To the Members of RPG Life Sciences Limited Report on the Audit of the FinancialStatements Opinion
We have audited the financial statements of RPG Life Sciences Limited ("theCompany") which comprise the balance sheet as at March 31 2020 and the statementof Profit and Loss (including other comprehensive income) statement of changes in equityand statement of cash flows for the year then ended and notes to the financialstatements including 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 the aforesaid financial statements give the information required by theCompanies Act 2013 ("Act") in the manner so required and give a true and fairview in conformity with the accounting principles generally accepted in India of thestate of affairs of the Company as at March 31 2020 and profit and other comprehensiveincome changes in equity and its cash flows for the year ended on that date.
Description of Key Audit Matter
Basis for Opinion
We conducted our audit in accordance with the Standards on Auditing (SAs) specifiedunder Section 143(10) of the Act. Our responsibilities under those SAs are furtherdescribed in the Auditor's Responsibilities for the Audit of the Financial Statementssection of our report. We are independent of the Company in accordance with the Code ofEthics issued by the Institute of Chartered Accountants of India together with the ethicalrequirements that are relevant to our audit of the financial statements under theprovisions of the Act and the Rules thereunder and we have fulfilled our other ethicalresponsibilities in accordance with these requirements and the Code of Ethics. We believethat the audit evidence we have obtained is sufficient and appropriate to provide a basisfor our opinion on the financial statements.
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 period. These matterswere addressed in the context of our audit of the financial statements as a whole and informing our opinion thereon and we do not provide a separate opinion on these matters.
|Intangible assets under development || |
|Refer note 2 B (b) to accounting policies || |
|The key audit matter ||How the matter was addressed in our audit |
|The Company has product related intangible assets as at March 31 2020 aggregating Rs. 2.7 cr. which primarily comprise internally generated intangibles. During the year the Company has charged off Rs. 5.32 cr. of intangible asset under development. ||Our audit procedures included the following: |
|The commencement of capitalisation of development cost involves judgment. The key risk is the ability to successfully develop and subsequently commercialize the asset concerned. Development risks include the Company's inability to achieve desired clinical trial results and / or obtain regulatory approvals. ||Understanding the design and implementation of the Company's processes surrounding intangible asset capitalization; |
|There is also a risk of impairment in the event the carrying amount of intangible asset is lower than its recoverable value. Company's assessment of recoverable value to test for impairment contain a number of parameters which involve significant judgements and estimates including weighted average cost of capital revenue growth expected market share and price erosion. ||Evaluating assumptions used in assessing the recoverability of intangible assets in particular revenue and cash flow projections; |
|Changes in these assumptions could lead to an impairment to the carrying value of these intangible assets. Accordingly we have focused our audit work in these areas. ||Evaluating the probability of obtaining regulatory approval for assets under development; |
| ||Testing the internal costs capitalized by selecting samples of transactions on sample basis and assessed the nature of costs with key operational personnel; |
| ||Assessing the Company's assumptions around the key drivers of the cash flow forecasts including discount rates expected growth rates and terminal growth rates; |
| ||We also interviewed Company's senior personnel in order to understand and challenge those assumptions. |
|Revenue recognition || |
|Refer note 2 B (q) to accounting policies and note 14 to the financial statements || |
|The key audit matter ||How the matter was addressed in our audit |
|The timing of revenue recognition is relevant to the reported performance of the Company. We identified revenue recognition as a key audit matter because of the quantum of revenue in the financial statements and possible impact on revenue due to COVID-19. ||Our procedures included the following: |
|As disclosed in the financial statements revenue is recognized net of sales returns. Estimation of sales returns involves significant judgement. ||Assessing compliance of the Company's revenue recognition and sales returns accounting policies with applicable accounting standards. |
| ||We evaluated the design and operating effectiveness of the relevant key financial controls with respect to revenue recognition on selected transactions. |
| ||We analysed quarterly and annual sales performance with prior periods and made enquiries to understand trends in sales performance. |
| ||Substantive testing (including year-end cutoff testing) of selected samples of revenue transactions recorded during and after the year with the underlying documentation. |
| ||Understanding the process followed by the Company for identifying and the value of sales return accrual. |
| ||We evaluated the design and tested the operating effectiveness of the relevant key financial controls with respect to recognition and accrual of sales returns. |
| ||We assessed manual journal entries to revenue for unusual or irregular items. |
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 financial statements and our auditors' reportthereon. Our opinion on the financial statements does not cover the other information andwe do not express any form of assurance conclusion thereon.
