Kirloskar Electric Company Ltd.
|BSE: 533193||Sector: Engineering|
|NSE: KECL||ISIN Code: INE134B01017|
|BSE 00:00 | 23 Jul||19.85||
|NSE 00:00 | 19 Jul||21.85||
|Mkt Cap.(Rs cr)||132|
|Mkt Cap.(Rs cr)||131.82|
Kirloskar Electric Company Ltd. (KECL) - Auditors Report
Company auditors report
To the Members of
KIRLOSKAR ELECTRIC COMPANY LIMITED BENGALURU
Report on the Audit of the Standalone Financial Statements
We have audited the accompanying Standalone Ind AS financial statementsof KIRLOSKAR ELECTRIC COMPANY LIMITED ("the Company") which comprise theBalance Sheet as at March 31 2020 and 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.
In our opinion and to the best of our information and according to theexplanations given to us except for the effects of the matter described in the Basis forQualified Opinion paragraph below the aforesaid Standalone Ind AS financial statementsgive the information required by the Companies Act 2013 as amended ("the Act")in the manner so required and give a true and fair view in conformity with the accountingprinciples generally accepted in India of the state of affairs of the Company as at March31 2020 and its loss including other comprehensive income its cash flows and thechanges in equity for the year ended on that date.
Basis for Qualified Opinion
Attention of the Members is invited to note 37(19) to the StandaloneInd AS financial statements regarding the amounts due to the Company from certainsubsidiaries towards part consideration receivable on sale/assignment of certain immovableproperties receivables interest charged and expenses reimbursed. We have relied on themanagement's representations that it is confident of realization of amounts due fromthe said subsidiaries aggregating to Rs.12531.50 lakhs (Rs.14898.79 lakhs as at March31 2019) against which provision is recognized for an amount of RS. 8400.77 lakhs as atMarch 31 2020. Pending disposals/ realization of assets by the subsidiaries shortfall inrealization of the amount outstanding (net of provision) if any could not beascertained.
We conducted our audit in accordance with Standards on Auditing (SAs)specified under section 143(10) of the Companies Act 2013. Our responsibilities underthose Standards are further described in the Auditor's Responsibilities for theAudit of the Financial Statements' section of our report. We are independent of theCompany in accordance with the Code of Ethics' issued by the Institute ofChartered Accountants of India together with the ethical requirements that are relevant toour audit of the financial statements under the provisions of the Companies Act 2013 andwe have fulfilled our other ethical responsibilities in accordance with these requirementsand the ICAI's Code of Ethics. We believe that the audit evidence we have obtained issufficient and appropriate to provide a basis for our qualified opinion.
Key Audit Matters
Key audit matters are those matters that in our professional judgmentwere of most significance in our audit of the Standalone Ind AS financial statements forthe financial year ended March 31 2020. These matters were addressed in the context ofour audit of the Standalone Ind AS financial statements as a whole and in forming ouropinion thereon and we do not provide a separate opinion on these matters. We havedetermined the matters described below to be the key audit matters to be communicated inour report. For each matter below our description of how our audit addressed the matteris provided in that context.
a. Going Concern Assessment Effect of erosion in net worth ofthe company
Note 37(20) of the Standalone Ind AS financial statements Thedirectors have detailed the reasons for preparing these Standalone Ind AS financialstatements on a going concern basis though the Company/Group (consisting of the Companyits subsidiaries and associate) has accumulated losses and their networth (after excludingrevaluation reserve) has been eroded. There are certain overdue payments to creditors andbanks. The appropriateness of the said basis is subject to the Company adhering to therestructuring plan and infusion of requisite funds.
- Our Address on the Key Audit Matter
We have been appraised of the restructuring plan including monetizationof few non-core assets projection of increase in turnover and infusion of funds in thenear future. We have relied on the representations made by the Company and hence we are ofthe opinion that there is no existence of material uncertainty that may cast a significantdoubt on the Company's ability to continue as a going concern. Our opinion is notmodified in respect of this matter.
b. Physical Verification of Inventory
The Management has conducted the Physical Verification of Inventorycount at the year end and shared with us the Certified Details. Even though we hadobserved the physical inventory verification by the Management during the quarters of thefinancial year due to COVID 19 related lockdown we were not able to physically observephysical verification of inventory at the year end.
