The Members of Sakthi Finance Limited
Report on the Audit of the financial statements
1. We have audited the accompanying financial statements of Sakthi Finance Limited("the Company") which comprise the Balance Sheet as at 31st March 2021 theStatement of Profit and Loss (including Other Comprehensive Income) the Statement ofChanges in Equity and the Statement of Cash Flows for the year then ended and notes to thefinancial statements including a summary of the significant accounting policies and otherexplanatory information.
2. 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 ("the Act") in the manner so required and give a true andfair view in conformity with the Indian Accounting Standards prescribed under Section 133of the Act read with Companies (Indian Accounting Standards) Rules 2015 as amended andother accounting principles generally accepted in India of the state of affairs of theCompany as at 31st March 2021 and total comprehensive income changes in equity and itscash flows for the year ended on that date.
Basis for Opinion
3. We conducted our audit in accordance with the Standards on Auditing ("SA")specified under section 143(10) of the Act. Our responsibilities under those Standards arefurther described in the Auditor's Responsibilities for the Audit of the FinancialStatements section of our report. We are independent of the Company in accordance with theCode of Ethics issued by the Institute of Chartered Accountants of India together with theethical requirements that are relevant to our audit of the financial statements under theprovisions of the Act and the Rules made thereunder and we have fulfilled our otherethical responsibilities in accordance with these requirements and the Code of Ethics. Webelieve that the audit evidence we have obtained is sufficient and appropriate to providea basis for our opinion.
Emphasis of Matter
4. We draw attention to Note 2(d) to the accompanying Financial statements whichexplains the impact of the COVID 19 pandemic and management assessment of the probablematerial impact on Company's operations and financial metrics including thenon-fulfillment of the obligations by the customers due to lockdown extended moratoriumallowed by Government and other restrictions related to Covid-19 situation. Our opinion isnot modified in respect of this matter.
key Audit Matters
5. 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.
|key Audit Matter ||How the matter was addressed in Audit |
|5.1 Asset Classification Accuracy in identification and categorization of receivables from financing activities as performing and non-performing assets and in ensuring appropriate asset classification existence of security income recognition provisioning/ write-off thereof and completeness of disclosure including compliance with applicable guidelines issued by Reserve Bank of India (RBI). ||We have assessed the systems and processes laid down by the company to appropriately identify and classify the receivables from financing activities including those in place to ensure correct classification income recognition and provisioning/ write-off including Non-performing assets as per applicable RBI guidelines. The audit approach includes testing the existence and effectiveness of the control environment laid down by the management and conducting detailed substantive verification on selected samples of continuing and new transactions in accordance with the principles laid down in the Standards on Auditing and other guidance issued by the Institute of Chartered Accountants of India. Agreements entered into regarding significant transactions including related to Hire Purchase and Pronote Loans have been examined to ensure compliance. We have also reviewed the reports generated from management information systems audit/ inspection reports issued by the internal/secretarial auditors and RBI. The impact of all significant external and internal events including those if any subsequent to Balance Sheet date have been taken into consideration for the above purposes. Compliance with material disclosure requirements prescribed by RBI guidelines and other statutory requirements have been verified. |
|5.2 information Technology System The dependence of Information technology (IT) system is run throughout the operating cycle of the company. Hence the reliability on Company's key financial accounting and reporting processes are tied with the effectiveness and efficiency of IT systems IT controls over the voluminous transactions process around such information systems and the usage of information from such systems. ||Our audit procedures focused on the IT infrastructure and applications relevant to the financial reporting: Evaluating the IT policy and procedures of the Company in accordance with accepted standards guidelines and practices. Reviewing the organizational structure with job description managerial policy and deployment of IT resources with respect to segregation of duties in IT environment to ensure that |
|We observed that any probability of deficiencies in control over IT systems such as validation failures incorrect input data improper segregation of duties unauthorized access to IT system lack of monitoring may result in the financial ||unauthorized data entry cannot take place and unauthorized programs are not allowed to run. The aspects covered in the IT systems General Control audit were |
|accounts and report being misstated. In view of the same we have considered this as Key Audit Matter and had focus on IT systems and controls user access management segregation of duties system reconciliation controls and system application controls due to the complexity of the ||(i) User Access Management (ii) System maintenance control have been ensured by understanding the design and the operating effectiveness of such controls in the system; |
