To the Members of S.P.Apparels Limited
Report on the Audit of the Standalone Financial Statements
We have audited the accompanying standalone financial statements of S.P.ApparelsLimited ("the Company") which comprise the balance sheet as at 31st March 2019and the statement of profit and loss (including Other Comprehensive Income) the statementof changes in equity and the statement of cash flows for the year ended on that date anda summary of significant accounting policies and other explanatory information(hereinafter referred to as the standalone financial 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 requiredby the Companies Act 2013 (the Act) in the manner so required and give a true and fairview in conformity with the Indian Accounting Standards prescribed under Section 133 ofthe Act read with the Companies (Indian Accounting Standards) Rules 2015 as amended(Ind AS') and other accounting principles generally accepted in India of the stateof affairs of the Company as at March 31 2019 and its profit and total ComprehensiveIncome 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 specified under section 143(10) of the Act (SAs). Ourresponsibilities 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 thereunder 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.
Key Audit Matters
Key audit matters are those matters that in our professional judgment were of mostsignificance 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.
CAM 1 New Revenue recognition Standard Ind AS 115 "Revenue from Contractswith Customers"
Refer to the accounting policies and notes to the financial statements. As per theaccounting policy of the Company the obligation of the Company as per IND AS 115 iscompleted as follows:-
a) Garment sales As per the terms agreed with the customer by the Company
b) Retail sales In respect of sales made to Large Format Stores (LFS) it is onsale or return basis. For distributors it is on outright purchase model. Franchise OwnedAnd Franchise Operated (FOFO) stores the arrangement is on sale or return model and forCompany Owned and Company Operated model sale is on cash basis. In respect of sales toLFS and FOFO identifying the completion of performance obligation for the Company isdependent on completion of sale by LFS/ FOFO store which involves careful collation ofinformation of performance obligations.
c) Spinning and processing division Upon raising invoice and gate out of goodsor upon completion of services
Matters discussed with Those Charged With Governance [TCWG]:-
Discussion with TCWG focused on:-
a) Basis of Identification of obligation completion in sales transactions entered bythe Company with its customers [Export and Local]
b) Process of obtaining details of closing inventory available at Large Format Storesand Franchise Owned And Franchise Operated (FOFO) stores as at reporting date and processof valuation of inventory cost & sale price by the Company[Item wise in retail sale]
Our response to the risk:-
We obtained an understanding of the processes for the recognition of revenue in each ofthe revenue streams and separately for the recognition of export sales. We have relied onmanual controls for carrying out cut off procedures by the management and carried outsubstantive testing.
For retail spinning and processing division sales in the Company we have focused ourtesting on manual journals posted to this revenue stream.
For garment sales:
- we performed detailed transaction testing by agreeing a individual revenue items tosales invoices evidence of delivery and subsequent cash receipt;
- we performed sales cut-off testing immediately before and after the year end bytesting sales invoices to evidence of delivery to ensure that revenue had been recognisedin the correct accounting period; and
- we conducted specific analytical procedures on revenue recognised either side of theyear end to test management's conclusion that the related revenue had been recognised inthe correct accounting period.
For retail sales:-
- W e reviewed the collation of information of satisfaction performance obligations andobtained confirmations received by the Company from its customers as of reporting date;and - we performed test check of valuation process carried out by the Company.
As a result of the procedures performed we have been able to conclude that revenue hasbeen recognised in accordance with the revenue recognition policy and Ind AS 115.
CAM 2- Hedge accounting
The Company uses derivative financial instrument contracts to manage its exposure toforeign currency risk. These contracts gave rise to derivative financial assets of INR113.11 million as at March 31 2019. These contracts are recorded at fair value and forthe all of them hedge accounting is applied such that gains and losses arising from fairvalue changes are recognised in statement of profit and loss or other comprehensive as perHedge effectiveness test carried out by management [Management carries out contract wisehedge effectiveness testing manually] which is in line with the risk assessment policy ofthe Company. The valuation of hedging instruments and consideration of hedge effectivenesscan involve a significant degree of both complexity and management judgment and aresubject to an inherent risk.
Matters discussed with Those Charged With Governance [TCWG]:-
Discussion with TCWG focused on:-
- Risk management Policy designed by the Company;
- Obtaining details of closing balance as of reporting date from banker; and
- Basis of identification of calculation of hedge effectiveness by management andclassification of mark to market loss/profit of to be classified between statement ofprofit & loss and other comprehensive income.
Our response to the risk:-
Testing policy and process of the Company over derivative financial instrumentsand hedge accounting;
Inspecting on a sample basis Company's hedge documentation and contracts;
Re-performing on a sample basis the year-end valuations of derivativefinancial instruments and calculations of hedge effectiveness; and
Obtaining confirmation of year-end derivative financial instruments from bankersof the Company.
As a result of the procedures performed we have been able to conclude that effect ofhedge accounting has been recognised in accordance with Indian Accounting Standards. .