- Our Address on the Key Audit Matter
In this regard we have performed alternate procedures to audit theexistence and condition of inventory as per the guidelines provided in SA 501 "Auditevidence -Specific consideration for stipulated items' which includes inspection ofsupporting documentation relating to purchases production sales and such other thirdparty evidences where applicable and have obtained sufficient appropriate audit evidence.Our opinion is not modified in respect of this matter.
Emphasis of Matter
a. Attention of the members is invited to note 37(21) of the StandaloneInd AS financial statements which sets out that the Company has filed Special LeavePetition in respect of demand of resale tax penalty of RS. 527 lakhs beforethe Honourable Supreme Court of India. Management has represented to us that it is notprobable that there will be an outflow of economic benefits and hence no provision isrequired to be recognized in this regard. We have relied on this representation. Ouropinion is not modified in respect of this matter.
The Company's Board of Directors is responsible for the otherinformation. The other information comprises the information included in the annual reportbut does not include the Standalone Ind AS financial statements and our auditor'sreport thereon. Our opinion on the Standalone Ind AS financial statements does not coverthe other information and we do not express any form of assurance conclusion thereon. Inconnection with our audit of the Standalone Ind AS financial statements ourresponsibility is to read the other information and in doing so consider whether theother information is materially inconsistent with the financial statements or ourknowledge obtained in the audit or otherwise appears to be materially misstated. If basedon the work we have performed we conclude that there is a material misstatement of thisother information we are required to report that fact. As described in the Basis forQualified Opinion section above we were unable to obtain sufficient appropriate auditevidence regarding the quantification of shortfall in realization of considerationreceivable from certain subsidiaries pending disposals/realization of assets by thesubsidiaries. Accordingly we are unable to conclude whether or not the other informationin relation to this is materially misstated with respect to this matter.
Responsibility of Management and Those Charged with Governance forFinancial Statements
The Company's Board of Directors is responsible for the mattersstated in section 134(5) of the Companies Act 2013 ("the Act") with respect tothe preparation of these Standalone Ind AS financial statements that give a true and fairview of the financial position financial performance changes in equity and cash flows ofthe Company in accordance with the accounting principles generally accepted in Indiaincluding the accounting Standards specified under section 133 of the Act. Thisresponsibility also includes maintenance of adequate accounting records in accordance withthe provisions of the Act for safeguarding of the assets of the Company and for preventingand detecting frauds and other irregularities selection and application of appropriateaccounting policies making judgements 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 financialstatements 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 isresponsible for assessing the Company's ability to continue as a going concerndisclosing as applicable matters related to going concern and using the going concernbasis of accounting unless management either intends to liquidate the Company or to ceaseoperations or has no realistic alternative but to do so. Those Board of Directors arealso responsible for overseeing the company's financial reporting process.
Auditor's Responsibilities for the Audit of the FinancialStatements
Our objectives are to obtain reasonable assurance about whether theStandalone Ind AS financial statements as a whole are free from material misstatementwhether due to fraud or error and to issue an auditor's report that includes ouropinion. Reasonable assurance is a high level of assurance but is not a guarantee that anaudit conducted in accordance with SAs will always detect a material misstatement when itexists. Misstatements can arise from fraud or error and are considered material ifindividually or in the aggregate they could reasonably be expected to influence theeconomic decisions of users taken on the basis of these Standalone Ind AS financialstatements.
As part of an audit in accordance with SAs we exercise professionaljudgement and maintain professional skepticism throughout the audit. We also:
Identify and assess the risks of material misstatement of thestandalone financial statements whether due to fraud or error design and perform auditprocedures responsive to those risks and obtain audit evidence that is sufficient andappropriate to provide a basis for our opinion. The risk of not detecting a materialmisstatement resulting from fraud is higher than for one resulting from error as fraudmay involve collusion forgery intentional omissions misrepresentations or the overrideof internal control.
Obtain an understanding of internal financial controls relevant to theaudit in order to design audit procedures that are appropriate in the circumstances. Undersection 143(3)(i) of the Act we are also responsible for expressing our opinion onwhether the Company has adequate internal financial controls system in place and theoperating effectiveness of such controls.
Evaluate the appropriateness of accounting policies used and thereasonableness of accounting estimates and related disclosures made by management.
