|BSE: 530773||Sector: Infrastructure|
|NSE: IVRCLINFRA||ISIN Code: INE875A01025|
|BSE 00:00 | 30 Aug||IVRCL Ltd|
|NSE 05:30 | 01 Jan||IVRCL Ltd|
|BSE: 530773||Sector: Infrastructure|
|NSE: IVRCLINFRA||ISIN Code: INE875A01025|
|BSE 00:00 | 30 Aug||IVRCL Ltd|
|NSE 05:30 | 01 Jan||IVRCL Ltd|
To the Members of IVRCL Limited
Report on the Audit of the standalone Financial Statements Disclaimer of Opinion
We were engaged to audit the accompanying standalone financial statements of IVRCLLimited ("the Company") which comprise the Balance Sheet as at March 31 2019and the Statement of Profit and Loss (including Other Comprehensive Income) Statement ofChanges in Equity and Statement of Cash Flows for the year then ended and notes to thestandalone financial statements including a summary of significant accounting policiesand other explanatory information for the year then ended in which are incorporated theunaudited branch returns for the year ended on that date of the Company's branch atKingdom of Saudi Arabia ('the branch').
We do not express an opinion on the accompanying standalone financial statements of theCompany. Because of the significance of the matters described in the Basis for Disclaimerof Opinion section of our report we have not been able to obtain sufficient appropriateaudit evidence to provide a basis for an audit opinion on these standalone financialstatements.
Basis for Disclaimer of Opinion
We refer to following notes to standalone financial statements:
a. Note 38 to the standalone financial statements in respect of preparation offinancial statements of the Company on going concern basis for the reasons stated thereinand expiry of timeline to complete the process of CDR/ SDR. During the year the Companyhas incurred a Net Loss of Rs 15452.08 million resulting into accumulated losses of Rs57217.03 million and erosion of its Net worth as at March 31 2019. The Company hasobligations towards fund based borrowings aggregating to Rs 92580.77 million and non-fundbased exposure aggregating to Rs 8870.28 million operational creditors and statutorydues subject to reconciliation/ verification as stated in Note 43 that have beendemanded/recalled by the financial/operating creditors pursuant to ongoing CorporateInsolvency Resolution Process (CIRP). These conditions indicate the existence of amaterial uncertainty that may cast significant doubt on the Company's ability to continueas going concern and therefore the Company may be unable to realize its assets anddischarge its liabilities in the normal course of business. The ultimate outcome of thesematters is at present not ascertainable. Accordingly we are unable to comment on theconsequential impact if any on the accompanying standalone financial statements.
b. Note 39 to the standalone financial statements in respect of recognition ofdeferred tax assets on account of carried forward unused tax losses and other taxabletemporary differences aggregating to Rs 9570.59 million.
Based on unexecuted orders on hand the Management of the Company is confident thatsufficient future taxable income will be available against which such deferred tax assetswill be realized. However in our opinion in absence of convincing evidence thatsufficient future taxable income will be available against which such deferred tax assetscan be realized such recognition is not in accordance with Indian Accounting Standard 12"Income Taxes" (Ind AS 12). Had the aforesaid deferred tax assets not beenrecognised loss after tax for the year ended on March 31 2019 would have been higher byRs 9570.59 million and other equity would have been lower by Rs 9570.59 million.
c. Note 40 to the standalone financial statements in connection with the existence ofmaterial uncertainties over the realizability of bank guarantees encashed by customersunbilled revenue trade receivables and withheld amount aggregating to Rs 27000.76million included in financial and other assets which are past due/subject matters ofvarious disputes /arbitration proceedings/ negotiations with the customers and contractorsdue to termination / foreclosure of contracts and other disputes. The management is yet toassess the change in risk of default and resultant expected credit loss allowance on suchassets. Had the aforesaid assets been provided for impairment loss after tax for the yearended on March 31 2019 would have been higher by Rs 27000.76 million other equity wouldhave been lower by Rs 27000.76 million.
d. Note 41 to the standalone financial statements in respect of investment of Rs12063.29 million in subsidiaries engaged in BOT and other projects which are underdisputes with the concessionaire and other subsidiaries that have significant accumulatedlosses as at March 31 2019. In absence of fair valuation of these Investments we areunable to comment upon the carrying value these investments and the consequential impactif any on the accompanying standalone financial statements.
