To The Members of Hero MotoCorp Limited
Report on the Audit of the Standalone Financial Statements
We have audited the standalone financial statements of Hero MotoCorp Limited("the Company") which comprise the standalone balance sheet as at 31 March2019 and the standalone statement of profit and loss (including other comprehensiveincome) the standalone statement of changes in equity and the standalone statement ofcash flows for the year then ended and the standalone financial statements including asummary of significant accounting policies and other explanatory information (togetherreferred to as " standalone financial statements ").
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 andfair view in conformity with the accounting principles generally accepted in India of thestate of affairs of the Company as at 31 March 2019 and its profitand othercomprehensive income changes in equity and its cash flows for the year ended on thatdate.
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 SAs are furtherdescribed in the Auditor's Responsibilities for the Audit of the Standalone FinancialStatements section of our report. We are independent of the Company in accordance with theCode of Ethics issued by the Institute of Chartered Accountants of India together with theethical requirements that are relevant to our audit of the standalone financial statementsunder the provisions of the Act and the Rules notesto thereunder and we have fulfilledour other ethical responsibilities in accordance with these requirements and the Code ofEthics. We believe that the audit evidence we have obtained is sufficient and appropriateto provide a basis for our opinion.
Key Audit Matters
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 Matters ||Auditor's Response |
|1. Government Grants ||Audit procedures |
|The Company obtains various grants from Government authorities in connection with manufacturing and sales of two wheelers. There are certain specific conditions attached to the grants which are subject to formal approval process. ||In view of the significance of the matter we applied the following audit procedures in this area among others to obtain sufficient appropriate audit evidence: |
|Management evaluates on a periodic basis whether the Company has complied with the relevant conditions attached to each grant and whether there is a reasonable assurance that the grants will be received in order to determine the timing and amounts of grants to be recognized in the financial statements. || inspecting on a sample basis documentation relating to the grants given by the various Government authorities and identifying the specific conditions attached to the respective grants and respective application and approval procedures; |
|We identified the recognition of Government grants as a key audit matter because the amount of grants recorded is material to the financial statements and due to existence of significant judgement applied in assessing whether the conditions attached to grants have been met and whether there is reasonable assurance that Grants will be received. || evaluated the basis of management's judgement about whether the conditions attached to the grants have been met and whether reasonable assurance has been obtained that grants will be received and evaluating management's judgement by examining the terms of the underlying documentation and the information used by them to form such judgements; |
| || assessing the appropriate classification of grants with management reference to the terms of the underlying documentation; |
| || in respect of grants related to income recorded during the current year sales actually incurred for which the grants are to receive in the relevant documents and correspondence from the government authorities to assess whether the criteria for recognition of the grants had been met. |
|2. Intangible assets under development ||Audit procedures |
|The Company incurs significant costs in respect of the development of new models and technology of two wheelers. ||In view of the significance of the matter we applied the internal and external following audit procedures in this area among others to obtain sufficient appropriate audit evidence: |
|The accounting for these costs as either intangible assets or expense items recorded in the statement of profit and loss involves judgment and is dependent on the nature of the related development. || evaluated the design of internal controls relating to identification and classification of expenditure related development of new models and technology |
|We identified the intangible asset under development as a key audit matter due to risk of inappropriate recognition of costs either as an expenditure or capital item. || for selected samples tested the operating effectiveness of the internal control identification and classification of expenditure related to the development of new models and technology. |
| || tested on a sample basis costs incurred on such development and agreed these to underlying documentation. |
Information Other than the Standalone Financial Statements and Auditors Report Thereon'
The Company's management and Board of Directors are responsible for the otherinformation. The other information comprises the information included in the Company'sannual report but does not include the financial statements and our auditors' reportthereon.
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.
Management's Responsibility for the Standalone Financial Statements
The Company's management and Board of Directors are 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 state of affairs profit/loss and otherequity and cash flows of the accounting principles generally accepted in India includingthe Indian Accounting Standards (Ind AS) specified under section 133 of the Act. Thisresponsibility also includes maintenance of adequate accounting records in accordance withthe provisions of the Act for safeguarding of the assets of the Company and for preventingand detecting frauds and other irregularities; selection and application of appropriateaccounting policies; making judgments and estimates that are reasonable and prudent; anddesign implementation and maintenance of adequate internal financial controls that wereoperating effectively for ensuring the accuracy and completeness of the accountingrecords relevant to the preparation and presentation of the standalone financialstatements that give a true and fair view and are free from material misstatement whetherdue to fraud or error.
In preparing the standalone financial statements management and Board of Directors areresponsible 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.
Board of Directors is also responsible for overseeing the Company's financial reportingprocess.