Conclude on the appropriateness of management's use of the goingconcern basis of accounting and based on the audit evidence obtained whether a materialuncertainty exists related to events or conditions that may cast significant doubt on theCompany's ability to continue as a going concern. If we conclude that a materialuncertainty exists we are required to draw attention in our auditor's report to therelated disclosures in the standalone financial statements or if such disclosures areinadequate to modify our opinion. Our conclusions are based on the audit evidenceobtained up to the date of our auditor's report. However future events or conditionsmay cause the Company to cease to continue as a going concern.
Evaluate the overall presentation structure and content of thefinancial statements including the disclosures and whether the standalone financialstatements represent the underlying transactions and events in a manner that achieves fairpresentation.
We communicate with those charged with governance regarding amongother matters the planned scope and timing of the audit and significant audit findingsincluding any significant deficiencies in internal control that we identify during ouraudit.
We also provide those charged with governance with a statement that wehave complied with relevant ethical requirements regarding independence and tocommunicate with them all relationships and other matters that may reasonably be thoughtto bear on our independence and where applicable related safeguards.
From the matters communicated with those charged with governance wedetermine those matters that were of most significance in the audit of the standalonefinancial statements of the current period and are therefore the key audit matters. Wedescribe these matters in our auditor's report unless law or regulation precludespublic disclosure about the matter or when in extremely rare circumstances we determinethat a matter should not be communicated in our report because the adverse consequences ofdoing so would reasonably be expected to outweigh the public interest benefits of suchcommunication.
We did not audit the financial statements/information of one branchthe Kuala Lumpur office of the Company included in the financial results of the Companyfor the quarter ended and year ended March 31 2020 whose financial statements/informationreflect total assets of RS. 215.45 lakhs as at March 31 2020 and total revenues of RS.0.82 lakhs for the year ended on that date. The financial statements/information of thesaid branch has been prepared and submitted to us by the Management. The financialstatements have not been audited by the Branch Auditors due to COVID 19 situation. So tothe extent the amounts have been derived from such financial statements is based solely onthe financial statements/information provided to us by the Management. Our report is notmodified in respect of this matter.
Report on Other Legal and Regulatory Requirements
1. As required by the Companies (Auditor's Report) Order2016 ("the Order") issued by the Central Government in terms of sub-section (11)of section 143 of the Act we give in the "Annexure A" a statement on thematters specified in 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 explanationswhich to the best of our knowledge and belief were necessary for the purpose of our audit;
b. In our opinion proper books of account as required by law have beenkept by the Company so far as appears from our examination of those books and properreturns adequate for the purposes of our audit have been received from the branches notvisited by us;
c. The report on the accounts of the Kuala Lumpur office in Malaysia ofthe Company audited under Section 143(8) of the Act by the branch auditors have beenforwarded to us and have been duly dealt with by us while preparing this report;
d. The Balance Sheet the Statement of Profit and Loss including OtherComprehensive Income the Statement of Cash Flows and the Statement of Changes in Equitydealt with by this Report are in agreement with the books of account; e. In our opinionthe aforesaid Standalone Ind AS financial statements comply with the Accounting Standardsspecified under Section 133 of the Act read with relevant rules as amended;
f. On the basis of the written representations received from thedirectors as on March 31 2020 taken on record by the Board of Directors none of thedirectors is disqualified as on March 31 2020 from being appointed as a director in termsof Section 164 (2) of the Act;
g. With respect to the adequacy of the internal financial controls overfinancial reporting of the Company and the operating effectiveness of such controls referto our separate report in "Annexure B"; and
h. With respect to the other matters to be included in theAuditors' Report in accordance with Rule 11 of the Companies (Audit and Auditors)Rules 2014 in our opinion and to the best of our information and according to theexplanations given to us:
i. The Company have disclosed the impact of pending litigations on itsfinancial position in its financial statements - Refer Note 37(1a) to the Standalone IndAS financial statements;
iii. There has been no delay in transferring amounts required to betransferred to the Investor Education and Protection Fund by the Company.