e. Note 42 to the standalone financial statements in respect of loans and advances ofRs 7215.75 million given to subsidiary Companies associate net receivable againstdevelopment rights various sub-contractors vendors and other parties. These advanceshaving regard to financial position of such subsidiary companies and age of such advancesin our opinion are doubtful of recovery. The management is yet to assess the change inrisk of default and resultant expected credit loss allowance on such loans and advances.Had the aforesaid assets been provided for impairment loss after tax for the year endedon March 31 2019 would have been higher by Rs 7215.75 million other equity would havebeen lower by Rs 7215.75 million.
f. Note 38 and 43 to the standalone financial statements in respect of various claimssubmitted by the financial creditors (including claims towards fund based and non-
Independent Auditor's Report
fund based exposure and claims on behalf of subsidiary companies and other parties)operational creditors workmen or employee and authorized representative of workmen andemployees of the Company to Resolution Professional pursuant to the Insolvency andBankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulation2016 that are currently under consideration/reconciliation. Pendingreconciliation/admission of such claims by the RP we are unable to comment on theconsequential impact if any on the accompanying statement;
g. Note 44 to the standalone financial statements in respect of non-availability ofconfirmations of bank balances trade receivables including retention loans and advancesborrowings trade payable and other payables. In absence of alternative corroborativeevidence we unable to comment on the extent to which such balances are recoverable.
h. Note 45 to the standalone financial statements in respect of non-availability ofphysical verification reports of fixed assets and inventories aggregating to Rs 1518.27million ( Written down value as at March 31 2019) and Rs 405.81 million respectively asat March 31 2019 and no provision for impairment has been made for the reasons statedtherein. In absence of any alternative corroborative evidence we are unable to comment onthe recoverability of the same.
i. Note 46 to the standalone financial statements in respect of balances availablewith statutory authorities and input credits aggregating to Rs 2120.56 million that aresubject to reconciliation filing of return and admission by the respective statutoryauthorities and no provision has been made thus we are unable to comment whether anyprovision for impairment in the value of advances is required.
j. Note 23 to the standalone financial statement in respect of periods of default inrepayment of borrowing and interest have not been provided to compliance the minimumpresentation and disclosure requirement as per the schedule III of the Companies Act2013.
In view of the matters stated above except para j of 'Basis for Disclaimer of Opinion'we are unable to obtain sufficient appropriate audit evidences regarding the extent of theloss allowance/impairment or potential liability to be recognised if any and theconsequential impact on the standalone financial statements as at and for the year endedMarch 31 2019. The matter stated above in para j of 'Basis for Disclaimer of Opinion'give rise to the inappropriateness of use of generally accepted accounting principles thatare applicable to the minimum presentation and disclosure requirement as per the scheduleIII of the Companies Act 2013. Accordingly we form a basis of disclaimer of opinion.
Emphasis of matters
Attention is invited to:
a. Note 47 to the standalone financial statements in respect of notice received by thecompany U/s 276 (B) of the Income tax Act 1961 and by certain banks and customers of thecompany U/s 226(3) of the Income Tax Act 1961 regarding failure to deposit the taxdeducted at source for the financial year 2016-17 and 2017-18 aggregating to Rs 292.52million.
b. Note 48 to the standalone financial statements in respect of summon received by thecompany of levy of damages U/s 14 B of the Employees' Provident Funds and MiscellaneousProvisions Act 1952 aggregating to Rs 61.27 million for the period from 10/1999 to02/2009 and 07/2009 to 03/2015 and the matter is presently sub-judice.
Our opinion is not qualified in respect of these matters 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. We have determined the matters described below to bethe key audit matters to be communicated in our report.
Information Other than the Financial Statements and Auditor's Report Thereon
In view of ongoing Corporate Insolvency Resolution Process (CIRP) The ResolutionProfessional ( RP) is responsible for the preparation of the other information. The otherinformation comprises the information included in the Management Discussion and AnalysisBoard's Report including Annexures to Board's Report Business Responsibility ReportCorporate Governance and Shareholder's Information but does not include the financialstatements and our auditor's report thereon. These reports are 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 during thecourse of our audit or otherwise appears to be materially misstated.
