To The Members of
IIFL Finance Limited (formerly Known as IIFL Holdings Limited)
Report on the Audit of the Standalone Ind AS financial statements
We have audited the standalone Ind AS financial statements of IIFL Finance Limited (formerlyknown as IIFL Holdings Limited) ("the Company") which comprise the BalanceSheet as at 31st March 2021 the Statement of Profit and Loss (including OtherComprehensive Income) Statement of Changes in Equity and Statement of Cash Flows for theyear then ended and notes to the financial statements including a summary of significantaccounting policies and other explanatory information (hereinafter referred to as"the financial statements").
In our opinion and to the best of our information and according to the explanationsgiven to us the aforesaid financial statements give the information required by theCompanies Act 2013 (the "Act") in the manner so required and give a true andfair view in conformity with Indian Accounting Standards prescribed under section 133 ofthe Act read with the Companies (Indian Accounting Standards) Rules 2015 as amended("Ind AS") and other accounting principles generally accepted in India of thestate of affairs of the Company as at March 31 2021 profit total comprehensive incomechanges in equity and its cash flows for the year ended on that date.
BASIS FOR OPINION
We conducted our audit of the financial statements in accordance with the Standards onAuditing (SAs) specified under section 143(10) of the Companies Act 2013. Ourresponsibilities under those Standards are further described in the Auditor'sResponsibilities for the Audit of the financial statements section of our report. We areindependent of the Company in accordance with the Code of Ethics issued by the Instituteof Chartered Accountants of India ("ICAI") 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 ICAI's Code ofEthics. We believe that the audit evidence we have obtained is sufficient and appropriateto provide a basis for our opinion on the financial statements.
EMPHASIS OF MATTER
We draw attention to Note 8.3 to the Standalone Financial Statements whichfully describes that the Company has recognised impairment on financial assets to reflectthe business impact and uncertainties arising from the COVID 19 pandemic. Such estimatesare based on current facts and circumstances and may not necessarily reflect the futureuncertainties and events arising from the full impact of the COVID 19 pandemic.
Our opinion is not modified in respect of this matter.
Key Audit Matters
Key audit matters other than those Emphasis of Matter Paragraph above that in ourprofessional judgment were of most significance in our audit of the standalone financialstatements of the current period. These matters were addressed in the context of our auditof the standalone financial statements as a whole and in forming our opinion thereon andwe do not provide a separate opinion on these matters. We have determined the mattersdescribed below to be the key audit matters to be communicated in our report.
|Key Audit Matter ||Response to Key Audit Matter |
|1 Information technology (IT) systems used in financial reporting process. ||We obtained an understanding of the Company's IT control environment relevant to the audit. |
|The Company's operational and financial processes are dependent on IT systems due to large volume of transactions that are processed daily. ||We tested the design implementation and operating effectiveness of the Company's General IT controls over the key IT systems which are critical to financial reporting. |
|We therefore identified IT systems and controls over financial reporting as a key audit matter for the Company. ||We also tested key automated and manual controls and logic for system generated reports relevant to the audit that would materially impact the financial statements. |
| ||In addition to above we have also relied on the work of the internal auditors and system auditors. |
|2 Impairment of Financial Assets held at amortised cost: || |
|Since the loans and advances form a major portion of the Company's assets and due to the significance of the judgments used in classifying loans and advances into various stages as stipulated in Indian Accounting Standard (IND AS) 109 and the management estimation of the related impairment provisions. this is considered to be a key audit matter. ||We evaluated appropriateness of the impairment principles used by management based on the requirements of Ind AS 109 our business understanding. |
|The Company's impairment allowance is derived from estimates including the historical default and loss ratios. ||We assessed the design and implementation of key internal financial controls over loan impairment process used to calculate the impairment charge. |
|Management exercises judgement in determining the quantum of loss based on a range of factors ||We evaluated management's controls over collation of relevant information used for determining estimates for management overlays. |
|The most significant areas are: ||We tested review controls over measurement of impairment allowances and disclosures in financial statements. |
|- Segmentation of loan book || |
|- Determination of exposure at default || |
|- Loan staging criteria || |
|- Calculation of probability of default / Loss given default || |
|- Consideration of probability weighted scenarios and forward looking macro-economic factors || |
|The application of ECL model requires several data inputs. This increases the risk of completeness and accuracy of the data that has been used to create assumptions in the model. || |
|Refer Note 36A.3 to the Financial Statements. || |
Information Other than the Financial Statements and Auditor's Report Thereon
The Company's Board of Directors is responsible for the preparation of the otherinformation. The other information comprises the information included in the Board'sReport including Annexures to Board's Report and Management Discussion and Analysis reportbut does not include the financial statements and our auditor's report thereon. TheDirector's report and Management Discussion and Analysis report is expected to be madeavailable to us after the date of this auditor's report.
