To the Members of KMC Speciality Hospitals (India) Limited Report on the Audit of theFinancial Statements Opinion
We have audited the financial statements of KMC Speciality Hospitals (India) Limited(the Company)which comprise the balance sheet as at March 31 2019 thestatement of profit and loss (including other comprehensive income) statement of changesin equity and statement of cashflows for the year then ended and notes to the financialstatements including a summary of the significant accounting policies and otherexplanatory information.
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 (Act) in the manner so required and give a true and fairview in conformity with the accounting principles generally accepted in India of thestate of affairs of the Company as at March 312019 and profit and other comprehensiveincome changes in equity and its cash flows for the year ended on that date.
Basis for Opinion
We conducted our audit in accordance with the Standards on Auditing (SAs) specifiedunder section 143(10) of the Act. Our responsibilities under those SAs are furtherdescribed in the Auditor's Responsibilities for the Audit of the Financial Statementssection of our report. We are independent of the Company in accordance with the Code ofEthics issued by the Institute of Chartered Accountants of India together with the ethicalrequirements that are relevant to our audit of the financial statements under theprovisions of the Act and the Rules thereunder and we have fulfilled our other ethicalresponsibilities in accordance with these requirements and the Code of Ethics. We believethat the audit evidence we have obtained is sufficient and appropriate to provide a basisfor our opinion.
Key Audit Matters
Key audit matters are those matters that in our professional judgment were of mostsignificance in our audit of the financial statements of the current period. These matterswere addressed in the context of our audit of the financial statements as a whole and informing our opinion thereon and we do not provide a separate opinion on these matters.
|The key audit matter ||How the matter was addressed in our audit |
|Revenue recognition under new accounting standard Ind AS 115 ||In view of the significance of the matter we applied the following key audit procedures in this area among others to obtain sufficient appropriate audit evidence: |
|The Company has adopted Ind AS 115 - Revenue from Contracts with Customers ('Ind AS 115') which is the new revenue accounting standard. || Testing the design and operating effectiveness of controls relating to implementation of the new revenue accounting standard. |
|Ind AS 115 is effective for the year beginning April 1 2018 and establishes a comprehensive framework for determining whether how much and when revenue is recognized. This involves certain key judgments relating to identification of distinct performance obligations determination of transaction price appropriateness of the basis used to measure revenue recognized over a period or at a point in time. Revenue is recognized when (or as) a performance obligation is satisfied i.e. when 'control' of the goods or services underlying the particular performance obligation is transferred to the customer. || Selecting samples of revenue transactions testing management's assessment relating to identification of distinct performance obligations and determination of transaction prices. |
| || Verifying management's assessment of different types of revenue contracts (self- pay insured etc.) including the terms of contracts and commercial substance thereof in order to assess the adherence to revised accounting policies in light of the industry specific circumstances our understanding of the business and the requirements of Ind AS 115. |
|In view of the above the application and transition to this accounting standard is an area of focus in the audit. || Additionally we also evaluated the adequacy of disclosures made in the financial statements. |
|See Note 27 to the financial statements. || |
|Taxation and contingent liability related matters ||In view of the significance of the matter we applied the following key audit procedures: |
|Determination of tax provisions and assessment of contingent liabilities involves judgment with respect to various tax positions on deductibility of transactions interpretation of laws and regulations etc. Judgment is also required in assessing the range of possible outcomes for some of these matters. || Testing the design and operating effectiveness of controls relating to taxation and contingencies. |
| || We evaluated management's judgement in respect of estimates of provisions exposures and contingencies. |
|Management makes an assessment to determine the outcome of these matters and decides to make an accrual or consider it to be a possible contingent liability in accordance with applicable accounting standards. || On significant legal cases we inspected the correspondences with the regulatory authorities and the Company's external legal counsels wherever applicable. We considered whether an obligation exists and the appropriateness of provisioning based on the facts and circumstances available including the status of the legal proceedings in relation to the aforesaid cases legal views taken from independent expert if any forum where such cases are pending etc. We also assessed whether the Company's disclosures detailing significant legal proceedings adequately disclose the potential liabilities of the Company. |
|Accordingly taxation and contingent liability related matters are areas of focus in the audit. || |
