To the Members of
CENTRAL DEPOSITORY SERVICES (INDIA) LIMITED
Report on the Audit of the Ind AS Financial Statements
We have audited the accompanying Ind AS financial statements of CentralDepository Services (India) Limited ("the Company") which comprise the BalanceSheet as at March31 2019 the Statement of Profit and Loss including the statement ofOther Comprehensive Income the Cash Flow Statement and the Statement of Changes in Equityfor the year then ended and notes to the financial statements including a summary ofsignificant accounting policies and other explanatory information.
In our opinion and to the best of our information and according to theexplanations given to us the aforesaid Ind AS financial statements give the informationrequired by the Companies Act 2013 ("the Act") in the manner so required andgive a true and fair view in conformity with the accounting principles generally acceptedin India of the state of affairs of the Company as at March 31 2019 its profitincluding other comprehensive income its cash flows and the changes in equity for the yearended on that date.
Basis for Opinion
We conducted our audit of the Ind AS financial statements in accordancewith the Standards on Auditing (SAs)as specified under section 143(10) of the Act. Ourresponsibilities under those Standards are further described in the Auditor'sResponsibilities for the Audit of the Ind AS Financial Statements' section of ourreport. We
are independent of the Company in accordance with the Code ofEthics' issued by the Institute of Chartered Accountants of India together with theethical requirements that are relevant to our audit of the financial statements under theprovisions of the Act and the Rules thereunder and we have fulfilled our other ethicalresponsibilities in accordance with these requirements and the Code of Ethics. We believethat the audit evidence we have obtained is sufficient and appropriate to provide a basisfor our audit opinion on the Ind AS financial statements.
Key Audit Matters
Key audit matters are those matters that in our professional judgmentwere of most significance in our audit of the Ind AS financial statements for thefinancial year ended March 31 2019. These matters were addressed in the context of ouraudit of the Ind AS financial statements as a whole and in forming our opinion thereonand we do not provide a separate opinion on these matters. For each matter below ourdescription of how our audit addressed the matter is provided in that context.
We have determined the matters described below to be the key auditmatters to be communicated in our report. We have fulfilled the responsibilities describedin the Auditor's responsibilities for the audit of the Ind AS financial statementssection of our report including in relation to these matters. Accordingly our auditincluded the performance of procedures designed to respond to our assessment of the risksof material misstatement of the Ind AS financial statements. The results of our auditprocedures including the procedures performed to address the matters below provide thebasis for our audit opinion on the accompanying Ind AS financial statements.
|Key audit matters ||How our audit addressed the key audit matter |
|IT systems and controls || |
|As a Depository the reliability of IT systems plays a key role in the business operations. |
Since large volume of transactions are processed the IT controls are required to ensure that systems process data as expected and that changes are made in an appropriate manner.
|Our audit procedures focused on the IT infrastructure and applications relevant to financial reporting including: |
| Assessing the information systems used by the Company for IT General Controls (ITGC) and Application controls; |
|Key audit matters ||How our audit addressed the key audit matter |
|The IT infrastructure is critical for smooth functioning of the Company's business operations as well as for timely and accurate financial accounting and reporting. || The aspects covered in the IT systems General Control audit were (i) User Access Management (ii) Program Change Management (iii) Other related ITGCs; - to understand the design and test the operating effectiveness of such controls in the system; |
|Due to the pervasive nature and complexity of the IT environment and large volume of transactions we have considered IT systems and controls as a key audit matter. |
| Understanding of the changes that were made to the IT landscape during the audit period and assessing changes that have impact on financial reporting; Performing tests of controls (including other compensatory controls wherever applicable) on the IT application controls and IT dependent manual controls in the system. |
|Our audit procedures focused on testing of IT systems IT general controls and specific application controls. |
| || Testing the design and operating effectiveness of compensating controls in case deficiencies were identified and where necessary extended the scope of our substantive audit procedures. |
| ||In addition we understood where relevant changes were made to the IT landscape during the audit period and tested those changes that had a significant impact on financial reporting. |
|Valuation of investments and its impairment (as described in note 28 of the Ind AS financial statements) |
|Quoted investments other equity and fund investments and unquoted equity investments represents the most significant amount on the balance sheet. The total of these aggregating to '. 48584 Lakhs represented 79% of total assets of the Company at March 31 2019. ||Our audit procedures included the following: |
We assessed the design and implementation of controls over valuation and existence of investments.