In connection with our audit of the financial statements our responsibility is to readthe other information and in doing so consider whether the other information ismaterially inconsistent with the financial statements or our knowledge obtained in theaudit or otherwise appears to be materially misstated. If based on the work we haveperformed we conclude that there is a material misstatement of this other information weare required to report that fact. We have nothing to report in this regard.
Management'sandBoardofDirectors'Responsibility for the 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 of these financial statementsthat give a true and fair view of the state of affairs profit and other comprehensiveincome changes in equity and cash flows of the Company in accordance with the accountingprinciples generally accepted in India including the Indian Accounting Standards (Ind AS)specified under section 133 of the Act. This responsibility also includes maintenance ofadequate accounting records in accordance with the provisions of the Act for safeguardingof the assets of the Company and for preventing and detecting frauds and otherirregularities; selection and application of appropriate accounting policies; makingjudgments and estimates that are reasonable and prudent; and design implementation andmaintenance of adequate internal financial controls that were operating effectively forensuring accuracy and completeness of the accounting records relevant to the preparationand presentation of the financial statements that give a true and fair view and are freefrom material misstatement whether due to fraud or error.
In preparing the financial statements the Management and Board of Directors areresponsible 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 the Board of Directors either intends to liquidate the Companyor to cease operations or has no realistic alternative but to do so.
The Board of Directors is also responsible for overseeing the Company's financialreporting 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 we exercise professional judgment andmaintain 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 control relevant to the audit in order to designaudit procedures that are appropriate in the circumstances. Under section 143(3)(i) of theAct we are also responsible for expressing our opinion on whether the company hasadequate internal financial controls with reference to financial statements in place andthe operating effectiveness of such controls.
Evaluate the appropriateness of accounting policies used and the reasonableness ofaccounting estimates and related disclosures in the financial statements made by theManagement and Board of Directors.
Conclude on the appropriateness of the
Management and Board of Directors use of the going concern basis of accounting andbased on the audit evidence obtained whether a material uncertainty exists related toevents or conditions that may cast significant doubt on the Company's ability to continueas a going concern. If we conclude that a material uncertainty exists we are required todraw attention in our auditor's report to the related disclosures in the financialstatements or if such disclosures are inadequate to modify our opinion. Our conclusionsare based on the audit evidence obtained up to the date of our auditor's report. Howeverfuture events or conditions may cause the Company to cease to continue as a 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.
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 ourauditors' 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 the Companies (Auditors' Report) Order 2016 ("the Order")issued by the Central Government in terms of section 143 (11) of the Act we give in the"Annexure A" a statement on the matters specified in paragraphs 3 and 4 of theOrder to the extent applicable.
2. (A) 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 accounts 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 accounts.
d) In our opinion the aforesaid financial statements comply with the Ind AS specifiedunder section 133 of the Act.
e) On the basis of the written representations received from the Directors as on March31 2020 taken on record by the Board of Directors none of the Directors is disqualifiedas on March 31 2020 from being appointed as a Director in terms of Section 164(2) of theAct.
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".
(B) With respect to the other matters to be included in the Auditors' 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 does not have any pending litigations which would impact its financialposition.
ii. The Company did not have any long-term contracts including derivative contracts forwhich there were any material foreseeable losses.
iii. There has been no delay in transferring amounts required to be transferred tothe Investor Education and Protection Fund by the Company.
iv. The disclosures in the financial statements regarding holdings as well as dealingsin specified bank notes during the period from November 8 2016 to December 30 2016 havenot been made in these financial statements since they do not pertain to the financialyear ended March 31 2020.
(C) With respect to the matter to be included in the Auditors' Report under section197(16): In our opinion and according to the information and explanations given to us theremuneration paid by the Company to its Directors during the current year is in accordancewith the provisions of Section 197 of the Act. The remuneration paid to any Director isnot in excess of the limit laid down under Section 197 of the Act. The Ministry ofCorporate Affairs has not prescribed other details under Section 197(16) which arerequired to be commented upon by us.
Annexure A to Independent Auditors' Report
i. (a) The Company is maintaining proper records showing full particulars includingquantitative details and situation of fixed assets.
