To the Members of Cosmo Films Limited
Report on the Audit of the Standalone Financial Statements
1. We have audited the accompanying standalone financial statements of Cosmo FilmsLimited the Company') which comprise the Balance Sheet as at 31 March 2020the Statement of Profit and Loss (including Other Comprehensive Income) the Cash FlowStatement and the Statement of Changes in Equity for the year then ended and a summary ofthe significant accounting policies and other explanatory information.
2. In our opinion and to the best of our information and according to the explanationsgiven to us the aforesaid standalone financial statements give the information requiredby the Companies Act 2013 (Act') in the manner so required and give a true and fairview in conformity with the accounting principles generally accepted in India includingIndian Accounting Standards (Ind AS') specified under section 133 of the Act of thestate of affairs of the Company as at 31 March 2020 and its profit (including othercomprehensive income) its cash flows and the changes in equity for the year ended on thatdate.
Basis for Opinion
3. We conducted our audit in accordance with the Standards on Auditing specified undersection 143(10) of the Act. Our responsibilities under those standards are furtherdescribed in the Auditor's Responsibilities for the Audit of the 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') togetherwith the ethical requirements that are relevant to our audit of the financial statementsunder the provisions of the Act and the rules thereunder and we have fulfilled our otherethical responsibilities in accordance with these requirements and the Code of Ethics. Webelieve that the audit evidence we have obtained is sufficient and appropriate to providea basis for our opinion.
Key Audit Matters
4. Key audit matters are those matters that in our professional judgment were of mostsignificance in our audit of the standalone financial statements of the current period.These matters were addressed in the context of our audit of the financial statements as awhole and in forming our opinion thereon and we do not provide a separate opinion onthese matters.
5. We have determined the matters described below to be the key audit matters to becommunicated in our report:
|Key audit matter ||How our audit addressed the key audit matter |
|Physical verification of inventory || |
|As at 31 March 2020 the Company held inventories of Rs. 170.60 crores as disclosed in Note 9 to the standalone financial statements. Inventories mainly consist of raw materials finished goods stores and spares. As per the Company's inventory verification plan management performs physical verification of inventory at all locations under the supervision of finance team at each quarter end and on a sample basis at each month end. ||Our audit of existence of inventory included but was not limited to the following procedures: |
|Due to outbreak of the COVID-19 pandemic there has been a lockdown enforced in various inventory locations at year end and several restrictions were imposed by the respective state governments across India on travel and movement considering public health and safety measures which resulted in no physical verification of inventories being conducted by management as at year end and the management has relied on its last verification conducted on 31 December 2019 and rolled it forward to 31 March 2020. || Obtained an understanding of the management's process for inventory counts and evaluated the design and tested the operating effectiveness of key controls with respect to inventory process. |
|Considering the above we have reassessed our audit approach with respect to assessing the existence and condition of physical inventory as at year end and adopted alternate audit procedures as further described in our audit procedures. || Inspected the instructions given by supervisory teams to the management count teams. |
|As a result of the above-mentioned alternative procedures being performed and due to the size of the inventories as at year end we determined the existence of inventory to be a key audit matter for the current || Enquired and reviewed documents to identify any changes in process of inventory counts from previously held counts observed by us. |
| || Reviewed the management's process for ensuring that the movement of inventory during physical verification is appropriately considered in stock records |
| || Obtained management's inventory count records (count sheets) and reconciliation with the Company's perpetual inventory records. |
| || Verified that the differences noted in management's physical verification of inventory from book records were adequately adjusted in books of account. |
| || Tested roll-forward of management's inventory count performed at locations on 31 December 2019 to 31 March 2020 by testing the controls around movement of inventory and testing the transactions of receipt and issue of inventory on a sample basis. |
| || Observed live video feeds of physical inventory verification subsequent to year-end and gathered video evidence of warehouses and recounted a sample of inventory items at each location along with roll-back procedures to confirm existence of inventory at year end. |
|Derivative financial instruments || |
|The Company has entered into various derivative contracts including foreign exchange forward contracts currency options cross currency swaps and interest rate swaps which are used to manage and hedge foreign currency exchange risks and interest rate risks. ||We assessed the design and implementation and tested the operating effectiveness of the key controls over management's processes for valuation of derivative financial instruments. |
|The Company has reported net derivative financial assets at fair value of Rs. 23.04 crores and net derivative financial liabilities at fair value of Rs. 6.38 crores as of 31 March 2020. ||Our audit procedures included but were not limited to the following substantive procedures: |
|The Company's accounting policy on derivatives is disclosed in note 1 (iii) k) (iii) and related disclosures are included in note 46. The Company's significant judgements in applying accounting policy are disclosed in note 1 (iv). ||Obtained independent direct confirmations from banks to confirm the outstanding financial instruments in order to verify existence and rights. |
