TO THE MEMBERS OF RAMCO SYSTEMS LIMITED
Report on the Audit of the Standalone Financial Statements Opinion
We have audited the accompanying Separate (Standalone) Financial Statements drawn inaccordance with the Indian Accounting Standards ("Ind AS") of Ramco SystemsLimited ("the Company") which comprise the Balance Sheet as at 31 March 2019the Statement of Profit and Loss (including Other Comprehensive Income) the Statement ofChanges in Equity and Statement of Cash Flows for the year then ended and notes to thefinancial statements including a summary of significant accounting policies and otherexplanatory information (hereinafter collectively referred to as "the StandaloneFinancial 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 required by the Companies Act 2013("the Act") in the manner so required and give a true and fair view inconformity with the accounting principles generally accepted in India including the IndianAccounting Standards of the state of affairs ( financial position) of the Company as at31 March 2019 its Profit ( financial performance including Other Comprehensive Income)Changes in 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 SAs are further described in the Auditor s Responsibilitiesfor the Audit of the Standalone Financial Statements section of our report. We areindependent of the Company in accordance with the Code of Ethics issued by the Instituteof Chartered Accountants of India ( ICAI ) together with the ethical requirements that arerelevant to our audit of the Standalone Financial Statements under the provisions of theAct and the Rules thereunder and we have ful lled our other ethical responsibilities inaccordance with these requirements and the Code of Ethics. We believe that the auditevidence we have obtained is suf cient and appropriate to provide a basis for our opinion.
Key Audit Matters
Key audit matters are those matters that in our professional judgment were of mostsigni cance in our audit of the Standalone Financial Statements of the current period.These matters were addressed in the context of our audit of the Standalone FinancialStatements as a whole and in forming our opinion thereon and we do not provide aseparate opinion on these matters.
We have determined the matters described below to be the key audit matters to becommunicated in our report.
1. Trade Receivable Unbilled License Revenue and Unbilled Services Revenue
Trade receivables are amounts billed but not yet received as on 31 March 2019. Amountoutstanding on this account is Rs.1578.97 Mln. Of this Rs.936.58 Mln. is receivable fromeleven wholly owned subsidiaries and Rs.298.64 Mln. is receivable from a subsidiary (thatincludes a step down subsidiary) where the Company holds 98% of the Equity.
Unbilled License Revenue:
Revenue recognition in the case of Licenses is on delivery of the software and when thecustomer obtains a right to use such licenses. The excess revenue over billing isclassified as Unbilled License Revenue and grouped under Financial Assets. The amountrecoverable as on 31 March 2019 is Rs.158.05 Mln.
Unbilled Service Revenue:
Revenue recognition in the case of services is based on percentage of completionmethod. The excess revenue over billing is classified as Unbilled Service Revenue andgrouped under Other Assets. The amount recoverable as on 31 March 2019 is Rs.247.28 Mln.
Auditor s Response:
We have audited the Revenue recognition to ensure that it follows the stated policy.The outstanding amount has certain element of credit risk.
In the case of Trade Receivable and Unbilled License Revenue the credit risk isdefault on its payment obligation by the customer resulting in a financial loss.
In the case of Unbilled Service Revenue the risk consists of the satisfaction of thecustomers in respect of completion of service milestones and the default on its paymentobligation by the customer resulting in a financial loss.
We have reviewed the credit risk policy of the Company. The implementation of suchpolicy has been audited through audit / review of accounts through compliance andsubstantive testing of selected samples. The Company has created a provision for doubtfuldebts for Trade Receivable and Unbilled Revenue based on expected credit loss method. Wehave evaluated the empirical data of the previous years and we have ascertained that thecurrent provisioning for the expected credit loss is in line with the historicalevidences. We have also ascertained the key judgments and assumptions used by theManagement in the recoverability assessment of Trade Receivables Unbilled License Revenueand Unbilled Service Revenue.
2. Investments in Subsidiaries
The Company has various overseas subsidiaries. The carrying cost of investments made inoverseas subsidiaries under equity as on 31 March 2019 is Rs.3007.83 Mln.
