To the Members of Novartis India Limited
Report on the Audit of the Financial Statements
We have audited the accompanying financial statements of Novartis India Limited ("theCompany") which comprise the Balance Sheet as at 31st March 2020 and the Statementof Profit and Loss (including Other Comprehensive Income) the Statement of Cash Flows andthe Statement of Changes in Equity for the year then ended and a summary of significantaccounting policies and other explanatory information.
In our opinion and to the best of our information and according to the explanations givento us the aforesaid financial statements give the information required by the CompaniesAct 2013 ("the Act") in the manner so required and give a true and fair view inconformity with the Indian Accounting Standards prescribed under section 133 of the Actread with the Companies (Indian Accounting Standards) Rules 2015 as amended ("IndAS") and other accounting principles generally accepted in India of the state ofaffairs of the Company as at 31st March 2020 and its profit total comprehensive incomeits cash flows and the changes in equity for the year ended on that date.
Basis for Opinion
We conducted our audit of the financial statements in accordance with the Standards onAuditing specified under section 143(10) of the Act (SAs). Our responsibilities under thoseStandards are further described in the Auditor's Responsibility for the Audit of theFinancial Statements section of our report. We are independent of the Company inaccordance with the Code of Ethics issued by the Institute of Chartered Accountants ofIndia (ICAI) together with the ethical requirements that are relevant to our audit of thefinancial statements under the provisions of the Act and the Rules made thereunder and wehave fulfilled our other ethical responsibilities in accordance with theserequirements and the ICAI's Code of Ethics. We believe that the audit evidenceobtained by us is sufficient and appropriate to provide a basis for our audit opinion onthe financial statements.
Key Audit Matter
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. Wehave determined the matter described below to be the key audit matter to be communicatedin our report.
|Key Audit Matter ||Auditor's Response |
|Revenue recognition Sale of products [Note 1(J) to the financial statements] ||Assessed the appropriateness of the Company's revenue recognition policies by mapping them with the applicable accounting standards. |
|The nature of operations of the Company being driven by trading activities the focus of internal reporting as well as of external stakeholders is on revenue which could be a causal factor to record revenues for sales that either did not occur or for which the revenue recognition criteria may not have been met. This risk is furthered considering that the Company sells its products across the country through wide spread distribution points. We have therefore specifically focused on the said risk and have considered this to be a key audit matter. ||Performed a walkthrough of the revenue business cycle to gain an understanding of the relevant risks and controls around occurrence and timing of revenue recognition. We also tested the design implementation and operating effectiveness of the relevant controls. |
| ||Tested transactions on a sample basis by agreeing sales with the invoices purchase orders and delivery documents comparing the invoice prices to the Company price lists agreeing the revenue amount recorded by management to underlying accounting records. We also reviewed the contracts / purchase orders as applicable to assess the terms of sale and confirmed that the sales were recorded in the correct accounting period. |
| ||We sought confirmations from customers on a test check basis and checked realisation / performed other alternate procedures where applicable to support the assertion that revenue has been recognised for sales that has occurred during the year. |
| ||We made enquiries of the management and obtained written representations as to whether there exist any side agreements or unusual arrangements which may impact revenue recognition. |
| ||We also reviewed variations in revenue over the corresponding period checked subsequent sales returns and tested any unusual transactions to determine whether the information corroborates with the revenue recorded in the books of account. |
Information Other than the Financial Statements and Auditor's Report Thereon
The Company's Board of Directors is responsible for the other information. Theother information comprises the information included in the Business ResponsibilityReport Directors' report including annexures to the Directors' Report and Report onCorporate Governance but does not include the financial statements and our auditor'sreport thereon.
Our opinion on the financial statements does not cover the other information andwe do not express any form of assurance conclusion thereon.
In connection with our audit of the financial statements our responsibility isto read the other information and in doing so consider whether the other information ismaterially inconsistent with the financial statements or our knowledge obtained during thecourse of our audit or otherwise appears to be materially misstated.
If based on the work we have performed we conclude that there is a materialmisstatement of this other information we are required to report that fact. We havenothing to report in this regard.
Management's Responsibility for the Financial Statements
The Company's Board of Directors is responsible for the matters stated in section134(5) of the Act with respect to the preparation of these financial statements that givea true and fair view of the financial position financial performance including othercomprehensive income cash flows and changes in equity of the Company in accordance withthe Ind AS and other accounting principles generally accepted in India. Thisresponsibility also includes maintenance of adequate accounting records in accordance withthe provisions of the Act for safeguarding the assets of the Company and for preventingand detecting frauds and other irregularities; selection and application of appropriateaccounting policies; making judgments 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 financial statement that givea true and fair view and are free from material misstatement whether due to fraud orerror.
