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RKEC Projects Ltd.

BSE: 535017 Sector: Infrastructure
NSE: RKEC ISIN Code: INE786W01010
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RKEC Projects Ltd. (RKEC) - Auditors Report

Company auditors report

To the Members of

M/s RKEC Projects Limited

Report on the Standalone Financial Statements

Opinion

1. We have audited the accompanying standalone financial statements ofM/s RKEC Projects Limited ("the Company") which comprise the Balance Sheet asat March 31 2020 the Statement of Profit and Loss and the Statement of Cash flows forthe year ended on that date and a summary of the significant accounting policies andother explanatory information (hereinafter referred to as "the standalone financialstatements").

2. In our opinion and to the best of our information and according tothe explanations given to us the aforesaid standalone financial statements give theinformation required by the Companies Act 2013 ("the Act") in the manner sorequired and give a true and fair view in conformity with the accounting principlesgenerally accepted in India of the state of affairs of the Company as at March 31 2020the profit and its cash flows for the year ended on that date.

Basis for Opinion

3. We conducted our audit of the standalone financial statements inaccordance with the Standards on Auditing specified under section 143(10) of the Act(SAs). Our responsibilities under those Standards are further described in the Auditor'sResponsibilities for the Audit of the Standalone Financial Statements section of ourreport. We are independent of the Company in accordance with the Code of Ethics issued bythe Institute of Chartered Accountants of India (ICAI) together with the independencerequirements that are relevant to our audit of the standalone financial statements underthe provisions of the Act and the Rules made there under and we have fulfilled our otherethical responsibilities in accordance with these requirements and the ICAI's Code ofEthics. We believe that the audit evidence we have obtained is sufficient and appropriateto provide a basis for our audit opinion on the standalone financial statements.

Emphasis of Matter Paragraph

4. We Draw your attention to -

a. Note no. 15 the Trade receivables & Note no.17 the Short-termloans & advances of the standalone financial statements for considering as good forthe period more than 6 months includes amounts due from various parties and issuesinvolved are furnished. The company is confident in getting full recovery of the same andhence in the opinion of the management no provision is required for doubtful debts.

b. Note no. 29.12 to the standalone financial statements as regards tothe management evaluation of COVID-19 impact on the future performance of the Company. Ouropinion on the standalone financial statement is not modified in respect of the abovematters.

Key Audit Matters:

5. Key audit matters are those matters that in our professionaljudgment were of most significance in our audit of the standalone financial statements ofthe current period. These matters were addressed in the context of our audit of thestandalone financial statements as a whole and in forming our opinion thereon and we donot provide a separate opinion on these matters. We have determined the matters describedbelow to be the key audit matters to be communicated in our report.

Key Audit Matters No ¦' Audit Responce
5(i) Revenue Recognition on Construction Contracts(Contract Revenue) involves significant judgement We identified revenue from construction contracts as a significant risk requiring special audit consideration.
The work receipts from Long term Contracts is complex and exposes the Company to various business and financial reporting risks. The recognition of revenue and the estimation of the outcome of construction contracts requires significant management judgment in particular with respect to the estimation of cost to complete and the amounts of variation orders to be recognized. In addition significant management judgment is required to assess the consequences of various legal proceedings in respect of Construction Contracts. Our audit procedures included by selecting a sample of continuing and new contracts an evaluation of the significant judgments made by management Management estimates amongst others based on an examination of the associated project documentation and discussion on the status of projects under construction with finance team and management of the Company We also tested the controls that the company has put in place over its process to record contract costs and contract revenues and the calculation of stage of completion and work in progress. Furthermore we discussed the status of legal proceedings in respect of construction contracts and its receivables and examined various documents in this respect as obtained from the company
Reference is made to Standalone Financial Statements a) Accounting Principles b) Critical Accounting Policies c) Revenue-Construction Contracts and d) Trade receivables for recoverability (Note 15 & 19).
5(ii) Liability for uncertain tax positions
The company has uncertain tax positions Cess dues amounting to Rs.2756.68 Lakhs which involves significant judgment and its outcome and liability. Obtained the details of matters under litigation for the Direct Tax Indirect Taxes and Labour Cess disputes. We have examined the relevant demand notices appeals filed before various forums..
Reference is made to Note-29.8 of Standalone financial statements Contingent Liabilities-Matters under litigation. Discussed with the management and evaluated the documents. Discussed with the management for possible provision and likely outcome of the said cases. The liability for the Indirect taxes in recpect of GST was provided for in the books and it was discussed with the management
5(iii) Indirect Taxes in P&L Account
The Company has recorded Rs.1332.88 Lakhs of Indirect Tax expense (GST) for the year ended 31 March 2020. The Company paid such expense in order to comply with the provisions laid in the Act. Reference is made to Standalone Profit and Loss Statement- Exceptional Item. Obtained the details of the payment.
We have examined the details regarding the calculations and understand the rationale behind the payment and the applicable provisions compelling the Company to do so. Discussed with the management and evaluated the reasonability.