Auditor s Response:
We have evaluated the carrying cost of the investments in subsidiaries. The investmentsin these subsidiaries are considered as long term in nature. We have considered theinter-dependency between the Company and its subsidiaries the manner in which theoperations are carried out by the Company and its subsidiaries and assessed the keyjudgments and assumptions used by the Company in evaluating the stated value of theinvestments.
3. Deferred Tax
Deferred tax is recognised using the balance sheet approach on temporary differencesbetween the tax bases of assets and liabilities and their carrying amounts for financialreporting at the reporting date. The carrying amount of deferred tax assets is reviewed ateach reporting date and reduced to the extent that it is no longer probable that suf cienttaxable profit will be available to allow all or part of the deferred tax asset to beutilised. Deferred tax assets and liabilities are offset if such items relate to taxes onincome levied by same governing tax laws and the Company has legally enforceable right toset off current tax assets against current tax liabilities.
The credit availed for Minimum Alternate Tax (MAT) in accordance with the tax lawswhich gives future economic benefits in the form of adjustment to future tax liability isrecognised as an asset viz. MAT Credit Entitlement. The balance in deferred tax asset ason 31 March 2019 is Rs.374.31 Mln. which is net of MAT credit asset of Rs.451.12 Mln. andDeferred Tax Liability of Rs.76.81 Mln.
Auditor s Response:
We have veri ed the carrying amount of the MAT Credit Entitlement disclosed underDeferred Tax Assets.
We reviewed the evaluation process of availing the MAT Credit Entitlement. We assessedthe permanence of methods used the relevance and consistency of underlying assumptions(budget and future projections including earnings growth and applicable tax rates) andtested the arithmetic accuracy.
4. Intangible Assets - Product Software and Technology Platform
The Company s significant cash generating assets are Product Software and TechnologyPlatform. Costs incurred in the development of the product together with repository ofnew business components upon completion of the development phase have been classified as"Product Software". Similarly costs incurred in the development of TechnologyPlatform framework which would enable the Company to provide solutions in both standardand customised way have been classified as "Technology Platform". These aredisclosed under Intangible Assets.
The carrying cost of Product Software and Technology Platform as on 31 March 2019 isRs.2379.47 Mln.
Auditor s Response:
We have reviewed and veri ed the process of capitalisation of Product Software andTechnology Platform. The Company amortises the cost incurred in development of theseintangible assets over its estimated useful life which is determined as ten years.
We have reviewed the Company s assessment on the reasonableness of the useful lives ofthese intangible assets and the impairment of these assets.
Information Other than the Standalone Financial Statements and Auditor s Report thereon
The Company s Management and Board of Directors are responsible for the otherinformation. The other information comprises the information included in the Company sAnnual Report but does not include the Standalone Financial Statements ConsolidatedFinancial 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 and presentation of theStandalone Financial Statements that give a true and fair view of the Financial PositionFinancial Performance (including Other Comprehensive Income) Changes in Equity and CashFlows of the Company in accordance with the accounting principles generally accepted inIndia including the Ind AS specified under Section 133 of the Act. This responsibilityalso includes maintenance of adequate accounting records in accordance with the provisionsof the Act for safeguarding of the assets of the Company and for preventing and detectingfrauds and other irregularities; selection and application of appropriate accountingpolicies; making judgments and estimates that are reasonable and prudent; and designimplementation and maintenance of adequate internal financial controls that were operatingeffectively for ensuring the accuracy and completeness of the accounting records relevantto the preparation and presentation of the Standalone Financial Statements that give atrue and fair view and are free from material misstatement whether due to fraud or error.