|See Note 10 and 37 to the financial statements. || In understanding and evaluating management's judgment we deployed our tax specialists considered third party advice received by the Company wherever applicable the status of recent and current tax assessments and enquiries the outcome of previous claims judgmental positions taken in tax returns and developments in the tax environment. |
| || Additionally we also evaluated the adequacy of disclosures on provisions and contingencies made in the financial statements. |
|Recoverability of trade receivables and other financial assets ||Our audit procedures to assess the recoverability of trade receivables and other financial assets included the following: |
|The Company has significant trade receivables and other financial assets as at year end. Given the size of the balances and the risk that some of the trade receivables and other financial assets may not be recoverable judgement is required to evaluate whether any allowance should be made to reflect the risk. || Obtaining an understanding of and assessing the design implementation and operating effectiveness of the Company's key internal controls over the process of estimating the loss allowance for trade receivables and other financial assets including adherence to the requirements of the relevant accounting standards. |
|The Company recognizes loss allowance for trade receivables and other financial assets at the expected credit loss ('ECL'). ||Assessing the Company's methodology for |
|Assessment of the recoverability of trade receivables and other financial assets is inherently subjective and requires significant management judgment (which include repayment history terms of underlying arrangements overdue balances market conditions etc.) ||ECL provisioning towards trade receivables (which includes dues under government schemes and third party insurance contracts) and other financial assets. |
| || Understanding the key inputs used in the ECL model by the Company such as repayment history terms of underlying arrangements overdue balances market conditions etc. |
| || Obtaining an understanding and assessing the reasonableness of the key outputs calculated by the model as well as key judgments and assumptions used by the management for the implementation of the model. |
| || Assessing the disclosures made against the relevant accounting standards. |
|Property plant and equipment ||Our audit procedures to assess the valuation of property plant and equipment included the following: |
|The Company has significant balance towards || |
|Property plant and equipment ('PPE') as at year end. All items of pPe are measured at cost less accumulated depreciation and impairment losses if any. || Assessed whether the Company's accounting policy with respect to capitalization of expenditure and calculation of depreciation expense charged to the income statement is in accordance with the requirements of the relevant accounting standards. |
|Depreciation is calculated on cost of items of PPE less their estimated residual values over their estimated useful lives. This involves significant judgment in determining the assumptions to be used such as method of depreciation useful lives and residual values at each financial year end. This also involves taking into consideration other factors such as technical or commercial obsolescence wear and tear etc. which may reflect a reduction of the future economic benefits. || Obtaining an understanding of and assessing the design implementation and operating effectiveness of the Company's key internal controls surrounding the implementation of the aforesaid policy in particular with respect to valuation of property plant and equipment. |
|In view of the above this is a significant focus area of audit. || Selecting samples of costs incurred during the year in evaluating management's assessment of whether costs recorded meet the capitalization criteria and that the classification of expenditure is appropriate. |
| || Understanding the key areas of judgment made by management in determining the assumptions to be used such as method of depreciation useful lives and residual values at each financial year end. |
| || Understanding management's assessment in evaluation of indicators of impairment if any as |
The Company's management and Board of Directors are responsible for the otherinformation. The other information comprises the information included in the Company'sBoard's Report and Corporate Governance Report but does not include the financialstatements and our auditor's report thereon.
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. If based on the work we haveperformed we conclude that there is a material misstatement of this other information weare required to report that fact. We have nothing to report in this regard.
Management's Responsibility for the Financial Statements
The Company's management and Board of Directors are responsible for the matters statedin section 134(5) of the Act with respect to the preparation of these financial statementsthat give a true and fair view of the state of affairs profit and other comprehensiveincome changes in equity and cashflows of the Company in accordance with the accountingprinciples generally accepted in India including the Indian Accounting Standards (IndAS)specified under section 133 of the Act. This responsibility also includes maintenanceof adequate accounting records in accordance with the provisions of the Act forsafeguarding of the assets of the Company and for preventing and detecting frauds andother irregularities; 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 and Board of Directors areresponsible for assessing the Company's ability to continue as a going concerndisclosing as applicable matters related to going concern and using the going concernbasis of accounting unless management either intends to liquidate the Company or to ceaseoperations or has no realistic alternative but to do so.
