To the Members of Oracle Financial Services Software Limited
Report on the Audit of Consolidated Ind AS Financial Statements
We have audited the accompanying Consolidated Ind AS financial statements of OracleFinancial Services Software Limited (the Holding Company) and its subsidiaries(the Company and its subsidiaries together referred to as (the Group)which comprise the Consolidated Balance Sheet as at March 31 2020 the ConsolidatedStatement of Profit and Loss (including Other Comprehensive Income) the ConsolidatedStatement of Changes in Equity and the Consolidated Statement of Cash Flows for the yearthen ended and notes to the Consolidated financial statements including a summary ofsignificant accounting policies and other explanatory information.
In our opinion and to the best of our information and according to the explanationsgiven to us the aforesaid Consolidated Ind AS financial statements give the informationrequired by the Companies Act 2013 (the Act) in the manner so required andgive a true and fair view in conformity with the Indian Accounting Standards prescribedunder Section 133 of the Act read with the Companies (Indian Accounting Standards) Rules2015 as amended (Ind AS) and other accounting principles generally acceptedin India of the Consolidated state of affairs of the Group as at March 31 2020 theConsolidated profit and consolidated total other comprehensive income Consolidatedchanges in equity and its Consolidated cash flows for the year ended on that date.
2. Basis for Opinion
We conducted our audit of the Consolidated Ind AS financial statements in accordancewith the Standards on Auditing specified under Section 143(10) of the Act. Ourresponsibilities under those Standards are further described in the Auditor'sResponsibilities for the Audit of the Consolidated Ind AS Financial Statements section ofour report. We are independent of the Group in accordance with the Code of Ethics issuedby the Institute of Chartered Accountants of India together with the ethical requirementsthat are relevant to our audit of the Consolidated Ind AS financial statements under theprovisions of the Companies Act 2013 (the Act) and the Rules thereunder andwe have fulfilled our other ethical responsibilities in accordance with these requirementsand the Code of Ethics. We believe that the audit evidence we have obtained is sufficientand appropriate to provide a basis for our opinion on Consolidated Ind AS financialstatements.
3. Key Audit Matter
Key audit matters are those matters that in our professional judgment were of mostsignificance in our audit of the Consolidated Ind AS financial statements of the currentyear. These matters were addressed in the context of our audit of the Consolidated Ind ASfinancial 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 be the key audit matters to becommunicated in our report which is based on audit procedures performed by us and by theother auditor of the components as described in the Other Matter paragraph 7below.
|Sr. Key Audit Matter No. ||Auditor's Response |
|1. Evaluation of income tax provision ||Principal Audit Procedures: |
|The Group has uncertain income tax positions which includes matters under dispute involving significant judgment to determine the possible outcome of these disputes. ||a) Evaluated the design and tested the operating effectiveness of the relevant controls through combination of procedures involving inquiry and observation reperformance and inspection of evidence in respect of operation of these controls to assess how the Group monitors income tax and related developments and their assessment of the potential impact on the Group. |
|Further the Group has operations in a number of different jurisdictions and are therefore subject to many tax regimes and differing rules and regulations. Management is required to ensure compliance with tax laws applicable in each jurisdiction and appropriately determine the tax expense. Further management is also required to evaluate the transfer pricing mechanism as per applicable tax laws in different jurisdictions and its consequential impact on adequacy of provision for income tax and deferred tax of the Group. ||b) For uncertain tax positions obtained details of income tax assessments appeal orders and income tax demands from management. |
|From April 1 2020 pursuant to the introduction of Appendix C Uncertainty over Income tax Treatments in Ind AS 12 Income taxes the Company has during the year ended March 31 2020 reviewed the uncertain tax positions in respect of all matters and wherever considered appropriate recognised income tax provisions relating to uncertain income tax treatments and the related interest expense thereon. ||c) Evaluated the management's underlying assumptions of the validity and adequacy of provisions for uncertain income tax positions and evaluated the basis of determination of the possible outcome of the disputes. Also considered legal precedence and other rulings and read where applicable external advice sought by the Company for these uncertain income tax positions and reviewed related correspondence in evaluating management's position on these uncertain income tax matters. |
|Refer note 2.3(f) 16 27 (vi) 28(b) and 39 of the consolidated Ind AS financial statements. ||d) For key tax jurisdictions assessed transfer pricing mechanism including the basis of recording provisions for uncertain income tax treatment and interest thereon as per applicable tax laws. We discussed with management and understood the rationale for recording the provision for uncertain tax positions. |
| ||e) Tested current income tax and deferred tax computation provided by the management and checked the arithmetical accuracy of the amounts reported for current and deferred tax including assessment of effective tax rate reconciliation to evaluate the Group's total income tax expense for the year. |
|2.Revenue Recognition ||Principal Audit Procedures: |
|The Group's revenue streams consist of license fees maintenance fees and consulting fees fixed price and time & material contracts. Revenue from contracts with customers is recognized in accordance with the requirements of Ind AS 115 Revenue from Contracts with Customers (Ind AS 115). ||a) Evaluated whether the revenue recognition of the Group is in accordance with the accounting policies and principles as per Ind AS 115. |
The application of Ind AS 115 involves certain key judgements relating to identification of distinct performance obligations determination of the transaction price allocation of transaction price to the identified performance obligations especially to license fees the appropriateness of the basis used to measure revenue recognised over time or at a point in time including relevant cut-off at period end dates.