Our opinion on the financial statements does not cover the other information and we donot express any form of assurance conclusion thereon.
In connection with our audit of the financial statements our responsibility is to readthe other information and in doing so consider whether the other information ismaterially inconsistent with the financial statements or our knowledge obtained in theaudit or otherwise appears to be materially misstated.
When we read the Director's report and Management Discussion and Analysis report if weconclude that there is a material misstatement therein we are required to communicate thematter to those charged with governance as required under SA 720 'The Auditor'sresponsibilities Relating to Other Information'.
Responsibilities of Management and Those Charged with Governance for the FinancialStatements
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 financial statements that givea true and fair view of the financial position financial performance total comprehensiveincome changes in equity and cash flows of the Company in accordance with the accountingprinciples generally accepted in India including the Indian accounting standardsspecified under Sec 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 accounting policies; makingjudgments and estimates that are reasonable and prudent; and design implementation andmaintenance of adequate internal financial controls that were operating effectively forensuring the accuracy and completeness of the accounting records relevant to thepreparation and presentation of the financial statements that give a true and fair viewand are free from material misstatement whether due to fraud or error.
In preparing the financial statements management is responsible for assessing theCompany's ability to continue as a going concern disclosing as applicable mattersrelated to going concern and using the going concern basis of accounting unless themanagement either intends to liquidate the Company or to cease operations or has norealistic alternative but to do so.
The Board of Directors are also responsible for overseeing the Company's financialreporting process.
Auditor's Responsibilities for the Audit of the Financial Statements
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.
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 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 financial controls relevant to the audit inorder to design audit procedures that are appropriate in the circumstances. Under section143(3)(i) of the Act we are also responsible for expressing our opinion on whether theCompany has adequate internal financial controls system in place and the operatingeffectiveness 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.
Obtain sufficient appropriate audit evidence regarding the financial informationof the Company to express an opinion on the standalone financial statements.
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 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.
Report on Other Legal and Regulatory Requirements
1. As required by the Companies (Auditor's Report) Order
2016 ("the Order") issued by the Central Government in terms of Section143(11) of the Act we give in "Annexure A" a statement on the matters specifiedin paragraphs 3 and 4 of the Order to the extent applicable.
2. As required by Section 143(3) of the Act we report that:
a) We have sought and obtained all the information and explanations which to the bestof our knowledge and belief were necessary for the purposes of our audit of the financialstatements.
b) In our opinion proper books of account as required by law have been kept by theCompany so far as it appears from our examination of those books
c) The Balance Sheet the Statement of Profit and Loss (including Other ComprehensiveIncome) the Statement of changes in Equity and the Statement of Cash Flows dealt with bythis Report are in agreement with the books of account maintained for the purpose orpreparation of the financial statements.
d) In our opinion the aforesaid financial statements comply with the Ind AS specifiedunder section 133 of the Act read with Rule 7 of the Companies (Accounts) Rules 2014.
e) On the basis of the written representations received from the directors as on 31stMarch 2021 taken on record by the Board of Directors none of the directors isdisqualified as on 31st March 2021 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 over financialreporting of the Company and the operating effectiveness of such controls refer to ourseparate Report in "Annexure B".
g) With respect to the other matters to be included in the Auditor's Report inaccordance with the requirements of section 197(16) of the Act as amended
In our opinion and to the best of our information and according to the explanationsgiven to us the remuneration paid by the Company to its managing director during the yearis in accordance with the provisions of section 197 of the Act.
h) 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 financial statements- Refer Note No 37 of the financial statements.
