[Issued Consequent to Audit Enquiries vide letter dated 18.08.2021 by Office of theDirector General of Commercial Audit AG's Office Complex Saifabad Hyderabad and itsupersedes our Independent Auditor's Report dated 12th July 2021]
To the Members of HMT Limited
Report on Audit of the Standalone Ind AS Financial Statements
We have audited the Standalone Ind AS financial statements of HMT Limited ("theCompany") which comprise of Standalone Balance Sheet as at 31st March2021 the Standalone Statement of Profit and Loss Standalone Statement of Changes inEquity the Standalone Cash Flow Statement for the year then ended and notes to Ind ASfinancial statements including a summary of significant and other explanatory information.
In our opinion and to the best of our information and according to the explanationsgiven to us except for effects of the matters described in the Basis of Qualified Opinionsection of our report the aforesaid Standalone Ind AS financial statements give theinformation required by the Act in the manner so required and give a true and fair view inconformity with the accounting principles generally accepted in India: (a) in the case ofthe Standalone Balance Sheet of the state of affairs of the Company as at 31st March2021 and (b) in the case of the Standalone Statement of Profit and Loss including OtherComprehensive Income of the profit for the year ended on that date. (c) in the case ofthe Standalone Statement of Change in Equity the changes for the year ended on that date.
(d) in the case of Standalone Cash Flow Statement of the flow of cash in the Companyfor the year ended on that date.
Basis of Qualified Opinion:
1. Food Processing Machinery Unit
As per information and explanation given to us with regard to Inventory valuation asstated in Note No. 1.9 stock of raw material it is valued by adopting Weighted AverageCost method. However in the inventory statement provided for verification thecorrectness of rates of stock items could not be verified due to absence of sufficient andappropriate audit evidence. Owing to the nature of Company's records and in the absence ofsufficient audit evidence we are unable to ascertain any material departure from theWeighted Average Cost Method adopted by the company. Consequently we are unable toascertain its impact if any on the Standalone Ind AS financial statements.
2. Auxiliary Business Division Bengaluru
Indian Accounting Standards a. The inventory valuation as on 31.03.2021 includeinventories valued as per Valuation report dated 30.03.2020 amounting to Rs.26955167/-.Consequently we are unable to ascertain the impact due to deviation in Inventoryvaluation on the Standalone Ind AS Financial statements as on
31.03.2021. b. The unit has not carried out any assessment on Impairment of Fixedassets as required under Ind AS 36 Impairment of Assets. Consequently the impact if anyon impairment of Fixed assets on the Standalone Ind AS Financial statements cannot bequantified.
3. Corporate Head Office and Company as a whole: a. Non-confirmation ofbalances of Trade Receivables Loans and Advances Trade Payables and other CurrentLiabilities and its consequential impact if any on the Standalone Ind AS financialstatements cannot be quantified.
b. The Company has not disclosed the following items on the face of the Balance sheetas required in Schedule III of Companies Act 2013: i) Total outstanding dues of Micro andsmall enterprises ii) Current tax Asset/Liability. c. The Company has not provided statusquo of Nigeria Machine Tools Ltd. and Gujarat State Machine Tools Corporation Ltd. inwhich company has invested. Consequently we are unable to comment on the impact of thesame on Standalone Ind AS financial statements.
Indian Accounting Standards d. Employer and Employee contribution towards ProvidentFund is transferred and invested in Provident fund Trust which is a defined benefit plan.The company has not obtained Actuarial Valuation Report as per Ind-AS 19 and has notaccounted for actuarial gain or loss. e. The company for Impairment on Financial Assets asper Ind-AS 109 has to apply expected credit loss (ECL) model for measurement andrecognition of impairment loss. However as per the information and explanation given tous no ECL matrix was prepared for the period under audit for creating provision for lossallowance. Hence we are unable to ascertain its impact if any on the Standalone Ind ASfinancial statements.
The effect on revenue on all the above transactions are not ascertained.
We conducted our audit in accordance with the Standards on Auditing ("SAs")specified under section 143(10) of the Companies Act 2013 ("the Act"). Ourresponsibilities under those Standards are further described in the Auditor'sResponsibilities for the Audit of the Standalone Ind AS Financial Statements section ofour report. We are independent of the Company in accordance with the Code of Ethics issuedby the Institute of Chartered Accountants of India together with the ethical requirementsthat are relevant to our audit of the Standalone Ind AS financial statements under theprovisions of 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 qualified opinion.