Auditor' s Responsibilities for the Audit of the Standalone Financial Statements Ourobjectives are to obtain reasonable assurance about whether the standalone 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 ahigh level of assurance but is not a guarantee that an audit conducted in accordance withSAs will always detect a material misstatement when it income changes inCompanyinaccordancewiththe exists. Misstatements can arise from fraud or error and areconsidered material if individually or in the aggregate they could reasonably beexpected to influence the economic decisions of users taken on the basis of thesestandalone financial statements.
As part of an audit in accordance with SAs we exercise professional judgment andmaintain professional skepticism throughout the audit. We also:
Identify and assess the risks of material misstatement of the standalone 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 to designaudit procedures that are appropriate in the circumstances. Under section 143(3) (i) ofthe 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 reasonableness ofaccounting estimates and related disclosures made by management.
Conclude on the appropriateness of management's use of the going concern basis ofaccounting 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 standalone financialstatements including the disclosures and whether the standalone financial statementsrepresent 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 with those charged with governance we determine thosematters that were of most significance in the audit of the standalone financial statementsof the current period and are therefore the key audit matters. We describe these mattersin our auditors' report unless law or regulation precludes public disclosure about thematter or 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
1. As required by the Companies (Auditors' Report) Order 2016 ("the Order")issued by the Central Government in terms of section 143 (11) of the Act we give in the"Annexure A" a statement on the matters specified in paragraphs 3 and 4 of theOrder to the extent applicable.
A) 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 standalone balance sheet the standalone statement of profit and loss (includingother comprehensive income) the standalone statement of changes in equity and thestandalone statement of cash flowsdealt with by this Report are in agreement with thebooks of account.
d) In our opinion the aforesaid standalone financial statements comply with the Ind ASspecified under section 133 of the Act.
e) On the basis of the written representations received from the directors as on 31March 2019 taken on record by the Board of Directors none of the directors isdisqualified as on 31 March 2019 from being appointed as a director in terms of Section164(2) of the Act.
f) With respect to the adequacy of the internal financial controls with reference tostandalone financial statements of the Company and the operating effectiveness of suchcontrols refer to our separate Report in "Annexure B".
B) With respect to the other matters to be included in the Auditors' 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 as at 31 March 2019 onits financial position in its standalone financial statements - Refer Note 34 to thestandalone financial statements;
ii) According to the information and explanation given to us the Company did not haveany long-term contracts including derivative contracts for which there were any materialforeseeable losses;
iii) According to the information and explanation given to us there has been no delayin transferring amounts required to be transferred to the Investor Education andProtection Fund by the Company;
iv) The disclosures in the standalone financial statements regarding holdings as wellas dealings in specified bank notes during the period from 8 November 2016 to 30 December2016 have not been made in these financial statements since they do not pertain to thefinancial year ended 31 March 2019.
C With respect to the matter to be included in the Auditors' Report under section197(16):
In our opinion and according to the information and explanations given to us theremuneration paid by the company to its directors during the current year is in accordancewith the provisions of Section 197 of the Act. The remuneration paid to any director isnot in excess of the limit laid down under Section 197 of the Act. The Ministry ofCorporate Affairs has not prescribed other details under Section 197(16) which arerequired to be commented upon by us.
ANNExURE A REFERRED TO IN THE INDEPENDENT AUDITORS 'R EPORT
to the Members of Hero MotoCorp Limited on the standalone financial statements for theyear ended 31 March 2019
(i) (a) The Company has maintained proper records showing full particulars includingquantitative details and situation of fixed assets.
(b) The Company has a regular programme of physical verification of its fixed assets bywhich all the items are verified in a phased manner over a period of three years. In ouropinion this periodicity of physical verification is reasonable having regard to the sizeof the Company and the nature of its assets. In accordance with this programme certainfixed assets were physically verified during the year. As informed to us no materialdiscrepancies were noted on such verification.
(c) According to the information and explanations given to us and the records examinedby us and based on the examination of the registered sale deed and transfer deed providedto us we report that the title deeds of immovable properties of land and buildingsincluded under the head Property" plant and equipment" are held in the nameof the Company as at the balance sheet date.
(ii) Inventories except for goods-in-transit and stocks lying with third parties havebeen physically verified by the management during the year at reasonable intervals. In ouropinion the frequency of such verification is reasonable. For stocks lying with thirdparties at the year-end written confirmations have been obtained. According to theinformation and explanations given to us the procedures for physical verification ofinventories followed by the management during the year are reasonable and adequate inrelation to the size of the Company and the nature of its business. The discrepanciesnoticed on verification between the physical stocks and the book records were not materialand have been properly adjusted in the books of account.