If based on the work we have performed we conclude that there is a materialmisstatement of this other information we are required to report that fact. We havenothing to report in this regard.
Management's Responsibility for the Standalone Financial Statements
The Hon'ble National Company Law Tribunal Hyderabad Bench ("NCLT") admittedan insolvency and bankruptcy petition filed by a financial creditor against IVRCL Limited("the Company") and appointed Mr. Sutanu Sinha to act as Interim ResolutionProfessional (IRP) with direction to initiate appropriate action contemplated with extentprovisions of the Insolvency and Bankruptcy Code 2016 and other related rules.
Pursuant to ongoing Corporate Insolvency Resolution Process (CIRP) powers of the boardof Directors have been suspended and these responsibilities are now vested with ResolutionProfessional (RP)
In view of ongoing Corporate Insolvency Resolution Process (CIRP) The ResolutionProfessional (RP)is responsible for the matters stated in Section 134(5) of the CompaniesAct 2013 ("the Act") with respect to the preparation and presentation of thesestandalone financial statements that give a true and fair view of the financial positionfinancial performance (including other comprehensive income) cash flows and changes inequity of the Company in accordance with the accounting principles generally accepted inIndia including the Indian Accounting Standards specified under Section 133 of the Actread with relevant Rules issued thereunder. This responsibility also includes maintenanceof adequate accounting records in accordance with the provisions of the Act forsafeguarding 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 managementeither intends to liquidate the company or to cease operations or has no realisticalternative but to do so. Under section 20 of the Code it is incumbent upon InterimResolution Professional to manage the operations of the Company as a going concern and thestatements have been prepared on going concern basis.
Our objectives are to obtain reasonable assurance about whether the standalonefinancial statements as a whole are free from material misstatement whether due to fraudor error and to issue an auditor's report that includes our opinion. Reasonable assuranceis a high level of assurance but is not a guarantee that an audit conducted in accordancewith SAs will always detect a material misstatement when it exists. Misstatements canarise from fraud or error and are considered material if individually or in theaggregate they could reasonably be expected to influence the economic decisions of userstaken on the basis of these standalone financial statements.
As part of an audit 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.
Materiality is the magnitude of misstatements in the financial statements thatindividually or in aggregate makes it probable that the economic decisions of areasonably knowledgeable user of the financial statements may be influenced. We considerquantitative materiality and qualitative factors in (i) planning the scope of our auditwork and in evaluating the results of our work; and (ii) to evaluate the effect of anyidentified misstatements in the 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.
a. We did not audit the separate financial statements of 3 joint ventures included instandalone financial statements whose financial results reflects company's share in netprofit of joint venture aggregating to Rs 6.17 million for the year ended March 31 2019.29 joint ventures were not considered in standalone financial statement. In our opinionand according to the information and explanations given to us by the Management thesefinancial statements /financials information in aggregate are not material to theCompany and have not been subjected to audit hence we are unable to comment on theconsequential impact if any on the accompanying statements.
b. We did not audit the financial statements/information of a branch at Kingdom ofSaudi Arabia included in the Standalone financial statements of the company whosefinancial statements/financial information reflects total assets of Rs 0.01 Million as atMarch 31 2019 and total revenue is NIL for the year ended on that date as considered instandalone financial statements.
Our opinion is not qualified in respect of these matters
Report on Other Legal and Regulatory Requirements
1. As required by the Companies (Auditor's Report) Order 2016 ("the Order")as amended issued by the Central Government of India in terms of section 143 (11) of theAct we give in the "Annexure A" a statement on the matters specified inparagraphs 3 and 4 of the Order.