Material Uncertainty Related to Going Concern:
Attention of the members is invited to Note 41 of the Standalone Ind AS financialstatements regarding the reasons for preparing these Standalone Ind AS financialstatements of the Company on going concern basis The appropriateness of the said basis isinter-alia dependent on the Company's ability to realise from sale of non-current assetsheld for sale support from Government of India and other business plans. We have reliedon the representation of the Company in this respect. Our opinion is not modified inrespect of this matter.
Key Audit Matters:
Key audit matters are those matters that in our professional judgment were of mostsignificance in our audit of the Standalone Ind AS financial statements for the financialyear ended March 31 2021. These matters were addressed in the context of our audit of theStandalone Ind AS financial statements as a whole and in forming our opinion thereon andwe do not provide a separate opinion on these matters. For each matter below ourdescription of how our audit addressed the matter is provided in that context. We havedetermined the matters described below to be the key audit matters to be communicated inour report. We have fulfilled the responsibilities described in the Auditor'sresponsibilities for the audit of the Standalone Ind AS financial statements section ofour report including in relation to these matters. Accordingly our audit included theperformance of procedures designed to respond to our assessment of the risks of materialmisstatement of the Standalone Ind AS financial statements. The results of our auditprocedures including the procedures performed to address the matters below provide thebasis for our audit opinion on the accompanying Standalone Ind AS financial statements.
|Key audit matters ||How our audit addressed the key audit matter |
|I. Merger of Tractor Division with Auxiliary Business Division Bengaluru. || |
|The Tractor division of HMT Ltd has been merged with Auxiliary Business division as resolved in the Board meeting dated 29.07.2020. ||Our Audit Procedures included the following: |
| ||? We have verified the Board meeting Resolution for merger of Tractor Division Pinjore with Auxiliary Business Division Bengaluru due to closure of Tractor Division. |
| ||? We have verified the actions taken by the company as per the Board resolution. |
| ||? We have examined the treatment of the transfer of Assets and Liabilities in Standalone Ind AS Financial statements and disclosure of the matter in the Notes to Accounts and the legal cases to be monitored by Auxiliary Business Division Bengaluru. |
| ||? We conclude that there are no material non compliances with the actions stated in the Board resolution. However physical verification of Fixed assets was last carried during Financial year 2016-17. |
Emphasis of Matter Paragraph
We draw your attention to Note No.45 of Standalone Ind AS financial statements for thefinancial year ended 31 st March 2021 on the impact of COVID -19 on the Businessoperations of the Company and its Financial Statements pursuant to the Accounting &Auditing Advisory issued by Institute of Chartered Accountants of India (The ICAI) onimpact of Corona Virus on Financial Reporting and the Auditor's Consideration. The Companyis of the view that the impact of Covid-19 lockdown is temporary and does not have anymaterial impact on its Standalone Ind AS Financial Statements as at 31.03.2021 and hencehas not made any provision in its books of account. Our opinion in this matter is notmodified.
Other Information ["Information Other than the Standalone Ind AS FinancialStatements and Auditor's Report Thereon"]
The Company's Board of Directors are responsible for the Other information. The otherinformation comprises the information included in the Company's Annual Report but does notinclude the Standalone Ind AS financial statements and our Auditor's report thereon. TheOther information is expected to be made available to us after the date of Auditor'sreport.
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 financial statements ourresponsibility is to read the Other information identified above when it becomes availableand in doing so consider whether the Other information is materially inconsistent withthe Standalone Ind AS financial statements or our knowledge obtained in the audit orotherwise appears to be materially misstated.
Management's Responsibility for Standalone Ind AS Financial 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 Ind AS financialstatements that give a true and fair view of the financial position financialperformance changes in equity and cash flows of the Company in accordance with theaccounting principles generally accepted in India including the accounting standardsspecified under section 133 of the Act. This responsibility also includes maintenance ofadequate accounting records in accordance with the provisions of the Act for safeguardingof the assets of the Company and for preventing and detecting frauds and otherirregularities; selection and application of appropriate implementation and maintenance ofaccounting 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 Ind AS financialstatement that give a true and fair view and are free from material misstatement whetherdue to fraud or error.