Information Other than the Standalone Financial Statements andAuditor's Report Thereon

6. The Company's Board of Directors is responsible for the preparationof the other information. The other information comprises the information included in theManagement Discussion and Analysis Board's Report including Annexures to Board's ReportBusiness Responsibility Report Corporate Governance and Shareholder's Information butdoes not include the standalone financial statements and our auditor's report thereon.

Our opinion on the standalone financial statements does not cover theother information and we do not express any form of assurance conclusion thereon.

In connection with our audit of the standalone financial statementsour responsibility is to read the other information and in doing so consider whether theother information is materially inconsistent with the standalone financial statements orour knowledge obtained during the course of our audit or otherwise appears to bematerially misstated.

If based on the work we have performed we conclude that there is amaterial misstatement of this other information; we are required to report that fact. Wehave nothing to report in this regard based on the other information existing as on thedate of this report.

Management's Responsibility for the Standalone FinancialStatements

7. The Company's Board of Directors is responsible for the mattersstated in section 134(5) of the Act with respect to the preparation of these standalonefinancial statements that give a true and fair view of the financial position financialperformance and cash flows of the company in accordance with the accounting principlesgenerally accepted in India including the Accounting Standards specified under section133 of the Act. This responsibility also includes maintenance of adequate accountingrecords in accordance with the provisions of the Act for safeguarding the assets of theCompany and for preventing and detecting frauds and other irregularities; selection andapplication of appropriate accounting policies; making judgments and estimates that arereasonable and prudent; and design implementation and maintenance of adequate internalfinancial controls that were operating effectively for ensuring the accuracy andcompleteness of the accounting records relevant to the preparation and presentation ofthe standalone financial statements that give a true and fair view and are free frommaterial misstatement whether due to fraud or error.

8. In preparing the standalone financial statements management isresponsible for assessing the Company's ability to continue as a going concerndisclosing as applicable matters related to going concern and using the going concernbasis of accounting unless management either intends to liquidate the Company or to ceaseoperations or has no realistic alternative but to do so. The Board of Directors isresponsible for overseeing the Company's financial reporting process.

Auditor's Responsibilities for the Audit of the StandaloneFinancial Statements

9. Our objectives are to obtain reasonable assurance about whether thestandalone financial statements as a whole are free from material misstatement whetherdue to fraud or 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 aggregate they could reasonably be expected to influence the economicdecisions of users taken on the basis of these standalone financial statements.

10. As part of an audit in accordance with SAs we exerciseprofessional judgment and maintain professional skepticism throughout the audit. We also:

• Identify and assess the risks of material misstatement of thestandalone financial statements whether due to fraud or error design and perform auditprocedures responsive to those risks and obtain audit evidence that is sufficient andappropriate to provide a basis for our opinion. The risk of not detecting a materialmisstatement resulting from fraud is higher than for one resulting from error as fraudmay involve collusion forgery intentional omissions misrepresentations or the overrideof internal control.

• Obtain an understanding of internal financial controls relevantto the audit in order to design audit procedures that are appropriate in thecircumstances. Under section 143(3)(i) of the Act we are also responsible for expressingour opinion on whether the Company has adequate internal financial controls system inplace and the operating effectiveness of such controls.

• Evaluate the appropriateness of accounting policies used and thereasonableness of accounting estimates and related disclosures made by management.