2. As required by section 143 (3) of the Act we report that:
a) We have sought all the information and explanations which to the best of ourknowledge and belief were necessary for the purposes of our audit. However as describedin the Basis for
Disclaimer of Opinion paragraph we are unable to obtain all the information andexplanations which to the best of our knowledge and belief were necessary for the audit;
b) Due to the effects/possible effects of the matters described in the Basis forDisclaimer of Opinion paragraph we are unable to state whether proper books of account asrequired by law have been kept by the Company so far as it appears from our examination ofthose books and unaudited accounts/returns adequate for the purpose of our audit have beenreceived from the branch not visited by us.
c) The Balance Sheet the Statement of Profit and Loss (including other comprehensiveincome) the Cash Flow Statement and the Statement of Changes in Equity dealt with by thisReport are in agreement with the books of account and the unaudited accounts/returns ofthe branches not visited by us.
d) Due to the effects/possible effects of the matters described in the Basis forDisclaimer of Opinion paragraph we are unable to state whether the aforesaid standalonefinancial statements comply with the Accounting Standards specified under Section 133 ofthe Act.
e) Due to the effects/possible effects of the matters described in the Basis forDisclaimer of Opinion paragraph we are unable to state whether they have any adverseeffect on the functioning of the Company;
f) In the term of section 17 (1) (b) of the Insolvency and Bankruptcy Code 2016("the Code") the powers of the board of directors have been suspended and beexercised by the resolution professional. Hence written representation from directorshave not been taken on record by the Board of Directors. Accordingly we are unable tocomment whether none of the director is disqualified as on March 31 2019 from beingappointed as a director in the terms of Section 164 (2) of the Act.
g) The qualification relating to the maintenance of accounts and other mattersconnected there with are as stated in the Basis for Qualified Opinion paragraph;
h) 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". Our report expresses a qualified opinion on the adequacyand operating effectiveness of the Company's internal financial control over financialreporting.
i) 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 information and explanations givento us:
i. The Company has disclosed the impact of pending litigations on its financialposition to the extent ascertained in its standalone financial statements (Refer note35);
ii. Except for the effects/possible effects of matters described under basis ofqualified opinion paragraph the Company has made provision as required under theapplicable law or accounting standards for material foreseeable losses if any onlong-term contracts. The Company did not have any derivative contracts;
iii. There has been no delay in transferring the amounts that were due to betransferred to the Investor Education and Protection Fund by the Company during the yearended March 31 2019;
iv. In our opinion and according to the information and explanation given to us theremuneration paid during the current year by the Company is in accordance with theprovisions of Section 197 of the Act. The Ministry of Corporate Affairs has not prescribedother details under Section 197(16) which are required to be commented upon by us
"Annexure A" to the Independent Auditors' Report
Referred to in paragraph 1 under the heading 'Report on Other Legal & RegulatoryRequirement' of our report of even date to the standalone financial statements of theCompany for the year ended March 31 2019:
I (a) Subject to our comments in para i (b) below the Company has maintained properrecords showing full particulars including quantitative details and situation of fixedassets;
(b) Except for certain locations (including locations where physical access to thefixed assets is restricted by the contractee/clients) the fixed Assets were physicallyverified during the year by the Management in accordance with a regular program ofverification. Further wherever physical verification of fixed assets was performed themanagement is in process of reconciliation of quantities as per verification reports withfixed assets records. Pending such reconciliation and physical verification of certainlocations we are unable to comment on the reasonableness of the physical verificationprogram and discrepancies that may arise on such reconciliation and physical verificationof fixed assets that are lying on those locations where physical verification could not beperformed.
(c) According to the information and explanation given to us title deeds of theimmovable properties have been mortgaged as security with lenders i.e. banks financialinstitutions and others for security of the borrowings raised by the Company. On the basisof our examination of the records of the Company and the copies of the title deedsavailable with the Company the title deeds of immovable properties are held in the nameof the Company except for the details given in Appendix -1;
ii. According to the information and explanations given to us Except for certainlocations (including locations where physical access to the inventories is restricted bythe contractee/clients) the management has conducted physical verification of inventoryat reasonable intervals during the year. We are unable to comment on the discrepanciesthat may arise on the physical verification of inventories that are lying on thoselocations where physical verification could not be performed.
iii. The company has granted interest free unsecured loans to Companies covered in theregister maintained under section 189 of the Act in respect of such loans;
(a) In our opinion the terms and conditions of the loans granted by the Company to 8subsidiaries aggregating to Rs 6156.34 million as at March 312019 having regard to thecost of funds to the company are prejudicial to the interest of the company.