In preparing the Standalone Ind AS 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 for overseeing the Company's financialreporting process.
Auditor's Responsibilities for the Audit of the Standalone Ind AS Financial Statements:
Our objectives are to obtain reasonable assurance about doubt on whether the StandaloneInd AS financial statements as a whole are free from material misstatement whether due tofraud or error and to issue an auditor's report that includes our opinion. Reasonableassurance is a high level of assurance but is not a guarantee that an audit conducted inaccordance with SAs will always detect a material misstatement when it exists.Misstatements can arise from fraud or error and are considered material if individuallyor in the aggregate they could reasonably be expected to influence the economic decisionsof users taken on the basis of these Standalone Ind AS . financial statements As part ofan audit in accordance with SAs we exercise professional judgement and maintainprofessional scepticism through the audit. We also:
Identify and assess the risks of material misstatement of the Standalone Ind ASfinancial 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 to designaudit procedures that are appropriate in the circumstances. Under section 143(3)(i) of theAct 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 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 the ability of theCompany 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 Ind AS financial statements or if such disclosures are inadequate tomodify our opinion. Our conclusions are based on the audit evidence obtained up to thedate of our auditor's report. However future events or conditions may cause the Companyto cease to continue as a going concern.
Evaluate the overall presentation structure and content of the Standalone Ind ASfinancial statements including the disclosures and whether the Standalone Ind ASfinancial statements represent the underlying transactions and events in a manner thatachieves fair presentation.
We communicate with those charged with governance regarding among other matters theplanned scope and timing of the audit and significant audit including any significantdeficiencies in internal 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 financial statements of thecurrent period and are therefore the key audit matters. We describe these matters in ourauditor's report unless law or regulation precludes public disclosure about the matter orwhen 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.
Other Matters: i) We did not audit the financial statements/ information of FoodProcessing Machinery Unit Aurangabad included in these Standalone Ind AS financialstatements of the Company whose financial statements/financial information reflect totalassets of Rs. 1239.19 lakhs as at March 31 2021 and total revenues of Rs. 1928.10 lakhsfor the year ended on that date. The financial statements/ information of this branch hasbeen audited by the branch auditor M/s Modi & Agrawal Chartered AccountantsAurangabad whose report has been furnished to us and our opinion in so far as it relatesto the amounts and disclosures included in respect of this unit are based solely on thereport of such branch auditor.
ii) The physical share certificates for 260899037 equity shares and 44300000preference shares of HMT Machine Tools Ltd whose costs is Rs. 26089.90 Lakhs andRs.44300.00 lakhs respectively are not in the possession of the Company as at March 312021.
Report on Other Legal & 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 ofthe 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 the 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 purpose of our audit.
b. except for the effects of the matter described in the Basis for Qualified Opinionparagraph above proper books of account as required by law have been kept by the Companyso 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 Flows dealt with by this Report are in agreement with booksof account.
d. except for the effects of the matter described in the Basis for Qualified Opinionparagraph above in our opinion the aforesaid Standalone Ind AS financial statementscomply with the Indian Accounting Standards specified under Section 133 of the Act readwith Rule 7 of the Companies (Accounts) Rules 2014.
e. the company is a Government Company and in terms of Notificationreference No.G.S.463(E) dated 05th June 2015 issued by Ministry of Corporate Affairs for GovernmentCompanies the provision of Section 164 (2) of the Companies Act 2013 regardingdisqualifications of directors not applicable. Hence our comment on the same does notarise.
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. the company is a Government Company and in terms of Notificationreference No.G.S.R463(E) dated 05th June 2015 issued by Ministry of Corporate Affairs forGovernment Companies the provision of Section 197 of the Companies Act 2013 is notapplicable. Hence our comment on the same does not arise.
h. With respect to other matters to be included in the Auditors report in accordancewith rule 11 of the Companies (Audit and Auditors) Rules 2014 in our opinion and to thebest of our information and according to the explanations given to us
i) The Company has disclosed its pending litigations which would impact its financialis position in note 29 of the Standalone Ind AS financial statements.
ii) The Company did not have any long-term contracts as required under the applicablelaw or accounting standards and also not entered into any derivative contractsaccordingly no provision is required to be made in respect of material foreseeable losses.
iii) There were no amounts which were required to be transferred to the InvestorEducation and Protection Fund by the Company.