| For the fair valuation models we understood and assessed the methodology used. We tested the underlying data and assumptions used in the determination of the fair value. Performed sensitivity analysis wherever necessary. |
|There is a risk that the fair value of investments is not determined appropriately. Accordingly the valuation of investments and its impairment is considered as a key audit matter. |
| We traced the quantity held from the confirmation provided by Custodian and Fund houses. |
| || We tested the valuation of the quoted and unquoted investments to independent pricing sources or valuation models as required. |
| || Based on the fair value of investments we assessed identification of impairment of investments made by the management. |
|Provisions for litigation and claims || |
|There are certain demands raised by regulatory authorities and others. The Company has disputed such demands by appealing them to relevant statutory forums or has denied the claims. ||Our audit procedures included the following: |
We obtained and evaluated the Company accounting policy in relation to accounting assessing and disclosure of claims against the Company.
| || We understood the design and tested key controls related to identification and monitoring claims against the Company. |
|Key audit matters ||How our audit addressed the key audit matter |
|For various pending litigations against the Company management judgement is needed to determine whether an obligation exists and a provision should be recorded or disclosure if any required in the financial statements in accordance with the criteria set under IND AS 37. || We understood the design and tested the operating effectiveness of the Company's key controls over the identification estimation monitoring and disclosure of provisions for litigations and claims. |
| We examined the relevant correspondence with regulators to assess developments in key cases and litigation reports to identify potentially material cases. |
|The measurement of the provision is based on the best estimate of the expenditure required to settle the present obligation. |
| For key cases we considered the regulatory developments and management's interaction with the Regulators and assessed the assumptions used by management in determining provision requirements. We also read historical data and to understand whether they supported current estimates. |
|Considering the judgment and estimate involved matter is considered as a key audit matter. |
| || We read the Board and other committee meeting minutes to conclude on the effectiveness of management's review controls and conclusions reached. |
| || For the significant provisions made we understood and assessed the provisioning methodology. We tested the underlying data and assumptions used in the determination of the provisions recorded including expected claim rates and the timing of settlement. |
| || For cases where a provision was not recognised we evaluated the disclosure made in the financial statements. |
Information Other than the Financial Statementsand Auditor's Report Thereon
The Company's Board of Directors is responsible for the otherinformation. The other information comprises the information included in the Annualreport but does not include the Ind AS financial statements and our auditor's reportthereon.
Our opinion on the Ind AS financial statements does not cover the otherinformation and we do not express any form of assurance conclusion thereon.
In connection with our audit of the Ind AS financial statements ourresponsibility is to read the other information and in doing so consider whether suchother information is materially inconsistent with the Ind AS financial statements or ourknowledge obtained in the audit or otherwise appears to be materially misstated. If basedon the work we have performed we conclude that there is a material misstatement of thisother information we are required to report that fact. We have nothing to report in thisregard.
Responsibilities of Management and the Board of Directors for the IndAS 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 Ind ASfinancial statements that give a true and fair view of the financial position financialperformance including other comprehensive income cash flows and changes in equity of theCompany in accordance with the accounting principles generally accepted in Indiaincluding the Indian Accounting Standards (Ind AS) specified under section 133 of the Actread with the Companies (Indian Accounting Standards) Rules 2015 as amended. Thisresponsibility also includes maintenance of adequate accounting records in accordance withthe provisions of the Act for safeguarding of the assets of the Company and for preventingand detecting frauds and other irregularities; selection and application of appropriateaccounting policies; makingjudgments and estimates that are reasonable and prudent; andthe design implementation and maintenance of adequate internal financial controls thatwere
operating effectively for ensuring the accuracy and completeness of theaccounting records relevant to the preparation and presentation of the Ind AS financialstatements that give a true and fair view and are free from material misstatement whetherdue to fraud or error.
