To the Members of
Finolex Industries Limited
Report on the Audit of the Standalone Financial Statements
We have audited the Standalone Financial Statements of Finolex Industries Limited("the Company") which comprise the Balance Sheet as at March 31 2020 theStatement of Profit and Loss (including Other Comprehensive Income) the Statement ofChanges in Equity and the Statement of Cash Flows for the year then ended and notes tothe Standalone Financial Statements including a summary of significant accountingpolicies and other explanatory information (hereinafter referred to as "theStandalone Financial Statements"). In our opinion and to the best of our informationand according to the explanations given to us the aforesaid Standalone FinancialStatements give the information required by the Companies Act 2013 ("the Act")in 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 March31 2020 its profit and other comprehensive income its changes in equity and its cashflows for the year ended on that date.
Basis for Opinion
We conducted our audit in accordance with the Standards on Auditing (SAs) specifiedunder section 143(10) of the Act. Our responsibilities under those Standards are furtherdescribed in the Auditor's
Responsibilities for the Audit of the Standalone Financial Statements section of ourreport. We are independent of the Company in accordance with the Code of Ethics issued bythe Institute of Chartered Accountants of India together with the ethical requirementsthat are relevant to our audit of the Standalone Financial Statements under the provisionsof 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 opinion.
Key Audit Matters
Key Audit matters are those matters that in our professional Judgement were of mostsignificance in our audit of Standalone Financial Statements of the current period. Thesematters were addressed in the context of our audit of Standalone Financial Statements as awhole and in forming our opinion thereon and we do not provide a separate opinion onthese mattej We have determined the matters described below to be key audit matters to becommunicated in our report. a. Valuation of inventory
At the balance sheet date the value of inventory amounted to H857.81 croresrepresenting 44.45% of total equity and 30.47% of total assets. Inventories have beenconsidered key audit matter due to the size of the balance nature of the product pricevolatility of raw material and finished product process of manufacture and managementJudgements involved. Refer note 2.8 to the Standalone Financial Statements for accountingpolicy for valuation of inventories.
Principle Audit Procedures
i. We have evaluated the design of internal controls relating to the process ofinventory recording verification and valuation.
ii. We have reviewed the management's inventory verification process taken cognisanceand assessed the trend of past inventory differences and received confirmations from thesubcontractors for testing the assertion of existence due to the lockdown of factories atyear end.
iii. We have conducted analysis of net realisable value (NRV) and cost of inventory ona sample basis in order to ascertain that inventory is carried at lower of NRV and Cost.
iv. We have evaluated on a test check basis the process followed by the management toidentify non-moving slow moving obsolete inventory and we have evaluated on a test checkbasis the appropriateness of the estimates for impairment (if any) accounted for on suchinventory.
v. We have conducted cut off procedures on a test check basis to ensure completeness ofinventory recorded in the books of account.
vi. We have tested on a sample basis compliance of the cost formulae as specified inthe accounting policy adopted by the company.
b. Valuation of investments
At the balance sheet date the value of current and non-current investments amounted toH584.66 crores representing 30.30% of total equity and 20.77% of the total assets. The netloss on fair valuation of investments amounted to H623.88 crores in the totalcomprehensive income. Investments have been considered as key audit matter due to the sizeof the balance various recognition and subsequent measurement principles. Refer note 2.7and 2.17 to the Standalone Financial Statements for its accounting policy.
Principle Audit Procedures
i. We have obtained independent external confirmations of all material currentinvestments in order to test the assertion of existence accuracy valuation andcompleteness.
ii. We have independently evaluated the fair values of listed and quoted non-currentinvestments.
iii. We have evaluated the fair value of unquoted non-current investments adopted bythe management.
iv. We have evaluated the process of the management to identify impairment (if any) forthe investments measured at amortised cost.
v. We have assessed the compliance of the recognition and subsequent measurementprinciples as specified in the accounting policy adopted by the company.