In preparing the Standalone Financial Statements Management and Board of Directors areresponsible for assessing the
Company s ability to continue as a going concern disclosing as applicable mattersrelated to going concern and using the going concern basis of accounting unless Managementand Board of Directors either intend to liquidate the Company or to cease operations orhave 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 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 assurance is a high level of assurance but is not a guarantee that an auditconducted in accordance with SAs will always detect a material misstatement when itexists. Misstatements can arise from fraud or error and are considered material ifindividually or in the aggregate they could reasonably be expected to in uence theeconomic decisions of users taken 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 Standalone FinancialStatements whether due to fraud or error design and perform audit procedures responsiveto those risks and obtain audit evidence that is suf cient 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 controls relevant to the audit in order todesign 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 with reference to StandaloneFinancial Statements in place and the operating effectiveness 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 the Management s use of the going concern basis ofaccounting 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.
We communicate with those charged with governance regarding among other matters theplanned scope and timing of the audit and significant audit ndings including anysignificant de ciencies 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 signi cance 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 ofthe Order to the extent applicable.
2. As required by Section 143(3) of the Act we report that:
(a) We have sought and obtained all the information and 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 Standalone Financial Statements comply with the IndAS 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 as on 31March 2019 and taken on record by the Board of Directors none of the Directors isdisquali ed as on 31 March 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 with reference tofinancial statements of the Company and the operating effectiveness of such controlsrefer to our separate Report in "Annexure B". Our report expresses an unmodi edopinion on the adequacy and operating effectiveness of the Company s internal financialcontrols over financial reporting.
(g) 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 31 March 2019 onits financial position in its Standalone Financial Statements - Refer note no. 34 (c) tothe Standalone Financial Statements.
ii. The Company does not have any long-term contracts including derivative contractsfor which there were any material foreseeable losses.
iii. There were no amounts that were required to be transferred by the Company to theInvestor Education and Protection Fund.
3. With respect to the matter to be included in the Auditor s Repo rt under section197(16) of the Act:
In our opinion and according to the information and 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. The remuneration paid to any Director is not inexcess of the limit laid down under Section 197 of the Act. The Ministry of CorporateAffairs has not prescribed other details under Section 197(16) which are required to becommented upon by us.
ANNEXURE A TO THE INDEPENDENT AUDITOR S REPORT
With reference to the Annexure A referred to in the Independent Auditor s Report to themembers of the Company on the Standalone Financial Statements for the year ended 31 March2019 we report the following:
(i) Fixed Assets
(a) The Company has maintained proper records showing full particulars includingquantitative details and situation of fixed assets.
(b) The fixed assets were physically veri ed during the year by the Management inaccordance with the phased program of physical veri cation which in our opinion isreasonable having regard to the size of the Company. According to the information andexplanations given to us no material discrepancies were noticed on such veri cation.
(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 propertiesincluded in fixed assets are held in the name of the Company.
(ii) The Management has conducted the physical veri cation of inventory at reasonableintervals and no material discrepancies have been noticed on such veri cation.
(iii) The Company has not granted any loans secured or unsecured to companies rmslimited liability partnerships or other parties listed in the register maintained underSection 189 of the Act.
(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 Act with respectto the loans given investments made guarantees and securities given.
(v) The Company has not accepted any deposits from the public during the year.
(vi) The requirement for maintenance of Cost Records pursuant to Companies (CostRecords and Audit) Rules 2014 specified by the Central Government under Section 148 ofthe Act is not applicable to the Company for the year under audit.
(vii) Undisputed and disputed taxes and duties
(a) The Company is regular in depositing with appropriate authorities undisputedstatutory dues including Provident
Fund Employees State Insurance Income-tax Goods and Services tax duty of CustomsCess and other material statutory dues applicable to it during the year. According to theinformation and explanations given to us no undisputed amounts payable in respect of theabove were in arrears as at 31 March 2019 for a period of more than six months from thedate they became payable.
(b) The disputed statutory dues aggregating to Rs.77.16 Mln. that have not beendeposited on account of matters pending before appropriate authorities are as under:
|Name of the Statute ||Nature of the dues ||Forum where dispute is pending ||Rs. Mln. |
|Tamil Nadu Value Added Tax Act 2006 ||Value Added Tax ||Honorable High Court of Madras ||75.86 |
|The Maharashtra Value Added Tax Act 2002 ||Value Added Tax ||Deputy Commissioner of Sales Tax Mumbai ||0.09 |
|Finance Act 1994 ||Service Tax ||The Assistant Commissioner of GST & Central Excise Chennai ||1.21 |
(viii) The Company has not defaulted in the repayment of dues to Banks during the year.The Company has not taken any loans or borrowings from financial institutions orGovernment or has not issued any Debentures during the year.