In preparing the financial statements management is responsible for assessing theCompany's ability to continue as a going concern disclosing as applicable mattersrelated to going concern and using the going concern basis of accounting unless managementeither intends to liquidate the Company or to cease operations or has no realisticalternative but to do so. Those Board of Directors are also responsible for overseeing theCompany's financial reporting process.
Auditor's Responsibility 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 weexercise professional judgment and maintain professional skepticism throughout the audit.We also:
Identify and assess the risks of material misstatement of the financialstatements whether due to fraud or error design and perform audit procedures responsiveto those risks and obtain audit evidence that is sufficient and appropriate to provide abasis for our opinion. The risk of not detecting a material misstatement resulting fromfraud is higher than for one resulting from error as fraud may involve collusionforgery intentional omissions misrepresentations or the override of internal control.
Obtain an understanding of internal financial control relevant to the audit inorder to design audit procedures that are appropriate in the circumstances. Under section143(3)(i) of the Act we are also responsible for expressing our opinion on whether theCompany has adequate internal financial controls system in place and the operatingeffectiveness of such controls.
Evaluate the appropriateness of accounting policies used and the reasonablenessof accounting estimates and related disclosures made by the 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 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 financialstatements including the disclosures and whether the financial statements represent theunderlying transactions and events in a manner that achieves fair presentation.
Materiality is the magnitude of misstatements in the financial statements thatindividually or in aggregate makes it probable that the economic decisions of areasonably knowledgeable user of the financial statements may be influenced. We considerquantitative materiality and qualitative factors in (i) planning the scope of ouraudit work and in evaluating the results of our work; and (ii) to evaluate theeffect 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 alsoprovide those charged with governance with a statement that we have complied with relevantethical requirements regarding independence and to communicate with them allrelationships and other matters that may reasonably be thought to bear on ourindependence and where applicable related safeguards.
From the matters communicated with those charged with governance we determine thosematters that were of most significance in the audit of the financial statements of thecurrent period and are therefore the key audit matters. We describe these matters in ourauditor's report unless law or regulation precludes public disclosure about the matter orwhen in extremely rare circumstances we determine that a matter should not becommunicated in our report because the adverse consequences of doing so would reasonablybe expected to outweigh the public interest benefits of such communication.
Report on Other Legal and Regulatory Requirements
1. As required by 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 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 Cash Flows and Statement of Changes in Equity dealt with by thisReport 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 31stMarch 2020 taken on record by the Board of Directors none of the directors isdisqualified as on 31st March 2020 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 A". Our report expresses an unmodified opinion onthe adequacy and operating effectiveness of the Company's internal financial controls overfinancial reporting.
g) With respect to the other matters to be included in the Auditor's Report inaccordance with the requirements of section 197(16) of the Act as amended in our opinionand to the best of our information and according to the explanations given to us theremuneration paid by the Company to its directors during the year is in accordance withthe provisions of section 197 of the Act.
h) With respect to the other matters to be included in the Auditor's Report inaccordance with Rule 11 of the Companies (Audit and Auditors) Rules 2014 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 financial statements - Refer Note 26(A) to the financial statements.
ii. The Company did not have any long-term contracts including derivative contracts forwhich there were any material foreseeable losses.
iii. There has been no delay in transferring amounts required to be transferred tothe Investor Education and Protection Fund by the Company.
2. 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"Annexure B" a statement on the matters specified in paragraphs 3 and 4 of theOrder.
Annexure "A" to the Independent Auditor's Report
(Referred to in paragraph 1(f) under Report on Other Legal and RegulatoryRequirements' section of our report of even date to the Members of Novartis India Limitedon the financial statements for the year ended 31st March 2020) Report on the InternalFinancial Controls Over Financial Reporting under Clause (i) of Subsection 3 of Section143 of the Companies Act 2013 ("the Act")
We have audited the internal financial controls over financial reporting of NovartisIndia Limited ("the Company") as of 31st March 2020 in conjunction with ouraudit of the financial statements of the Company for the year ended on that date.
Management's Responsibility for Internal Financial Controls
The Company's management is responsible for establishing and maintaining internalfinancial controls based on the internal control over financial reporting criteriaestablished by the Company considering the essential components of internal control statedin the Guidance Note on Audit of Internal Financial Controls Over Financial Reportingissued by the Institute of Chartered Accountants of India. These responsibilities includethe design implementation and maintenance of adequate internal financial controls thatwere operating effectively for ensuring the orderly and efficient conduct of its businessincluding adherence to company's policies the safeguarding of its assets the preventionand detection of frauds and errors the accuracy and completeness of the accountingrecords and the timely preparation of reliable financial information as required underthe Act.
