To the Members of Bharat Financial Inclusion Limited (formerly SKS MicrofinanceLimited)
Report on the Financial Statements
We have audited the accompanying financial statements of Bharat Financial InclusionLimited (formerly SKS Microfinance Limited) ("the Company") which comprise theBalance Sheet as at 31 March 2018 the Statement of Profit and Loss the Cash FlowStatement for the year then ended and a summary of the significant accounting policiesand other explanatory information (collectively referred to as the financialstatements').
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 financial statements that give a true and fair view of the financial positionfinancial in accordance with the accounting principles generally accepted in Indiaincluding the Accounting Standards specified under Section 133 of the Act read with Rule7 of the Companies (Accounts) Rules 2014. This responsibility also includes maintenanceof adequate accounting records in accordance with the provisions of the Act forsafeguarding the assets of the Company and for preventing and detecting frauds and otherirregularities; selection and application of appropriate accounting policies; makingjudgments and estimates that are reasonable and prudent; and design implementation andmaintenance of adequate internal financial controls that were operating effectively forensuring the accuracy and completeness of the accounting records relevant to thepreparation and presentation of the financial statements that give a true and fair viewand are free from material misstatement whether due to fraud or error.
In preparing the financial statements management is responsible for assessing theCompany's ability to continue as a going concern disclosing as applicable mattersrelated to going concern and using the going concern basis of accounting unless managementeither intends to liquidate the Company or to cease operations or has no realisticalternative but to do so.
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 thereunder.
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 statements are free from material misstatement.
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 accounting policies used and the reasonableness of the accountingestimates made by the Company's Directors as well as evaluating the overall presentationof the financial statements.
We are also responsible to 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 entity's ability to continue as a going concern. If we conclude that amaterial uncertainty exists we are required to draw attention in the auditor's report tothe related disclosures in the financial statements or if such disclosures areinadequate to modify the opinion. Our conclusions are based on the audit evidenceobtained up to the date of the auditor's report. However future events or conditions maycause an entity to cease to continue as a going concern.
We believe that the audit evidence we have obtained is sufficient and appropriate toprovide a basis for our audit opinion on the financial statements.
In our opinion and to the best of our information and according to the explanationsgiven to us the aforesaid financial statements give the information required by the Actin the manner so required and give a true and fair view in conformity with the accountingprinciples generally accepted in India of the state of affairs of the Company as at 31March 2018 its profit and its cash flows for the year ended on that date.
The comparative financial information of the Company for the year ended 31 March 2017have been audited by predecessor auditor whose reports dated 1 May 2017 expressedunmodified opinion on those financial statements.
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 ofthe Act and on the basis of such checks of the books and records of the Company as weconsider appropriate and according to the information and explanation given to us we givein the "Annexure A" a statement on the matters specified in paragraphs 3 and 4of the said Order to the extent applicable.
2. 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 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 the written representations received from the directors and takenon record by the Board of Directors none of the directors is disqualified as on 31 March2018 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 financialreporting of the Company and the operating effectiveness of such controls refer to ourseparate report in "Annexure B"; and
(g) With respect to the other matters to be included in the Auditor's Report inaccordance with Rule 11 of the Companies (Audit and Auditors) Rules 2014 in our opinionand to the best of our information and according to the explanations given to us:
i. The Company has disclosed the impact of pending litigations as at 31 March 2018 onits financial position in its financial statements Refer Note 36 and 38.
ii. The Company did not have any long-term contracts including derivative contracts forwhich there were any material foreseeable losses.
iii. The Company has transferred amount required to be transferred to the InvestorEducation and Protection Fund. Refer Note 42 to the financial statements.
iv. The disclosure regarding holdings as well as dealings in specified bank notesduring the period from 8 November 2016 to 30 December 2016 is not applicable for thefinancial year ended 31 March 2018. Amounts as appearing in the audited financialstatements for the period ended 31 March 2017 have been disclosed.
for B S R & Associates LLP
ICAI Firm Registration Number: 116231W/W-100024
Membership Number: 049642
Date: 23 April 2018
Annexure A to the Independent Auditor's Report on the financial statements
The Annexure A referred to in our Independent Auditor's Report of even date to theMembers of Bharat Financial Inclusion Limited (formerly SKS Microfinance Limited)("the Company") on the financial statements for the year ended 31 March 2018 wereport that: i. (a) The Company has maintained proper records showing full particularsincluding quantitative details and situation of fixed assets.
(b) The Company has a regular programme of physical verification of its fixed assets bywhich all the fixed assets are verified every year. In our opinion the periodicity ofphysical verification is reasonable having regard to the size of the Company and thenature of its assets. No material discrepancies were noticed on such verification.
(c) The Company does not own any immovable properties. Hence the provisions of Clause3(i)(c) of the said Order are not applicable to the Company.
ii. The Company was engaged in the business of providing Micro credit. Accordingly itdoes not hold any physical inventories. Hence the provisions of Clause 3(ii) of the saidOrder are not applicable to the Company.
iii. The Company has not granted any loans secured or unsecured to companies firmsLimited Liability Partnerships or other parties covered in the register maintained underSection 189 of the Act. Hence the provisions of Clause 3(iii)(a) (iii)(b) and (iii)(c)of the said Order are not applicable to the Company.
iv. The Company has not given loans investments guarantees and security covered underSection 185 and 186 of the Act. Therefore paragraph 3(iv) of the Order is not applicableto the Company.
v. The Company has not accepted any deposits from the public.
vi. The Central Government of India has not prescribed the maintenance of cost recordsunder sub-section (1) of Section 148 of the Act for any of the services rendered by theCompany.