|IT environment huge daily operational volume across numerous locations and the reliance on automated and ||Understanding updation that were made to the IT landscape during the audit period and assessing the relevant information for financial reporting. |
| ||Application level embedded controls have been reviewed by performing validation checks test check on logical access controls a run through test to ensure non-manipulation of transaction entered into the system and other compensatory controls wherever applicable. |
|5.3 impairment Loss Allowance || |
|Management's judgements in the calculation of impairment allowances have significant impact on the financial statements. The estimates regarding impairment allowances are complex and require a significant degree ||We obtained understanding of management's assessment of impairment of loans including the Ind AS 109 implementation process impairment allowance policy and ECL modelling methodology. |
|of judgement which increased with Expected Credit Loss ("ECL") model as required by Ind AS 109 relating to "Financial Instruments." Management is required to determine the expected credit loss that may occur over ||We assessed the design and implementation and tested the operating effectiveness of controls over the modelling process including governance over monitoring of the model and approval of key assumptions. |
|either a 12-month period or the remaining life of an asset depending on the categorisation of the individual asset. The key areas of judgement include: ||We also assessed the approach of the Company for categorisation of the loans in various stages reflecting the inherent risk in the respective loans. |
|1. Categorisation of loans in Stage 1 2 and 3 based on identification of: ||For a sample of financial assets we tested the correctness of stage-wise categorisation reasonableness of PD accuracy of |
|a. exposures with significant increase in credit risk since their origination and ||LGD and ECL computation. We also assessed the appropriateness of the impairment |
|b. Individually impaired / default exposures. ||methodology adopted by the management including |
|2. Techniques used to determine Loss Given Default ('LGD') and Probability of Default ('PD') to calculate ||the possible impact of the uncertainties associated with the COVID-19 pandemic. This included assessing the |
|ECL ||appropriateness of key judgements. We tested the accuracy of |
|3. The impact of different forward-looking information including future macro-economic conditions in the determination of ECL. ||key data inputs and calculations used in this regard. Based on the above work performed management's assessment of impairment loss allowance and related |
|These judgements require new models to be built and implemented to measure the expected credit losses on certain financial assets measured at amortised cost. ||disclosure are considered to be reasonable. |
|Management has made a number of interpretations and assumptions when designing and implementing models that are compliant with the new standard. || |
|The accuracy of data flows and the implementation of related controls are critical for the integrity of the estimated impairment provisions. || |
|In respect of accounts where moratorium benefits had been extended based on RBI's COVID-19 Regulatory Package assessment of impairment further depends on the possible impact of uncertainties associated with the Covid-19 pandemic in applying the judgement and estimates relevant for the impairment model. || |
|In view of such high degree of Management's judgement involved in estimation of ECL it is considered as a key audit matter. || |
Information Other than the financial statements and
Auditor's Report thereon
6. The Company's Board of Directors is responsible for the other information. The otherinformation comprises the Management Discussion and Analysis Board's Report includingAnnexures to Board's Report Corporate Governance Report and Shareholder's information butdoes not include the financial statements and our auditor's report thereon.
7. The other information is expected to be made available to us after the date of thisauditor's report. Our opinion on the financial statements does not cover the otherinformation and we will not express any form of assurance conclusion thereon.
8. In connection with our audit of the financial statements our responsibility is toread the other information identified above when it becomes available and in doing soconsider whether the other information is materially inconsistent with the financialstatements or our knowledge obtained in the audit or otherwise appears to be materiallymisstated.
Responsibilities of Management and Those Charged with
Governance for the financial statements
9. 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 financial statements that givea true and fair view of the financial position financial performance (including othercomprehensive income) changes in equity and cash flows of the Company in accordance withthe accounting principles generally accepted in India including the Indian AccountingStandards specified under Section 133 of the Act read with Companies (Indian AccountingStandards) Rules 2015. This responsibility also includes maintenance of adequateaccounting records in accordance with the provisions of the Act for safeguarding of theassets of the Company and for preventing and detecting frauds and other irregularities;selection and application of appropriate accounting policies; making judgments andestimates that are reasonable and prudent; and design implementation and maintenance ofadequate internal financial controls that were operating effectively for ensuring theaccuracy and completeness of the accounting records relevant to the preparation andpresentation of the financial statements that give a true and fair view and are free frommaterial misstatement whether due to fraud or error.