The Company's Board of Directors is responsible for the other information. The otherinformation comprises the Management Discussion and Analysis; Board of Directors' Reportalong with its Annexures and Corporate Governance Report included in the Annual Reportbut does not include the 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
The Company's Board of Directors is responsible for the matters stated in section134(5) of the Act with respect to the preparation of these Standalone Financial Statementsthat give a true and fair view of the financial position financial performance (includingother comprehensive income) changes in equity and cash flows of the Company in accordancewith the accounting principles generally accepted in India including the IndianAccounting Standards (Ind AS) specified under section 133 of the Act read with theCompanies (Indian Accounting Standards) Rules 2015 as amended. This responsibility alsoincludes maintenance of adequate accounting recordsinaccordancewiththeprovisions of theAct for safeguarding of the assets of the Company and for preventing and detecting fraudsand other irregularities; selection and application of appropriate accounting policies;making Judgments and estimates that are reasonable and prudent; and design implementationand maintenance of adequate internal financial controls that were operating effectivelyfor ensuring the accuracy and completeness of the accounting records relevant to thepreparation and presentation of the Standalone Financial Statements that give a true andfair view and are free from material misstatement whether due to fraud or error.
In preparing the Standalone Financial Statements the management is responsible forassessing the Company's ability to continue as a going concern disclosing as applicablematters related to going concern and using the going concern basis of accounting unlessmanagement either intends to liquidate the Company or to cease operations or has norealistic alternative but to do so. Those Board of Directors are also responsible foroverseeing the Company's financial reporting process.
Auditor's Responsibilities for the Audit of the Standalone Financial Statements
Our obJectives are to obtain reasonable assurance about whether the StandaloneFinancial Statements as a whole are free from material misstatement whether due to fraudor error and to issue an auditor's report that includes our opinion. Reasonable assuranceis a high level of assurance but is not a guarantee that an audit conducted in accordancewith SAs will always detect a material misstatement when it exists. Misstatements canarise from fraud or error and are considered material if individually or in theaggregate they could reasonably be expected to influence the economic decisions of userstaken on the basis of these Standalone Financial Statements. As part of an audit inaccordance with SAs we exercise professional Judgment and maintain professionalskepticism throughout the audit. We also:
Identify and assess the risks of material misstatement of the StandaloneFinancial Statements whether due to fraud or error design and perform audit proceduresresponsive to those risks and obtain audit evidence that is sufficient and appropriate toprovide a basis for our opinion. The risk of not detecting a material misstatementresulting from fraud is higher than for one resulting from error as fraud may involvecollusion forgery intentional omissions misrepresentations or the override of internalcontrol.
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 system in place and the operating effectiveness ofsuch 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 Standalone Financial Statements or if such disclosures are inadequate to modify ouropinion. Our conclusions are based on the audit evidence obtained up to the date of ourauditor's report. However future events or conditions may cause the Company to cease tocontinue as a going concern.
Evaluate the overall presentation structure and content of the StandaloneFinancial Statements including the disclosures and whether the Standalone FinancialStatements represent the underlying transactions and events in a manner that achieves fairpresentation.
We communicate with those charged with governance regarding among other matters theplanned scope and timing of the audit and significant audit findings including anysignificant deficiencies in internal control that we identify during our audit.
We also provide those charged with governance with a statement that we have compliedwith relevant ethical requirements regarding independence and to communicate with themall relationships and other matters that may reasonably be thought to bear on ourindependence and where applicable related safeguards. From the matters communicated withthose charged with governance we determine those matters that were of most significancein the audit of the Standalone Financial Statements of the current period and aretherefore the key audit mattej We describe these matters in our auditor's report unlesslaw or regulation 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 inthe Annexure A; a statement on the matters specified in paragraphs 3 and 4 of the Orderto 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 thebest of 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 (including other comprehensiveincome) the Statement of Changes in Equity and the Cash Flow Statement dealt with by thisReport are in agreement with the books of account.
d) In our opinion the aforesaid Standalone Financial Statements comply with the IndianAccounting Standards specified under Section 133 of the Act read with Companies (IndianAccounting Standards) Rules 2015 as amended.
e) On the basis of the written representations received from the directors as on March31 2020 taken on record by the Board of Directors none of the directors is disqualifiedas on March 31 2020 from being appointed as a director in terms of Section 164 (2) of theAct.