|The fair value of the derivative financial instruments is based on year-end quotes received from counterparty banks which are validated using valuation models that primarily use observable inputs. In respect of designated hedging relationships the Company measures the effectiveness thereof using valuation models such as hypothetical derivative method. || Compared input data used in the Company's valuation models to independent sources and externally available market data. |
|Testing the fair valuation of derivative instruments and effectiveness of hedging relationships where applicable are complex exercises and hence required substantial involvement of senior personnel on the audit engagement including individuals with expertise in valuation. || Involved an auditor's expert to assess the hedge effectiveness of derivative contracts. |
|Accordingly valuation of the derivative financial instruments and hedge accounting is determined to be a key audit matter. || Inspected the underlying agreements and deal confirmations for the derivatives. |
| || Assessed whether the accounting policy is consistent with the requirements of Ind AS 109- Financial Instruments. |
| || Evaluated the appropriateness of disclosures in relation to financial risk management derivative financial instruments and hedge accounting. |
| ||We have also obtained written representations from management and those charged with governance on whether the significant assumptions used in valuation of derivatives are considered reasonable. |
Information other than the Financial Statements and Auditor's Report thereon
6. The Company's Board of Directors is responsible for the other information. The otherinformation comprises the information included in the Annual Report but does not includethe standalone financial statements and our auditor's report thereon.
Our opinion on the standalone financial statements does not cover the other informationand we do not express any form of assurance conclusion thereon.
In connection with our audit of the standalone financial statements our responsibilityis to read the other information and in doing so consider whether the other informationis materially inconsistent with the standalone financial statements or our knowledgeobtained in the audit or otherwise appears to be materially misstated. If based on thework we have performed we conclude that there is a material misstatement of this otherinformation we are required to report that fact. We have nothing to report in thisregard.
Responsibilities of Management and Those Charged with Governance for the StandaloneFinancial Statements
7. The accompanying standalone financial statements have been approved by the Company'sBoard of Directors. The Company's Board of Directors is responsible for the matters statedin section 134(5) of the Act with respect to the preparation of these standalone financialstatements that give a true and fair view of the financial position financial performanceincluding other comprehensive income changes in equity and cash flows of the Company inaccordance with the accounting principles generally accepted in India including the IndAS specified under section 133 of the Act. This responsibility also includes maintenanceof adequate accounting records in accordance with the provisions of the Act forsafeguarding of the assets of the Company and for preventing and detecting frauds andother irregularities; 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.
8. 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.
9. Those Board of Directors are also responsible for overseeing the Company's financialreporting process.
Auditor's Responsibilities for the Audit of the Standalone Financial Statements
10. Our objectives are to obtain reasonable assurance about whether the financialstatements as a whole are free from material misstatement whether due to fraud or errorand to issue an auditor's report that includes our opinion. Reasonable assurance is a highlevel of assurance but is not a guarantee that an audit conducted in accordance withStandards on Auditing will always detect a material misstatement when it exists.Misstatements can arise from fraud or error and are considered material if individuallyor in the aggregate they could reasonably be expected to influence the economic decisionsof users taken on the basis of these financial statements.
11. As part of an audit in accordance with Standards on Auditing we exerciseprofessional judgment and maintain professional skepticism throughout the audit. We also:
Identify and assess the risks of material misstatement of the financialstatements whether due to fraud or error design and perform audit procedures responsiveto those risks and obtain audit evidence that is sufficient and appropriate to provide abasis for our opinion. The risk of not detecting a material misstatement resulting fromfraud is higher than for one resulting from error as fraud may involve collusionforgery intentional omissions misrepresentations or the override of internal control;
Obtain an understanding of internal control relevant to the audit in order todesign audit procedures that are appropriate in the circumstances. Under section 143(3)(i)of the Act we are also responsible for expressing our opinion on whether the Company hasadequate internal financial controls with reference to financial statements in place andthe operating effectiveness of such controls;
Evaluate the appropriateness of accounting policies used and the reasonablenessof accounting estimates and related disclosures made by management;
Conclude on the appropriateness of management's use of the going concern basisof accounting and based on the audit evidence obtained whether a material uncertaintyexists related to events or conditions that may cast significant doubt on the Company'sability to continue as a going concern. If we conclude that a material uncertainty existswe are required to draw attention in our auditor's report to the related disclosures inthe 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'sreport. However future events or conditions may cause the Company to cease to continue asa going concern; and
Evaluate the overall presentation structure and content of the financialstatements including the disclosures and whether the financial statements represent theunderlying transactions and events in a manner that achieves fair presentation.