Information Other than the Standalone 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 ManagementDiscussion and Analysis Board's Report including Annexures to Board's Report BusinessResponsibility Report Corporate Governance and Shareholder's Information but does notinclude the standalone financial 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 materialmisstatement of this other information we are required to report that fact. We havenothing to report in that regard.
Management's Responsibility on the Standalone Financial Statements
The Company's Board of Directors is responsible for the matters stated in section134(5) of the Act with respect to the preparation of these standalone financial statementsthat give a true and fair view of the financial position financial performance totalcomprehensive income changes in equity and cash flows of the Company in accordance withthe accounting principles generally accepted in India including the Indian AccountingStandards (Ind AS) specified under section 133 of the Act read with the Companies (IndianAccounting Standards) Rules 2015 as amended. This responsibility also includesmaintenance of adequate accounting records in accordance with the provisions of the Actfor safeguarding of the assets of the Company and for preventing and detecting frauds andother irregularities; 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 the accuracy and completeness of the accounting records relevant to thepreparation and presentation of the financial statements that give a true and fair viewand are free from material misstatement whether due to fraud or error.
In preparing the financial statements the 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 theManagement either intends to liquidate the Company or to cease operations or has norealistic alternative but to do so. The Board of Directors are responsible for overseeingthe Company'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 we exercise professional judgment andmaintain professional skepticism throughout the audit. We also:
Identify and assess the risks of material misstatement of the standalonefinancial statements whether due to fraud or error design and perform audit proceduresresponsive to those risks and obtain audit evidence that is sufficient and appropriate toprovide a basis for our opinion. The risk of not detecting a material misstatementresulting from fraud is higher than for one resulting from error as fraud may involvecollusion forgery intentional omissions misrepresentations or the override of internalcontrol.
Obtain an understanding of internal financial control relevant to the audit inorder to design audit procedures that are appropriate in the circumstances. Under section143(3)(i) of the Companies Act 2013 we are also responsible for expressing our opinionon whether the company has adequate internal financial controls system in place and theoperating effectiveness of such controls.
Evaluate the appropriateness of accounting policies used and the reasonablenessof accounting estimates and related disclosures made by management.
Conclude on the appropriateness of management's use of the going concern basisof accounting 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.
Materiality is the magnitude of misstatements in the standalone financial statementsthat individually 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 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 Order") issued bythe Central Government of India in terms of SubSection (11) of Section 143 of theCompanies Act 2013 we give in the Annexure A statement on the matters specified inparagraphs 3 and 4 of the Order to the extent applicable.
2. As required by Section 143(3) of the Act based on our audit 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 Flow dealt with bythis Report are in agreement with the relevant 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 31stMarch 2019 taken on record by the Board of Directors none of the directors isdisqualified as on 31st 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 over financialreporting of the Company and the operating effectiveness of such controls refer to ourseparate report in "Annexure B". Our report expresses an unmodified opinion onthe adequacy and operating effectiveness of the Company's internal financial controls overfinancial reporting.
(g) With respect to the other matters to be included in the Auditor's Report inaccordance with the requirements of Section 197 (16) of the Act as amended: in ouropinion and to the best of our information and according to the explanations given to usthere are no managerial remuneration payable to its directors during the year inaccordance with the provisions of section 197 of the Act.
(h) With respect to the other matters to be included in the Auditor's Report inaccordance with Rule 11 of the Companies (Audit and Auditors) Rules 2014 as amended inour opinion and to the best of our information and according to the explanations given tous:
i. The Company has disclosed the impact of pending litigations on its financialposition in its standalone financial statements;
ii. The Company has made provision as required under the applicable law or accountingstandards for material foreseeable losses if any on long-term contracts includingderivative contracts in its standalone financial statements; and
iii. There were no amounts which were required to be transferred to the InvestorEducation and Protection Fund by the Company.
Annexure A To The Independent Auditor's Report
The Annexure referred to in Independent Auditors' Report to the members of the Companyon the standalone financial statements for the year ended 31st March 2019 we report that:
(i) a) The Company is maintaining proper records showing full particulars includingquantitative details of fixed assets. The Company is in the process of integrating thesituation details of fixed assets into the fixed asset records.
b) The Company has a programme of physical verification of fixed assets in a phasedmanner in a period of three years. Pursuant to the program certain assets were covered byphysical verification during the year. The Company is in the process of reconciling theresults of the verification with the book records for March 2019 & March 2018 toidentify the discrepancies if any.
c) According to the information and explanations given to us and the records examinedby us and based on the examination of the registered sale deed and approved arrangementorder of the Honorable High Court of judicature provided to us we report that the titledeeds comprising all the immovable properties of land and buildings which are freeholdare held in the name of the Company as at the balance sheet date. In respect of immovableproperties of land and buildings that have been taken on lease and disclosed as fixedasset in the financial statements the lease agreements are in the name of the Companywhere the Company is the lessee in the agreement.
