Report on the audit of the Financial Statements
We have audited the accompanying Financial Statements of RESTILE CERAMICS LIMITED("the Company") which comprise the Balance Sheet as at March 31 2020 theStatement of Profit and Loss Statement of Changes in Equity and Statement of Cash flowsfor the year then ended and a summary of the significant accounting policies and otherexplanatory information.
In our opinion and to the best of our information and according to the explanationsgiven to us except for the effect of the matters described in the Basis for qualifiedopinion paragraph the aforesaid Ind AS financial statements give the information requiredby the Act in the manner so required and give a true and fair view in conformity with theIndian Accounting Standards prescribed under Section 133 of the Act read with theCompanies (Indian Accounting Standards) Rules 2015 as amended ("Ind AS") andother Accounting principles generally accepted in India of the state of affairs of theCompany as at March 31 2020 the loss and total comprehensive loss changes in equity andits cash flows for the year ended on that date.
Basis for Opinion
(i)The Company has generated negative operating cash flows incurred substantialoperating losses and significant deterioration in value of assets used to generate cashflows all of which indicate existence of material uncertainty in the Company's ability tocontinue as a going concern for a reasonable period of time. The attached financialstatements do not include any adjustments that might result had the above uncertaintiesbeen known.
(ii)The Company's building is carried in the books at a value of Rs. 673.18 lakhs as atMarch 31 2020. Independent valuation of the same during the earlier year had indicatedimpairment in value of Rs.376.20 lakhs which ought to be recognized in the Statement ofProfit and Loss. However the Company has represented that under the rehabilitation schemesanctioned by BIFR in 2002 a reserve of Rs.754.44 Lakhs had been created (upon capitalreduction) towards adjustment of possible impairment in value of Property plant andEquipment and that steps are being initiated to adjust the impairment in value against thereserve with the approval of appropriate authorities. Consequently the said impairment invalue of Building has not been recognized in the Financial Statements.
We conducted our audit in accordance with the Standards on Auditing (SAs) specifiedunder section 143(10) of the Companies Act 2013. Our responsibilities under thoseStandards are further described in the Auditor's Responsibilities 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 together with the ethical requirements that are relevant to our audit of thefinancial statements under the provisions of the Companies Act 2013 and the Rulesthereunder and we have fulfilled our other ethical responsibilities in accordance withthese requirements. We believe that the audit evidence we have obtained is sufficient andappropriate to provide a basis for our qualified opinion.
Key Audit Matters
Key audit matters are those matters that in our professional judgment were of mostsignificance in our audit of the financial statements of the current year. 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 matters described below to be the key audit matters to be communicatedin our report
|Key Audit Matter Description ||Response to Key Audit Matter |
|A. Revenue Recognition Reference may be made to note 1B.6 of significant accounting policies and note 3 to the financial Our statements of the Company. ||Principal Audit Procedures |
|Revenue recognition is inherently an area of audit risk which we have substantially focused on mainly covering the aspects of cut off. ||Audit procedures relating to revenue comprised of test of controls and substantive procedures including the following: |
|Considering the impact of Ind AS 115 and cut-off are key audit matters ||i. We performed procedures to assess the design and internal controls established by the management and tested the operating effectiveness of relevant controls related to the recognition of revenue. |
| ||ii. Selected a sample of continuing and new contracts and 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 reperformance and inspection of evidence in respect of operation of these controls. |
| ||iii.We have tested on a sample basis whether specific revenue transactions around the reporting date has been recognised in the appropriate period by comparing the transactions selected with relevant underlying documentation including goods delivery notes customer acknowledgement/proof of acceptance and the terms of sales. |
| ||iv. We have also validated subsequent credit notes and sales returns up to the date of this Report to ensure the appropriateness and accuracy of the revenue recognition. |
| ||v. We have tested journal entries on a sample basis to identify any unusual or irregular items. disclosures in Company's financial statements in relation to Ind AS 115 and were satisfied they meet the disclosure requirements. |
| ||Conclusion |
| ||Based on the procedures performed above we did not find any material exceptions with regards to timing of revenue recognition and were satisfied they meet the disclosure requirements of Ind AS 115 Revenue From contracts with Customer. |
|B. Inventory valuation ||Principal Audit Procedures Our audit procedures comprised of the following: |
|Reference may be made to note 3.10 of significant accounting policies and note 14 to the financial statements of the Company. ||1. We performed procedures to assess the design and internal controls established by the management and tested the operating effectiveness of relevant controls related to the valuation of inventory. |
|? Under Ind AS 2 Inventories materials and other supplies held for use in production are not written down below cost if the finished goods in which they will be incorporated are expected to be sold at or above cost. The valuation of raw material and other supplies held for production have been an area of our focus in view of loss incurred and the inability to have operating margins. The valuation of finished goods has also been focused upon in view of the production of goods having ceased and the passage of time that has lapsed. ||2. We have verified the maintenance of Stock Records with respect to Raw materials and Finished Goods. |