• Conclude on the appropriateness of management's use of the goingconcern basis of accounting and based on the audit evidence obtained whether a materialuncertainty exists related to events or conditions that may cast significant doubt on theCompany's ability to continue as a going concern. If we conclude that a materialuncertainty exists we are required to draw attention in our auditor's report to therelated disclosures in the standalone financial statements or if such disclosures areinadequate to modify our opinion. Our conclusions are based on the audit evidenceobtained up to the date of our auditor's report. However future events or conditions maycause the Company to cease to continue as a going concern.

• Evaluate the overall presentation structure and content of thestandalone financial statements including the disclosures and whether the standalonefinancial statements represent the underlying transactions and events in a manner thatachieves fair presentation.

11. Communicate with those charged with governance regarding amongother matters the planned scope and timing of the audit and significant audit findingsincluding any significant deficiencies in internal control that we identify during ouraudit.

12. We also provide those charged with governance with a statement thatwe have complied with relevant ethical requirements regarding independence and tocommunicate with them all relationships and other matters that may reasonably be thoughtto bear on our independence and where applicable related safeguards.

13. From the matters communicated with those charged with governancewe determine those matters that were of most significance in the audit of the standalonefinancial statements of the current period and are therefore the key audit matters. Wedescribe these matters in our auditor's report unless law or regulation precludes publicdisclosure about the matter or when in extremely rare circumstances we determine that amatter should not be communicated in our report because the adverse consequences of doingso would reasonably be expected to outweigh the public interest benefits of suchcommunication.

Report on Other Legal and Regulatory Requirements

14. As required by Section 143(3) of the Act based on our audit wereport that:

a) We have sought and obtained all the information and explanationswhich to the best of our knowledge and belief were necessary for the purposes of ouraudit.

b) In our opinion proper books of account as required by law have beenkept by the Company so far as it appears from our examination of those books.

c) The Balance Sheet the Statement of Profit and Loss and theStatement of Cash Flows dealt with by this Report are in agreement with the relevant booksof account.

d) In our opinion the aforesaid standalone financial statementscomplied with the accounting standards specified under Sec 133 of the act read with Rule7 of Companies (Accounts) Rules2014.

e) On the basis of the written representations received from thedirectors as on March 31 2019 taken on record by the Board of Directors none of thedirectors is disqualified as on March 31 2019 from being appointed as a director in termsof Section 164 (2) of the Act.

f) With respect to the adequacy of the internal financial controls overfinancial reporting of the Company and the operating effectiveness of such controls referto our separate Report in "Annexure A". Our report expresses an unmodifiedopinion 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'sReport in accordance with the requirements of section 197(16) of the Act as amended:

In our opinion and to the best of our information and according to theexplanations given to us the remuneration paid by the Company to its directors during theyear is in accordance with the provisions of section 197 of the Act.

h) With respect to the other matters to be included in the Auditor'sReport in accordance with Rule 11 of the Companies (Audit and Auditors) Rules 2014 asamended in our opinion and to the best of our information and according to theexplanations given to us:

i. The Company has disclosed the impact of pending litigations on itsfinancial position in its standalone financial statements - Refer Note 29.8 29.9 29.10to the standalone financial statements.

ii. The Company has made provision as required under the applicablelaw or accounting standards for material foreseeable losses if any on long-termcontracts including derivative contracts.

iii. There has been no delay in transferring amounts required to betransferred to the Investor Education and Protection Fund by the Company.

15. As required by the Companies (Auditor's Report) Order 2016("the Order") issued by the Central Government in terms of Section 143(11) ofthe Act we give in "Annexure B" a statement on the matters specified inparagraphs 3 and 4 of the Order to the extent applicable for the year under audit.

ANNEXURE ‘A' TO THE INDEPENDENT AUDITORS REPORT

(Referred to in paragraph 1(f) under ‘Report on Other Legal andRegulatory Requirements' section of our report to the Members of RKEC Projects Limited ofeven date)

Report on the Internal Financial Controls Over Financial Reportingunder Clause (i) of Sub- section 3 of Section 143 of the Companies Act 2013 ("theAct")

1. We have audited the internal financial controls over financialreporting of M/sRKEC Projects Limited("the Company") as of March 31 2020 inconjunction with our audit of the standalone financial statements of the Company for theyear ended on that date.

