Report on the Audit of the Standalone Financial Statements
We have audited the Standalone Financial Statements of MosChip Technologies Limited(the Company') for the year ended on 31 March 2019 wherein the effect of Scheme ofarrangement for amalgamation has been given pursuant the approved scheme of arrangementfor amalgamation with effect from the appointed date i.e. 1 April 2018.
The Standalone Financial Statements of the Company for the year ended on 31 March 2019without considering the effect of aforesaid scheme of arrangement for amalgamation wereearlier approved by the Board of Directors on 27 May 2019 which were audited and reportedby us vide our audit report dated 27 May 2019 stands replaced by this Audit Report dated5th December 2019 after due audit procedures. Based on the financial statements preparedby giving the effect of terms of Scheme of Arrangement for amalgamation approved by NCLTwe are submitting the audit report. The aforesaid Scheme of arrangement for amalgamationwas filed with National Company Law Tribunal (NCLT) on 23 April 2019 which has beenapproved vide NCLT Orders dated 05 December 2019 whereby financials of two amalgamatingcompanies are incorporated as part of Financials of the Company.
Standalone Financial Statements comprise the Balance Sheet as at 31stMarch 2019 theStatement of Profit and Loss (including Other Comprehensive Income) the Statement ofChanges in Equity and the Statement of Cash Flows for the year then ended and notes tothe Standalone Financial Statements including a summary of significant accountingpolicies and other explanatory information (hereinafter referred to as theStandalone Financial Statements').
In our opinion and to the best of our information and according to the explanationsgiven to us the aforesaid Standalone Financial Statements give the information requiredby the Companies Act 2013 (the Act') in the manner so required and give a true andfair view in conformity with the Indian Accounting Standards(Ind AS')prescribedunder section 133 of the Act read with the Companies (Indian Accounting Standards) Rules2015 as amended and other accounting principles generally accepted in India of the stateof affairs of the Company as at 31stMarch 2019profit other comprehensive income changesin equity and its cash flows for the year ended on that date.
Basis for opinion
We conducted our audit of the Standalone Financial Statements in accordance with theStandards on Auditing (SAs) specified under section 143(10) of the Act. Ourresponsibilities under those Standards are further described in the Auditor'sResponsibilities for the Audit of the Standalone Financial Statements section of ourreport. We are independent of the Company in accordance with the Code of Ethics issued bythe Institute of Chartered Accountants of India (ICAI) together with the independencerequirements that are relevant to our audit of the standalone financial statements underthe provisions of the Act and the Rules made thereunder and we have fulfilled our otherethical responsibilities in accordance with these requirements and the ICAI's Code ofEthics. We believe that the audit evidence we have obtained is sufficient and appropriateto provide a basis for our audit opinion on the standalone financial statements.
Key audit matters
Key audit matters (KAM') are those matters that in our professional judgmentwere of most significance in our audit of the standalone financial statements of thecurrent period. These matters were addressed in the context of our audit of the standalonefinancial statements as a whole and in forming our opinion thereon and we do not providea separate opinion on these matters. We have determined the matters described below to bethe key audit matters to be communicated in our report.