Annexure A' to the Auditors' Report
The Annexure referred to in our report to the members of KirloskarElectric Company Limited for the year ended March 31 2020. We report that:
i) a) The Company has maintained proper records showing fullparticulars including quantitative details and situation of Property plant and equipment(PPE). However comprehensive description of assets and their current location need to beupdated in the asset records.
b) Management has physically verified these PPE in various units as pera phased program of physical verification which is at reasonable intervals. Thediscrepancies noticed on such verification were not material however the same has beenproperly dealt with in the books of account.
c) According to the information and explanations given to us and on thebasis of our examination of the records of the Company the title deeds of immovableproperties are held in the name of the Company.
ii) With regard to inventory physical verification has been conductedby the management at reasonable intervals and certain mistakes noticed in the inventoryrecords have been corrected to the extent identified based on physical verification takenfrom time to time. The Company is in the process of identifying and analysing thedifferences adjusted/to be adjusted in the books of account on a comprehensive basis asreported in note 37(7) of the Standalone Ind AS financial statements and consequently weare not in a position to comment on the extent of discrepancies and any furtheradjustments required in the books of account.
iii) The Company has not granted any loans secured or unsecured tocompanies firms Limited Liability Partnership or other parties covered in the registermaintained under section 189 of the Companies Act 2013. For this purpose we have reliedon the representations of the management that monies due from parties referred to in note37(8) to the financial statement are advances and not in the nature of loans.
iv) In our opinion and according to the information and explanationsgiven to us the company has not granted any loans or provided any guarantees or securityto the parties covered under section 185 of the Companies Act 2013. In our opinion andaccording to the information and explanations given to us the company has complied withthe provisions of section 186 of the Companies Act 2013 in respect of investments made orguarantees given to the wholly owned subsidiaries covered under section 186 of theCompanies Act 2013. There were no loans given nor securities provided to wholly ownedsubsidiaries covered under section 186 of the Companies Act 2013.
v) In our opinion and according to the information and explanationsgiven to us the Company has complied with the directives issued by the Reserve Bank ofIndia and the provisions of sections 73 to 76 of the Companies Act 2013 or any otherrelevant provisions of the said Act and the rules framed there under with regard todeposits accepted from the public.
There were no delays in repayment of deposits during the financial yearended March 31 2020 and the management has represented to us that there are no depositsunpaid as laid down in section 74 and other relevant provisions of the Companies Act2013. Further and according to the Company no order has been passed by the Company LawBoard or National Company Law Tribunal or Reserve Bank of India or any Court or any otherTribunal.
vi) We have broadly reviewed the books of account maintained by theCompany pursuant to the Rules made by the Central Government for the maintenance of costrecords under sub-section (1) of section 148 of the Act and read with paragraph 2 aboveregarding inventory records we are of the opinion that prima facie the prescribedaccounts and records have been made and maintained. However we have not carried out adetailed examination of such records.
vii) a) The Company has been regular in depositing undisputed statutorydues including Provident fund Employee's State Insurance Income-tax Goods andServices Tax Duty of Customs Cess and any Other Statutory Dues barring delays in fewcases in certain months in respect of provident fund excise duty and professional tax.According to the information and explanations given to us there are no undisputed amountspayable in respect of above mentioned statutory dues which were in arrears as at March31 2020 for a period of more than six months from the date they became payable except inrespect of dues of Provident fund amounting to RS. 267.22 lakhs.
b) According to the information and explanations given to us thefollowing dues of Sales Tax Income Tax Excise Duty Value Added Tax Service Tax andCess had not been deposited as at March 31 2020 with the relevant authorities on accountof disputes.
(Rs. in Lakhs)
viii) In our opinion and according to the information and explanationsgiven to us there were no loans taken by the Company from the Government or from thedebenture holders. The Company has not defaulted in repayment of loans or borrowings tobanks and financial institutions except for the following instances of delay/default inrepayment of principal amount and interest in the below table.
(Rs. in Lakhs)
ix) The company has not raised moneys by way of initial public offer orfurther public offer (including debt instruments) or fresh term loans from banks duringthe year.
x) According to the information and explanation given to us there areno frauds reported by the Company or any fraud on the company by its officers or employeeshas been noticed or reported during the year.
xi) According to the information and explanations given by themanagement the managerial remuneration has been paid or provided in accordance with therequisite approvals mandated by the provisions of section 197 read with Schedule V to theCompanies AcRs. 2013.
xii) The Company is not a Nidhi Company. Accordingly the provisions ofclause 11 of the said Order are not applicable.
