Finolex Industries Ltd.
|BSE: 500940||Sector: Industrials|
|NSE: FINPIPE||ISIN Code: INE183A01024|
|BSE 00:00 | 14 Jan||200.05||
|NSE 00:00 | 14 Jan||199.80||
|Mkt Cap.(Rs cr)||12,413|
|Mkt Cap.(Rs cr)||12413.10|
Finolex Industries Ltd. (FINPIPE) - Auditors Report
Company auditors report
To the Members of
Finolex Industries Limited
Report on the Audit of the Standalone Indian Accounting Standards (IndAS) Financial Statements
We have audited the accompanying standalone Ind AS financial statementsof Finolex Industries Limited ("the Company") which comprise the Balance Sheetas at March 31 2021 and the Statement of Profit and Loss (including Other ComprehensiveIncome) Statement of Changes in Equity and Statement of Cash Flows for the year thenended and notes to the Financial Statements including a summary of SignificantAccounting Policies and other explanatory information (hereinafter referred to as"the Standalone Ind AS Financial Statements").
In our opinion and to the best of our information and according to theexplanations given to us the aforesaid standalone Ind AS Financial Statements give theinformation required by the Companies Act 2013 as amended (the Act') in themanner so required and give a true and fair view in conformity with accounting principlesgenerally accepted in India of the standalone state of affairs of the Company as at March31 2021 and its standalone profit (including Other Comprehensive Income) standalonechanges in equity and its standalone cash flows for the year ended on that date.
Basis for Opinion
We conducted our audit of standalone IndAS financial statementsin accordance with the Standards on Auditing (SAs) as specified under section 143(10) ofthe Act. Our responsibilities under those Standards are further described in theAuditor's Responsibilities for the Audit of the Standalone Ind AS FinancialStatements' section of our report. We are independent of the Company in accordancewith the Code of Ethics issued by the Institute of Chartered Accountants of India togetherwith the ethical requirements that are relevant to our audit of the standalone Ind ASFinancial Statements under the provisions of the Act and the Rules thereunder and we havefulfilled our other ethical responsibilities in accordance with these requirements and theCode of Ethics. We believe that the audit evidence we have obtained is sufficient andappropriate to provide a basis for our audit opinion on the standalone Ind AS FinancialStatements.
Key Audit Matters
Key audit matters are those matters that in our professionaljudgement were of most significance in our audit of the standalone Ind AS financialstatements for the financial year ended March 31 2021. These matters were addressed inthe context of our audit of the standalone Ind AS financial statements as a whole and informing our opinion thereon and we do not provide a separate opinion on these descriptionof how our audit addressed the matter is provided in that context. We have determined thematter described below to be the key audit matter to be communicated in our report.
Valuation of Inventory:
The company has at balance sheet date Inventory amounting to H 918.82Crores as disclosed in Note 8 which constitute 21.8% of total assets of the company. Theinventory is valued at the lower of cost and net realizable value. Refer to Note 2.7 whichdescribes company's accounting policy on valuation of inventory. The Inventoryvaluation is considered as Key Audit matter since it constitutes significant portion ofassets and considering price volatility of raw material and management estimate in respectof realizable value.
Our audit methodology included the following:
Obtained an understanding and assessed internal controls and itseffectiveness with respect to process of Inventory recording verification and valuation
Reviewed the management's inventory verification processobserved the physical verification process for sample items taken cognizance and assessedthe trend of past inventory differences.
Performed cut off procedures on test check basis to ensurecompleteness of Inventory.
Tested on sample basis the accuracy of weighted average cost andOverhead absorption for Raw material Work in Progress Finished Goods and Tradingmaterial as per the accounting policy adopted by the company
Evaluated the management judgement estimate and process foridentification and valuation of slow moving / non-moving obsolete and damaged items ofinventory.
Performed analysis of Net realizable value (NRV) vs Cost ofinventory on test basis to ensure that the Inventory is carried at Cost or NRV whicheveris lower as per applicable Ind AS 2.
Ensured presentation and disclosure as per applicable Ind AS andaccounting framework
Valuation of investments:
At the balance sheet date the value of current and non-currentinvestments amounted to H 1592.20 crores representing 37.8% of the total assets. The netgain on fair valuation of investments amounted to H 419.14 crores in the totalcomprehensive income. Investments have been considered as key audit matter since itconstitutes significant portion of assets having diversity in nature and variousrecognition and subsequent measurement principles. Refer note 2.6 and 2.15 to theStandalone Financial Statements for its accounting policy. Our audit methodology includedthe following:
Obtained external confirmations in order to test the assertion ofexistence accuracy valuation and completeness.