|? Also in view of the possible effect from the pandemic relating to COVID -19 it might be necessary assess that the net realisable value considered for write down of inventories considers possible decline in selling prices or inventory obsolescence due to lower than expected sales. ||3. We have selected a sample of items of Raw materials and other supplies held for production to check whether the rate per unit adopted for valuation is reflective of the last purchase rate (Realizable price). Similarly the rate per unit of various finished goods have been checked on a sample basis as to whether they reflect the net sale price (Realizable price). |
| ||4. Also obtained management's assessment of impairment in the value of inventory carried in the books of accounts. |
| ||Conclusion: |
|Considering the above risks valuation of Inventory in accordance with Ind AS 2 has thus been considered as a key audit matter. ||Based on the procedures performed above we have concluded that management has complied with the measurement and disclosure requirements of IND AS 2 "Inventories". |
|C. Impairment of Property Plant and Equipment ||Principal Audit Procedures |
|The recoverable value of the Property Plant and Equipment requires significant judgment of the management hence considered to be a significant matter. ||We have performed the following list of audit procedures |
| ||1. Evaluated the design and effectiveness of internal controls established by the Company relating to assessment of the impairment |
| ||2. Obtained and evaluated the management's assessment of impairment. |
| ||Conclusion: |
| ||Based on the procedures performed above we have concluded that management has complied with the measurement and disclosure requirements of IND AS 16 except for the matters stated in the basis of qualified opinion paragraph above. |
|D. Non-Payment/belated payment of Statutory ||Principal Audit Procedures |
|Dues Company has not paid/paid belatedly various Undisputed Statutory dues including Income Tax and applicable Value Added Tax. ||We have performed the following list of audit procedures. |
| ||1. Evaluated the design and effectiveness of internal controls established by the Company relating to compliance with statutory dues. |
|Payment of statutory dues regularly and within time reflects on the health of the company apart from the need for us to report on issues of non-compliance to members. We have therefore considered payment of statutory dues as a key audit matter. ||2. Obtained details of payment of various statutory dues to be paid by company. |
| ||3. Verified that whether company has been regular in payment of statutory dues. |
| ||Conclusion |
| ||Based on the above procedures performed we noted that |
| ||a. The payment of statutory dues depended upon availability of funds and is being paid with applicable interest and delays noted are disclosed elsewhere in this report. |
| ||b. The company has to make with respect to AP VAT amounting Rs.7 lakhs. |
Emphasis of Matter
We draw your attention to Note 42 of the financial statements which explains theuncertainties and the management's assessment of the potential impact due to lock-downsand other restrictions and conditions related to the COVID-19 pandemic situation andconsequently the Company's results are highly dependent upon future developments whichare highly uncertain.
Our opinion is not modified in respect of this matter.
Information other than the Financial Statements and Auditor's Report thereon
The Company's Board of Directors is responsible for the preparation of the otherinformation. The other
information comprises the information included in the Management Discussion andAnalysis Board's Report including Annexures and Shareholder's Information but does notinclude the financial statements and our auditor's report thereon. Our opinion on thefinancial statements does not cover the other information and we do not express any formof assurance conclusion thereon. In connection with our audit of the financial statementsour responsibility is to read the other information and in doing so consider whether theother information is materially inconsistent with the financial statements or ourknowledge obtained in the audit or otherwise appears to be materially misstated. If basedon the work we have performed we conclude that there is a material misstatement of thisother information we are required to report that fact. We have nothing to report in thisregard. Responsibilities of Management and Those Charged with Governance for the FinancialStatements The Company's Board of Directors is responsible for the matters stated insection 134(5) of the Companies Act 2013 ("the Act") with respect to thepreparation of the financial statements that give a true and fair view of the financialposition financial performance changes in equity and cash flows of the Company inaccordance with the accounting principles generally accepted in India including theaccounting Standards specified under section 133 of the Act. This responsibility alsoincludes maintenance of adequate accounting records in accordance with the provisions ofthe 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 wereoperating effectively for ensuring the accuracy and completeness of the accountingrecords relevant to the preparation and presentation of the financial statements thatgive a 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. The Board of Directors are also responsible for overseeing theCompany's financial reporting process.
Auditor's Responsibilities for the Audit of the Financial Statements
Our objectives are to obtain reasonable assurance about whether the financialstatements as a whole are free from material misstatement whether due to fraud or errorand to issue an auditor's report that includes our opinion. Reasonable assurance is a highlevel of assurance but is not a guarantee that an audit conducted in accordance with SAswill always detect a material misstatement when it exists. Misstatements can arise fromfraud or error and are considered material if individually or in the aggregate theycould reasonably be expected to influence the economic decisions of users taken on thebasis of these financial statements. As part of an audit in accordance with SAs weexercise professional judgment and maintain professional skepticism throughout the audit.We also:
? Identify and assess the risks of material misstatement of the financial statementswhether due to fraud or error design and perform audit procedures responsive to thoserisks and obtain audit evidence that is sufficient and appropriate to provide a basis forour opinion. The risk of not detecting a material misstatement resulting from fraud ishigher than for one resulting from error as fraud may involve collusion forgeryintentional omissions misrepresentations or the override of internal control.