xiii) In our opinion and according to the information and explanationgiven to us and as represented to us by the management all transactions with the relatedparties are in compliance with section 177 and 188 of Companies Act 2013 and the detailshave been disclosed in the Standalone Ind AS financial statements as required by theapplicable accounting standards.
xiv) According to the information and explanations given to us andbased on our examination of the records the Company has not made any preferentialallotment or private placement of shares or fully or partly convertible debentures duringthe year.
xv) As represented to us by the management and according to theinformation and explanation given to us by the management the Company has not enteredinto any non-cash transactions with directors or persons connected with him. Accordinglythe provisions of clause 15 of the said Order are not applicable.
xvi) According to the information and explanation given the Company isnot required to be registered under section 45-IA of the Reserve Bank of India Act 1934.Accordingly the provisions of clause 16 of the Order is not applicable.
Annexure B' to the Auditors' Report
Report on the Internal Financial Controls under Clause (i) ofSub-section 3 of Section 143 of the Companies Act 2013 ("the Act")
We have audited the internal financial controls over financialreporting of Kirloskar Electric Company Limited ("the Company") as of March 312020 in conjunction with our audit of the Standalone Ind AS financial statements of theCompany for the year ended on that date.
Management's Responsibility for Internal Financial Controls
The Company's management is responsible for establishing andmaintaining internal financial controls based on the internal control over financialreporting criteria established by the Company considering the essential components ofinternal control stated in the Guidance Note on Audit of Internal Financial Controls overFinancial Reporting issued by the Institute of Chartered Accountants of India(ICAI'). These responsibilities include the design implementation andmaintenance of adequate internal financial controls that were operating effectively forensuring the orderly and efficient conduct of its business including adherence tocompany's policies the safeguarding of its assets the prevention and detection offrauds and errors the accuracy and completeness of the accounting records and the timelypreparation of reliable financial information as required under the Companies Act 2013.
Our responsibility is to express an opinion on the Company'sinternal financial controls over financial reporting based on our audit. We conducted ouraudit in accordance with the Guidance Note on Audit of Internal Financial Controls overFinancial Reporting (the "Guidance Note") and the Standards on Auditing issuedby ICAI and deemed to be prescribed under section 143(10) of the Companies Act 2013 tothe extent applicable to an audit of internal financial controls both applicable to anaudit of Internal Financial Controls and 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 aboutthe adequacy of the internal financial controls system over financial reporting and theiroperating effectiveness. Our audit of internal financial controls over financial reportingincluded obtaining an understanding of internal financial controls over financialreporting assessing the risk that a material weakness exists and testing and evaluatingthe design and operating effectiveness of internal control based on the assessed risk. Theprocedures selected depend on the auditor's judgement including the assessment ofthe risks of material misstatement of the financial statements whether due to fraud orerror.
We believe that the audit evidence we have obtained is sufficient andappropriate to provide a basis for our audit opinion on the Company's internalfinancial controls system over financial reporting.
Meaning of Internal Financial Controls over Financial Reporting
A company's internal financial control over financial reporting isa process designed to provide reasonable assurance regarding the reliability of financialreporting and the preparation of financial statements for external purposes in accordancewith generally accepted accounting principles. A company's internal financial controlover financial reporting includes those policies and procedures that
(1) pertain to the maintenance of records that in reasonable detailaccurately and fairly reflect the transactions and dispositions of the assets of thecompany;
(2) provide reasonable assurance that transactions are recorded asnecessary to permit preparation of financial statements in accordance with generallyaccepted accounting principles and that receipts and expenditures of the company arebeing made only in accordance with authorisations of management and directors of thecompany; and
(3) provide reasonable assurance regarding prevention or timelydetection of unauthorised acquisition use or disposition of the company's assetsthat could have a material effect on the financial statements.
Inherent Limitations of Internal Financial Controls over FinancialReporting
Because of the inherent limitations of internal financial controls overfinancial reporting including the possibility of collusion or improper managementoverride of controls material misstatements due to error or fraud may occur and not bedetected. Also projections of any evaluation of the internal financial controls overfinancial reporting to future periods are subject to the risk that the internal financialcontrol over financial reporting may become inadequate because of changes in conditionsor that the degree of compliance with the policies or procedures may deteriorate.
In our opinion the Company has in all material respects an adequateinternal financial controls system over financial reporting and such internal financialcontrols over financial reporting were operating effectively as at March 31 2020 basedon the internal 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.