(ii) The inventory has been physically verified by the management during the year. Inour opinion the frequency of verification is reasonable. No material discrepancies werenoticed on such physical verification.
(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.
(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 investments made. The Company has not granted any loan accordingly it is notapplicable.
(v) The Company has not accepted any deposits from the public.
(vi) We have broadly reviewed the books of account maintained by the Company in respectof services where pursuant to the rules made by the Central Government of India themaintenance of cost records has been prescribed under Sub-Section (1) of Section 148 ofthe Companies Act 2013 and are of the opinion that prima facie the prescribed accountsand records have been made and maintained. We have not however made a detailedexamination of the records with a view to determine whether they are accurate or complete.
(vii) According to the information and explanations given to us and on the basis of ourexamination of the records of the Company in our opinion the Company is generallyregular in depositing the undisputed statutory dues including Provident Fund andEmployees' State Insurance Income-Tax Goods and Service Tax Customs Duty cess andother material statutory dues as applicable with the appropriate authorities.
a) Undisputed statutory dues including Employees' State Insurance Income-Tax Goods& Service Tax Duty Of Custom Cess and other statutory dues have been regularlydeposited with the appropriate authorities and there have been significant delays in largenumber of provident fund.
b) There were no undisputed amounts payable in respect of Provident Fund Employees'State Insurance Income tax Goods and Service Tax Customs Duty Cess and other materialstatutory dues in arrears as at March 31 2019 for a period of more than six months fromthe date they became payable.
c) There are no dues of Income-tax Goods and Service Tax Customs Duty as on March 312019 on account of disputes.
(viii) According to the records of the Company examined by us and on the basis ofinformation and explanations given to us the Company has not defaulted in repayment ofany dues to financial institution or banks as at the balance sheet date.
(ix) In our opinion and according to the information and explanations given to usmoney raised by way of Initial Public Offer and the term loans have been applied by theCompany during the year for the purposes for which they were raised other than temporarydeployment pending application of proceeds.
(x) According to the information and explanations given to us no fraud by the Companyor on the Company by its officers or employees has been noticed or reported during thecourse of our audit.
(xi) In our opinion and according to the information and explanations given to us theCompany has provided managerial remuneration in accordance with the requisite approvalsmandated by the provisions of Section 197 read with Schedule V to the Companies Act 2013.
(xii) In our opinion and according to the information and explanations given to us theCompany is not a Nidhi company. Accordingly paragraph 3(xii) of the Order is notapplicable.
(xiii) According to the information and explanations given to us and based on ourexamination of the records of the Company transactions with the related parties are incompliance with Sections 177 and 188 of the Act where applicable and details of suchtransactions have been disclosed in the financial statements as required by the applicableaccounting standards.
(xiv) According to the information and explanations given by the management theCompany has complied with provisions of Section 42 of the Companies Act 2013 in respectof the preferential allotment of shares during the year. According to the information andexplanations given by the management we report that the amounts raised have been usedfor the purposes for which the funds were raised.
(xv) According to the information and explanations given to us and based on ourexamination of the records of the Company the Company has not entered into non-cashtransactions with directors or persons connected with him. Accordingly paragraph 3(xv) ofthe Order is not applicable.
(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 6 (f) of the Independent Auditors' Report of even date to themembers of S.P.Apparels Limited on the Standalone Financial Statements for the year endedMarch 31 2019
We have audited the internal financial controls over financial reporting ofS.P.Apparels Limited ("the Company") as of March 31 2019 in conjunction withour audit 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 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 (ICAI)". Theseresponsibilities include the design implementation and maintenance of adequate internalfinancial controls that were operating effectively for ensuring the orderly and efficientconduct of its business including adherence to the respective company's policies thesafeguarding of its assets the prevention and detection of frauds and errors theaccuracy and completeness of the accounting records and the timely preparation ofreliable financial information as required under the 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 ICAI and the Standards on Auditing issuedby ICAI and deemed to be prescribed under Section 143(10) of the Companies Act 2013 tothe extent applicable to an audit of internal financial controls both issued by theInstitute of Chartered Accountants of India. Those Standards and the Guidance Note requirethat we comply with ethical requirements and plan and perform the audit to obtainreasonable assurance about whether adequate Internal Financial Controls Over FinancialReporting was established and maintained and if such controls operated effectively in allmaterial 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.
In our opinion 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 2019 based on "the Internal Control Over Financial Reporting criteria established by the Companyconsidering the essential components of internal control stated in the Guidance Note onAudit of Internal Financial Controls Over Financial Reporting issued by the Institute ofChartered Accountants of India".
| ||For ASA & Associates LLP |
| ||Chartered Accountants |
| ||Firm Registration No: 009571N/N500006 |
| ||D K Giridharan |
| ||Partner |
|Place: Avinashi ||Membership No: 028738 |
|Date: May 23 2019 || |