To the Members of Forbes & Company Limited
Report on the audit of the Standalone Financial Statements
1. We have audited the accompanying standalone financial statements of Forbes &Company Limited ("the Company") which comprise the Balance Sheet as at March312019 and the Statement of Profit and Loss (including Other Comprehensive Income)Statement of Changes in Equity and Statement of Cash Flows for the year then ended andnotes to the standalone financial statements including a summary of significantaccounting 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 ("the Act") in the manner so required and give a trueand fair view in conformity with the accounting principles generally accepted in India ofthe state of affairs of the Company as at March 31 2019 and total comprehensive income(comprising of profit and other comprehensive income) changes in equity and its cashflows for the year then ended.
Basis for Opinion
3. 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 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 together with the ethicalrequirements that are relevant to our audit of the standalone financial statements underthe 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 standalone financialstatements as a whole and in forming our opinion thereon and we do not provide aseparate opinion on these matters.
|Key audit matter ||How our audit addressed the key audit matter |
|(a) Impairment risk of investment in and receivables from a wholly owned subsidiary and (b) Financial exposure relating to guarantee given to the same subsidiary (Refer Notes 8 9 11 39 and 40 to the standalone financial statements) ||Our procedures in relation to management's assessment of impairment risk and financial exposure included the following: |
|The Company has investment aggregating Rs 7934.82 Lakhs in Forbes Technosys Limited (FTL) a wholly owned subsidiary and also has financial exposure by way of outstanding receivables aggregating Rs 337.85 Lakhs and financial guarantees to FTL amounting to Rs 17920 Lakhs. || Evaluating and validating the design and operating effectiveness of the controls over determination of recoverable value of investments and receivable (including valuation model assumptions and judgements); |
|During the year ended March 31 2019 FTL has earned total comprehensive income aggregating ' 3.26 Lakhs and FTL's current liabilities exceeded its current assets by Rs 4937.76 Lakhs. This is an indicator of potential impairment of the investments outstanding receivables and financial exposure relating to financial guarantees given. || Assessing the accuracy and reasonableness of the input data provided by the Management by way of agreeing with approved budgets; |
|The management has estimated that FTL's net recoverable value is sufficient to cover the cumulative carrying value of total exposure in FTL comprising investments outstanding receivables and liability if any towards financial guarantees basis valuation performed by the management's expert who is an independent professional valuer. || Analysis of past trends by comparing the historical results vis-a-vis corresponding budgets; |
| || Evaluating management expert's independence competence capabilities and objectivity; |
| || Assessing along with the auditors' experts the reasonableness of the Company's process regarding impairment assessment and assumptions used in the impairment model; |
| Developing independent expectations regarding the impairment testing based on our understanding of the business external industry trends and the subsidiary's historic business activity; |
| || Evaluating the Company's impairment testing results against our expectations; |
|The recoverable value of the investment has been determined using the discounted cash flow method transaction multiple method and market multiple method which involved significant estimates and judgement including earning growth rate cost escalation/savings discount rate terminal growth rate transaction multiples etc. and is highly dependent on the management expert's inputs and assumptions and is hence considered as a Key Audit Matter. || |
Performing sensitivity analysis and evaluating whether any reasonably foreseeable change in assumptions could lead to impairment; and
| || Testing the mathematical accuracy of the underlying calculations. |
| ||Based on the above procedures performed the management's assessment in respect of impairment risk of investment in and receivables from a wholly owned subsidiary and financial exposure relating to guarantee is considered to be reasonable. |
|First time implementation of Revenue recognition standard (Ind-AS 115) for Real Estate Development Activities (Refer Notes 25 and 52 to the standalone financial statements) ||Our audit procedures included obtaining a listing of contracts with customers from the Management and carrying out a combination of testing of internal financial controls with reference to financial statements for revenue recognition over real estate projects and test of details on a sample of transactions which included: |
|Consequent to the implementation of Ind-AS 115 effective April 1 2018 there has been change in the Company's policy for revenue recognition in respect of its real estate development projects. || Obtaining an understanding of the process and testing key controls followed by the management over revenue recognition for real estate development projects including controls surrounding implementation of Ind-AS 115; |
The determination of the period over which revenue from real estate development activities should be recognized the timing of transfer of control to the customer; and determination of whether the Company has an enforceable right to payment as per requirements of Ind-AS 115 involves significant judgement by the Management.