3. As required by Section 143 (5) of the Act our submissions are as under:
We give in the Annexure" C " a statement on thecompliance to Directions issued by the Comptroller and Audit General of India.
ANNEXURE-A REFERRED TO IN PARAGRAPH 1 UNDER THE HEADING "REPORT ON OTHER LEGAL ANDREGULATORY REQUIREMENTS" OF OUR REPORT TO THE MEMBERS OF HMT
i) a) The Company has maintained proper records showing full particulars includingquantitative details and situation of Property Plant & Equipment ("PPE").
b) Based on the information and explanation given to us by the Company physicalverification is carried out once in 3 years and is reasonable considering size of thecompany. However in Auxiliary Business Division the fixed assets of Auxiliary BusinessDivision have been physically verified as per the policy by the management during theFinancial year 2019-20. However physical verification of the Fixed assets of Tractordivision merged with Auxiliary Business Division was carried out during financial year2016-17. In our opinion the division has to make arrangements for physical verificationassets belonging to TRP division merged with Auxiliary Business Division. Further nomaterial discrepancies were noticed in the case of Fixed assets of Auxiliary BusinessDivision but since we do not have latest physical verification report of
Tractor division we are unable to comment on the discrepancy if any on Fixed assetsof Tractor division.
c) According to the information and explanation given to us by the Company read withfoot note to note 3B and foot notes to note 3C of the Standalone Ind AS financialstatements title deed of all immovable properties are held in the name of the Companyexcept:
i. as per the information and explanations given to us and based on our examinationthe building disclosed in Auxiliary Business Division is on the portion of the landdisclosed in CHO
ii. the Branch Auditor has reported that the following property held by Food Processingof Machinery Unit of the company is under dispute as the land has been encroached upon.The matter is pending with the High Court as stated in Note No. 3A of the Standalone IndAS Financial Statements.
|Nature of the property ||Whether Leasehold/ freehold ||Gross Block as on 31st March 2021 ||Net Block as on 31st March 2021 |
|Leasehold land from CIDCO ||Leasehold land ||Rs.500000/- ||Re.1/- |
ii) The management during the year has physically verified the inventory at reasonableintervals at respective units. The discrepancies that were noticed during the physicalverification of Inventory were not material and the same has been properly adjusted in therespective unit books of account. However the physical verification of inventoriesbelonging to Tractor division merged with Auxiliary Business Division was not conductedand hence we are unable to comment on the discrepancies if any and its impact onStandalone Ind AS Financial statements.
iii) In respect of the unsecured loans granted by the Company to companies covered inthe register maintained under section 189 of the Act:
a) In our opinion and according to information and explanation furnished to us theterms and conditions of the loan given by the Company is prima facie not prejudicial tothe interest of the Company.
b) According to information and explanation furnished to us by the Company there is nospecific repayment specified by the Company.
c) There is an overdue interest for financial year 2017-18 2018-19 2019-20 and 2020-21.
iv) In our opinion and according to information and explanation furnished to us theCompany has complied with the provisions of Section 185 and 186 of the Act with respectto loans and investment made.
v) The Company has not accepted any deposits from the public. Hence our comment on thecompliance of provisions of sections 73 to 76 or any other relevant provisions of theCompanies Act 2013 and the rules framed thereunder does not arise. The Company Law Boardor National Company Law Tribunal or Reserve Bank of India or any court or any othertribunal has not passed any order and hence our comment on the same does not arise
vi) In our opinion and according to information and explanations furnished to us inour opinion the Central Government has not prescribed maintenance of cost records undersub section(1) of section 148 of companies act 2013 in respect of company's products.
vii) a) According to the information and explanations provided to us Custom Duty andExcise duty does not apply to this company for the year under review.