(ix) The Company did not raise any money by way of initial public offer or furtherpublic offer (including debt instruments) during the year. The Company has raised loansfrom Banks during the year and the proceeds have been applied for the purposes for whichthey were raised.
(x) Based upon the audit procedures performed and the information and explanationsgiven by the Management we report that no fraud by the Company or on the Company by itsof cers or employees has been noticed or reported during the year.
(xi) According to the information and explanations given to us and based on examinationof the records of the Company the Company has paid / provided managerial remuneration inaccordance with the requisite approvals mandated by the provisions of Section 197 readwith Schedule V to the Act.
(xii) The Company is not a Nidhi Company.
(xiii) In our opinion all transactions with the related parties are in compliance withSections 177 and 188 of the Act and details have been disclosed in the StandaloneFinancial Statements as required by the applicable accounting standards. (xiv) Based uponthe audit procedures performed and the information and explanations given by theManagement the Company has not made any preferential allotment or private placement ofshares or fully or partly convertible debentures during the year.
(xv) Based upon the audit procedures performed and the information and explanationsgiven by the Management the Company has not entered into any non-cash transactions withDirectors or persons connected with them.
(xvi) The Company is not required to be registered under Section 45-IA of the ReserveBank of India Act 1934.
ANNEXURE B TO THE INDEPENDENT AUDITOR S REPORT
(Referred to in paragraph 2(f) under Report on Other Legal and Regulatory Requirementssection 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 over financial reporting of RamcoSystems Limited ("the Company") as of 31 March 2019 in conjunction with ouraudit of the Standalone Financial Statements of the Company for the year ended on thatdate.
Management s Responsibility for Internal Financial Controls
The Company s Management and Board of Directors are responsible for establishing andmaintaining internal financial controls based on the internal control over financialreporting criteria established by the Company considering the essential components ofinternal control stated in the Guidance Note on Audit of Internal Financial Controls OverFinancial Reporting (the "Guidance Note") issued by the Institute of CharteredAccountants of India ("ICAI"). These responsibilities include the designimplementation and maintenance of adequate internal financial controls that were operatingeffectively for ensuring the orderly and ef cient conduct of its business includingadherence to the Company s policies the safeguarding of its assets the prevention anddetection of frauds and errors the accuracy and completeness of the accounting recordsand the timely preparation of reliable financial information as required under the Act.
Auditor s Responsibility
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 and the Standards on Auditing issued by ICAI and prescribed underSection 143(10) of the Act to the extent applicable to an audit of internal financialcontrols and both applicable to an audit of Internal Financial Controls and both issuedby ICAI. Those Standards and the Guidance Note require that we comply with ethicalrequirements and plan and perform the audit to obtain reasonable assurance about whetheradequate internal financial controls over financial reporting was established andmaintained and if such controls operated effectively in all material respects.
Our audit involves performing procedures to obtain audit evidence 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 Standalone Financial Statements whether due to fraud orerror.
We believe that the audit evidence we have obtained is suf cient and appropriate toprovide a basis for our audit opinion on the Company s internal financial controls systemover 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 re ect 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 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 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 and to the best of our information and according to the explanationsgiven to us the Company has in all material respects an adequate internal financialcontrols system over financial reporting and such internal financial controls overfinancial reporting were operating effectively as at 31 March 2019 based on the internalcontrol over financial reporting criteria established by the Company considering theessential components of internal control stated in the Guidance Note.
| ||For M S JAGANNATHAN & N KRISHNASWAMI |
| ||Chartered Accountants |
| ||Firm Registration No. 001208S |
| ||K SRINIVASAN |
|Place : Chennai ||Partner |
|Date : 22 May 2019 ||Membership No. 021510 |