of accounting estimates and related disclosures made by management.
Conclude on the appropriateness of management's use of thegoing 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'sreport to the related disclosures in the standalone financial statements or if suchdisclosures are inadequate to modify our opinion. Our conclusions are based on the auditevidence obtained up to the date of our auditor's report. However future events orconditions may cause the Company to cease to continue as a going concern.
Evaluate the overall presentation structure and content of thestandalone financial statements including the disclosures and whether the standalonefinancial statements represent the underlying transactions and events in a manner thatachieves fair presentation.
Materiality is the magnitude of misstatements in the standalonefinancial statements that individually or in aggregate makes it probable that theeconomic decisions of a reasonably knowledgeable user of the financial statements may beinfluenced. We consider quantitative materiality and qualitative factors in
(i) planning the scope of our audit work and in evaluating the resultsof our work; and
(ii) to evaluate the effect of any identified misstatements in thefinancial statements.
We communicate with those charged with governance regarding amongother matters the planned scope and timing of the audit and significant audit findingsincluding any significant deficiencies in internal control that we identify during ouraudit.
We also provide those charged with governance with a statement that wehave complied with relevant ethical requirements regarding independence and tocommunicate with them all relationships and other matters that may reasonably be thoughtto bear on our independence and where applicable related safeguards.
From the matters communicated with those charged with governance wedetermine those matters that were of most significance in the audit of the standalonefinancial statements of the current period and are therefore the key audit matters. Wedescribe these matters in our auditor's report unless law or regulation precludespublic disclosure about the matter or when in extremely rare circumstances we determinethat a matter should not be communicated in our report because the adverse consequences ofdoing so would reasonably be expected to outweigh the public interest benefits of suchcommunication.
Due to COVID-19 related lockdown restrictions management was able toperform year end physical verification of inventories only at certain locationssubsequent to the year-end. Also we were not able to physically observe the stockverification wherever carried out by management. Consequently we have performedalternate procedures to audit the existence of inventory as per the guidance provided inSA 501 "Audit Evidence - Specific Considerations for Selected Items" whichincludes inspection of supporting documentation relating to purchases sales results ofcyclical count performed by the Management through the year and such other third partyevidences where applicable and have obtained sufficient appropriate audit evidence toissue our unmodified opinion on these standalone financial statements.
Our report on the Statement is not modified in respect of this matter.Report on Other Legal and Regulatory Requirements
1. As required by Section 143(3) of the Act based on our audit wereport that:
a) We have sought and obtained all the information and explanationswhich to the best of our knowledge and belief were necessary for the purposes of ouraudit.
b) In our opinion proper books of account as required by law have beenkept 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 OtherComprehensive Income Statement of Changes in Equity and the Statement of Cash Flow dealtwith by this Report are in agreement with the relevant books of account.
d) In our opinion the aforesaid standalone financial statements complywith the Ind AS specified under Section 133 of the Act read with Rule 7 of the Companies(Accounts) Rules 2014.
e) On the basis of the written representations received from thedirectors as on March 31 2020 taken on record by the Board of Directors none of thedirectors is disqualified as on March 31 2020 from being appointed as a director in termsof Section 164 (2) of the Act.
f) With respect to the adequacy of the internal financial controls overfinancial reporting of the Company and the operating effectiveness of such controls referto our separate Report in "Annexure A". Our report expresses an unmodifiedopinion on the adequacy and operating effectiveness of the Company's internalfinancial controls over financial reporting.
g) With respect to the other matters to be included in theAuditor's Report in accordance with the requirements of section 197(16) of the Actas amended in our opinion and to the best of our information and according to theexplanations given to us the remuneration paid by the Company to its directors during theyear is in accordance with the provisions of section 197 of the Act.
h) With respect to the other matters to be included in theAuditor'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 tothe explanations given to us:
i. The Company has disclosed the impact of pending litigations on itsfinancial position in its standalone financial statements;
ii. The Company has made provision as required under the applicablelaw or accounting standards for material foreseeable losses if any on long-termcontracts including derivative contracts.
iii. There have been no amounts required to be transferred to theInvestor 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) ofthe Act we give in "Annexure B" a statement on the matters specified inparagraphs 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 andRegulatory Requirements' section of our report to the Members of Arvind FashionsLimited of even date)
Report on the Internal Financial Controls Over Financial Reportingunder Clause (i) of Sub-section 3 of Section 143 of the Companies Act 2013 ("theAct")
We have audited the internal financial controls over financialreporting of ARVIND FASHIONS LIMITED ("the Company") as of March 31 2020 inconjunction with our audit of the standalone financial statements of the Company for theyear ended on that date.