Board of Directors is also responsible for overseeing the Company's financial reportingprocess Auditor's Responsibilities for the Audit of the 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 control relevant to the audit in order todesign audit procedures that are appropriate in the circumstances. Under section 143(3)(i)of the Act we are also responsible for expressing our opinion on whether the company hasadequate internal financial controls with reference to financial statements in place andthe operating effectiveness of such controls.
Evaluate the appropriateness of accounting policies used and the 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.
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'sreport 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 section 143 (11) of the Act we give in theAnnexure A a statement on the matters specified in paragraphs 3 and 4 of theOrder to the extent applicable.
(A) As required by Section 143(3) of the Act we report that:
a) We have sought and obtained all the information and explanations which to the bestof our knowledge and belief were necessary for the purposes of our audit.
b) In our opinion proper books of account as required by law have been kept by theCompany so far as it appears from our examination of those books.
c) The 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.
d) In our opinion the aforesaid financial statements comply with the Ind AS specifiedunder section 133 of the Act.
e) On the basis of the written representations received from the directors as on March31 2019 taken on record by the Board of Directors none of the directors is disqualifiedas on March 312019 from being appointed as a director in terms of Section 164(2) of theAct.
f) With respect to the adequacy of the internal financial controls with reference tofinancial statements of the Company and the operating effectiveness of such controlsrefer to our separate Report in Annexure B.
(B) 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 as at March 312019 onits financial position in its financial statements - Refer Note 37 to the financialstatements;
ii. The Company did not have any long-term contracts including derivative contracts forwhich there were any material foreseeable losses.
iii. There were no amounts which were required to be transferred to the InvestorEducation and Protection Fund by the Company.
iv. The disclosures in the financial statements regarding holdings as well as dealingsin specified bank notes during the period from 8 November 2016 to 30 December 2016 havenot been made in these financial statements since they do not pertain to the financialyear ended March 312019.
( C) With respect to the matter to be included in the Auditor's Report under section197(16):
In our opinion and according to the information and explanations given to us theremuneration paid by the Company to its directors during the current year is in accordancewith the provisions of Section 197 of the Act. The remuneration paid to any director isnot in excess of the limit laid down under Section 197 of the Act. The Ministry ofCorporate Affairs has not prescribed other details under Section 197(16) which arerequired to be commented upon by us.
for B S R & Co. LLP Chartered Accountants
Firm's Registration Number: 101248W/W-100022
S Sethuraman Partner
Membership No. 203491 Place : Chennai Date : May 30 2019
Annexure 'A' to the Independent Auditor's Report
Referred to in our Independent Auditor's Report of even date to the members of KMC
Speciality Hospitals (India) Limited as at and for the year ended March 312019 Page 1of 3
(i) (a) Though the Company has maintained records relating to fixed assets the Companyshould comprehensively compile the fixed assets register with the particulars includingquantity and situation of fixed assets.
(b) The Company has a regular programme of physical verification of its fixed assets bywhich all fixed assets are verified in a phased manner over a period of three years. Inour opinion this periodicity of physical verification is reasonable having regard to thesize of the Company and the nature of its assets. Pursuant to the aforesaid programme aportion of fixed assets has been physically verified by the management during the year andas per the information provided to us no material discrepancies were noticed 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 inventory has been physically verified by the management during the year. Inour opinion the frequency of such verification is reasonable. The discrepancies noticedon verification between physical stock and book records were not material.
(iii) According to the information and explanations given to us the Company hasgranted unsecured loan to its parent company covered in the register maintained undersection 189 of the Companies Act 2013 in respect to which :
a) The terms and conditions of the grant of such loans are in our opinion primafacie not prejudicial to the Company's interest.
b) The schedule of repayment of principal and payment of interest has been stipulatedand repayments or receipts of principal amounts and interest have been regular as perstipulations.
c) There is no overdue amount outstanding as at year end.