Evaluated independently the fair values of listed and quotednon-current investments.
Critically analysed the assumptions made by the Management in fairvaluation of unquoted non-current investments.
Evaluated the process of the management to identify impairment (ifany) for the investments measured at amortised cost.
Assessed the compliance of the recognition and subsequentmeasurement principles as specified in the accounting policy adopted by the company
Ensured presentation and disclosure as per applicable Ind AS andaccounting framework
The Company's Board of Directors is responsible for the otherinformation. The other information comprises the information included in the ManagementDiscussion and Analysis Corporate Governance and Directors' Report but does notinclude the standalone Ind AS Financial Statements and our auditor's report thereon.Our opinion on the standalone 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 standalone Ind AS FinancialStatements our responsibility is to read the other information and in doing so considerwhether the other information is materially inconsistent with the standalone Ind ASFinancial Statements or our knowledge obtained in the 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.
Responsibilities of Management and Those Charged with Governance forthe Standalone Ind AS 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 standaloneInd AS Financial Statements that give a true and fair view of the standalone financialposition standalone financial performance (including other comprehensive Income)standalone changes in equity and standalone cash flows of the Company in accordance withthe accounting principles generally accepted in India including the Indian AccountingStandards (Ind AS) specified under section 133 of the Act read with the Companies (IndianAccounting Standards) Rules 2015 as amended. This responsibility also includesmaintenance of adequate accounting records in accordance with the provisions of the Actfor safeguarding 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 standalone Ind AS Financial Statements that give atrue and fair view and are free from material misstatement whether due to fraud or error.
In preparing the standalone Ind AS Financial Statements the managementis responsible 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. Those Board of Directors arealso responsible for overseeing the Company's financial reporting process.
Auditor's Responsibilities for the Audit of the Standalone Ind ASFinancial Statements
Our objectives are to obtain reasonable assurance about whether thestandalone Ind AS Financial Statements as a whole are free from material misstatementwhether due to fraud or error and to issue an auditor's report that includes ouropinion. Reasonable assurance is a high level of assurance but is not a guarantee that anaudit conducted 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 Ind AS FinancialStatements.
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 Ind AS Financial Statements whether due to fraud or error design and performaudit procedures responsive to those risks and obtain audit evidence that is su_cient 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 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 on whetherthe Company has adequate internal financial controls with reference to standalone Ind ASfinancial statements in place 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 the goingconcern basis of accounting and based on the audit evidence obtained whether a materialuncertainty exists related to events or conditions that may cast significant doubt on theCompany's ability to continue as a going concern. If we conclude that a materialuncertainty exists we are required to draw attention in our auditor's report to therelated disclosures in the standalone Ind AS Financial Statements or if such disclosuresare inadequate 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 thestandalone Ind AS Financial Statements including the disclosures and whether thestandalone Ind AS Financial Statements represent the underlying transactions and events ina manner that achieves fair presentation.
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 standalone IndAS Financial Statements for the financial year ended March 31 2021 and are therefore thekey audit matters. We describe these matters in our auditor's report unless law orregulation precludes public disclosure about the matter or when in extremely rarecircumstances we determine that a matter should not be communicated in our report becausethe adverse consequences of doing so would reasonably be expected to outweigh the publicinterest benefits of such communication.
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 in the Annexure A; a statement on the mattersspecified in paragraphs 3 and 4 of the 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 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) the statement of Changes in Equity and the Statement of Cash Flowdealt with by this Report are in agreement with the books of account.
d) In our opinion the aforesaid standalone Ind AS financial statementscomply with the Indian Accounting Standards specified under Section 133 of the Act readwith Companies (Indian Accounting Standards) Rules 2015 as amended.
e) On the basis of the written representations received from thedirectors as on March 31 2021 taken on record by the Board of Directors none of thedirector is disqualified as on March 31 2021 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 withreference to standalone Ind AS financial statements of the Company and the operatingeffectiveness of such controls refer to our separate Report in "Annexure B" tothis report.
g) As required by section 197 (16) of the Act; in our opinion andaccording to information and explanation provided to us the remuneration paid/ providedfor by the company to its directors is in accordance with the provisions of section 197 ofthe Act and remuneration paid to directors is not in excess of the limit laid down underthis section.
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 accordingto the explanations given to us:
(i) The Company has disclosed the impact of pending litigations on itsfinancial position in its standalone Ind AS financial statements
Refer Note 37.2 to the financial statements.
(ii) The Company did not have any long-term contracts includingderivative contracts as at March 31 2021.
(iii) There has been no delay in transferring amounts required to betransferred to the Investor Education and Protection Fund by the Company.