Management's Responsibility for Internal Financial Controls
The Board of Directors of the Company is responsible for establishingand maintaining internal financial controls based on the internal control over financialreporting criteria established by the Company considering the essential components ofinternal control stated in the Guidance Note on Audit of Internal Financial Controls OverFinancial Reporting issued by the Institute of Chartered Accountants of India. 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 respective company's policies thesafeguarding of its assets the prevention and detection of frauds and errors theaccuracy and completeness of the accounting records and the timely preparation ofreliable financial information as required under the Companies Act 2013.
Our responsibility is to express an opinion on the internal financialcontrols over financial reporting of the Company based on our audit. We conducted ouraudit in accordance with the Guidance Note on Audit of Internal Financial Controls OverFinancial Reporting (the "Guidance Note") issued by the Institute of CharteredAccountants of India and the Standards on Auditing prescribed under Section 143(10) of theCompanies 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 andplan and perform the audit to obtain reasonable assurance about whether adequate internalfinancial controls over financial reporting was established and maintained and if suchcontrols operated effectively in all material respects.
Our audit involves performing procedures to obtain audit evidence aboutthe adequacy of the internal financial controls system over financial reporting and theiroperating effectiveness. Our audit of internal financial controls over financial reportingincluded obtaining an understanding of internal financial controls over financialreporting 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 ofthe risks of material misstatement of the financial statements whether due to fraud orerror.
We believe that the audit evidence we have obtained is sufficient andappropriate to provide a basis for our audit opinion on the internal financial controlssystem over financial reporting of the Company.
Meaning of Internal Financial Controls Over Financial Reporting
A company's internal financial control over financial reporting isa process 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 controlover financial reporting includes those policies and procedures that (1) pertain to themaintenance of records that in reasonable detail accurately and fairly reflect thetransactions and dispositions of the assets of the company; (2) provide reasonableassurance that transactions are recorded as necessary to permit preparation of financialstatements in accordance with generally accepted accounting principles and that receiptsand expenditures of the company are being made only in accordance with authorisations ofmanagement and directors of the company; and (3) provide reasonable assurance regardingprevention or timely detection of unauthorised acquisition use or disposition of thecompany's assets that could have a material effect on the financial statements.
Limitations of Internal Financial Controls Over Financial Reporting
Because of the inherent limitations of internal financial controls overfinancial reporting 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 overfinancial reporting to future periods are subject to the risk that the internal financialcontrol over financial reporting may become inadequate because of changes in conditionsor that the degree of compliance with the policies or procedures may deteriorate.
In our opinion to the best of our information and according to theexplanations given to us 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 March 31 2020 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.
Annexure B' To The Independent Auditor's Report
(Referred to in paragraph 2 under Report on Other Legal andRegulatory Requirements' section of our report to the Members of Arvind FashionsLimited of even date)
i. In respect of the Company's fixed assets:
(a) The Company has maintained proper records showing full particularsincluding quantitative details and situation of fixed assets.
b) The Company has a program of verification to cover all the items offixed assets in a phased manner which in our opinion is reasonable having regard to thesize of the Company and the nature of its assets. Pursuant to the program certain fixedassets were physically verified by the management during the year. According to theinformation and explanations given to us no material discrepancies were noticed on suchverification.
c) According to the information and explanations given to us therecords examined by us and based on the examination of the conveyance deeds / registeredsale deed provided to us we report that the title deeds comprising all the immovableproperties of buildings which are freehold are held in the name of the Company as at thebalance sheet date except the following.