(b) The fixed assets are physically verified by the Management according to a phasedprogramme designed to cover all the items over a period of three years which in ouropinion is reasonable having regard to the size of the Company and the nature of itsassets. Pursuant to the programme a portion of the fixed assets has been physicallyverified by the Management during the year and no material discrepancies have been noticedon such verification.
(c) The title deeds of immovable properties as disclosed in Note 3 on fixed assets tothe financial statements are held in the name of the Company.
ii. The physical verification of inventory have been conducted at reasonable intervalsby the Management during the year. In our opinion the frequency of such verification isreasonable. In respect of inventory lying with third parties these have substantiallybeen confirmed by them. The discrepancies noticed on verification between the physicalstocks and the book records were not material.
iii. The Company has not granted any loans secured or unsecured to Companies FirmsLimited Liability Partnerships or other parties covered in the register maintained underSection 189 of the Act. Therefore the provisions of Clause 3(iii) (iii)(a) (iii)(b) and(iii)(c) of the said Order are not applicable to the Company.
iv. The Company has not granted any loans or made any investments or provided anyguarantees or security to the parties covered under Section 185 and 186. Therefore theprovisions of Clause 3(iv) of the said Order are not applicable to the Company.
v. In our opinion and according to the information and explanations given to us theCompany has complied with the provisions of Sections 73 74 75 and 76 or any otherrelevant provisions of the Act and the Rules framed thereunder to the extent notifiedwith regard to the deposits accepted from the public. According to the information andexplanations given to us no order has been passed by the Company Law Board or NationalCompany Law Tribunal or Reserve Bank of India or any Court or any other Tribunal on theCompany in respect of the aforesaid deposits.
vi. Pursuant to the rules made by the Central Government of India the Company isrequired to maintain cost records as specified under Section 148(1) of the Act in respectof its products. We have broadly reviewed the same and are of the opinion that primafacie the prescribed accounts and records have been made and maintained. We have nothowever made a detailed examination of the records with a view to determine whether theyare accurate or complete.
vii. (a) According to the information and explanations given to us and the records ofthe Company examined by us in our opinion the Company is regular in depositing theundisputed statutory dues including Provident Fund Employees' State Insurance LabourWelfare Fund Income Tax Goods and Service Tax Duty of Customs Professional Tax Cessand other material statutory dues as applicable with the appropriate authorities.
Also refer note 25 (b) to Financial Statements According to the information andexplanations given to us no undisputed amounts payable in respect of Provident FundEmployees State Insurance Labour Welfare Fund Income Tax Goods and Service Tax Duty ofCustoms Professional Tax Cess and other material statutory dues were in arrears as atMarch 31 2020 for a period of more than six months from the date they became payable.
(b) According to the information and explanations given to us and the records of theCompany examined by us there are no dues of Income-Tax Goods and Service Tax Duty ofCustoms which have not been deposited on account of any dispute. The particulars of duesof sales tax service tax and duty of excise as at March 31 2020 which have not beendeposited on account of a dispute are as follows:
|Name of the statute ||Nature of dues ||Amount Rs. in lakhs* ||Period to which the amount relates (Years) ||Forum where the dispute is pending |
|Gujarat Sales Tax Act 1969 ||Sales/Purchase tax including interest and penalty as applicable ||116 ||1997-1998 to 2000- 2001 ||Appellate Authority upto Commissioner's level |
|The Finance Act 1994 ||Service tax including interest and penalty as applicable ||96 ||April 2006 to May 2015 ||Customs Excise & Service Tax Appellate Tribunal |
|The Central Excise Act 1944 ||Excise duty including interest and penalty as applicable ||9 ||1994 to 1996 ||Appellate Authority upto Commissioner's level |
*Net of amounts paid including under protest.
viii. According to the records of the Company examined by us and the information andexplanation given to us the Company has not defaulted in repayment of loans or borrowingsto any financial institution or bank. There are no borrowings from Government or dues todebenture holders.
ix. In our opinion and according to the information and explanations given to us themoneys raised by way of term loans have been applied for the purposes for which they wereobtained. Further the Company has not raised any moneys by way of Initial Public Offer orFurther Public Offer (including debt instruments) during the year.
x. During the course of our examination of the books and records of the Companycarried out in accordance with the generally accepted auditing practices in India andaccording to the information and explanations given to us we have neither come across anyinstance of material fraud by the Company or on the Company by its officers or employeesnoticed or reported during the year nor have we been informed of any such case by theManagement.