12. We communicate with those charged with governance regarding among other mattersthe planned scope and timing of the audit and significant audit findings including anysignificant deficiencies in internal control that we identify during our audit.
13. We also provide those charged with governance with a statement that we havecomplied with relevant ethical requirements regarding independence and to communicatewith them all relationships and other matters that may reasonably be thought to bear onour independence and where applicable related safeguards.
14. From the matters communicated with those charged with governance we determinethose matters that were of most significance in the audit of the financial statements ofthe current period and are therefore the key audit matters. We describe these matters inour auditor's report unless law or regulation precludes public disclosure about the matteror when in extremely rare circumstances we determine that a matter should not becommunicated in our report because the adverse consequences of doing so would reasonablybe expected to outweigh the public interest benefits of such communication.
Report on Other Legal and Regulatory Requirements
15. As required by section 197(16) of the Act based on our audit we report that theCompany has paid remuneration to its directors during the year in accordance with theprovisions of and limits laid down under section 197 read with Schedule V to the Act.
16. As required by the Companies (Auditor's Report) Order 2016 (the Order')issued by the Central Government of India in terms of section 143(11) of the Act we givein the Annexure A a statement on the matters specified in paragraphs 3 and 4 of theOrder.
17. Further to our comments in Annexure A as required by section 143(3) of the Actbased on our audit we report to the extent applicable that:
a) we have sought and obtained all the information and explanations which to the bestof our knowledge and belief were necessary for the purpose of our audit of theaccompanying standalone financial statements;
b) in our opinion proper books of account as required by law have been kept by theCompany so far as it appears from our examination of those books;
c) the standalone financial statements dealt with by this report are in agreement withthe books of account;
d) in our opinion the aforesaid standalone financial statements comply with Ind ASspecified under section 133 of the Act;
e) on the basis of the written representations received from the directors and taken onrecord by the Board of Directors none of the directors is disqualified as on 31 March2020 from being appointed as a director in terms of section 164(2) of the Act;
f) we have also audited the internal financial controls with reference to financialstatements of the Company as on 31 March 2020 in conjunction with our audit of thestandalone financial statements of the Company for the year ended on that date and ourreport dated 4 June 2020 as per Annexure B expressed an unmodified opinion; 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 (as amended) inour opinion and to the best of our information and according to the explanations given tous:
i. the Company as detailed in note 39 to the standalone financial statements hasdisclosed the impact of pending litigations on its financial position as at 31 March 2020;
ii. the Company did not have any long-term contracts including derivative contracts forwhich there were any material foreseeable losses as at 31 March 2020;
iii. there has been no delay in transferring amounts required to be transferred tothe Investor Education and Protection Fund by the Company during the year ended 31 March2020; and
iv. the disclosure requirements relating to holdings as well as dealings in specifiedbank notes were applicable for the period from 8 November 2016 to 30 December 2016 whichare not relevant to these standalone financial statements. Hence reporting under thisclause is not applicable.
Annexure A to the Independent Auditor's Report of even date to the members of CosmoFilms Limited on the standalone financial statements for the year ended 31 March2020
Based on the audit procedures performed for the purpose of reporting a true and fairview on the financial statements of the Company and taking into consideration
the information and explanations given to us and the books of account and other recordsexamined by us in the normal course of audit and to the best of our knowledge and beliefwe report that:
(i) (a) The Company has maintained proper records showing full particulars includingquantitative details and situation of property plant and equipment and capitalwork-in-progress.
(b) Property plant and equipment have not been physically verified by the managementduring the year however there is a regular program of verification once in three yearswhich in our opinion is reasonable having regard to the size of the Company and thenature of its assets.
(c) The title deeds of all the immovable properties (which are included under the headProperty plant and equipment') are held in the name of the Company.