ANNEXURE A TO INDEPENDENT AUDITOR'S REPORT of even date on theStandalone Ind AS Financial Statements of Finolex Industries Limited
Referred to in paragraph 1 of Report on Other Legal and RegulatoryRequirements section of the Independent Auditor's Report of even date to the membersof Finolex Industries Limited on the Standalone Ind AS financial statements as of and forthe year ended March 31 2021 :
(i) (a) The company has maintained proper records showing fullparticulars including quantitative details and situation of property plant andequipment.
(b) The property plant and equipment are being physically verified bythe management at regular intervals based on the programme of verification which in ouropinion is reasonable. Part of the major property plant and equipment has been verifiedby the management in the current year and discrepancies noticed on such physicalverification were not material and the same have been properly dealt with in the books ofaccount.
(c) According to records of the company examined by us the title deedsof immovable properties are held in the name of the company.
(ii) The physical verification of inventory have been conducted atreasonable intervals by the Management during the year. In respect of inventory lying withthird parties these have substantially been confirmed by them. The discrepancies noticedon physical verification of inventory as compared to book records were not material.
(iii) According to information and explanations given to us theCompany has not granted any loans secured or unsecured to companies firms LimitedLiability Partnerships or other parties covered in the register maintained under Section189 of the Act. Therefore the provisions of Clause 3(iii) (iii)(a) (iii)(b) and(iii)(c) of the said Order are not applicable to the Company.
(iv) According to the information and explanations provided to usthere are no loans guarantees and security given by the Company covered under theprovisions of section 185 of the Companies Act 2013. According to the information andexplanations provided to us provisions of section 186 of the Companies Act 2013 havebeen complied with respect to investments.
(v) In our opinion and according to information and explanation givento us the Company has not accepted public deposits hence the directive issued by theReserve Bank of India and the provisions of sections 73 to 76 or any other relevantprovisions of the Companies Act and the rules framed there under are not applicable toit. According to information and explanation given to us no order has been passed againstthe company by Company Law Board or National Company Law Tribunal or Reserve Bank of Indiaor any court or any other tribunal.
(vi) We have broadly reviewed the books of account maintained by theCompany pursuant to the rules made by the Central Government for the maintenance of costrecords under sub-section (l) of section 148 of the Companies Act 2013 and we are of theopinion that prima facie the prescribed accounts and records have been made andmaintained. We have however not made a detailed examination of records with a view todetermine whether they are accurate and complete.
(vii) (a) According to the information and explanations given to us andthe records of the Company examined by us in our opinion the Company is generallyregular in depositing undisputed statutory dues in respect of provident fundemployees' state insurance sales tax income tax service tax duty of customs dutyof excise value added tax Goods and Service Tax cess and other material statutory duesas applicable with the appropriate authorities.
According to the information and explanation given to us no undisputedamounts payable in respect of statutory dues were in arrears as at 31st March 2021 for aperiod more than six months from the date they became payable.
(b) According to the information and explanations given to us theparticulars of dues of income tax sales tax wealth tax service tax custom duty goodsand service tax excise duty and cess as at 31st March 2021 which has not been depositedon account of disputes are as follows:
(viii) According to the records of the Company examined by us and theinformation and explanation given to us the Company has not defaulted in repayment ofloans or borrowings to any financial institution or bank or Government as at the balancesheet date and also not issued debentures.
(ix) According to the information and explanation given to us thecompany has not raised money by way of initial public offer or further public offer(including debt instrument) and not availed term loan during the year. Accordingly theprovisions of clause 3 (ix) of Companies (Auditor's Report) order 2016 are notapplicable to the company.
(x) During the course of our examination of the books and records ofthe Company carried out in accordance with the generally accepted auditing practices inIndia and according to the information and explanations given to us we have neither comeacross any instance of fraud by the Company or on the Company by its o_cers or employeesnoticed or reported during the year nor have we been informed of any such case by theManagement.
(xi) According to the information and explanation given to us thecompany has paid/ provided managerial remuneration within the limit prescribed undersection 197 read with schedule V of the Companies Act 2013. Accordingly no requisiteapproval is required to be sought.
(xii) In our opinion the company is not a Nidhi company. Accordinglythe provisions specified in Paragraph 3(xii) of Companies (Auditor's Report) order2016 are not applicable to the company.
(xiii) According to the information and explanation given to us and inour opinion transactions with the related parties are in compliance with section 177 and188 of the Companies Act 2013 and requisite details have been disclosed in the Financialstatements as required by the applicable accounting standards.