In preparing the Ind AS financial statements management is responsiblefor assessing the Company's ability to continue as a going concern disclosing asapplicable matters related to going concern and using the going concern basis ofaccounting 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 also responsible for overseeing theCompany's financial reporting process.
Auditor's Responsibilities for the Audit ofthe Ind AS Financial Statements
Our objectives are to obtain reasonable assurance about whether the IndAS financial statements as a whole are free from material misstatement whether due tofraud 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 Ind AS 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 theInd AS 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 control relevant to theaudit in order to design
audit procedures that are appropriate in the circumstances. Undersection 143(3)(i) of the Act we are also responsible for expressing our opinion onwhether the Company has adequate internal financial controls system in place and theoperating 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 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 conditionsmay cause the Company to cease to continue as a going concern.
Evaluate the overall presentation structure and content of theInd AS financial statements including the disclosures and whether the Ind AS financialstatements represent the underlying transactions and events in a manner that achieves fairpresentation.
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 to those charged with governance with a statementthatwe have 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 Ind ASfinancial statements for the financial year ended March 31 2019 and are therefore the keyaudit matters. We describe these matters in our
auditor's report unless law or regulation precludes publicdisclosure about the matter or when in extremely rare circumstances we determine that amatter should not be communicated in our report because the adverse consequences of doingso would reasonably be expected to outweigh the public interest benefits of suchcommunication.
The comparative Ind AS financial information for the Ind AS financialstatements of the Company for the year ended March 31 2018 were audited by predecessorauditor who expressed an unmodified opinion on that financial information on April 212018.
Report on Other Legal and Regulatory Requirements
1. As required by the Companies (Auditor's Report) Order 2016("the Order") issued by the Central Government of India in terms of sub-section(11) of section 143 of the Act we give inAnnexure 1 a statement on the matters specifiedin paragraphs 3 and 4 of the Order.
2. As required by Section 143(3) of the Act we report 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 havebeen 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 theStatement of Other Comprehensive Income the Cash Flow Statement and Statement of Changesin Equity dealt with by this Report are in agreement with the books of account;
(d) In our opinion the aforesaid Ind AS financial statements complywith the Accounting Standards specified under Section 133 of the Act read with Companies(Indian Accounting Standards) Rules 2015 as amended;
(e) On the basis of the written representations received from thedirectors as on March
31 2019 taken on record by the Board of Directors none of thedirectors is disqualified as on March 31 2019 from being appointed as a director in termsof Section 164 (2) of the Act;
(f) With respect to the adequacy of the internal financial controlsover financial reporting of the Company with reference to these Ind AS financialstatements and the operating effectiveness of such controls refer to our separate Reportin Annexure 2 to this report;
(g) In our opinion the managerial remuneration for the year endedMarch 31 2019 has been paid / provided by the Company to its directors in accordance withthe provisions of section 197 read with Schedule V to 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 Ind AS financial statements - Refer Note 32 to the Ind ASfinancial statements;
ii. The Company did not have any longterm contracts includingderivative contracts during the year ended March 31 2019;
iii. During the year there has been no delay in transferring amountsrequired to be transferred to the Investor Education and Protection Fund by the Company.
For S.R. Batliboi & CO. LLP
Chartered Accountants ICAI Firm Registration Number: 301003E/
| ||per Jayesh Gandhi |
|Place of Signature: ||Mumbai Partner |
|Date: May 3 2019 ||Membership Number: 037924 |