Our responsibility is to express an opinion on the Company's internal financialcontrols over financial reporting of the Company based on our audit. We conducted ouraudit in accordance with the Guidance Note on Audit of Internal Financial Controls OverFinancial Reporting (the "Guidance Note") issued by the Institute ofChartered Accountants of India and the Standards on Auditing prescribed under section143(10) of the Act to the extent applicable to an audit of internal financial controls.Those Standards and the Guidance Note require that we comply with ethical requirements andplan and perform the audit to obtain reasonable assurance about whether adequate internalfinancial controls over financial reporting were established and maintained and if suchcontrols operated effectively in all material respects. Our audit involves performingprocedures to obtain audit evidence about the adequacy of the internal financial controlssystem over financial reporting and their operating effectiveness. Our audit of internalfinancial controls over financial reporting included obtaining an understanding ofinternal financial controls over financial reporting assessing the risk that a materialweakness exists and testing and evaluating the design and operating effectiveness ofinternal control based on the assessed risk. The procedures selected depend on theauditor's judgement including the assessment of the risks of material misstatement of thefinancial statements whether due to fraud or error.
We believe that the audit evidence we have obtained is sufficient and appropriate toprovide a basis for our audit opinion on the Company's internal financial controlssystem over financial reporting.
Meaning of Internal Financial Controls Over Financial Reporting
A company's internal financial control over financial reporting is a process designedto provide reasonable assurance regarding the reliability of financial reporting and thepreparation of financial statements for external purposes in accordance with generallyaccepted accounting principles. A company's internal financial control over financialreporting includes those policies and procedures that (1) pertain to the maintenance ofrecords that in reasonable detail accurately and fairly reflect the transactions anddispositions of the assets of the company; (2) provide reasonable assurance thattransactions are recorded as necessary to permit preparation of financial statements inaccordance with generally accepted accounting principles and that receipts andexpenditures of the company are being made only in accordance with authorisationsof management and directors of the company; and (3) provide reasonable assuranceregarding prevention or timely detection of unauthorised acquisition use or dispositionof the company's assets that could have a material effect on the financial statements.
Inherent Limitations of Internal Financial Controls Over Financial Reporting
Because of the inherent limitations of internal financial controls over financialreporting including the possibility of collusion or improper management override ofcontrols material misstatements due to error or fraud may occur and not be detected.Also projections of any evaluation of the internal financial controls over financialreporting to future periods are subject to the risk that the internal financial controlover financial reporting may become inadequate because of changes in conditions or thatthe degree of compliance with the policies or procedures may deteriorate.
In our opinion to the best of our information and according to the explanations givento us the Company has in all material respects an adequate internal financial controlssystem over financial reporting and such internal financial controls over financialreporting were operating effectively as at 31st March 2020 based on the criteria forinternal financial control over financial reporting established by the Company consideringthe essential components of internal control stated in the Guidance Note on Audit ofInternal Financial Controls Over Financial Reporting issued by the Institute of CharteredAccountants of India.
Annexure "B" to the Independent Auditor's Report
(Referred to in paragraph 2 under Report on Other Legal and RegulatoryRequirements' section of our report of even date to the Members of Novartis India Limitedon the financial statements for the year ended 31st March 2020)
(i) In respect of its fixed assets:
(a) The Company has maintained proper records showing full particulars includingquantitative details and situation of the fixed assets.
(b) The Company has a program of verification to cover all the items of fixed assets ina phased manner over a period of three years which in our opinion is reasonable havingregard to the size of the Company and the nature of its assets. Pursuant to the programcertain fixed assets were physically verified by the management during the year. Accordingto the information and explanations given to us no material discrepancies were noticed onsuch verification.
(c) According to the information and explanations given to us the records examined byus and based on the examination of registered sale deeds/share certificate provided to uswe report that the title deeds comprising all the immovable properties of buildings areheld in the name of the Company as at the balance sheet date.
(ii) As explained to us the inventories were physically verified during the year bythe Management at reasonable intervals except for inventories lying at third partylocations for which confirmations have been obtained by the Management and goods intransit. No material discrepancies were noticed on physical verification.
(iii) T he Company has not granted any loans secured or unsecured to companiesfirms Limited Liability Partnerships or other parties covered in the register maintainedunder section 189 of the Companies Act 2013 ("the Act") hence reporting underclause (iii) of paragraph 3 of the Order is not applicable.
(iv) The Company has not granted any loans made investments or provided guarantees orsecurities hence reporting under clause (iv) of paragraph 3 of the Order is notapplicable.
(v) According to the information and explanations given to us the Company has notaccepted any deposit during the year. The Company does not have unclaimed deposits as at31st March 2020 and accordingly the provisions of sections 73 to 76 orany other relevant provisions of the Act are not applicable to the Company.