10. In preparing the financial statements the Board of Directors is responsible forassessing the Company's ability to continue as a going concern disclosing as applicablematters related to going concern and using the going concern basis of accounting unlessthe Board of Directors either intends to liquidate the Company or to cease operations orhas no realistic alternative but to do so. Those Board of Directors are also responsiblefor overseeing the Company's financial reporting process.
Auditor's Responsibilities for the Audit of the financial statements
11. 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.
12. As a part of an audit in accordance with SAs we exercise professional judgment andmaintain professional skepticism throughout the audit. We also:
a) 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 override of internal control.
b) 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 system in place and the operating effectiveness ofsuch controls.
c) Evaluate the appropriateness of accounting policies used and the reasonableness ofaccounting estimates and related disclosures made by management.
d) Conclude on the appropriateness of management's use of the going concern basis ofaccounting and based on the audit evidence obtained whether a material uncertainty existsrelated to events or conditions that may cast significant doubt on the Company's abilityto continue as a going concern. If we conclude that a material uncertainty exists we arerequired to draw attention in our auditor's report to the related disclosures in thefinancial statements or if such disclosures are inadequate to modify our opinion. Ourconclusions 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.
e) Evaluate the overall presentation structure and content of the financialstatements including the disclosures and whether the financial statements represent theunderlying transactions and events in a manner that achieves fair presentation.
13. We communicate with those charged with governance regarding among other mattersthe planned scope and timing of the audit and significant audit findings including anysignificant deficiencies in internal control that we identify during our audit.
14. We also provide those charged with governance with a statement that we havecomplied with relevant ethical requirements regarding independence and to communicate withthem all relationships and other matters that may reasonably be thought to bear on ourindependence and where applicable related safeguards.
15. From the matters communicated with those charged with governance we determinethose matters that were of most significance in the audit of the financial statements ofthe current period and are therefore the key audit matters. We describe these matters inour auditor's report unless law or regulation precludes public disclosure about the matteror 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
16. As required by the Companies (Auditor's Report) Order 2016 ("theOrder") issued by the Central Government of India in exercise of the powersconferred by sub-section (11) of Section 143 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.
17. 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 best of our knowledge and belief were necessary for thepurposes 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 books of account.
(d) In our opinion the aforesaid financial statements comply with the IndianAccounting Standards specified under Section 133 of the Act read with Companies (IndianAccounting Standards) Rules 2015.
(e) On the basis of the written representations received from the Directors as on 31stMarch2021 taken on record by the Board of Directors none of the directors is disqualifiedas on 31st March 2021 from being appointed as a director in terms of Section 164(2) ofthe Act.
(f) With respect to the adequacy of internal financial controls over financialreporting of the company and the operating effectiveness of such controls refer to ourseparate report in "Annexure-B".
(g) According to the information and explanations given to us and based on theexamination of the records the Company has paid/provided for managerial remuneration inaccordance with the requisite approvals mandated by the provisions of Section 197 readwith Schedule V to the Act; and
(h) With respect to other matters to be included in the Auditor's Report in accordancewith Rule 11 of the Companies (Audit and Auditors) Rules 2014 in our opinion and to thebest of our information and according to the explanations given to us;
i) The Company has disclosed the impact of pending litigations on its financialposition in its financial statements as referred to Note 32 to the financial statements.
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 the amounts required to be transferred tothe Investor Education and Protection Fund ("IEPF") except for Rs 500 that hasnot been transferred to IEPF for the reason described in Note 17 to the financialstatements.
|Place : Coimbatore ||For P K Nagarajan & Co. Chartered Accountants Firm Registration Number : 016676S S P Muthusami Partner Membership No.224171 |
|Date : 30.06.2021 ||UDIN: 21224171AAAAHV1828 |
The Annexure-'A' to the Independent Auditor's Report
Referred to in paragraph 16 of Independent Auditor's Report of even date to the membersof Sakthi Finance Limited on the financial statements for the year ended 31st March 2021
i. a) The Company has maintained proper records showing full particulars includingquantitative details and situation of fixed assets.
b) These fixed assets have been physically verified by the management at reasonableintervals. No material discrepancies were noticed on such verification.