(ii) In our opinion the management has conducted physical verification of inventory atreasonable intervals during the year except for goods-in-transit. No materialdiscrepancies were noticed on the aforesaid verification.
(iii) The Company has not granted any loan secured or unsecured to companies firmsLimited Liability Partnerships (LLPs) or other parties covered in the register maintainedunder Section 189 of the Act. Accordingly the provisions of clauses 3(iii)(a) 3(iii)(b)and 3(iii)(c) of the Order are not applicable.
(iv) In our opinion the Company has complied with the provisions of Section 186 inrespect of investments. Further in our opinion the Company has not entered into anytransaction covered under Section 185 and Section 186 of the Act in respect of loansguarantees and security.
(v) In our opinion the Company has not accepted any deposits within the meaning ofSections 73 to 76 of the Act and the Companies (Acceptance of Deposits) Rules 2014 (asamended). Accordingly the provisions of clause 3(v) of the Order are not applicable.
(vi) We have broadly reviewed the books of account maintained by the Company pursuantto the Rules made by the Central Government for the maintenance of cost records undersub-section (1) of Section 148 of the Act in respect of Company's products and are of theopinion that prima facie the prescribed accounts and records have been made andmaintained. However we have not made a detailed examination of the cost records with a
view to determine whether they are accurate or complete.
(vii) (a) Undisputed statutory dues including provident fund employees' stateinsurance income-tax sales-tax service tax duty of customs duty of excise valueadded tax cess goods and service tax and other material statutory dues as applicablehave generally been regularly deposited to the appropriate authorities.
Further no undisputed amounts payable in respect thereof were outstanding at theyear-end for a period of more than six months from the date they became payable.
(b) The dues outstanding in respect of income-tax sales-tax service-tax duty ofcustoms duty of excise value added tax and goods and services tax on account of anydispute are as follows:
Statement of Disputed Dues
|Name of the statute ||Nature of dues ||Amount (Rs. in crores) ||Amount paid under Protest (Rs. in crores) ||Period to which the amount relates (FY) ||Forum where dispute is pending |
|Central Excise Act 1944 ||Excise Duty ||0.05 ||- ||2005-06 to 2009-10 ||Commissioner Appeals |
| ||Excise Duty ||16.79 ||1.95 ||1994-95 2003-04 to 2015-16 ||Appellate Tribunal |
| ||Service Tax ||0.17 ||- ||2012-13 to 2015-16 ||Appellate Tribunal |
| ||Service Tax ||2.42 ||- ||2009-10 to 2014-15 2017 -2018 ||Commissioner Appeals |
|Income-tax ||Income tax ||1.07 ||1.07 ||1997-98 ||High Court |
|Act 1961 ||Income tax ||4.83 ||4.83 ||2002-03 ||Hon'ble Supreme Court of India |
| ||Income tax ||2.98 ||2.98 ||2008-09 ||Income Tax Appellate Tribunal |
| ||Income tax ||5.57 ||2.85 ||2009-10 ||Income Tax Appellate Tribunal |
| ||Income tax ||1.22 ||0.60 ||2010-11 ||Income Tax Appellate Tribunal |
| ||Income tax ||1.00 ||1.00 ||2011-12 ||Income Tax Appellate Tribunal |
| ||Income tax ||3.47 ||1.02 ||2012-13 ||Income Tax Appellate Tribunal |
(viii) The Company has not defaulted in repayment of loans or borrowings to any bank orfinancial institution during the year. The Company did not have any outstanding debenturesor dues to government during the year.
(ix) The Company did not raise moneys by way of initial public offer or further publicoffer (including debt instruments). In our opinion the term loans were applied for thepurposes for which the loans were obtained though idle funds which were not required forimmediate utilisation have been invested in liquid investments payable on demand.
(x) No fraud by the Company or on the Company by its officers or employees has beennoticed or reported during the period covered by our audit. (xi) Managerial remunerationhas been paid and provided by the Company in accordance with the requisite approvalsmandated by the provisions of Section 197 of the Act read with Schedule V to the Act.
(xii) In our opinion the Company is not a Nidhi Company. Accordingly provisions ofclause 3(xii) of the Order are not applicable.
(xiii) In our opinion all transactions with the related parties are in compliance withSections 177 and 188 of Act where applicable and the requisite details have beendisclosed in the financial statements etc. as required by the applicable Ind AS.
(xiv) During the year the Company has not made any preferential allotment or privateplacement of shares or fully or partly convertible debentures.