(b) In respect of one company the schedule of repayment of the principal amountaggregating to Rs 580.61 million has been stipulated and the repayment commences in theyear 202627. In case of interest free unsecured loan to 7 companies aggregating to Rs5575.73 million the schedule of repayment is not stipulated and considered by theCompany as repayable on demand hence we are unable to comment as to whether repaymentsare regular.
(c) In case of interest free unsecured loan to one company aggregating to Rs 580.61million no amount is overdue. In case of interest free unsecured loan to 7 companiesaggregating to Rs 5575.73 million the schedule of repayment is not stipulated andconsidered by the Company as repayable on demand we are unable to comment whether anyamount is overdue and whether reasonable steps have been taken by the company for recoveryof the principal.
Iv According to information and explanation given to us and having regard to the legalopinion obtained by the company in an earlier year that the company being a companyengaged in the business of providing infrastructure facilities in terms of Section 186the company has complied with the provisions of section 185 and 186 of the Companies Act2013 in respect of grant of loans making investments and providing guarantees andsecurity as applicable.
V According to the information and explanations given to us the Company has notaccepted any deposits during the year within the meaning of Sections 73 to 76 of theCompanies Act 2013 and the rules framed there under to the extent notified.
Vi We have broadly reviewed the cost records maintained by the Company pursuant to theRules made by the Central Government under sub-section (1) of Section 148 of the CompaniesAct 2013 and are of the opinion that prima facie the prescribed accounts and recordshave been made and maintained. We have however not made a detailed examination of theserecords with a view to determining whether they are accurate or complete.
Vii (a) According to information and explanations given to us and records of theCompany examined by us the Company has not been regular in depositing undisputedstatutory dues in respect of provident fund employee's state insurance income-tax salestax service tax duty of excise value added tax and cess and any other statutory dueswith the appropriate authorities. There have been significant delays in a large number ofcases in depositing these dues with the
appropriate authorities. Further no undisputed amounts payable in respect of thesestatutory dues were outstanding as on March 312019 for a period of more than six monthsfrom the date they became payable except as given in Appendix -2 to this report.
(b) According to the information and explanations given to us and records of theCompany examined by us particulars of dues outstanding in respect of income tax salestax service tax duty of excise and value added tax which have not been deposited onaccount of any dispute are given in Appendix-3 to this report.
Viii As matters described in Note 36 and 37 to the financial statement and pursuance ofrepayment schedule stipulated in the sanction letter the entire amount of borrowingincluding interest are overdue and continuing default as on March 31 2019 therefore weare unable to provided periods of default. Details of defaults in repayment of borrowingand interest are given below;
(Rs in Million)
Ix According to the information and explanations given to us the Company has notraised moneys by way of initial public offer or further public offer (including debtinstruments) and term loans have been applied by the Company during the year for thepurposes for which they were obtained.
X According to the information and explanations given to us no fraud by the Company oron the Company by its officers or employees have been noticed or reported during the year.
Xi According to the information and explanations given to us and based on the auditprocedures conducted by us Managerial Remuneration paid or provided was in accordancewith the requisite approvals mandated by the provisions of section 197 read with ScheduleV to the Companies Act 2013.
Xii In our opinion and according to the information and explanation given to us theCompany is not a Nidhi Company. Therefore the provisions of Para 3 (xii) of the Order arenot applicable to the Company.
Xiii In our opinion and according to the information and explanations given to us weare unable to obtain sufficient and appropriate audit evidence to comment whether alltransactions with the related parties as disclosed in Note 64 to the financial statementsare in compliance with section 177 and 188 of Companies Act 2013. Further whereapplicable the details have been disclosed in the Financial Statements as required by theapplicable accounting standards.
Xiv According to the information and explanations given to us the Company has not madeany preferential allotment. Accordingly provisions of para 3 (xiv) of the order are notapplicable to the Company.
Xv According to the information and explanations given to us the company has notentered into any non-cash transactions with directors or persons connected with them. Theprovisions of clause 3 (XV) of the Order are not applicable to the company.
Xvi In our opinion the Company is not required to be registered under section 45 IA ofthe Reserve Bank of India Act 1934.