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.
g) As required by section 197 (16) of the Act; in our opinion and according toinformation and explanation provided to us the remuneration paid by the Company to itsdirectors is in accordance with the provisions of section 197 of the Act and remunerationpaid to directors is not in excess of the limit laid down under this section. h) Withrespect to the other matters to be included in the Auditor's Report in accordance withRule 11 of the Companies (Audit and Auditors) Rules 2014 in our opinion and to the bestof our information and according to the explanations given to us:
(i) The Company has disclosed the impact of pending litigations on its financialposition in its Standalone Financial Statements Refer Note 37.2;
(ii) The Company did not have any long-term contracts including derivative contractsfor which there were any material foreseeable losses.
(iii) There has been no delay in transferring amounts required to be transferred tothe Investor Education and Protection Fund by the Company.
For M/s P. G. Bhagwat
Firm Registration Number: 101118W
Membership Number: 136835 UDIN: 20136835AAAABV3062
June 23 2020
Annexure A to the Independent Auditors' Report
Referred to in paragraph 1 under the heading "Report on Other legal andRegulatory Requirements" of our report on even date: (i) (a) The Company ismaintaining proper records showing full particulars including quantitative details andsituation of fixed assets.
(b) The fixed assets are being physically verified by the management at regularintervals based on the programme of verification which in our opinion is reasonable. Partof the maJor fixed assets has been verified by the management in the current year anddiscrepancies noticed on such physical verification were not material and the same havebeen properly dealt with in the books of account.
(c) The title deeds of immovable properties are held in the name of the Company.
(ii) Physical verification of inventory has been conducted by the management during thecurrent year. In our opinion the interval of such verification is reasonable.Discrepancies noticed on physical verification were not material and the same have beenproperly dealt with in the books of account.
(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 in the current year. Accordingly clause (iii) (a) (b) and (c) ofthe Order are not applicable to the Company.
(iv) According to the information and explanation provided to us there are no loansguarantees and security given by the Company to Directors covered under the provisionsof section 185 of the Act. According to the information and explanations provided to usprovisions of section 186 of the Act have been complied with respect to loans guaranteesinvestment and security.
(v) According to information and explanation provided to us the Company has notaccepted deposits hence the directives issued by the Reserve Bank of India and theprovisions of sections 73 to 76 or any other relevant provisions of the Act and the rulesframed there under are not applicable to it. According to information and explanationprovided to us no order has been passed by Company Law Board or National Company LawTribunal or Reserve Bank of India or any court or any other tribunal.
(vi) We have broadly reviewed the books of account relating to materials labour andother items of cost maintained by the Company pursuant to the rules made by the CentralGovernment for the maintenance of cost records under subsection (l) of section 148 of theAct and we are of the opinion that prima facie the prescribed accounts and records havebeen made and maintained. We have not however made a detailed examination of records witha view to determine whether they are accurate and complete.
(vii) (a) The Company is generally regular in depositing undisputed statutory duesincluding provident fund employees' state insurance income-tax duty of customs goodsand service tax cess and any other statutory dues with the appropriate authorities.According to the information and explanation provided to us no undisputed amounts payablein respect of statutory dues were in arrears as at March 31 2020 for a period more thansix months from the date they became payable.
(b) According to the information and explanation provided to us there are no dues ofincome tax sales tax service tax duty of customs duty of excise goods and service taxvalue added tax or cess which have not been deposited on account of any dispute exceptthose mentioned below:
|Name of the Statute ||Nature of Dues ||Amount (in crores) ||Period to which the amount relates ||Forum where dispute is pending |
|Customs Act 1962 ||Customs Duty ||21.16 ||2012-13 2013-14 ||CESTAT |
| || ||00.13 ||2018-19 ||Commissioner |
| || ||00.45 ||2019-20 ||Commissioner |
|Central Excise || ||46.36 ||1996-97 2000-16 ||CESTAT |
|Act 1944 ||Excise Duty ||00.09 ||2001-02 ||High Court |
|Finance Act 1994 ||Service Tax ||2.11 ||2008-09 to ||CESTAT |
| || ||00.25 ||2015-16 ||Assistant |
| || ||1.25 3.16 ||October 2016 to June 2017 ||Commissioner Appeals |
| || || ||2012-13 to 2017- 18 ||Commissioner High Court |
| || || ||April to June 2017 || |
|Income Tax Act 1961 ||Income tax ||00.19 ||2015-16 ||CIT Appeals |
(viii) Based on our audit procedures and according to the information and explanationprovided to us the Company has not defaulted in repayment of loans or borrowings to afinancial institution bank or government. The Company did not have debenture holdej
(ix) According to information and explanation provided to us the Company has notraised moneys by way of initial public offer or further public offer (including debtinstruments) in the current year. The Company does not have any term loans in the currentyear. Accordingly clause 3 (ix) of the Order for reporting on application of money raisedis not applicable to the Company.