? Obtain an understanding of internal financial control relevant to the audit in orderto design audit procedures that are appropriate in the circumstances.
? Evaluate the appropriateness of accounting policies used and the reasonableness ofaccounting estimates and related disclosures made by management.
? Conclude on the appropriateness of 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 financial statements or if such disclosures are inadequate to modify our opinion.Our conclusions are based on the audit evidence obtained up to the date of our auditor'sreport. However future events or conditions may cause the Company to cease to continue asa going concern.
? Evaluate the overall presentation structure and content of the financial statementsincluding the disclosures and whether the financial statements represent the underlyingtransactions 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 our auditwork and in evaluating the results of our work; and (ii) to evaluate the effect of anyidentified 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 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 Section143 (3) of the Companies Act 2013 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 ouropinion proper books of account as required by law have been kept by the Company so faras it appears from our examination of those books.
(c) The Balance Sheet the Statement of Profit and Loss Statement of Changes in Equityand the Statement of Cash Flows dealt with by this report are in agreement with the booksof account. (d) In our opinion except for matter described in the Basis of QualifiedOpinion Paragraph the aforesaid Financial Statements comply with the Indian AccountingStandards prescribed under Section 133 of the Act read with the relevant rules issuedthereunder. (e) On the basis of the written representations received from the directors ason March 31 2020 taken on record by the Board of Directors none of the directors isdisqualified as on March 312020 from being appointed as a director in terms ofSection164(2) of the Companies Act 2013. (f) With respect to the adequacy of the InternalFinancial Controls Over Financial Reporting of the Company and the operating effectivenessof such controls refer to our separate report in Annexure "A". Our reportexpresses a modified opinion on the adequacy and operating effectiveness of the Company'sinternal financial controls over financial reporting. (g) With respect to the othermatters to be included in the Auditor's Report in accordance with requirements of section197(16) of the Act as amended: (h) In our opinion and to the best of our information andaccording to the explanations given to us no remuneration other than applicable sittingfees has been paid by the Company to its directors during the year and hence thecompliance with the provisions of the section 197 does not arise. (i) With respect to theother matters to be included in the Auditor's Report in accordance with Rule 11 of theCompanies (Audit and Auditor's) Rules 2014 in our opinion and to the best of ourinformation and according to the explanation given to us:
i. The Company has disclosed the impact of pending litigations on its financialposition in its Financial Statements. (Refer Note 37)
ii. The company did not have any long-term contracts including derivative contracts forwhich there were any material foreseeable losses as at March 312020.
iii. There were no amounts which were required to be transferred to the InvestorEducation and Protection Fund by the Company.
2. As required by the Companies (Auditor's Report) Order2016 ("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. For R. SUNDARARAJAN & ASSOCIATES Chartered Accountants Registration No. 08282S
S. Krishnan-Partner Membership No. 26452 UDIN: July 062020 Vadodara
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)
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 RestileCeramics Limited ("the Company") as of March 31 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 Companies Act 2013.
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 prescribed under Section 143(10) of the Companies Act 2013to the extent applicable to an audit of internal financial controls. 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 judgement 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 is sufficient 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 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 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.
According to the information and explanations given to us and based on our audit thefollowing material weakness has been identified as at March 31 2020: The Company does nothave an appropriate internal control system for assessing and recognising impairment tothe immovable properties of the Company and this could potentially result in the Companyrecognising immovable properties at erroneous values.
A material weakness' is a deficiency or a combination of deficiencies ininternal financial control over financial reporting such that there is a reasonablepossibility that a material misstatement of the company's annual or interim financialstatements will not be prevented or detected on a timely basis.
In our opinion and to the best of our information and according to the explanationsgiven to us except for the effects/possible effects of the material weakness described inparagraph above on the achievement of the objectives of the control criteria the Companyhas maintained in all material respects adequate internal financial controls overfinancial reporting and such internal financial controls over financial reporting wereoperating effectively as of March 31 2020 based on the internal control over financialreporting criteria established by the Company considering the essential components ofinternal control stated in Guidance Note on Audit of Internal Financial Controls OverFinancial Reporting issued by the Institute of Chartered Accountants of India.
We have considered the material weakness identified and reported above in determiningthe nature timing and extent of audit tests applied in our audit of the financialstatements of the Company for the year ended March 31 2020 and the said materialweakness has affected our opinion on the financial statements of the Company and we haveaccordingly issued a qualified opinion on the financial statements of the Company for theyear ended March 31 2020.
For R. SUNDARARAJAN & ASSOCIATES Chartered Accountants Registration No. 08282S
S. Krishnan Partner
Membership No. 26452 UDIN: July 06 2020 Vadodara