Key Audit Matters
|Key Audit Matter ||Auditor's Response |
|Accuracy of recognition measurement presentation and disclosures of revenues and other related balances in view of adoption of Ind AS 115 "Revenue from Contracts with Customers" (new revenue accounting standard) ||We assessed the Company's process to identify the impact of adoption of the new revenue accounting standard. Our audit approach consisted testing of the design and operating effectiveness of the internal controls and substantive testing as follows: |
| || Evaluated the design of internal controls relating to implementation of the new revenue accounting standard. |
| || Tested the operating effectiveness of the internal control relating to identification of the distinct performance obligations and determination of transaction price. We carried out a combination of procedures involving enquiry and observation and inspection of evidence in respect of operation of these controls. |
| || Performed the following procedures: Analysed and identified the distinct performance obligations in the contracts. |
| || Compared these performance obligations with that identified and recorded by the Company. |
| || Considered the terms of the contracts to determine the transaction price including any variable consideration to verify the transaction price used to compute revenue and to test the basis of estimation of the variable consideration. |
| || In respect of revenue recorded for time and material contracts were tested using combination of approved time sheets including customer acceptances subsequent invoicing and historical trend of collections and disputes. |
|Acquisition of businesses within the Company is recognised and accounted in the books in accordance with Ind AS 103 Business ||For assessing the impairment we have verified the following: |
| ||Evaluated the internal sources and external sources of information to identify impairment indicators. |
|Combinations. The application of the accounting standard involves key management judgements relating to recognition and the valuation of assets and liabilities acquired at fair values and the resultant goodwill. ||Assessed the reasonableness of key assumptions such as revenue growth rates and gross margin by comparing to commercial contracts and historical trend analyses used in development of free cash flows by the management. |
|Refer Note 39to the Standalone Financial Statements. ||Assessed the discount rates by making reference to comparable companies within the same industry. |
|The carrying value of Goodwill resulting from such business combinations aggregated INR 444150372 as at 31st March 2019. Significant judgement is required by management in assessing the Goodwill impairment if any annually which is determined using valuation techniques. The valuation is largely based on expected future cash flows taking into account estimated growth rates and assumption with regard to discount rates. The assessment of impairment involves significant judgements and estimates. As such we consider this as a key audit matter ||Reviewed the management plans for the foreseeable future and events / factors which have an impact on the relevant business. |
| ||Evaluated management's sensitivity analysis around the key assumptions to ascertain the extent of change in those assumptions that either individually or collectively would impact impairment analysis. |
| ||We analysed the management approved financial projections considered for assessment of investments values and significant management assumptions involved. These projections were evaluated for sensitivity of significant assumptions considered which will have adverse impact on the recoverable value of such investments. |
| ||Tested the accounting entries of business combinations for the acquisition entries recorded during the financial year to verify if these were in accordance with Ind AS 103. |
Information Other than the Standalone Financial Statements and Auditor's Report Thereon
The Company's management and Board of Directors are responsible for the preparation ofthe other information. The other information comprises the information included in theManagement Discussion and Analysis Board's Report including Annexures to Board's ReportBusiness Responsibility Report Corporate Governance and Shareholder's Information butdoes not include the standalone financial statements and our auditor's report thereon.
Our opinion on the Standalone Financial Statements does not cover the other informationand we do not express any form of assurance conclusion thereon.
In connection with our audit of the Standalone Financial Statements our responsibilityis to read the other information and in doing so consider whether the other informationis materially inconsistent with the standalone financial statements or our knowledgeobtained during the course of our audit or otherwise appears to be materially misstated.If based on the work we have performed we conclude that there is a material misstatementof this other information we are required to report that fact. We have nothing to reportin this regard.
Management's Responsibility for the Standalone 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 Standalone FinancialStatements that give a true and fair view of the financial position financialperformance total comprehensive income changes in equity and cash flows of the Companyin accordance with the Indian Accounting Standards(Ind AS') and other accountingprinciples generally accepted in India including Ind AS specified under section 133 ofthe Act. This responsibility also includes maintenance of adequate accounting records inaccordance with the provisions of the Act for safeguarding the assets of the Company andfor preventing and detecting frauds and other irregularities; selection and application ofappropriate accounting policies; making judgments and estimates that are reasonable andprudent; and design implementation and maintenance of adequate internal financialcontrols that were operating effectively for ensuring the accuracy and completeness ofthe accounting records relevant to the preparation and presentation of the StandaloneFinancial Statements that give a true and fair view and are free from materialmisstatement whether due to fraud or error.
In preparing the standalone financial statements management is responsible forassessing the Company's ability to continue as a going concern disclosing as applicablematters related to going concern and using the going concern basis of accounting unlessmanagement either intends to liquidate the Company or to cease operations or has norealistic alternative but to do so.
The Board of Directors are responsible for overseeing the Company's financial reportingprocess.
Auditor's Responsibilities for the Audit of the Standalone Financial Statements
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 standalonefinancial statements whether due to fraud or error design and perform audit proceduresresponsive to those risks and obtain audit evidence that is sufficient and appropriate toprovide a basis for our opinion. The risk of not detecting a material misstatementresulting from fraud is higher than for one resulting from error as fraud may involvecollusion forgery intentional omissions misrepresentations or the override of internalcontrols. 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 with reference to standalone financialstatements in place and the operating effectiveness of such controls.