According to the information and explanations given to us and on the basis of ourexamination of the records of the Company amounts deducted/ accrued in the books ofaccount in respect of undisputed statutory dues including income tax GST have generallybeen regularly deposited by the Company with the appropriate authorities though there hasbeen a slight delay in few cases. As per our verification and according to the informationand explanation given to us there are no undisputed statutory dues except the followingstatutory dues which remained outstanding as at 31st March 2021 for a period more thansix months from the date they became payable:
|Sl. No. Nature of the Statute ||Nature of Dues ||Amount (Rs. in lakhs) |
|In respect of Corporate Head Office: || || |
|1. Greater Hyderabad Municipal Corporation ||Property tax ||359.60 |
|2 Sales Tax of various states ||Sales tax recovery of Lamps Division ||62.93 |
|In respect of Auxiliary Business Division: || || |
|3 Goods & Service Tax ||Tax Deducted at Source on GST ||1.83 |
|4 Goods & Service Tax ||Goods & Service Tax ||0.59 |
|5 Employee State Insurance ||Employee State Insurance ||2.34 |
|6 Employee Provident Fund ||Provident Fund ||82.99 |
|7 VAT/CST ||Interest on VAT/CST ||22.07 |
|In respect of Food Processing Machinery Unit: || || |
|8 Employee Provident Fund ||Provident Fund ||23.44 |
b) According to the information and explanation given to us by the Company there areno dues outstanding on account of any disputes in respect of statutory dues as at 31stMarch 2021 except the following:
|Name of the Statute ||Nature of Dues ||Amount (Rs.in lakhs) ||Amount paid under protest (Rs. in lakhs) ||Period to which the amount relates ||Forum where dispute is pending |
|Sales tax ||Sales tax liability ||2.49 ||Nil ||2012-13 ||Deputy Commissioner of Sales Tax Aurangabad |
|Haryana Local Area Development Tax Ordinance 2000 ||Haryana Local Area Development Tax ||486.18 ||Nil ||From 2005 to 2015 ||Honorable High court of Punjab and Haryana |
viii) According to the records of the company examined by us and as per the informationand explanation given to us the company has not issued debentures and also not availedloans from financial institutions / banks during the year other than loan from Governmentof India which was taken and defaulted as reported below:
|Particulars ||Amount of default as at the balance sheet date (Rs. In Lakhs) ||Amount of instalment and period of default |
|i) Government of India Loan ||24294.00 ||a) Rs.607360000/- due since 21.01.2018. |
|[Interest Free] dated 21.01.2017 || ||b) Rs.607360000/- due since 21.01.2019. |
| || ||c) Rs.607360000/- due since 21.01.2020. |
| || ||d) Rs.607360000/- due since 21.01.2021. |
|ii) Government of India Loan ||19200.00 ||a) Rs.480000000/- due since 16.02.2018. |
|[Interest Free] dated 16.02.2017 || ||b) Rs.480000000/- due since 16.02.2019. |
| || ||c) Rs.480000000/- due since 16.02.2020. |
| || ||d) Rs.480000000/- due since 16.02.2021. |
|e) Government of India Loan ||5874.00 ||a) Rs.195800000/- due since 29.04.2018. |
|[Interest Free] dated 29.04.2017 || ||b) Rs.195800000/- due since 29.04.2019. |
| || ||c) Rs.195800000/- due since 29.04.2020. |
ix) In our opinion based on the information and explanation given to us the Companyhas not raised any moneys by way of initial public offer or further public offer(including debt instruments) and term loans during the year. Hence comment on the samedoes not arise.
x) According to the information and explanation given to us there are no fraudsreported by the Company or any fraud on the Company by its officers or employees has beennoticed or reported during the year.
xi) Consequent to Notification reference no. G.S.R 463(E) dated 05th June 2015 issuedby Ministry of Corporate Affairs compliances on transactions under section 197 ofCompanies Act 2013 are not applicable to Government Companies.
xii) The Company is not a Nidhi Company and hence compliances specified in the NidhiRules 2014are not applicable.
xiii) In our opinion and according to the information and explanation given to us andas represented to us by the management all transactions with the related parties are incompliance with section 177 and 188 of the Act and the details have been disclosed in theStandalone Ind AS financial statements as required by the applicable Indian accountingstandards.
xiv) According to the information and explanations given to us and based on ourexamination of the records of the Company it has not made any preferential allotment ofequity shares and hence our comment on compliance with the provisions of section 62 andsection 42 of Companies Act 2013 does not arise.
xv) According to the information and explanations given to us and based on ourexamination of the records of the Company it has not entered into any non-cashtransactions with directors or persons connected with him and hence the compliance ofprovisions of section 192 of Companies Act 2013 on this matter does not arise.
xvi) The Company is not required to be registered under section 45-IA of the ReserveBank of India Act 1934.