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 Service tax Goods and services tax Cess and other materialstatutory dues have generally been regularly deposited by the Company with the appropriateauthorities the Company did not have any dues on account of Sales tax duty of Customsduty of Excise and Value added tax.
According to the information and explanations given to us no undisputed amountspayable in respect of Provident Fund Employees' state insurance Income-tax Service taxGoods and services tax Cess and other material statutory dues were in arrears as at 31March 2018 for a period of more than six months from the date they became payable.
(b) According to the information and explanations given to us there are no dues ofGoods and services tax duty of Customs duty of Excise and Value added tax which havenot been deposited with appropriate authorities on account of any dispute. However theCompany disputes the following Income tax and service tax dues.
|Name of the Statute ||Nature of the Dues ||Amount ||Amount paid ||Period to which the amount relates ||Forum where the dispute is pending |
| || ||(Rs.)* ||# (Rs.) || || |
|Income Tax Act 1961 ||Income tax ||8117274 ||8117274 ||Assessment year 2012-13 ||Income Tax Appellate Tribunal |
|Chapter V of the Finance Act 1994 ||Service tax ||777874850 ||50762370 ||Financial years 2006-07 to 2014-15 ||Customs Excise and Service Tax Appellate Tribunal |
* Excluding interest and penalty as applicable # The Company has paid this amountunder protest
viii. According to the records of the Company examined by us and the information andexplanation given to us the Company has not defaulted in repayment of loans or borrowingsto any financial institution or bank or dues to debenture holders as at the balance sheetdate. The Company did not have any dues to Government.
ix. The Company has not raised any monies by way of initial public offer or furtherpublic offer (including debt instruments). In our opinion and according to theinformation and explanations given to us monies raised by way of term loans have beenapplied on an overall basis for the purposes for which they were obtained.
x. According to the information and explanations given to us we report that nomaterial fraud by the Company or by its employees or officers has been noticed or reportedduring the year except for instances of cash embezzlements by certain employees of theCompany aggregating to an amount of Rs. 25520321 and out of which an amount ofRs.7790197 has been recovered. The services of the concerned employees have beenterminated.
xi. According to the information and explanations given to us and based on ourexamination of the records of the Company the Company has paid/provided for themanagerial remuneration in accordance with the requisite approvals mandated by theprovisions of Section 197 read with Schedule V to the Act.
xii. The Company is not a Nidhi Company and the Nidhi Rules 2014 are not applicable toit. Accordingly the provisions of Clause 3(xii) of the Order are not applicable to theCompany.
xiii. According to the information and explanations given to us the transactions withrelated parties are in compliance with the provisions of Sections 177 and 188 of the Actwhere applicable and the details of such related party transactions have been disclosed inthe financial statements as required under Accounting Standard (AS) 18 Related PartyDisclosures specified under Section 133 of the Act read with Rule 7 of the Companies(Accounts) Rules 2014.
xiv. The Company has not made any preferential allotment or private placement of sharesor fully or partly convertible debentures during the year. Therefore paragraph 3(xiv) ofthe Order is not applicable to the Company.
xv. The Company has not entered into any non-cash transactions with its directors orpersons connected with him. Accordingly the provisions of Clause 3(xv) of the Order arenot applicable to the Company. xvi. The Company has been registered under Section 45 IA ofthe Reserve Bank of India Act 1934 as a Non-Banking Finance Company Micro FinanceInstitution
for B S R & Associates LLP
ICAI Firm Registration Number. : 116231W/W-100024
Membership Number: 049642
Place : Hyderabad
Date: 23 April 2018
Annexure B to the Independent Auditor's Report on the financial statements
The Annexure B referred to in our Independent Auditor's Report of even date to theMembers of Bharat Financial Inclusion Limited ("the Company") on the financialstatements for the year ended 31 March 2018.
Report on the Internal Financial Controls under Clause (i) of Sub-section 3 of theSection 143 of the Companies Act 2013 ("the Act")
We have audited the internal financial controls over financial reporting of BharatFinancial Inclusion Limited (formerly SKS Microfinance Limited) ("the Company")as of 31 March 2018 in conjunction with our audit of the financial statements of theCompany for the year ended on that date.
Management's Responsibility for Internal Financial Controls
The Company's management is responsible for establishing and maintaining internalfinancial controls based on the internal control over financial reporting criteriaestablished by the Company considering the essential components of internal control statedin the Guidance Note on Audit of Internal Financial Controls over Financial Reportingissued by the Institute of Chartered Accountants of India (ICAI). These responsibilitiesinclude the design implementation and maintenance of adequate internal financial controlsthat were operating effectively for ensuring the orderly and efficient conduct of itsbusiness including adherence to company's policies the safeguarding of its assets theprevention and detection of frauds and errors the accuracy and completeness of theaccounting records and the timely preparation of reliable financial information asrequired 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 Section 143(10) of the Companies Act 2013 to the extentapplicable to an audit of internal financial controls both issued by the Institute ofChartered Accountants of India. Those Standards and the Guidance Note require that wecomply with ethical requirements and plan and perform the audit to obtain reasonableassurance about whether adequate internal financial controls over financial reporting wasestablished and maintained and if such controls operated effectively in all materialrespects.
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 the 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 transactions 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 principles 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 2018 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 B S R & Associates LLP
ICAI Firm Registration No. : 116231 W/W-100024
Membership Number: 049642
Place : Hyderabad Date : 23 April 2018