Evaluate the appropriateness of accounting policies used and reasonableness ofaccounting 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 Standalone Financial Statements or if such disclosures are inadequate to modify ouropinion. Our conclusions are based on the audit evidence obtained up to the date of ourauditor's Report. However future events or conditions may cause the Company to cease tocontinue as a going concern.
Evaluate the overall presentation structure and content of the standalonefinancial statements including the disclosures and whether the Standalone FinancialStatements represent the underlying transactions and events in a manner that achieves fairpresentation.
Materiality is the magnitude of misstatements in the Standalone FinancialStatements that individually or in aggregate makes it probable that the economicdecisions of a reasonably knowledgeable user of the financial statements may beinfluenced. We consider quantitative materiality and qualitative factors in (i) planningthe scope of our audit work and in evaluating the results of our work; and (ii) toevaluate the effect of any identified 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.
From the matters communicated with those charged with governance we determine thosematters that were of most significance in the audit of the Standalone Financial Statementsof the current period and are therefore the key audit matters. We describe these mattersin our auditor's report unless law or regulation precludes public disclosure about thematter or when 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 of India in terms of Section 143(11) of the Act we givein Annexure-A' a statement on the matters specified in paragraphs 3 and 4 of theOrder to the extent applicable.
2. As required by Section 143(3) of the Act based on our audit we report that :
a. We have sought and obtained all the information and explanations which to thebest ofour 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 Flow dealt with bythis Report are in agreement with the relevant books of account.
d. In our opinion the aforesaid Standalone Financial Statements comply with the Ind ASspecified under Section 133 of the Act.
e. On the basis of the written representations received from the directors as on 31stMarch 2019 taken on record by the Board of Directors none of the directors isdisqualified as on March 31 2019 from being appointed as a director in terms of Section164 (2) of the Act.
f. With respect to the adequacy of the internal financial controls over financialreporting of the Company and the operating effectiveness of such controls refer to ourseparate Report in Annexure-B'.
3. 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 as amended inour opinion and to the best of our information and according to the explanations given tous:
i. The Company has disclosed the impact of pending litigations on its financialposition in its standalone financial
ii. The Company has made provision as required under the applicable law or accountingstandards for material foreseeable losses if any on long-term contracts includingderivative contracts.
iii. There has been no delay in transferring amounts required to be transferred tothe Investor Education and Protection Fund by the company.
iv. The disclosures in the Standalone Financial Statements regarding holdings as wellas dealings in Specified Bank Notes during the period from 8th November 2016 to 30December 2016 have not been made in these Standalone Financial Statements since they donot pertain to the financial year ended 31 March 2019.
4. With respect to the other matters to be included in the Auditor's Report inaccordance with the requirements of amendments to section 197(16) of the Act:
In our opinion and to the best of our information and according to the explanationsgiven to us the remuneration paid by the Company to its directors during the year is inaccordance with the provisions of section 197 of the Act. The remuneration paid to anydirector is not in excess of the limit laid down under Section 197 of the Act. TheMinistry of Corporate Affairs has not prescribed other details under Section 197(16) ofthe Act which are required to be commented upon by us.
For S.T. Mohite & Co.