ANNEXURE-B REFERRED TO IN PARAGRAPH 2 (f) UNDER THE HEADING "REPORT ON OTHER LEGALAND REGULATORY REQUIREMENTS" OF OUR REPORT TO THE
MEMBERS OF HMT LIMITED.
Report on the Internal Financial Controls under Clause (i) ofSub-section 3 ofSection
143 of the Companies Act 2013 ("the Act"):
We have audited the internal financial controls over financial reporting of HMT Limited("the Company") as of March 31 2021 in conjunction with our audit of theStandalone Ind AS financial 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 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 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 Companies Act 2013 ("the 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 issued by ICAI and 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 Institute of Chartered Accountants of India. Those Standards andthe Guidance Note require that we comply with ethical requirements and plan and performthe audit to obtain reasonable assurance about whether adequate internal financialcontrols over financial reporting was established and maintained and if such controlsoperated effectively in all material respects. Our audit involves performing procedures toobtain audit evidence about the adequacy of the internal financial controls system overfinancial reporting and their operating effectiveness. Our audit of internal financialcontrols over financial reporting included obtaining an understanding of internalfinancial controls over financial reporting 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 theStandalone Ind AS financial statements whether due to fraud or error. We believe that theaudit evidence we have obtained is sufficientand appropriate to provide a basis for ouraudit opinion on the Company's internal financial controls system over financialreporting.
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 Ind AS financial statements for external purposes in accordancewith generally 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 Ind AS financial statements in accordance with generallyaccepted accounting principles and that receipts and expenditures of the company arebeing made only in accordance with authorizations of management and directors of thecompany; and 3. provide reasonable assurance regarding prevention or timely detection ofunauthorized acquisition use or disposition of the company's assets that could have amaterial effect on the Standalone Ind AS financial statements. Inherent Limitations ofInternal Financial Controls Over Financial Reporting: Because of the inherent limitationsof internal financial controls over financial reporting including the possibility ofcollusion or improper management override of controls material misstatements due to erroror fraud may occur and not be detected. Also projections of any evaluation of theinternal financial controls over financial reporting to future periods are subject to therisk that the internal financial control over financial reporting may become inadequatebecause of changes in conditions or that the degree of compliance with the policies orprocedures 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 2021 based oninternal financial control over financial reporting criteria established by the Companyconsidering the essential components of internal control stated in the Guidance Note onAudit of Internal Financial Controls over Financial Reporting issued by the Institute ofChartered Accountants of India except:
Company as a Whole:
1. The company did not have adequate appropriate internal controls for reconcilinginventories and obtaining balance confirmation from sundry debtors sundry creditors andother parties. This could potentially result a material weakness in financial reportingprocess of debtors creditors and other parties.
In case of Food Processing Machinery Unit Aurangabad the branch auditor has reportedin the following manner:
2. There is no appropriate internal control system for inventory as there is nointegration between financial accounting module and inventory module. The valuation ofinventory is done in inventory module.
As explained to us stock is valued by adopting Weighted Average Cost method. Howeveron scrutiny the rates could not be verified due to absence of relevant records such asPurchase Invoices Purchase orders etc. Further the internal control system foridentification and allocation overheads to inventory was also not adequate. These couldpotentially result in material misstatements in the company's consumption inventory andexpense account balances.
3. Fixed assets have not been physically verified by the management during the yearunder consideration. An effective internal financial control may be evolved to ensure thatthere should not be any mismatch between fixedassets register and physical sets withrespect to the make of the asset serial number and location which could potentiallyresult in a material weakness in the process of verification of fixed assets.
As per information and explanations given to us verification of fixed assets was donein May 2020 subsequent to balance sheet date report of the same not produced forverification purpose.
4. We were not provided with the returns and corresponding supporting workings ofstatutory returns and its compliances under GST TDS PF PT ESIC etc. It was observedthat compliance was not done by the company within the due date under the respective Acts.Appropriate controls needs to be established in this area.
For SSB & Associates
Firm's Regn.No. :010372S
Membership Number: 207783