| Evaluating existence and completeness of the list of contracts with customers and examining the mathematical accuracy including impact of transitional adjustments as on April 1 2018; |
|Revenue recognition for real estate development activities is considered as a key audit matter considering significance of amounts involved substantial transitional impact due to implementation of Ind-AS 115 along with related disclosures and involvement of management judgement in establishing enforceable right to payment for performance completed to date. || Obtaining evidence regarding the transfer of control considering the criteria as per Ind-AS 115 for ensuring existence of enforceability of payment for work completed to date; and |
| || Testing the accuracy and completeness of disclosures in the standalone financial statements including those relating to the change in the accounting policy for revenue recognition as per the requirements of the applicable Indian Accounting Standards. |
| ||Based on the above audit procedures performed we did not come across any significant exceptions with regard to the first time implementation of Ind-AS 115 in respect of real estate development activities. |
|Assessment of Provisions and Contingent Liabilities ||Our audit procedures included the following: |
|Refer to Notes 19A and 39 to the standalone financial statements. || Understanding and evaluating the process and controls designed and implemented by the management including testing relevant controls; |
|As at March 31 2019 in respect of certain direct indirect tax matters and other litigations the Company had recognised provisions aggregating ' 277.98 Lakhs and disclosed contingent liabilities aggregating Rs 12432.50 Lakhs. || Obtaining the details of the related matters inspecting the supporting evidences and assessing management's evaluation through discussions with management on both the probability of the ultimate outcome and the magnitude of financial impact; |
|The Company undergoes assessment proceedings and related litigations with direct and indirect tax authorities and with certain other parties during the normal course of business. There is a high level of management judgement required in estimating the level of provisioning and/or the disclosures required. The judgement of the Management is supported by advice from independent tax and legal consultants as considered necessary by the management. Accordingly unexpected adverse outcomes could significantly impact the Company's reported profit and Balance Sheet position. || Reading recent orders and/ or communication received from the tax authorities/ with certain other parties and management responses to such communication; |
|We considered the above area as the key audit matter due to associated uncertainty of the ultimate outcome and significant management judgement involved. || Where relevant reading the most recent available independent tax / legal advice obtained by management and evaluation of the grounds presented therein; |
| || Evaluating independence objectivity and competence of the management's tax / legal consultants; |
| Obtaining direct written confirmations from the Company's legal/ tax consultants (internal/ external) to confirm the status of the assessments as well as had direct discussion with them as and when required. |
| || Understanding the current status of the direct and indirect tax assessments/ litigations; |
| || Together with the auditor's tax experts assessed the likelihood of the potential financial exposures. |
| || Assessing the adequacy of disclosures in the standalone financial statements. |
| ||Based on the above procedures we did not identify any material exceptions relating to management's assessment of provisions and contingent liabilities. |
5. The Company's Board of Directors is responsible for the other information. The otherinformation comprises the information included in the board report and corporategovernance report but does not include the standalone financial statements and ourauditor'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 this regard.
Responsibilities of management and those charged with governance for the financialstatements
6. 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 changesin equity and cash flows of the Company in accordance with the accounting principlesgenerally accepted in India including the Accounting Standards specified under section133 of the Act. This responsibility also includes maintenance of adequate accountingrecords in accordance with the provisions of the Act for safeguarding of the assets of theCompany and for preventing and detecting frauds and other irregularities; selection andapplication of appropriate accounting policies; making judgments and estimates that arereasonable and prudent; and design implementation and maintenance of adequate internalfinancial controls that were operating effectively for ensuring the accuracy andcompleteness of the accounting records relevant to the preparation and presentation ofthe standalone financial statements that give a true and fair view and are free frommaterial misstatement whether due to fraud or error.
7. In preparing the standalone financial statements 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 financial statements
8. 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 with SAswill always detect a material misstatement when it exists. Misstatements can arise fromfraud or error and are considered material if individually or in the aggregate theycould reasonably be expected to influence the economic decisions of users taken on thebasis of these financial statements.
9. As part of an audit in accordance with SAs we exercise professional judgment andmaintain professional scepticism 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 companyhas adequate internal financial controls with reference to financial statements in placeand the 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.
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.
10. 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.
11. 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.