(x) Based upon the audit procedures performed by us and according to the informationand explanation provided to us by the management no fraud by the Company or any fraud onthe Company by its officers or employees has been noticed or reported to us during theyear.
(xi) According to the information and explanation provided to us the managerialremuneration has been paid and provided in accordance with the requisite approvalsmandated by the provisions of section 197 read with Schedule V to the Act.
(xii) The Company is not a Nidhi Company and accordingly clause
(xii) of the Order is not applicable to the Company. (xiii) According to theinformation and explanation provided to us all transactions with the related parties arein compliance with sections 177 and 188 of the Act wherever applicable and the detailshave been disclosed in the Standalone Financial Statements as required by the applicableaccounting standards. Refer note 36.
(xiv)According to the information and explanation provided to us the Company has notmade any preferential allotment or private placement of shares or fully or partlyconvertible debentures during the year under review.
(xv) According to the information and explanation provided to us the Company has notentered into any non-cash transactions with directors or persons connected with him.
(xvi) According to the information and explanation provided to us the Company is notrequired to be registered under section 45-IA of the Reserve Bank of India Act 1934.
For M/s P. G. Bhagwat
Firm Registration Number: 101118W
Membership Number: 136835 UDIN: 20136835AAAABV3062
June 23 2020
Annexure B to the Independent Auditors' Report
Referred to in paragraph 2 (f) under the heading "Report on Other legal andRegulatory Requirements" of our report on even date:
Report on the Internal Financial Controls
Under Clause (i) of Sub-section 3 of Section 143 of the Companies Act 2013 ("theAct")
We have audited the internal financial controls over financial reporting of FinolexIndustries Limited ("the Company") as of March 31 2020 in conJunction with ouraudit of the Standalone Financial Statements of the Company for the year ended on thatdate.
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. These responsibilities includethe design implementation and maintenance of adequate internal financial controls thatwere operating effectively for ensuring the orderly and efficient conduct of its businessincluding adherence to company's policies the safeguarding of its assets the preventionand detection of frauds and errors the accuracy and completeness of the accountingrecords and the timely preparation of reliable financial information as required underthe Act.
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 to the extent applicable toan audit of internal financial controls both issued by the Institute of CharteredAccountants of India. Those Standards and the Guidance Note require that we comply withethical requirements and plan and perform the audit to obtain reasonable assurance aboutwhether adequate internal financial controls over financial reporting was established andmaintained and if such controls operated effectively in all material respects.
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 Judgement including the assessment of the risks ofmaterial misstatement of the Standalone Financial Statements whether due to fraud orerror. We believe that the audit evidence we have obtained is sufficient and appropriateto provide a basis for our audit opinion on the Company's internal financial controlssystem over 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 Standalone Financial Statements for external purposes in accordance withgenerally accepted accounting principles. A company's internal financial control overfinancial reporting includes those policies and procedures that
(1) pertain to the maintenance of records that in reasonable detail accurately andfairly reflect the transactions and dispositions of the assets of the company;
(2) provide reasonable assurance that transactions are recorded as necessary to permitpreparation of Standalone Financial Statements in accordance with generally acceptedaccounting principles and that receipts and expenditures of the company are being madeonly in accordance with authorisations of management and directors of the company; and
(3) provide reasonable assurance regarding prevention or timely detection ofunauthorised acquisition use or disposition of the company's assets that could have amaterial effect on the Standalone 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 March 31 2020 based on theinternal control over financial reporting criteria established by the Company consideringthe essential components of internal control stated in the Guidance Note on Audit ofInternal Financial Controls Over Financial Reporting issued by the Institute of CharteredAccountants of India.
For M/s P. G. Bhagwat
Firm Registration Number: 101118W
Membership Number: 136835 UDIN: 20136835AAAABV3062
June 23 2020