(vi) The maintenance of cost records has not been specified by the Central Governmentunder section 148(1) of the Act.
(vii) According to the information and explanations given to us in respect of statutorydues:
(a) The Company has generally been regular in depositing undisputed statutory duesincluding Provident Fund Income-tax Goods and Services Tax Customs Duty Cess and othermaterial statutory dues applicable to it with the appropriate authorities.
(b) There were no undisputed amounts payable in respect of Provident Fund Income-taxGoods and Services Tax Sales Tax Service Tax Excise Duty Value Added TaxCustoms Duty Cess and other material statutory dues in arrears as at 31stMarch 2020 for a period of more than six months from the date they became payable.
(c) Details of dues of Income-tax Sales Tax Service Tax Customs Duty Excise Dutyand Value Added Tax which have not been deposited as on 31st March 2020 onaccount of disputes are given below:
|Name of the Statute ||Nature of dues ||Forum where the dispute is pending ||Period to which the amount relates ||Amount Involved (Rs. million) ||Amount Unpaid (Rs. million)* |
|Income Tax Act 1961 ||Income Tax including tax deducted at source and interest as applicable ||Appellate Authority- up to Commissioner's level ||Assessment years 1994-95 and 2010-11 to 2019-20 ||2634.0 ||2284.9 |
| || ||Income Tax Appellate Tribunal ||Assessment years 2006-07 and 2012-13 ||64.0 ||31.6 |
|The Central Sales Tax Act 1956 and ||Sales tax including interest and penalty as applicable ||Appellate Authority up to Commissioner's level ||2000-2001 to 2017-2018 ||615.4 ||545.0 |
|Local Sales Tax Acts || ||Tribunal ||1993-1994 2001-2002 to 2005-2006 2007-08 and 2010-2011 to 2012-2013 ||83.1 ||52.3 |
| || ||The High Court of Kerala ||1997-1998 ||0.3 ||0.2 |
| || ||West Bengal Sales Tax Appellate and Revisional Board ||2008-2009 to 2010-2011 ||15.4 ||15.4 |
|The Finance Act 1994 ||Service tax ||Tribunal ||September 2004 to September 2009 ||4.8 ||4.8 |
|The Customs Act 1962 ||Customs Duty ||Appellate Authority up to Commissioner's level ||2002-2003 ||0.4 ||0.4 |
|The Central Excise Act 1944 ||Excise duty including penalty as applicable ||Appellate Authority up to Commissioner's level ||1990 and June 1993 to October 1993 ||0.6 ||0.6 |
| || ||Customs Excise & Service Tax Appellate Tribunal ||August 1993 to December 1996 ||2.4 ||2.4 |
(viii) T he Company has not taken any loans or borrowings from financial institutionsand government or has not issued any debentures. Hence reporting under clause (viii) ofparagraph 3 of the Order is not applicable.
(ix) The Company has not raised any moneys by way of initial public offer or furtherpublic offer (including debt instruments) or term loans and hence reporting under clause(ix) of paragraph 3 of the Order is not applicable.
(x) To the best of our knowledge and according to the information and explanationsgiven to us no fraud by the Company and no material fraud on the Company by its officersor employees has been noticed or reported during the year.
(xi) In our opinion and according to the information and explanations given to us theCompany has paid/provided managerial remuneration in accordance with the requisiteapprovals mandated by the provisions of section 197 read with Schedule V to theAct.
(xii) The Company is not a Nidhi Company and hence reporting under clause (xii) of paragraph3 of the Order is not applicable.
(xiii) In our opinion and according to the information and explanations given to usthe Company is in compliance with sections 177 and 188 of the Act where applicablefor all transactions with the related parties and the details of related partytransactions have been disclosed in the financial statements as required by the applicableaccounting standards.
(xiv) During the year the Company has not made any preferential allotment or privateplacement of shares or fully or partly convertible debentures and hence reporting underclause (xiv) of paragraph 3 of the Order is not applicable.
(xv) In our opinion and according to the information and explanations given to usduring the year the Company has not entered into any non-cash transactions with itsdirectors or directors of its holding company or persons connected with them and henceprovisions of section 192 of the Act are not applicable.
(xvi) The Company is not required to be registered under section 45-IA of the ReserveBank of India Act 1934 hence reporting under clause (xvi) of paragraph 3 of the Order isnot applicable
|For Deloitte Haskins & Sells LLP || |
|Chartered Accountants || |
|(Firm's Registration No. 117366W/W-100018) ||Place : Mumbai |
|Rakesh N. Sharma ||Date : 19th June 2020 |
|Partner || |
|(Membership No. 102042) || |
|(UDIN: 20102042AAAABB1249) || |