12. 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
13. As required by the Companies (Auditor's Report) Order 2016 ("theOrder") issued by the Central Government of India in terms of sub-section (11) ofsection 143 of the Act we give in the "Annexure B" a statement on the mattersspecified in paragraphs 3 and 4 of the Order to the extent applicable.
14. As required by Section 143(3) of the Act we report that:
(a) We have sought and obtained all the information and explanations which to the bestof our knowledge and belief were necessary for the purposes of our audit.
(b) In our opinion proper books of account as required by law have been kept by theCompany so far as it appears from our examination of those books.
(c) The Balance Sheet the Statement of Profit and Loss (including other comprehensiveincome) the Statement of Changes in Equity and 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 theAccounting Standards specified under Section 133 of the Act.
(e) On the basis of the written representations received from the directors as on March31 2019 taken on record by the Board of Directors none of the directors is disqualifiedas on March 31 2019 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 with reference tofinancial statements of the Company and the operating effectiveness of such controlsrefer to our separate Report in "Annexure A".
(g) With respect to the other matters to be included in the Auditor's Report inaccordance with Rule 11 of the Companies (Audit and Auditors) Rules 2014 in our opinionand to the best of our information and according to the explanations given to us:
i. The Company has disclosed the impact of pending litigations on its financialposition in its standalone financial statements - Refer Notes 19A and 39 to the standalonefinancial statements;
ii. The Company has long-term contracts as at March 31 2019 for which there were nomaterial foreseeable losses. The Company did not have any derivative contracts as at March31 2019;
iii. There has been no delay in transferring amounts required to be transferred tothe Investor Education and Protection Fund by the Company.
iv. The reporting on disclosures relating to Specified Bank Notes is not applicable tothe Company for the year ended March 312019.
| ||For Price Waterhouse Chartered Accountants LLP |
| ||Firm Registration Number: 012754N/N500016 |
| ||Chartered Accountants |
|Place: Mumbai ||Partner |
|Date: May 30 2019 ||Membership Number: 045255 |
Annexure A to Independent Auditors' Report
Referred to in paragraph 14(f) of the Independent Auditors' Report of even date to themembers of Forbes & Company Limited on the standalone financial statements for theyear ended March 31 2019
Report on the Internal Financial Controls with reference to financial statements underClause (i) of Sub-section 3 of Section 143 of the Act
1. We have audited the internal financial controls with reference to financialstatements of Forbes & Company Limited ("the Company") as of March 31 2019in conjunction with our audit of the standalone financial statements of the Company forthe year ended on that date.
Management's Responsibility for Internal Financial Controls
2. The Company's management is responsible for establishing and maintaining internalfinancial controls based on the internal control over financial reporting criteriaestablished by the Company considering the essential components of internal control statedin the Guidance Note on Audit of Internal Financial Controls Over Financial Reportingissued by the Institute of Chartered Accountants of India (ICAI). These responsibilitiesinclude the design implementation and maintenance of adequate internal financial controlsthat were operating effectively for ensuring the orderly and efficient conduct of itsbusiness including adherence to company's policies the safeguarding of its assets theprevention and detection of frauds and errors the accuracy and completeness of theaccounting records and the timely preparation of reliable financial information asrequired under the Act.
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 Guidance Note on Audit of Internal Financial Controls OverFinancial Reporting (the "Guidance Note") and the Standards on Auditing deemedto be prescribed under section 143(10) of the Act to the extent applicable to an audit ofinternal financial controls both applicable to an audit of internal financial controlsand both issued by the ICAI. Those Standards and the Guidance Note require that we complywith ethical requirements and plan and perform the audit to obtain reasonable assuranceabout whether adequate internal financial controls with reference to financial statementswas established and maintained and if such controls operated effectively in all materialrespects.
4. Our audit involves performing procedures to obtain audit evidence about the adequacyof the internal financial controls system with reference to financial statements and theiroperating effectiveness. Our audit of internal financial controls with reference tofinancial statements included obtaining an understanding of internal financial controlswith reference to financial statements assessing the risk that a material weaknessexists and testing and evaluating the design and operating effectiveness of internalcontrol based on the assessed risk. The procedures selected depend on the auditor'sjudgement including the assessment of the risks of material misstatement of the financialstatements 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 systemwith reference 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 includes 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.