|Particulars ||No of Cases ||Area ||Gross Carrying Amount ||Net Carrying Amount ||Remarks |
|Building ||1 ||13500 Sq Feet ||Rs. 6.94 Crores ||Rs. 6.88 Crores ||The Company is in the process to register title deed in its name. |
ii. As explained to us physical verification of inventory has beenconducted at reasonable intervals by the management and the discrepancies noticed onverification between the physical stocks and the book records were not material havingregard to the size of the Company and the same have been properly dealt with in the booksof account.
iii. According to the information and explanations given to us theCompany has not granted secured / unsecured loans to Companies firms Limited LiabilityPartnerships or other parties covered in the register maintained under Section 189 of theAct. Consequently requirements of clause (iii) of paragraph 3 of the order are notapplicable.
iv. In our opinion and according to the information and explanationsgiven to us the Company has not advanced any loan or given any guarantee or provided anysecurity or made any investment covered under section 185 of the Act. However the Companyhas advanced loans or given guarantees or provided security or made investments coveredunder section 186 of the Act. We are of the opinion that provisions of section 186 of theAct have been complied with.
v. In our opinion and according to the information and explanationsgiven to us the Company has not accepted any deposits from the public within the meaningof Sections 73 to 76 or any other relevant provisions of the Act and rules framedthereunder. No order has been passed by the Company Law Board or National Company LawTribunal or Reserve Bank of India or any Court or any other Tribunal.
vi. To the best of our knowledge and belief the Central Government hasnot prescribed maintenance of cost records under section 148 (1) of the Act in respect ofthe Company's product. Consequently requirement of clause (vi) of paragraph 3 of theorder are not applicable.
vii. According to the information and explanations given to us inrespect of statutory dues:
(a) The Company is generally regular in depositing with appropriateauthorities undisputed statutory dues including Provident Fund
Employees' State Insurance Income Tax Wealth Tax Custom DutyGoods and Service Tax Cess and other material statutory dues applicable to it.
b) According to the information and explanations given to us noundisputed amounts payable in respect of outstanding statutory dues were in arrears as atMarch 31 2020 for a period of more than six months from the date they became payable.
c) Following amounts have not been deposited as on March 31 2020 onaccount of any dispute:
|Nature of the Statute ||Nature of the dues ||Amount (Rs. in Crores) ||Period to which the amount relates ||Forum where matter is pending |
|Sales Tax Act ||Sales Tax ||1.34 ||2015-16 ||Assistant Commissioner |
| || ||0.09 ||2015-16 ||Assessing Officer |
| || ||0.17 ||2016-17 ||Assessing Officer |
viii. In our opinion and according to the information and explanationsgiven to us the Company has not defaulted in repayment of dues to financial institutionsand banks.
ix. To the best of our knowledge and belief and according to theinformation and explanations given to us the Company has not raised moneys by way ofinitial public offer or further public offer. However the term loans obtained during theyear were prima facie applied by the Company for the purpose for which they were raisedother than temporary deployment pending application.
x. To the best of our knowledge and belief and according to theinformation and explanations given to us no fraud by the Company or on the Company by itsofficers or employees has been noticed or reported during the year.
xi. In our opinion and according to the information and explanationsgiven to us the Company has paid/provided managerial remuneration in accordance with therequisite approvals mandated by the provisions of section 197 read with Schedule V to theAct.
xii. The Company is not a Nidhi Company. Consequently requirements ofclause (xii) of paragraph 3 of the order are not applicable.
xiii. To the best of our knowledge and belief and according to theinformation and explanations given to us all transactions with the related parties are incompliance with sections 177 and 188 of the Act where applicable and the details have beendisclosed in the standalone financial statements etc. as required by the applicableaccounting standards.
xiv. To the best of our knowledge and belief and according to theinformation and explanations given to us the Company has not made any preferentialallotment or private placement of shares during the year under review. Consequentlyrequirements of clause (xiv) of paragraph 3 of the order are not applicable.
xv. To the best of our knowledge and belief and according to theinformation and explanations given to us the Company has not entered into any non-cashtransactions with directors or persons connected with him.