Annexure "B" to the Independent Auditors' Report of even date on theStandalone Financial Statements of IVRCL Limited
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 IVRCLLimited ("the Company") as of March 31 2019 in conjunction with our audit ofthe 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 responsibilities includethe design implementation and maintenance of adequate internal financial controls thatwere operating effectively for ensuring the orderly and efficient conduct of its businessincluding adherence to company's policies the safeguarding of its assets the preventionand detection of frauds and errors the accuracy and completeness of the accountingrecords and the timely preparation of reliable financial information as required underthe 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 to the extent applicable toan audit of internal financial controls both issued by the Institute of CharteredAccountants of India. Those Standards and the Guidance Note require that we comply withethical requirements and plan and perform the audit to obtain reasonable assurance aboutwhether adequate internal financial controls over financial reporting was established andmaintained and if such controls operated effectively in all material respects.
Our audit involves performing procedures to obtain audit evidence about the adequacy ofthe internal financial controls system over financial reporting and their operatingeffectiveness.
Our audit of internal financial controls over financial reporting included obtaining anunderstanding of internal financial controls over financial reporting assessing the riskthat a material weakness exists and testing and evaluating the design and operatingeffectiveness of internal control based on the assessed risk. The procedures selecteddepend on the auditor's judgment including the assessment of the risks of materialmisstatement 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 qualified audit opinion on the Company's internal financialcontrols system over financial reporting.
Meaning of Internal Financial Controls Over Financial Reporting
A company's internal financial control over financial reporting is a process designedto provide reasonable assurance regarding the reliability of financial reporting and thepreparation of 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 ofrecords that in reasonable detail accurately and fairly reflect the transactions anddispositions of the assets of the company; (2) provide reasonable assurance thattransactions are recorded as necessary to permit preparation of financial statements inaccordance with generally accepted accounting principles and that receipts andexpenditures 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 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.
Basis for Qualified Opinion
In our opinion and according to the information and explanations given to us and basedon our audit the following material weaknesses have been identified as at March 31 2019:
The Company did not have appropriate internal financial controls over (a) Assessment ofrecoverability of deferred tax assets (b) Assessment of expected credit loss/lossallowance of bank guarantees encashed by customers unbilled revenue trade receivablesand withheld amounts which are subject matters of various disputes /arbitrationproceedings/ negotiations with the customers and contractors due to termination /foreclosure of contracts and other disputes. (c) Assessment of expected cash shortfall andresultant loss allowance that may be required in respect of invocation of corporateguarantees and demand against the Company in respect of such guarantees extended /executed for its subsidiaries and other parties in favour of the lender
(d) Assessment of impairment in value of long term equity investment and assessment ofimpairment in value of loans and advances to various subsidiary companies and otherparties. (e) Control over reconciliation of subcontractors work bills with the work billssubmitted to the clients and physical progress of works completed which could potentiallyresult into inaccurate estimation of percentage of work completed and consequently delayin the realization of unbilled revenue/ receivables. (f) Controls over projects costsestimation and review of balance costs to complete in respect of work projects whichcould potentially result into inaccurate estimation of foreseeable losses on workscontracts. (g) physical verification of fixed assets and inventories. Further the companydid not have any internal audit system during the year.
The inadequate supervisory and review control over Company's process in respect ofaforesaid assessment in accordance with the accounting principles generally accepted inIndia could potentially result in a material misstatement in preparation and presentationof financial statement including the profit/ loss after tax.
A 'material weakness' is a deficiency or a combination of deficiencies in internalfinancial control over financial reporting such that there is a reasonable possibilitythat a material misstatement of the company's annual or interim financial statements willnot be prevented or detected on a timely basis.
In our opinion except for the possible effects of material weaknesses described in"basis of qualified opinion" paragraph above the Company has in all materialrespects an adequate internal financial controls system over financial reporting and suchinternal financial controls over financial reporting were operating effectively as atMarch 31 2019 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.
We have considered the material weaknesses identified and reported above in determiningthe nature timing and extent of audit tests applied in our audit of the standalonefinancial statements of the Company for the year ended on March 31 2019 and thesematerial weaknesses have affected our opinion on the standalone financial statements ofthe Company and we have issued a qualified opinion on the standalone financial statements.