(xv) In our opinion the Company has not entered into any non-cash transactions withthe directors or persons connected with them covered under Section 192 of the Act.
(xvi) The Company is not required to be registered under Section 45-IA of the ReserveBank of India Act 1934.
Annexure B to the Independent Auditor's Report of even date to the members of CosmoFilms Limited on the standalone financial statements for the year ended 31 March 2020
Independent Auditor's Report on the internal financial controls with reference to thestandalone financial statements under Clause (i) of Sub-section 3 of Section 143 of theCompanies Act 2013 (the Act')
1. In conjunction with our audit of the standalone financial statements of Cosmo FilmsLimited (the Company') as at and for the year ended 31 March 2020 we have auditedthe internal financial controls with reference to financial statements of the Company asat that date.
Responsibilities of Management and Those Charged with Governance for Internal FinancialControls
2. The Company's Board of Directors is responsible for establishing and maintaininginternal financial controls based on the internal control over financial reportingcriteria established by the Company considering the essential components of internalcontrol stated in the Guidance note on Audit of Internal Financial Controls over FinancialReporting (the Guidance Note') issued by the Institute of Chartered Accountants ofIndia (ICAI'). These responsibilities include the design implementation andmaintenance of adequate internal financial controls that were operating effectively forensuring the orderly and efficient conduct of the Company's business including adherenceto the Company's policies the safeguarding of its assets the prevention and detection offrauds and errors the accuracy and completeness of the accounting records and the timelypreparation of reliable financial information as required under the Act.
Auditor's Responsibility for the Audit of the Internal Financial Controls withReference to Financial Statements
3. Our responsibility is to express an opinion on the Company's internal financialcontrols with reference to financial statements based on our audit. We conducted our auditin accordance with the Standards on Auditing issued by the ICAI prescribed under Section143(10) of the Act to the extent applicable to an audit of internal financial controlswith reference to financial statements and the Guidance Note issued by the ICAI. ThoseStandards and the Guidance Note require that we comply with ethical requirements and planand perform the audit to obtain reasonable assurance about whether adequate internalfinancial controls with reference to financial statements were established and maintainedand if such controls operated effectively in all material respects.
4. Our audit involves performing procedures to obtain audit evidence about the adequacyof the internal financial controls with reference to financial statements and theiroperating effectiveness. Our audit of internal financial controls with reference tofinancial statements includes obtaining an understanding of such internal financialcontrols assessing the risk that a material weakness exists and testing and evaluatingthe design and operating effectiveness of internal control based on the assessed risk. Theprocedures selected depend on the auditor's judgement including the assessment of therisks of material misstatement of the financial statements whether due to fraud or error.
5. We believe that the audit evidence we have obtained is sufficient and appropriate toprovide a basis for our audit opinion on the Company's internal financial controls withreference to financial statements.
Meaning of Internal Financial Controls with Reference to Financial Statements
6. A company's internal financial controls with reference to financial statements is aprocess designed to provide reasonable assurance regarding the reliability of financialreporting and the preparation of financial statements for external purposes in accordancewith generally accepted accounting principles. A company's internal financial controlswith reference to financial statements include those policies and procedures that (1)pertain to the maintenance of records that in reasonable detail accurately and fairlyreflect the transactions and dispositions of the assets of the company; (2) providereasonable assurance that transactions are recorded as necessary to permit preparation offinancial statements in accordance with generally accepted accounting principles and thatreceipts and expenditures of the company are being made only in accordance withauthorisations of management and directors of the company; and (3) provide reasonableassurance regarding prevention or timely detection of unauthorised acquisition use ordisposition of the company's assets that could have a material effect on the financialstatements.
Inherent Limitations of Internal Financial Controls with Reference to FinancialStatements
7. Because of the inherent limitations of internal financial controls with reference tofinancial statements including the possibility of collusion or improper managementoverride of controls material misstatements due to error or fraud may occur and not bedetected. Also projections of any evaluation of the internal financial controls withreference to financial statements to future periods are subject to the risk that theinternal financial controls with reference to financial statements may become inadequatebecause of changes in conditions or that the degree of compliance with the policies orprocedures may deteriorate.
8. In our opinion the Company has in all material respects adequate internalfinancial controls with reference to financial statements and such controls were operatingeffectively as at 31 March 2020 based on the internal control over financial reportingcriteria established by the Company considering the essential components of internalcontrol stated in the Guidance note issued by the ICAI.