(xiv) According to the information and explanation given to us thecompany has not made any preferential allotment or private placement of shares or fully orpartly convertible debentures for raising funds during the year. Accordingly theprovisions of clause 3 (xiv) of the Companies (Auditor's Report) Order 2016 are notapplicable to the company.
(xv) According to the information and explanation given to us thecompany has not entered into a non-cash transaction with any of the directors or personsconnected with directors. Accordingly the provisions of clause 3 (xv) of the Companies(Auditor's Report) Order 2016 are not applicable to the company.
(xvi) In our opinion and according to the information and explanationgiven to us the company is not required to be registered under section 45-IA of theReserve Bank of India Act 1934. Accordingly the provisions in Paragraph 3(xvi) ofCompanies (Auditor's Report) order 2016 are not applicable.
ANNEXURE B TO THE INDEPENDENT AUDITOR'S REPORT
of even date on the Standalone Ind AS Financial Statements of FinolexIndustries Limited
Report on the Internal Financial Controls with reference to StandaloneInd AS Financial Statements under Clause (i) of Sub-section 3 of Section 143 of theCompanies Act 2013 ("the Act")
We have audited the internal financial controls with reference toStandalone Ind AS Financial Statements of Finolex Industries Limited ("theCompany") as of March 31 2021 in conjunction with our audit of the standalone Ind ASfinancial statements of the Company for the year ended on that date.
Management's Responsibility for Internal Financial Controls
The Company's Management is responsible for establishing andmaintaining 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 (ICAI).These responsibilities include the design implementation and maintenance of adequateinternal financial controls that were operating effectively for ensuring the orderly ande_cient conduct of its business including adherence to 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 Act.
Our responsibility is to express an opinion on the Company'sinternal financial controls with reference to standalone Ind AS financial statements basedon our audit. We conducted our audit in accordance with the Guidance Note on Audit ofInternal Financial Controls over Financial Reporting (the "Guidance Note") andthe Standards on Auditing prescribed under Section 143(10) of the Act to the extentapplicable to an audit of internal financial controls with reference to standalone Ind ASfinancial statements both issued by the Institute of Chartered Accountants of India.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 with reference to standalone Ind AS financial statements wereestablished and maintained and if such controls operated effectively in all materialrespects.
Our audit involves performing procedures to obtain audit evidence aboutthe adequacy of internal financial controls with reference to standalone Ind AS financialstatements and their operating effectiveness. Our audit of internal financial controlswith reference to standalone Ind AS financial statements included obtaining anunderstanding of such internal financial controls assessing the risk that a materialweakness exists and testing and evaluating the design and operating effectiveness ofinternal control based on the assessed risk. The procedures selected depend on theauditor's judgement including the assessment of the risks of material misstatementof the standalone Ind AS financial statements whether due to fraud or error.
We believe that the audit evidence we have obtained is su_cient andappropriate to provide a basis for our audit opinion on the internal financial controlswith reference to standalone Ind AS financial statements.
Meaning of Internal Financial Controls over financial reporting withreference to standalone Ind AS financial statements
A company's internal financial control over financial reportingwith reference to standalone Ind AS financial statements is a process designed to providereasonable assurance regarding the reliability of financial reporting and the preparationof standalone Ind AS financial statements for external purposes in accordance withgenerally accepted accounting principles. A company's internal financial control overfinancial reporting with reference to standalone Ind AS financial statements includesthose policies and procedures that
(1) Pertain to the maintenance of records that in reasonable detailaccurately and fairly reflect the transactions and dispositions of the assets of thecompany;
(2) Provide reasonable assurance that transactions are recorded asnecessary to permit preparation of standalone Ind AS financial statements in accordancewith generally accepted accounting principles and that receipts and expenditures of thecompany are being made only in accordance with authorizations of management and directorsof the company; and
(3) Provide reasonable assurance regarding prevention or timelydetection of unauthorized acquisition use or disposition of the company's assetsthat could have a material effect on the standalone Ind AS financial statements.
Inherent Limitations of Internal Financial Controls over financialreporting with reference to standalone Ind AS financial statements
Because of the inherent limitations of internal financial controls overfinancial reporting with reference to standalone Ind AS financial Statements includingthe possibility of collusion or improper management override of controls materialmisstatements due to error or fraud may occur and not be detected. Also projections ofany evaluation of the internal financial controls over financial reporting with referenceto standalone Ind AS financial Statements to future periods are subject to the risk thatthe internal financial controls over financial reporting with reference to standalone IndAS financial statements may become inadequate because of changes in conditions or thatthe 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 adequate internalfinancial controls with reference to standalone Ind AS financial statements and suchinternal financial controls were operating effectively as at March 31 2021 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.