|b) Obtained an understanding of management's internal controls over the revenue process and evaluated whether these were designed in line with the Ind AS 115. Tested relevant internal controls including information technology (IT) controls over revenue process. Carried out a combination of procedures involving inquiry and observation reperformance and inspection of evidence in respect of operation of these controls. |
|Refer note 2.3 (e) 17 25 and 27 (ix)] of the consolidated Ind AS financial statements. ||c) Performed following procedures on a sample of revenue contracts entered into by Group selected on a test check basis as deemed appropriate: |
| ||i) Read and identified the distinct performance obligations in these contracts and compared these performance obligations with those identified and recorded in the books of accounts. |
| ||ii) Read the terms of the contracts and checked determination of the transaction price including any variable consideration. Also checked management's evaluation of the stand-alone selling price for each performance obligation. |
| ||iii) Tested the basis used by the management to measure revenue recognised over time or at a point in time as per the requirements of Ind AS 115. |
| ||d) Performed cut-off testing procedures (by selecting a sample of contracts either side of year-end) to test that revenue has been recognised in the appropriate accounting period. |
|3. Impairment of Goodwill ||Principal Audit Procedures: |
|The goodwill amounting to Rs. 6086.63 million represents 7.59% of its total assets. For the cash generating units (CGUs) which also includes goodwill the determination of the recoverable amount of these CGUs requires significant estimates in determining the key assumptions supporting the expected future cash flows of the business the utilisation of the relevant assets and the most appropriate discount rate. ||a) Focused our testing on the impairment of goodwill and the key assumptions and estimates made by management. |
|Refer to note 2.3 (b) 6 27 (iv) and 32 of the consolidated Ind AS financial statements. ||b) Audit procedures included an assessment of the controls over the impairment assessment process. |
| ||c) Evaluated the design and tested the operating effectiveness of the relevant controls. |
| ||d) Carried out the following procedures on the valuation report and supporting assumptions provided to us: |
| ||i. Evaluated whether the approach and methodology used by management to calculate the value in use of each CGU complies with Ind AS 36 Impairment of Assets. |
| ||ii. Obtained and analysed the projections provided by management for each CGU to determine whether the forecast cash flows are supportable based on historical performance including assessment of long-term growth rate. |
| ||iii. Analysed and reviewed the discount rates calculated by management i.e. Weighted Average Cost of Capital (WACC). |
| ||iv. Assessed the key cash flow assumptions based on historical performance and industry information. |
| ||e) Performed sensitivity analysis around the key assumptions used by management to ascertain the extent of change in those assumptions that either individually or collectively would be required for an impairment charge. |
| ||f) Assessed the appropriateness of the recognition measurement and related disclosures of goodwill. |
4. Information other than the Consolidated Ind AS financial statements andAuditor's report thereon
The Holding Company's Board of Directors is responsible for the preparation of theother information. The other information comprises the information included in theDirectors Report Corporate Governance Report and Management Discussion and Analysis butdoes not include the Consolidated Ind AS financial statements and our auditor's reportthereon. These reports are expected to be made available to us after the date of ourauditor's report.