Firm Regn. No. 011410S
Sreenivasa Rao T Mohite
Date: 05 December 2019
Annexure A to the Independent Auditors' Report
With reference to Annexure A as referred to in paragraph 1 under Report on OtherLegal and Regulatory Requirements' section of our report to the Members of the company onthe Standalone Financial Statements for the year ended 31 March 2019 we report thefollowing:
|Sl No. ||Ref to CARO ||Report by Independent Auditors |
|1 ||3(I) ||Fixed Assets |
| ||3(i)(a) ||The Company has maintained proper records showing full particulars including quantitative details and situation of fixed assets on the basis of available information. |
| ||3(i)(b) ||The Company has a regular program of physical verification of its fixed assets by which all fixed assets are verified on annual basis in our opinion the periodicity of physical verification is reasonable having regard to the size of the Company and the nature of its assets. Pursuant to the program all fixed assets were physically verified during the year. According to the information and explanation given to us no material discrepancies were noticed on such verification. |
| ||3(i)(c) ||The Company is not holding any immovable properties and accordingly clause 3(i)(c) of the Order is not applicable to the Company for the year under review. |
|2 ||3(ii) ||Inventories |
| || ||As explained to us the inventories has been physically verified by the management during the year. In our opinion the frequency of such verification is reasonable. The Company has maintained proper records of inventory. There were no material discrepancies noticed on verification between the physical stock and the book records. |
|3 ||3(iii) ||Loans to parties covered by Sec.189 of the Companies Act2013 (the Act' ) |
| || ||According to the information and explanation given to us the Company has not granted any loans secured or unsecured to body corporate firms Limited Liability Firms or other parties covered in the register required to be maintained under section 189 of the Act. Accordingly the provisions of the clause 3 (iii) of the Order are not applicable to the Company for the year under review. |
|4 ||3(iv) ||Loans guarantees securities to and investments in other companies |
| || ||In our opinion and according to the information and explanation given to us the company has transactions for compliance with the provisions of Sections 185and186 and complied with the provisions of Section 186 of the Act in respect of investments made and loans given. |
|5 ||3(v) ||Acceptance of deposits |
| || ||In our opinion and according to the information and explanations given to us the Company has not accepted any deposits during the year as per provisions of Section 73 or 76 of the Act and any other relevant provisions of the Act and the relevant Rules framed thereunder. Accordingly the provisions of the clause 3 (v) of the Order are not applicable to the Company for the year under review. |
|6 ||3(vi) ||Maintenance of cost records |
| || ||According to the information and explanations given to us the maintenance of cost records prescribed under section 148(1) of the Act read with Rule 3 of the Cost Audit Rules is not applicable to the company. Accordingly reporting under clause 3(vi) of the Order is not applicable to the Company for the year under review. |
|7 ||3(vii) ||Statutory Dues |
| ||3(vii)(a) ||According to the information and explanations given to us and on the basis of our examination of the records of the Company amounts deducted / accrued in the books of account in respect of undisputed statutory dues including Provident Fund Employee's State insurance Income Tax Goods and Service Tax duty of Customs Cess and other material statutory dues have been generally deposited during the year by the Company with the appropriate authorities except on certain occasions. |
| || ||According to the information and explanations given to us no undisputed amounts payable in respect of Provident Fund Employees' State Insurance Income tax Goods and Service Tax duty of Customs Cess and other material statutory dues in arrears as at March 31 2019 for a period of more than six months from the date they became payable. |
| ||3(vii)(b) ||According to the information and explanation given to us there are no dues of statutory dues of Income tax sales tax Service tax Goods and Service tax Customs duty Excise duty Value added tax cess and other dues have not been deposited by the Company on account of any disputes. |
|8 ||3(viii) ||Defaults in repayments to Financial Institutions/Banks/Debenture holders |
| || ||In our opinion and according to the information and explanation given to us the Company has not defaulted in the payment/repayments of loans or borrowings to the banks. The Company did not have any outstanding loans or borrowings from financial Institutions or Government. |
|9 ||3(ix) ||Initial public offer/further offer |
| || ||In our opinion and according to the information and explanation given to us the company has not made for the year under review any initial public offer or further public offer of securities (including debt instruments) or the term loans during the year and hence reporting under clause 3(ix) of the Order is not applicable to the company. |
|10 ||3(x) ||Frauds by or on the company |
| || ||In our opinion and according to the information and explanation given to us no material fraud by the Company or on the Company by its officers or employees has been noticed orreported during the course of our audit. |
|11 ||3(xi) ||Managerial Remuneration |
| || ||In our opinion and according to the information and explanation given to us based on the examination of the records of the Company the company has paid/provided managerial remuneration in accordance with the requisite approvals mandated by the provisions of section 197 read with schedule V to the Act. |
|12 ||3(xii) ||Nidhi company |
| || ||In our opinion and according to the information and explanation given to us the company is not a Nidhi Company as prescribed under Section 406 of the Act and hence paragraph 3(xii) of the Order is not applicable to the company. |
|13 ||3(xiii) ||Transactions with Related parties |
| || ||In our opinion and according to the information and explanation given to us and based on our examination of the records of the Company all transactions with related parties are in compliance with provisions of section 177 and section 188 of the Act where applicable and the details of such transactions have been disclosed in the standalone financial statements as required by the applicable accounting standards. |
|14 ||3(xiv) ||Preferential allotment u/s 62 or private placement u/s 42 of the Act |
| || ||According to the records of the Company the Company has made a preferential allotment of 10222221 warrants fully convertible into equal number of equity shares and during the year effected partial conversion of 2222222 warrants converted into equal number of equity shares. |
| || ||Further the company has allotted 7376500 equity shares on preferential basis (including 276500 of shares were allocated under Employee Stock Options Scheme). |
| || ||There is no private placement of shares under section 42 of the Act during the year. |
|15 ||3(xv) ||Non-cash transactions with director's u/s 192 of the Act |
| || ||In our opinion and according to the information and explanation given to us and based on our examination of the records of the Company the company has not entered into any non cash transactions with its Directors or persons connected to its Directors or persons connected with him and hence provisions of Sec 192 of the Act and paragraph 3(xv) of the Order are not applicable to the company. |
|16 ||3(xvi) ||Registration u/s 45-1A of Reserve Bank of India Act1934 |
| || ||According to the information and explanation given to us The company is not required to be registered under section 45-1A of the Reserve bank of India Act 1934 and hence paragraph 3(xvi) of the Order is not applicable to the company. |
For S.T. Mohite & Co.