(iii) According to the information and explanations given to us the Company has notgranted any loans secured or unsecured to companies firms limited liabilitypartnerships or other parties covered in the register maintained under Section 189 of theAct. Accordingly paragraph 3 (iii) of the Order is not applicable to the Company.
(iv) According to the information and explanations given to us the Company has notgiven any loans or provided any guarantee or security as specified under section 185 and186 of the Companies Act 2013. Moreover in respect of the investments made by theCompany requirements of section 186 of the Companies Act 2013 have been complied with.
(v) According to the information and explanations given to us the Company has notaccepted any deposits as mentioned in the directives issued by the Reserve Bank of Indiaand the provisions of section 73 to 76 or any other relevant provisions of the Act and therules framed there under. Accordingly paragraph 3(v) of the Order is not applicable tothe Company.
(vi) The maintenance of cost records has been specified by the Central Government undersection 148(1) of the Companies Act 2013 in respect of certain products . manufactured bythe Company. We have broadly reviewed the cost records maintained by the Company pursuantto the Companies (Cost Records and Audit) Rules 2014 as amended and prescribed by theCentral Government of India under sub-section (1) of Section 148 of the Act and are of theopinion that prima facie the prescribed cost records have been made and maintained. Wehave however not made a detailed examination of the cost records with a view todetermine whether they are accurate or complete.
(vii) (a) According to the information and explanations given to us and on the basis ofour examination of the records of the Company amounts deducted/ accrued in the books ofaccount in respect of undisputed statutory dues including provident fund employees stateinsurance goods and service tax income-tax duty of customs cess and any other materialstatutory dues have generally been regularly deposited during the year by the Company withthe appropriate authorities. As explained to us the Company did not have any dues onaccount of duty of excise sales tax service tax and value added taxes.
According to the information and explanation given to us there are no undisputedamounts payable in respect of provident fund employees state insurance goods and servicetax income-tax duty of customs cess and any other material statutory dues that were inarrear as on 31 March 2019 for a period of more than six months from the date they becamepayable.
(b) According to the information and explanations given to us there are no dues inrespect of income-tax sales-tax goods and service tax value added tax service taxduty of customs and duty of excise which have not been deposited with the appropriateauthorities on account of any dispute as at 31 March 2019 other than those mentioned asfollows:
|Name of Statute ||Nature of Dues ||Amount* (##Rs.## in crores) ||Amount paid ##Rs.## ( in crores) ||Financial year to which the Amount Relates ||Forum where Dispute is Pending |
|Central Excise Law ||Excise duty ||691.57 ||321.18 ||2008-09 to 2013-14 ||Supreme Court |
| || ||2.35 ||0.10 ||2014-15 to 2017-18 ||Commissioner Appeal |
| || ||863.10 ||415.30 ||2002-03 to 2017-18 ||" ( Customs Excise Service Tax Appellate Tribunal") CESTAT |
|Finance Act 1994 ||Service Tax ||0.89 ||0.45 ||2004-05 to 2005-06 ||Supreme Court |
| || ||233.11 ||24.99 ||2004-05 to 2011-12 ||CESTAT |
|Income-tax Act 1961 ||Income-tax ||3163.55$ ||- ||2008-09 ||Income Tax Appellant Tribunal ("ITAT") |
| || ||2343.27# ||280.00 ||2004-05 and 2010-11 ||Commissioner of Income Tax (Appeals) |
* Amount as per demand orders including interest and penalty wherever indicated in theorder
# Balance demand of 2010-11 has been stayed by assessing officer till the disposal offirst appeal.
$ Interim stay granted by ITAT.
The following matters have been decided in favour of the Company but the department haspreferred appeals at higher levels
|Name of Statute ||Nature of Dues ||Amount (##Rs.## in crores) ||Amount paid as per stay order/ mandatory deposit ||Period to which the Amount Relates ||Forum where Dispute is Pending |
|Central Excise Law ||Excise duty ||8.78 ||- ||2002-03 to 2008-09 ||Supreme Court |
| || ||85.66 ||21.82 ||2009-10 to 2010-11 2013-14 ||CESTAT |
|Income-tax ||Income-tax ||4.10 ||- ||2005-06 ||Supreme Court |
|Act 1961 || || || || || |
| || ||7358.07 ||- ||1987-88 1992-93 1995- 96 1996-97 1997-98 1998-99 2000-01 2006- 07 2009-10 2010-11 2011-12 and 2012-13 ||High Court |
| || ||71.71 ||- ||2003-04 2004-05 2005- 06 and 2007-08 ||Income Tax Appellate Tribunal |
(viii) According to the information and explanation given to us the Company has nottaken any loans or borrowings from banks financial institutions and government and therewere no debentures issued during the year or outstanding as at 31 March 2019. Accordinglyparagraph 3 (viii) of the Order is not applicable to the Company.