Our opinion on the Consolidated Ind AS financial statements does not cover the otherinformation and we will not express any form of assurance thereon.
In connection with our audit of the Consolidated Ind AS financial statements ourresponsibility is to read the other information identified above when it becomes availableand in doing so consider whether the other information is materially inconsistent withthe Consolidated Ind AS financial statements or our knowledge obtained in the audit orotherwise appears to be materially misstated.
When we read the other information included in the above reports if we conclude thatthere is material misstatement therein we are required to communicate the matter to thosecharged with governance and determine the actions under the applicable laws andregulations.
5. Management's responsibility for the Consolidated Ind AS Financial Statements
The Holding Company's Board of Directors is responsible for the matters stated insection 134(5) of the Act with respect to the preparation of these Consolidated Ind ASfinancial statements that give a true and fair view of the consolidated financialposition consolidated financial performance consolidated total comprehensive incomeconsolidated changes in equity and consolidated cash flows of the Group in accordance withthe Ind AS and other accounting principles generally accepted in India. The respectiveBoard of Directors of the Companies included in the Group are responsible for maintenanceof the adequate accounting records in accordance with the provisions of the Act forsafeguarding of the assets of the Group and for preventing and detecting frauds and otherirregularities; selection and application of appropriate accounting policies; makingjudgments and estimates that are reasonable and prudent; and the design implementationand maintenance of adequate internal financial controls that were operating effectivelyfor ensuring the accuracy and completeness of the accounting records relevant to thepreparation and presentation of the Consolidated Ind AS financial statements that give atrue and fair view and are free from material misstatement whether due to fraud or errorwhich have been used for the purpose of preparation of the consolidated financialstatements by the Directors of the Holding Company as aforesaid.
In preparing the Consolidated Ind AS financial statements the respective Board ofDirectors of the Companies included in the Group are responsible for assessing the abilityof the Group to continue as a going concern disclosing as applicable matters related togoing concern and using the going concern basis of accounting unless Board of Directorseither intends to liquidate the Group or to cease operations or has no realisticalternative but to do so.
The respective Board of Directors of the Companies included in the Group are alsoresponsible for overseeing the Company's financial reporting process.
6. Auditor's Responsibilities for the Audit of the Consolidated Ind AS FinancialStatements
Our objectives are to obtain reasonable assurance about whether the Consolidated Ind ASfinancial 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 Standards on auditing will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error and are considered material ifindividually or in the aggregate they could reasonably be expected to influence theeconomic decisions of users taken on the basis of these Consolidated Ind AS financialstatements.
As part of an audit in accordance with Standards on auditing we exercise professionaljudgment and maintain professional skepticism throughout the audit. We also:
i) Identify and assess the risks of material misstatement of the Consolidated Ind ASfinancial 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 internalcontrol.
ii) Obtain an understanding of internal financial controls relevant to the audit inorder to design audit procedures that are appropriate in the circumstances. Under thesection 143(3)(i) of the Act we are also responsible for expressing our opinion onwhether the Holding Company and its subsidiary Companies which are Companies incorporatedin India has adequate internal financial controls system in place and the operatingeffectiveness of such controls.
iii) Evaluate the appropriateness of accounting policies used and the reasonableness ofaccounting estimates and related disclosures made by management. iv) Conclude on theappropriateness of management's use of the going concern basis of accounting and based onthe audit evidence obtained whether a material uncertainty exists related to events orconditions that may cast significant doubt on the ability of the Group to continue as agoing concern. If we conclude that a material uncertainty exists we are required to drawattention in our auditor's report to the related disclosures in the Consolidated Ind ASfinancial statements or if such disclosures are inadequate to modify our opinion. Ourconclusions are based on the audit evidence obtained up to the date of our auditor'sreport. However future events or conditions may cause the Group to cease to continue as agoing concern. v) Evaluate the overall presentation structure and content of theConsolidated Ind AS financial statements including the disclosures and whether theConsolidated Ind AS financial statements represent the underlying transactions and eventsin a manner that achieves fair presentation.
vi) Obtain sufficient appropriate audit evidence regarding the financial information ofthe entities or business activities within the Group to express an opinion on theconsolidated Ind AS financial statements. We are responsible for the directionsupervision and performance of the audit of the Ind AS financial statements of suchentities included in the consolidated Ind AS financial statements of which we are theindependent auditors. For the other entities included in the consolidated Ind AS financialstatements which have been audited by the other auditors such other auditors remainresponsible for the direction supervision and performance of the audits carried out bythem. We remain solely responsible for our audit opinion.