(iv) In our opinion and according to the information and explanations given to us theCompany has complied with the provisions of Section 185 and 186 of the Companies Act 2013with respect to the loans and investments made and guarantees and securities provided asapplicable.
(v) In our opinion and according to the information and explanations given to us theCompany has not accepted any deposits either as per the directives issued by the ReserveBank of India (RBI) and the provisions of sections 73 to 76 or any otherrelevant provisions of the Act and the rules framed there under. Accordingly paragraph3(v) of the Order is not applicable.
(vi) We have broadly reviewed the books of accounts maintained by the Company pursuantto the rules prescribed by the Central Government for the maintenance of cost recordsunder section 148 (1) of the Companies Act 2013 and are of the opinion that prima faciethe prescribed accounts and records have been made and maintained. However we have notmade a detailed examination of the records.
(vii) (a) According to the information and explanations given to us and on the basis ofour examination of the records of the Company amounts deducted/accrued in the books ofaccount in respect of undisputed statutory dues including provident fund employees' stateinsurance income tax service tax duty of customs value added tax goods and servicestax and other material statutory dues have generally been regularly deposited with theappropriate authorities though there has been a slight delay in a few cases. As explainedto us the Company did not have any dues on account of sales tax duty of excise and cess.
According to the information and explanations given to us no undisputed amountspayable in respect of provident fund employee's state insurance income tax service taxvalue added tax goods and services tax and other material statutory dues were in arrearsas at March 31 2019 for a period of more than six months from the date they becamepayable.
(b) According to the information and explanations given to us the following are thedues which have not been deposited by the Company on account of disputes;
|Nature of the Statute ||Nature of the dues ||Amount (INR) (Net of paid under protest) ||Period to which the amount relates ||Forum where the dispute is pending |
|Customs Act 1962 ||Customs Duty ||7811395 ||1990-1996 ||Madras High Court |
(viii) In our opinion and according to the information and explanations given to usthe Company has not defaulted in repayment of dues to its bankers. The Company did nothave any outstanding dues to any financial institutions and government or dues todebenture holders during the year.
(ix) The Company has not raised any money by way of initial public offer or furtherpublic offer (including debt instruments) and term loans during the year. Accordinglyparagraph 3 (ix) of the Order is not applicable to the Company.
(x) According to the information and explanations given to us no material fraud by theCompany or on the Company by its officers or employees has been noticed or reported duringthe course of our audit.
(xi) According to the information and explanations given to us and based on ourexamination of the records of the Companythe managerial remuneration for the year endedMarch 31 2019 has been paid or provided in accordance with the requisite approvalsmandated by the provisions of section 197 read with Schedule V of the Act and the rulesframed thereunder.
(xii) In our opinion and according to the information and explanations given to us theCompany is not a Nidhi company. Accordingly paragraph 3(xii) of the Order is notapplicable.
(xiii) According to the information and explanations given to us and based on ourexamination of the records of the Company transactions with the related parties are incompliance with sections 177 and 188 of the Act where applicable and details of suchtransactions have been disclosed in the financial statements as required by the applicableaccounting 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 duringthe year under audit. Accordingly paragraph 3(xiv) of the Order is not applicable.
(xv) According to the information and explanations given to us and based on ourexamination of the records of the Company the Company has not entered into non-cashtransactions with directors or persons connected with them. Accordingly paragraph 3(xv)of the Order is not applicable.
(xvi) According to the information and explanations given to us the Company is notrequired to be registered under section 45-IA of the Reserve Bank of India Act 1934.Accordingly paragraph 3(xvi) of the Order is not applicable.
for B S R & Co. LLP
Firm's Registration Number: 101248W/W-100022
Membership No. 203491
Place : Chennai
Date : May 30 2019
Annexure B to the Independent Auditor's report on the financial statements of KMCSpeciality Hospitals (India) Limited for the year ended March 312019.