Management's Responsibility for Internal Financial Controls

2. The Board of Directors of the Company is responsible forestablishing and maintaining internal financial controls based on the internal controlover financial reporting criteria established by the Company considering the essentialcomponents of internal control stated in the Guidance Note on Audit of Internal FinancialControls over Financial Reporting issued by the Institute of Chartered Accountants ofIndia. These responsibilities include the design implementation and maintenance ofadequate internal financial controls that were operating effectively for ensuring theorderly and efficient conduct of its business including adherence to respective company'spolicies the safeguarding of its assets the prevention and detection of frauds anderrors the accuracy and completeness of the accounting records and the timelypreparation of reliable financial information as required under the Companies Act 2013.

Auditor's Responsibility

3. Our responsibility is to express an opinion on the internalfinancial controls over financial reporting of the Company based on our audit. Weconducted our audit in accordance with the Guidance Note on Audit of Internal FinancialControls Over Financial Reporting (the "Guidance Note") issued by the Instituteof Chartered Accountants of India and the Standards on Auditing prescribed under Section143(10) of the Companies Act 2013 to the extent applicable to an audit of internalfinancial controls. Those Standards and the Guidance Note require that we comply withethical requirements and plan and perform the audit to obtain reasonable assurance aboutwhether adequate internal financial controls over financial reporting was established andmaintained and if such controls operated effectively in all material respects.

4. Our audit involves performing procedures to obtain audit evidenceabout the adequacy of the internal financial controls system over financial reporting andtheir operating effectiveness. Our audit of internal financial controls over financialreporting included obtaining an understanding of internal financial controls overfinancial reporting assessing the risk that a material weakness exists and testing andevaluating the design and operating effectiveness of internal control based on theassessed risk. The procedures selected depend on the auditor's judgment including theassessment of the risks of material misstatement of the financial statements whether dueto fraud or error.

5. We believe that the audit evidence we have obtained is sufficientand appropriate to provide a basis for our audit opinion on the internal financialcontrols system over financial reporting of the Company.

Meaning of Internal Financial Controls over Financial Reporting

6. A company's internal financial control over financial reporting is aprocess designed to provide reasonable assurance regarding the reliability of financialreporting and the preparation of financial statements for external purposes in accordancewith generally accepted accounting principles. A company's internal financial control overfinancial reporting includes those policies and procedures that (1) pertain to themaintenance of records that in reasonable detail accurately and fairly reflect thetransactions and dispositions of the assets of the company;

(2) provide reasonable assurance that transactions are recorded asnecessary to permit preparation of financial statements in accordance with generallyaccepted accounting principles and that receipts and expenditures of the company arebeing made only in accordance with authorizations of management and directors of thecompany; and

(3) provide reasonable assurance regarding prevention or timelydetection of unauthorized acquisition use or disposition of the company's assets thatcould have a material effect on the financial statements.

Limitations of Internal Financial Controls over Financial Reporting

7. Because of the inherent limitations of internal financial controlsover financial reporting including the possibility of collusion or improper managementoverride of controls material misstatements due to error or fraud may occur and not bedetected. Also projections of any evaluation of the internal financial controls overfinancial reporting to future periods are subject to the risk that the internal financialcontrol over financial reporting may become inadequate because of changes in conditionsor that the degree of compliance with the policies or procedures may deteriorate.

Opinion

8. In our opinion to the best of our information and according to theexplanations given to us the Company has in all material respects an adequate internalfinancial controls system over financial reporting and such internal financial controlsover financial reporting were operating effectively as at March 31 2020 based on theinternal control over financial reporting criteria 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(f) under ‘Report on other legal andregulatory requirements' of our report of even date)

i) . In respect of the Company's fixed assets:

(a) The Company has maintained proper records showing full particularsincluding quantitative details an d situation of fixed assets.

(b) As per the explanations given to us and based on our examination ofthe records the management has physically verified the fixed assets during the year andin our opinion frequency of verification is reasonable having regard to the size of theCompany and the nature of its assets. There were no discrepancies noticed on such physicalverification of fixed assets as compared to the books of account.