We communicate with those charged with governance of the Holding Company and such otherentities included in the Consolidated financial statements of which we are the independentauditors regarding among other matters the planned scope and timing of the audit andsignificant audit findings including any significant deficiencies in internal controlthat 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 Consolidated Ind AS financialstatements of the current period and are therefore the key audit matters. We describethese matters in our auditor's report unless law or regulation precludes public disclosureabout the matter or when in extremely rare circumstances we determine that a mattershould not be communicated in our report because the adverse consequences of doing sowould reasonably be expected to outweigh the public interest benefits of suchcommunication.
7. Other Matters
We did not audit the Ind AS financial statements/financial information in respect offive subsidiaries whose Ind AS financial statements/financial information reflect totalassets of Rs. 24431.77 million and net assets of Rs.12880.64 million as at March 312020 total revenues of Rs. 41498.60 million total profit after tax (net) of Rs. 807.85million and net cash inflows of Rs. 1835.59 million for the year ended on that date asconsidered in the consolidated Ind AS financial statements. These Ind AS financialstatement/financial information have been audited by other auditor whose Ind AS financialstatements/ financial information and auditor's reports have been furnished to us by themanagement. Our opinion on the consolidated Ind AS financial statements in so far as itrelates to the amounts and disclosures included in respect of these subsidiaries and ourreport in terms of sub-section (3) of Section 143 of the Act in so far as it relates tothe aforesaid subsidiaries is based solely on the reports of such other auditor.
Our opinion above on the consolidated Ind AS financial statements and our report onOther Legal and Regulatory Requirements below is not modified in respect of the abovematters with respect to our reliance on the work done and the reports of the otherauditor.
8. Report on Other Legal and Regulatory Requirements
As required by section 143 (3) of the Act based on our audit and on the considerationof report of the other auditors on separate Ind AS financial statements and the otherfinancial information of subsidiaries as noted in the other matter' paragraph wereport to the extent applicable that:
a) We have sought and obtained all the information and explanations which to the bestof our knowledge and belief were necessary for the purpose of our audit of consolidatedInd AS Financial Statements.
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 Consolidated Balance Sheet the Consolidated Statement of Profit and Lossincluding Other
Comprehensive Income the Consolidated Statement of Cash Flow and ConsolidatedStatement of Changes in Equity dealt with by this Report are in agreement with the booksof account.
d) In our opinion the aforesaid Consolidated Ind AS financial statements comply withthe Ind AS specified under section 133 of the Act read with Rule 7 of the Companies(Accounts) Rules 2014.
e) On the basis of the written representations received from the directors of theHolding Company as on March 31 2020 taken on record by the Board of Directors of theHolding Company and the reports of the statutory auditors of its subsidiary companiesincorporated in India none of the directors of the Group's companies incorporated inIndia is disqualified as on March 31 2020 from being appointed as a director in terms ofSection 164 (2) of the Act;
f) With respect to the adequacy of the internal financial controls over financialreporting of the Holding Company and its subsidiary companies incorporated in India to theextent applicable and the operating effectiveness of such controls refer to our separatereport in Annexure 1 to this report.
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 in our opinionand to the best of our information and according to the explanations given to us and basedon the consideration of the reports of the other auditor on separate Ind AS financialstatements as also the other financial information of the subsidiaries as noted in theOther matter' paragraph:
i. The Group has disclosed the impact of pending litigations on the financial positionin its Consolidated Ind AS financial statements Refer Note 28 (b) and Note 39 to theConsolidated Ind AS financial statements;
ii. The Group did not have any long-term contracts including derivative contracts forwhich there were any material foreseeable losses; and
iii. There were no amounts which were required to be transferred to the InvestorEducation and Protection Fund by the Holding Company and its subsidiary companiesincorporated in India.
For Mukund M. Chitale & Co.