(ii) The Company has made provision as required under the applicable law or accountingstandards for material foreseeable losses if any on long-term contracts includingderivative contracts;
(iii) There has not been any delay in transferring amounts which requires to betransferred to the Investor Education and Protection Fund by the Company.
ANNEXURE A TO THE INDEPENDENT AUDITOR'S REPORT
Annexure referred to in our report of even date to the members of IIFL Finance Limited(formerly known as IIFL Holdings Limited) on the accounts for the year ended 31st March2021
(i) (a) The Company is maintaining proper records showing full particulars includingquantitative details and situation of fixed assets.
(b) As explained to us the Company has a phased programme of verification of fixedassets once in 3 years which in our opinion is reasonable considering the size of theCompany and nature of its fixed assets. Based on the information and explanation given tous and on verification of the records of the Company the Company has physically verifiedthe fixed assets during the year and no material discrepancies were observed on suchverification.
(c) According to the information and explanations given to us and on the basis of ourexamination of the records of the Company the title deeds of immovable properties whichare freehold are held in the name of the Company.
(ii) The Company is not carrying on any trading or manufacturing activity. ThereforePara 3(ii) of the Order is not applicable to the Company
(iii) The Company has granted loans unsecured to 4 companies covered in the registermaintained under Section 189 of the Companies Act 2013:
(a) In our opinion the rate of interest and other terms and conditions on which theloans had been granted to the Companies were not prima facie prejudicial to theinterests of the Company;
(b) The borrowers have been regular in the payment of the principal and interest asstipulated;
(c) There are no overdue amounts as at the balance sheet date in respect of theseloans.
(iv) The Company is registered Non-Banking Finance
Company to which the provisions of section 185 and 186 of the Act are not applicableand hence reporting under clause (iv) is not applicable
(v) The Company has not accepted any deposits from the public within the meaning ofSection 73 to 76 or any other relevant provisions of the Act and Rules framed thereunder.We are informed that no order has been passed by the Company Law Board or National CompanyLaw Tribunal or Reserve Bank of India or any court or other tribunal.
(vi) The maintenance of cost records has not been specified by Central Government underSection 148(1) of the Companies Act2013 for the Company.
(vii) (a) According to the information and explanations given to us the Company isgenerally regular in depositing undisputed statutory dues including provident fundemployees state insurance income tax service tax sales tax value added tax goods andservices tax cess and other statutory dues as applicable to the Company with theappropriate authorities. We are informed that the provisions of Sales Tax Customs Dutyand Excise Duty are not applicable to the Company. There were no undisputed amountspayable in respect of Provident Fund Employees' State Insurance Income-tax Goods andServices Tax cess and other material statutory dues in arrears as at 31 March 2021 for aperiod of more than six months from the date they became payable.