Report on the internal financial controls with reference to the aforesaid financialstatements under Clause (i) of Sub-section 3 of Section 143 of the Companies Act 2013
(Referred to in paragraph (1(f)) under 'Report on Other Legal and RegulatoryRequirements' section of our report of even date)
We have audited the internal financial controls with reference to financial statementsof KMC Speciality Hospitals (India) Limited (the Company) as of March 312019in conjunction with our audit of the financial statements of the Company for the yearended on that date.
In our opinion the Company has in all material respects adequate internal financialcontrols with reference to financial statements and such internal financial controls wereoperating effectively as at March 31 2019 based on the internal financial controls withreference to financial statements criteria established by the Company considering theessential components of internal control stated in the Guidance Note on Audit of InternalFinancial Controls Over Financial Reporting issued by the Institute of CharteredAccountants of India (the Guidance Note).
Management's Responsibility for Internal Financial Controls
The Company's management and the Board of Directors are responsible for establishingand maintaining internal financial controls based on the internal financial controls withreference to financial statements criteria established by the Company considering theessential components of internal control stated in the Guidance Note. Theseresponsibilities include the design implementation and maintenance of adequate internalfinancial controls that were operating effectively for ensuring the orderly and efficientconduct of its business including adherence to company's policies the safeguarding ofits assets the prevention and detection of frauds and errors the accuracy andcompleteness of the accounting records and the timely preparation of reliable financialinformation as required under the Companies Act 2013 (hereinafter referred to asthe Act).
Our responsibility is to express an opinion on the Company's internal financialcontrols with reference to financial statements based on our audit. We conducted our auditin accordance with the Guidance Note and the Standards on Auditing prescribed undersection 143(10) of the Act to the extent applicable to an audit of internal financialcontrols with reference to financial statements. Those Standards and the Guidance Noterequire that we comply with ethical requirements and plan and perform the audit to obtainreasonable assurance about whether adequate internal financial controls with reference tofinancial statements were established and maintained and whether such controls operatedeffectively in all material respects.
Our audit involves performing procedures to obtain audit evidence about the adequacy ofthe internal financial controls with reference to financial statements and their operatingeffectiveness. Our audit of internal financial controls with reference to financialstatements included obtaining an understanding of such internal financial controlsassessing the risk that a material weakness exists and testing and evaluating the designand operating effectiveness of internal control based on the assessed risk. The proceduresselected depend on the auditor's judgement including the assessment of the risks ofmaterial misstatement of the standalone financial statements whether due to fraud orerror.
We believe that the audit evidence we have obtained is sufficient and appropriate toprovide a basis for our audit opinion on the Company's internal financial controls withreference to financial statements.
Meaning of Internal Financial controls with Reference to Financial Statements
A company's internal financial controls with reference to financial statements is aprocess designed to provide reasonable assurance regarding the reliability of financialreporting and the preparation of financial statements for external purposes in accordancewith generally accepted accounting principles. A company's internal financial controlswith reference to financial statements include those policies and procedures that (1)pertain to the maintenance of records that in reasonable detail accurately and fairlyreflect the transactions and dispositions of the assets of the company; (2) providereasonable assurance that transactions are recorded as necessary to permit preparation offinancial statements in accordance with generally accepted accounting principles and thatreceipts and expenditures of the company are being made only in accordance withauthorisations of management and directors of the company; and (3) provide reasonableassurance regarding prevention or timely detection of unauthorised acquisition use ordisposition of the company's assets that could have a material effect on the financialstatements.
Inherent Limitations of Internal Financial controls with Reference to FinancialStatements
Because of the inherent limitations of internal financial controls with reference tofinancial statements including the possibility of collusion or improper managementoverride of controls material misstatements due to error or fraud may occur and not bedetected. Also projections of any evaluation of the internal financial controls withreference to financial statements to future periods are subject to the risk that theinternal financial controls with reference to financial statements may become inadequatebecause of changes in conditions or that the degree of compliance with the policies orprocedures may deteriorate.
for B S R & Co. LLP
Firm's Registration No: 101248W/W-100022
Membership No: 203491
Date: May 30 2019