Firm Regn. No. 106655W
M. No. 111383
Date: May 14 2020
Annexure 1 to the Independent Auditor's Report of even date on the consolidated Ind ASfinancial statements of Oracle Financial Services Software Limited
Referred to in paragraph [8(f)] under Report on Other Legal and Regulatory Requirementsof our report of even date
Report on the Internal Financial Controls under Clause (i) of Sub-section 3 of Section143 of the Companies Act 2013 (the Act)
1. In conjunction with our audit of the consolidated Ind AS financial statements ofOracle Financial Services Software Limited as of and for the year ended March 31 2020 wehave audited the internal financial controls over financial reporting of Oracle FinancialServices Software Limited (hereinafter referred to as the Holding Company) andits subsidiary companies to the extent applicable which are companies incorporated inIndia as of that date.
Management's Responsibility for Internal Financial Controls
2. The respective Board of Directors of the Holding Company and its subsidiarycompanies which are companies incorporated in India are responsible for establishing andmaintaining internal financial controls based on the internal control over financialreporting criteria established by the Holding Company considering the essential componentsof internal control stated in the Guidance Note on Audit of Internal Financial ControlsOver Financial Reporting issued by the Institute of Chartered Accountants of India. 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 the respective company's policies thesafeguarding of its assets the prevention and detection of frauds and errors theaccuracy and completeness of the accounting records and the timely preparation ofreliable financial information as required under the Act.
3. Our responsibility is to express an opinion on the Company's internal financialcontrols over financial reporting based on our audit. We conducted our audit in accordancewith the Guidance Note on Audit of Internal Financial Controls Over Financial Reporting(the Guidance Note) issued by the Institute of Chartered Accountants of Indiaand the Standards on Auditing as prescribed under section 143(10) of the Act to theextent applicable to an audit of internal financial controls and both. Those Standards andthe Guidance Note require that we comply with ethical requirements and plan and performthe audit to obtain reasonable assurance about whether adequate internal financialcontrols over financial reporting was established and maintained and if such controlsoperated effectively in all material respects.
Our audit involves performing procedures to obtain audit evidence about the adequacy ofthe internal financial controls system over financial reporting and their operatingeffectiveness. Our audit of internal financial controls over financial reporting includedobtaining an understanding of internal financial controls over financial reportingassessing 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 judgment including the assessment of the risks ofmaterial misstatement of the financial statements whether due to fraud or error.
We believe that the audit evidence we have obtained and the audit evidence obtained bythe other auditors in terms of their reports referred to in the Other Matter paragraphbelow is sufficient and appropriate to provide a basis for our audit opinion on theinternal financial controls system over financial reporting.
Meaning of Internal Financial Controls over Financial Reporting
4. A company's internal financial control over financial reporting is a processdesigned to provide reasonable assurance regarding the reliability of financial reportingand the preparation of financial statements for external purposes in accordance withgenerally accepted accounting principles. A company's internal financial control overfinancial reporting includes those policies and procedures that
(1) pertain to the maintenance of records that in reasonable detail accurately andfairly reflect the transactions and dispositions of the assets of the company;
(2) provide reasonable assurance that transactions are recorded as necessary to permitpreparation of financial statements in accordance with generally accepted accountingprinciples and that receipts and expenditures of the company are being made only inaccordance with authorisations of management and directors of the company; and
(3) provide reasonable assurance regarding prevention or timely detection ofunauthorised acquisition use or disposition of the company's assets that could have amaterial effect on the financial statements.
Inherent Limitations of Internal Financial Controls over Financial Reporting
5. 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.
6. In our opinion the Holding Company and its subsidiary companies to the extentapplicable which are companies incorporated in India have maintained in all materialrespects an adequate internal financial controls system over financial reporting and suchinternal financial controls over financial reporting were operating effectively as atMarch 31 2020 based on the internal control over financial reporting criteriaestablished by the Holding Company considering the essential components of internalcontrol stated in the Guidance Note on Audit of Internal Financial Controls Over FinancialReporting issued by the Institute of Chartered Accountants of India.
7. Our report under Section 143(3)(i) of the Act on the adequacy and operatingeffectiveness of the internal financial controls over financial reporting of the HoldingCompany insofar as it relates to two subsidiary companies to the extent applicable whichare companies incorporated in India is based on the corresponding reports of the auditorsof such subsidiary companies incorporated in India.
For Mukund M. Chitale & Co.
Firm Regn. No. 106655W
M. No. 111383
Date: May 14 2020