(b) According to the information and explanations given to us and records of theCompany examined by us there are no cases of non-deposit of disputed dues of sales tax orduty of customs or duty of excise. According to the information and explanations given tous the following dues of income tax service tax and Goods and service tax have not beendeposited by the Company on account of dispute as at March 312021:
|Name of Statute ||Nature of Dues ||Forum where Dispute is Pending ||Period to which the Amount Relates ||Amount Unpaid (Rs. in Million) ||Amount Deposited under protest (Rs. in Million) |
|Income Tax Act 1961 ||Income Tax ||Bombay High Court ||AY 2008-09 ||- ||21.97 |
|Income Tax Act 1961 ||Income Tax ||Bombay High Court ||AY 2009-10 ||- ||18.70 |
|Income Tax Act 1961 ||Income Tax ||CIT(A) ||AY 2010-11 ||21.95 ||40.60 |
|Income Tax Act 1961 ||Income Tax ||CIT(A) ||AY 2011-12 ||25.39 ||14.80 |
|Income Tax Act 1961 ||Income Tax ||CIT(A) ||AY 2012-13 ||80.28 ||41.89 |
|Income Tax Act 1961 ||Income Tax ||CIT(A) ||AY 2013-14 ||9.64 ||42.61 |
|Income Tax Act 1961 ||Income Tax ||CIT(A) ||AY 2016-17 ||76.84 ||- |
|Income Tax Act 1961 ||Income Tax ||CIT(A) ||AY 2017-18 ||38.50 ||21.73 |
|Income Tax Act 1961 ||Income Tax ||ITAT ||AY 2012-13 ||- ||5.85 |
|Income Tax Act 1961 ||Income Tax ||ITAT ||AY 2013-14 ||- ||3.83 |
|Income Tax Act 1961 ||Income Tax ||ITAT ||AY 2014-15 ||- ||- |
|Income Tax Act 1961 ||Income Tax ||ITAT ||AY 2016-17 ||- ||13.95 |
|Income Tax Act 1961 ||Income Tax ||ITAT ||AY 2017-18 ||- ||48.63 |
|The Finance Act 1994 ||Service tax ||Adjudicating Authority ||Apr 2007 to March 2012 ||2.24 ||0.04 |
|The Finance Act 1994 ||Service tax ||CESTAT Mumbai ||April 2007 to 13 May 2008 ||126.76 ||2.15 |
|The Finance Act 1994 ||Service tax ||CESTAT Mumbai ||July 2012 to March 2014 ||150.77 ||3.39 |
|The Finance Act 1994 ||Service tax ||CESTAT Mumbai ||July 2012 to March 2014 ||316.81 ||13.34 |
|Goods and Service tax Act ||GST ||GST Appeal Mumbai ||01st July '17 to 31st March '19 ||1.99 ||- |
(viii) According to the information and explanation given to us and based on our auditprocedures the Company has not defaulted in repayment of loans or borrowings to financialinstitutions banks government or dues to debenture holders.
(ix) According to the information and explanations given to us money raised by way ofpublic issue of Non -Convertible Debenture and term loans have been applied by the Companyduring the year for the purposes for which they were raised other than temporarydeployment pending application of proceeds.
(x) During the course of our examination of the books and records of the Companycarried out in accordance with generally accepted auditing practices in India andaccording to the information and explanations given to us there have been instances offraud on the Company by its employees amounting to Rs. 126.71 million. No fraud by theCompany has been noticed or reported during the year nor have we been informed of anysuch case by the management.
(xi) According to the information and explanations given to us and based onverification of records the managerial remuneration has been paid in accordance with therequisite approvals mandated by the provisions of section 197 read with Schedule V of theCompanies Act 2013.
(xii) In our Opinion and according to the information and explanations given to us theCompany is not a Nidhi Company and hence clause (xii) of the order is not applicable tothe Company.
(xiii) According to the information and explanation given to us and based onverification of the records and approvals of the Audit Committee all transactions withthe related parties are in compliance with sections 177 and 188 of Companies Act 2013where applicable and the details have been disclosed in the Financial Statements etc. asrequired by the applicable accounting standards.
(xiv) According to the information and explanations given to us and based on ourexamination of the records of the Company the Company has not made any preferentialallotment or private placement of shares or fully or partly convertible debentures hencereporting under clause (xiv) of CARO 2016 is not applicable to the Company.