xi. The Company has paid/ provided for managerial remuneration in accordance with therequisite approvals mandated by the provisions of Section 197 read with Schedule V to theAct.
xii. As the Company is not a Nidhi Company and the Nidhi Rules 2014 are not applicableto it the provisions of Clause 3(xii) of the Order are not applicable to the Company.
xiii. The Company has entered into transactions with related parties in compliance withthe provisions of Sections 177 and 188 of the Act. The details of related partytransactions have been disclosed in the financial statements as required under IndianAccounting Standards (Ind AS) 24 Related Party as notified under Rule 3 of the Companies(Indian Accounting Standards) Rules 2016 and Companies (Indian Accounting Standards)Amendment Rules 2017. xiv. The Company has not made any preferential allotment or privateplacement of shares or fully or partly convertible debentures during the year under audit.Accordingly the provisions of Clause 3(xiv) of the Order are not applicable to theCompany. xv. The Company has not entered into any non-cash transactions with its directorsor persons connected with him within the meaning of Section 192 of the Act. Accordinglythe provisions of Clause 3(xv) of the Order are not applicable to the Company.
xvi. The Company is not required to be registered under Section 45-IA of the ReserveBank of India Act 1934. Accordingly the provisions of Clause 3(xvi) of the Order are notapplicable to the Company.
Annexure B to the Independent Auditors' report
Report on the Internal Financial Controls with reference to the aforesaid financialstatements under Clause
(i) of Sub-section 3 of Section 143 of the Companies Act 2013 (Referred to inparagraph 2 (A) f) under Report on Other Legal and Regulatory Requirements' sectionof our report of even date) Opinion
We have audited the Internal Financial Controls with reference to financial statementsof RPG Life Sciences Limited ("the Company") as of March 31 2020 in conjunctionwith our audit of the financial statements of the Company for the year ended on that date.
In our opinion the Company has in all material respects adequate internal financialcontrols with reference to financial statements and such Internal Financial Controls wereoperating effectively as at March 31 2020 based on the Internal Financial Controls withreference to financial statements criteria established by the Company considering theessential components of internal control stated in the Guidance Note on Audit of InternalFinancial Controls over Financial Reporting issued by the Institute of CharteredAccountants of India (the "Guidance Note").
Management's Responsibility for Internal Financial Controls
The Company's management and the Board of Directors are responsible for establishingand maintaining internal financial controls based on the Internal Financial Controls withreference to financial statements criteria established by the Company considering theessential components of internal control stated in the Guidance Note. 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 company's policies the safeguarding ofits assets the prevention and detection of frauds and errors the accuracy andcompleteness of the accounting records and the timely preparation of reliable financialinformation as required under the Companies Act 2013 (hereinafter referred to as"the Act").
Our responsibility is to express an opinion on the Company's Internal FinancialControls with reference to financial statements based on our audit. We conducted our auditin accordance with the Guidance Note and the Standards on Auditing prescribed undersection 143(10) of the Act to the extent applicable to an audit of Internal FinancialControls with reference to financial statements. Those Standards and the Guidance Noterequire that we comply with ethical requirements and plan and perform the audit to obtainreasonable assurance about whether adequate Internal Financial Controls with reference tofinancial statements were established and maintained and whether such controls operatedeffectively in all material respects.
Our audit involves performing procedures to obtain audit evidence about the adequacy ofthe Internal Financial Controls with reference to financial statements and their operatingeffectiveness. Our audit of Internal Financial Controls with reference to financialstatements included obtaining an understanding of such Internal Financial Controlsassessing 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 withreference to financial statements.
Annexure B to the Independent Auditors' report on the financial statements of RPG LifeSciences Limited for the period ended March 31 2020. (Continued)
Meaning of Internal Financial Controls with Reference to Financial Statements
A company's Internal Financial Controls with reference to financial statements 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 Controlswith reference to financial statements include 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 inaccordancewithgenerallyacceptedaccountingprinciples and that receipts and expenditures ofthe company are being made only in accordance with authorisations of Management andDirectors 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 with Reference to FinancialStatements
Because of the inherent limitations of Internal Financial Controls with reference tofinancial statements 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 withreference to financial statements to future periods are subject to the risk that theInternal Financial Controls with reference to financial statements may become inadequatebecause of changes in conditions or that the degree of compliance with the policies orprocedures may deteriorate.