(c) Based on the examination of the records and according to theinformation and explanations given to us all the title deeds of immovable properties areheld in the name of the company.

ii) According to the information and explanations given to us theinventories have been physically verified by the management during the year. In ouropinion the frequency of verification is reasonable. The discrepancies noticed onphysical verification of inventory as compared to the books of account were not materialand have been properly dealt with in t to the information and explanations given to usthe Company has not accepted deposits from the public within the meaning of Section 73 and76 or any other relevant provisions of the Act and the rules framed there under.

vi) We have broadly reviewed the books of account and recordsmaintained by the Company pursuant to the Rules made by the Central Government of Indiafor the maintenance of cost records prescribed under sub-section (1) of section 148 of theAct in respect of construction activities of the Company and are of the opinion thatprima-facie the prescribed accounts and records have been maintained. We have howevernot made a detailed examination of the records with a view to determine whether they areaccurate or complete.

vii) In respect of Statutory dues:

(a) According to the information and explanations given to us and onthe basis of our examination of the records of the Company amounts deducted/ accrued inthe books of account in respect of undisputed statutory dues including Provident FundIncome Tax Goods and Service tax Duty of Customs Value Added Tax Employees' StateInsurance Cess and other material statutory dues have been regularly deposited with fewdelay in some cases during the year by the Company with the appropriate authorities.

(b) According to the information and explanations given to us noundisputed amounts payable in respect of Provident Fund Income Tax Goods and Servicetax Duty of Customs Cess and other material statutory dues were in arrears as at 31March 2020 for a period of more than six months from the date they became payable exceptthe Income Tax on Dividend Distribution(DDT) of Rs. 9864935/- which was due for paymentfrom September 26 2019 was not paid as on this date of report.

(c) Details of dues of Income-tax Sales Tax Goods and Service TaxDuty of Customs Value Added Tax and Cess which have not been deposited as on March 312020 on account of disputes are given below:

Statute Nature of Dues Forum where dispute is pending Period to which the amount relates Amount involved(Rs. in Lakhs)
Finance Act 1994 Service Tax CESTAT -Bangalore FY 2004-2009 592.04
Finance Act 1994 Service Tax CESTAT -Hyderabad FY 2013 -16 1874.86
Andhra Pradesh VAT Act VAT High Court Andhra Pradesh FY 2009-10 FY 2010-11 160.38
Income Tax Act Income tax CIT (A) Visakhapatnam FY 2014-15 59.41
Labour Cess High Court Andhra Pradesh FY 2008-09 69.99

viii) Based on our audit procedures and as per the information andexplanations given by the management we are of the opinion that the Company has notdefaulted in the repayment of dues to financial institutions or bank. The Company did nothave any debentures outstanding as at the year end. Hence reporting under clause 3 (viii)of the Order is not applicable to the Company.

ix) The Company has not raised moneys by way of initial public offer orfurther public offer (including debt instruments) or term loans and hence reporting underclause 3 (ix) of the Order is not applicable to the Company. Hence reporting under clause3 (ix) of the Order is not applicable to the Company.

x) . According to the information and explanations given to us basedon the audit procedures performed by us no fraud by the Company or on the Company by itsofficers or employees has been noticed or reported during the period covered by our audit.

xi) . According to the information and explanations give to us andbased on our examination of the records of the Company the Company has paid/provided formanagerial remuneration in accordance with the requisite approvals mandated by theprovisions of section 197 read with Schedule V to the Act.

xii) .In our opinion and according to the information and explanationsgiven to us the Company is not a Nidhi Company. Accordingly reporting under clause 3(xii) of the Order is not applicable to the Company.

xiii) . According to the information and explanations given to us andbased on our examination of the records of the Company transactions with the relatedparties are in compliance with sections 177and 188 of the Companies Act2013 whereapplicable and details of such transactions have been disclosed in the standalonefinancial statements as required by the applicable accounting standards.

xiv) According to the information and explanations give to us and basedon our examination of the records of the Company the Company has not made anypreferential allotment or private placement of shares or fully or partly convertibledebentures during the year and hence reporting under clause 3 (xiv) of the Order is notapplicable to the Company.

xv) According to the information and explanations given to us and basedon our examination of the records of the Company the Company has not entered intonon-cash transactions with its directors or persons connected to its directors.Accordingly paragraph 3(xv) of the Order is not applicable.

xvi) The Company is not required to be registered under section 45-IAof the Reserve Bank of India Act 1934.

For Brahmananda Reddy & Associates Chartered Accountants
Firm Registration Number: 016662S
Sd/-
(G. Govinda Rao) Partner
27th June2020 Membership Number: 244754
Visakhapatnam UDIN:20244754AAAAAZ3017

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