Firm Regn. No. 011410S
Sreenivasa Rao T Mohite
Date: 05 December 2019
Annexure B to the Independent Auditors' Report
(Referred to in paragraph 2 (f) under Report on Other Legal and RegulatoryRequirements' section of our report of even date)
Report on the Internal Financial Controls Over Financial Reporting under Clause (i) ofSub-section 3 of Section 143 of the Companies Act 2013 ("the Act")
We have audited the internal financial controls with reference to standalone financialstatements of MosChip Technologies Limited ("the Company") as of 31 March 2019in conjunction with our audit of the standalone financial statements of the Company forthe 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 with reference to financial statementscriteria established by the Company considering the essential components of internalcontrol stated in the Guidance Note on Audit of Internal Financial Controls Over FinancialReporting (the "Guidance Note") issued by the Institute of Chartered Accountantsof 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 to theCompany's policies the safeguarding of its assets the prevention and detection of fraudsand errors the accuracy and completeness of the accounting records and the timelypreparation of reliable financial information as required under the 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 issued by ICAI anddeemed to be prescribed under Section 143(10) of the Act to the extent applicable to anaudit of internal financial controls both applicable to an audit of Internal FinancialControls and both issued by ICAI. Those Standards and the Guidance Note require that wecomply with ethical requirements and plan and perform the audit to obtain reasonableassurance about whether adequate internal financial controls with reference to financialstatements was established and maintained and if such controls operated effectively in allmaterial respects.
Our audit involves performing procedures to obtain audit evidence about the adequacy ofthe internal financial control system with reference to financial statements and theiroperating effectiveness. Our audit of internal financial controls with reference tofinancial statements included obtaining an understanding of internal financial controlswith reference to financial statements assessing the risk that a material weaknessexists and testing and evaluating the design and operating effectiveness of internalcontrol based on the assessed risk. The procedures selected depend on the auditor'sjudgement including the assessment of the risks of material misstatement of thestandalone financial statements whether due to fraud or error. We believe that the auditevidence we have obtained is sufficient and appropriate to provide a basis for our auditopinion on the Company's internal financial controls system with reference to financialstatements.
Meaning of Internal Financial Controls with reference to Financial Statements
A company's internal financial control 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 control withreference to financial statements includes those policies and procedures that (1) pertainto the maintenance of records that in reasonable detail accurately and fairly reflectthe transactions and dispositions of the assets of the company; (2) provide reasonableassurance that transactions are recorded as necessary to permit preparation of financialstatements in accordance with generally accepted accounting principles and that receiptsand expenditures 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 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 control with reference to financial statements may become inadequatebecause of changes in conditions or that the degree of compliance with the policies orprocedures may deteriorate.
In our opinion the Company has in all material respects an adequate internalfinancial controls system with reference to standalone financial statements and suchinternal financial controls with reference to standalone financial statements wereoperating effectively as at 31st March 2019based on the internal control with referenceto financial statements criteria established by the Company considering the essentialcomponents of internal control stated in the Guidance Note issued by the ICAI.
For S.T. Mohite & Co.
Firm Regn. No. 011410S
Sreenivasa Rao T Mohite
Date: 05 December 2019