(ix) According to the information and explanations given to us the Company has notraised any money by way of initial public offer or further public offer (including debtinstruments) and term loans during the year. Accordingly paragraph 3(ix) of the Order isnot applicable to the Company.
(x) According to the information and explanations given to us no material fraud by theCompany or on the Company by its officers or employees has been noticed or reported duringthe course of our audit.
(xi) According to the information and explanations given to us and based on ourexamination of the records the Company has paid/ provided managerial remuneration inaccordance with the requisite approvals mandated by the provisions of section 197 readwith Schedule V to the Companies Act 2013.
(xii) According to the information and explanations given to us the Company is not aNidhi Company. Accordingly paragraph 3(xii) of the Order is not applicable.
(xiii) According to the information and explanations given to us and on the basis ofexamination of the records of the Company the transactions with related parties are incompliance with Section 177 and 188 of the Companies Act 2013 where applicable and thedetails of the related party transactions have been disclosed in the standalone financialstatements as required by the applicable accounting standards.
(xiv) According to information and explanations given to us the Company has not madeany preferential allotment or private placement of shares or fully or partly convertibledebentures during the year. Accordingly paragraph 3(xiv) of the Order is not applicableto the Company.
(xv) According to information and explanations given to us the Company has not enteredinto any non-cash transactions with directors or persons connected with them. Accordinglyparagraph 3(xv) of the Order is not applicable.
(xvi) According to the information and explanations given to us the Company is notrequired to be registered under Section 45-1A of the Reserve Bank of India Act 1934.Accordingly paragraph 3 (xvi) of the Order is not applicable to the Company.
ANNExURE B TO THE INDEPENDENT AUDITORS' REPORT
on the standalone financial statements of Hero MotoCorp Limited for the year ended 31March 2019
Report on the internal financial controls with reference to the aforesaid standalonefinancial statements under Clause (i) of Subsection 3 of Section 143 of the Companies Act2013 Opinion
We have audited the internal financial controls with reference to financial statementsof Hero MotoCorp Limited ("the Company") as of 31 March 2019 in conjunction withour audit of the standalone financial statements of the Company for the year ended on thatdate.
In our opinion the Company has in all material respects adequate internal financialcontrols with reference to financial statements and such internal financial controls wereoperating effectively as at 31 March 2019 based on the internal financial controls withreference to financial statements criteria established by the Company considering theessential components of internal control stated in the Guidance Note on Audit of InternalFinancial Controls Over Financial Reporting issued by the Institute of CharteredAccountants of India (the "Guidance Note").
Management' s Responsibility for Internal Financial Controls
The Company's management and the Board of Directors are responsible for establishingand maintaining internal financial controls based on the internal financial controls withreference to financial statements criteria established by the Company considering theessential components of internal control stated in the Guidance Note. Theseresponsibilities include the design implementation and maintenance of adequate internalfinancial controls that were operating effectively for ensuring the orderly and efficientconduct of its business including adherence to company's policies the safeguarding ofits assets the prevention and detection of frauds and errors the accuracy andcompleteness of the accounting records and the timely preparation of reliable financialinformation as required under the Companies Act 2013 (hereinafter referred to as"the Act").
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 and the Standards on Auditing prescribed undersection 143(10) of the Act to the extent applicable to an audit of internal financialcontrols with reference to financial statements. Those Standards and the Guidance Noterequire that we comply with ethical requirements and plan and perform the audit to obtainreasonable assurance about whether adequate internal financial controls with reference tofinancial statements were established and maintained and whether such controls operatedeffectively in all material respects.
Our audit involves performing procedures to obtain audit evidence about the adequacy ofthe internal financial controls with reference to financial statements and their operatingeffectiveness. Our audit of internal financial controls with reference to financialstatements included obtaining an understanding of such internal financial controlsassessing 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 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
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 reasonabledetailaccuratelyandfairlyreflectthe transactions and dispositions of the assets of the company; (2) provide reasonableassurance that transactions are recorded as necessary to permit preparation of financialstatements in accordance with generally accepted accounting principles and that receiptsand expenditures of the company are being made only in accordance with authorisations ofmanagement and directors of the company; and (3) provide reasonable assurance regardingprevention or timely detection of unauthorised acquisition use or disposition of thecompany' s assets that could have a material effect on the financial statements.
Inherent Limitations of Internal Financial controls with Reference to FinancialStatements
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.
| ||For B S R & Co. LLP |
|ICAI Firm's registration No.: 101248W/W-100022 ||Chartered Accountants |
| ||Jiten Chopra |
|Place: New Delhi ||Partner |
|Date: 26 April 2019 ||Membership No.: 092894 |