(xv) In our opinion and according to the information and explanations given to usduring the year the Company has not entered into any non-cash transactions with itsdirectors or directors of its holding or subsidiary companies or persons connected withthem and hence provisions of section 192 of the Companies Act 2013 are not applicable.
(xvi) The Company is required to be registered under section 45-IA of the Reserve Bankof India Act 1934 and it has obtained the registration.
ANNEXURE B TO THE INDEPENDENT AUDITOR'S REPORT
Annexure referred to in our report of even date to the members of IIFL Finance Limited(formerly Known as IIFL Holding Limited) on the standalone accounts for the year ended31st March 2021
Report on the Internal Financial Controls under Clause (i) of Sub-section 3 of Section143 of the Companies Act 2013 ("the Act")
We have audited the internal financial controls over financial reporting of IIFLFinance Limited (formerly Known as IIFL Holding Limited ) ("the Company") as ofMarch 31st 2021 in conjunction with our audit of the standalone financial statements ofthe 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 responsibilities include the design implementation and maintenance of adequateinternal financial controls that were operating effectively for ensuring the orderly andefficient conduct of its business including adherence to company's policies thesafeguarding of its assets the prevention and detection of frauds and errors theaccuracy and completeness of the accounting records and the timely preparation ofreliable financial information as required under the Companies Act 2013.
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 Companies Act 2013 to the extentapplicable to an audit of internal financial controls both applicable to an audit ofInternal Financial Controls and both issued by the Institute of Chartered Accountants ofIndia. Those Standards and the Guidance Note require that we comply with ethicalrequirements and plan and perform the audit to obtain reasonable assurance about whetheradequate internal financial controls over financial reporting was established andmaintained and if such controls operated effectively in all material respects.
Our audit involves performing procedures to obtain audit evidence about the adequacy ofthe internal financial controls system over financial reporting and their operatingeffectiveness. Our audit of internal financial controls over financial reporting includedobtaining an understanding of internal financial controls over financial reportingassessing the risk that a material weakness exists and testing and evaluating the designand operating effectiveness of internal control based on the assessed risk. The proceduresselected depend on the auditor's judgement including the assessment of the risks ofmaterial misstatement of the financial statements whether due to fraud or error.
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 systemover financial reporting.
MEANING OF INTERNAL FINANCIAL CONTROLS OVER FINANCIAL REPORTING
A company's internal financial control over financial reporting is a process designedto provide reasonable assurance regarding the reliability of financial reporting and thepreparation of financial statements for external purposes in accordance with generallyaccepted accounting principles. A company's internal financial control over financialreporting 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 financial statements in accordance with generally accepted accountingprinciples and that receipts and expenditures of the Company are being made only inaccordance with authorisations of management and directors of the Company; and
(3) provide reasonable assurance regarding prevention or timely detection ofunauthorised acquisition use or disposition of the Company's assets that could have amaterial effect on the financial statements.
INHERENT LIMITATIONS OF INTERNAL FINANCIAL CONTROLS OVER FINANCIAL REPORTING
Because of the inherent limitations of internal financial controls over financialreporting including the possibility of collusion or improper management override ofcontrols material misstatements due to error or fraud may occur and not be detected.Also projections of any evaluation of the internal financial controls over financialreporting to future periods are subject to the risk that the internal financial controlover financial reporting may become inadequate because of changes in conditions or thatthe degree of compliance with the policies or procedures may deteriorate.
In our opinion the Company has in all material respects an adequate internalfinancial controls system over financial reporting and such internal financial controlsover financial reporting were operating effectively as at March 31 2021 based on theinternal control over financial reporting criteria established by the Company consideringthe essential components of internal control stated in the Guidance
Note on Audit of Internal Financial Controls Over Financial Reporting issued by theInstitute of Chartered Accountants of India.
|For V. SANKAR AIYAR & CO. |
|Chartered Accountants |
|(FRN 109208W) |
|UDIN: 21046050AAAADW4848 |
|Place: Mumbai |
|Date: May 062021 |