c) According to the information and explanations given to us the title deeds ofimmovable properties as disclosed in Note 10 to the financial statements are held in thename of the company. In respect of immovable properties taken on lease and disclosed asright-of-use assets in the financial statements the lease agreements are in the name ofthe company.
ii. The company does not hold any inventory. Therefore the provisions of Clause 3(ii)of the Order are not applicable to the company.
iii. The Company has granted unsecured loans to a party covered in the registermaintained under Section 189 of the Act. In our opinion and according to the informationand explanations given to us:
a) The terms and conditions of the grant of such loans are not prejudicial to theCompany's interest.
b) The schedule of repayment of principal and payment of interest has been stipulatedfor the loans granted and the repayment/receipts are regular.
c) There are no amounts of such loans overdue for more than ninety days.
iv. In our opinion and according to the information and the explanations given to usthe company has not given/ provided any loans guarantee and securities to parties coveredin Section 185 of the Act. The Company has complied with provisions of Section 186 of theAct to the extent applicable.
v. The company has accepted deposits from the public. The directives issued by theReserve Bank of India (RBI) and provisions of Section 73 to 76 or any other relevantprovisions of the Act and the rules framed thereunder wherever applicable have beencomplied with. No order has been passed by National Company Law Tribunal or Reserve Bankof India or any Court or any other Tribunal.
vi. The Central Government has not specified the maintenance of Cost Records undersub-section (1) of Section 148 of the Act for the activities of the company.
vii. a) The company is regular in depositing undisputed statutory dues includingprovident fund employees' state insurance income-tax goods and services tax cess andany other applicable material statutory dues with the appropriate authorities. There areno such statutory dues as at the last day of the financial year remaining in arrears fora period of more than six months from the date they become payable. not prejudicial to theCompany s interest. months irom the date they become payable.
b) According to the information and explanations given to us the following disputedstatutory dues aggregating to Rs 1338.12 lakh that have not been deposited on account ofmatters pending before appropriate authorities:
|Name of the Statute ||Nature of Dues ||Amount (' in Lakhs) ||Period to which the amount relates ||Forum where the dispute is pending |
|Income Tax Act 1961 ||Income Tax ||9.83 ||AY 2012-13 ||Assessing Officer |
|Finance Act 1994 ||Service Tax ||1328.29 ||Oct 2009 to Sept 2014 ||Customs Excise & Service Tax Appellate Tribunal |
viii. According to the information and explanations given to us the Company has notdefaulted in repayment of dues to financial institutions banks Government and debentureholders during the year.
ix. In our opinion and according to the information and the explanations given to usthe Company has utilized the money raised by way of public issue of non-convertibledebentures and term loans during the year for the purpose for which those were raised.
x. According to the information and explanations given to us no material fraud by theCompany or on the Company by its officers or employees has been noticed or reported duringthe year.
xi. According to the information and explanations given to us and based on theexamination of the records the Company has paid/provided for managerial remuneration inaccordance with the requisite approvals mandated by the provisions of Section 197 readwith Schedule V to the Act.
xii. In our opinion and according to the information and explanations given to us theCompany is not a Nidhi Company. Accordingly para 3(xii) of the Order is not applicable.
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. The details of such related partytransactions have been disclosed in the Note 41 to the financial statements as requiredunder the Indian Accounting Standard (Ind AS) 24.
xiv. During the year under review the company has made private placement of preferenceshares and the requirements of Section 42 of the Act have been complied with. The amountsraised have been used for the purpose for which they were raised. Further during theyear the company has not issued any fully or partly convertible debentures during theyear.
xv. According to the information and explanations given to us and based on ourexamination of the records the Company has not entered into non-cash transactions withthe Directors or persons connected with them. Accordingly para 3(xv) of the Order is notapplicable.
xvi. According to the information and explanations given to us we report that thecompany has registered as required under Section 45-IA of the Reserve Bank of India Act1934.
|Place : Coimbatore ||For P K Nagarajan & Co. Chartered Accountants Firm Registration Number : 016676S S P Muthusami Partner Membership No.224171 |
|Date : 30.06.2021 ||UDIN: 21224171AAAAHV1828 |
Annexure -'B' to the Independent Auditor's Report
Referred to in paragraph 17(f) of the Independent Auditor's
Report of even date to the members of Sakthi Finance Limited
on the Financial Statements for the year ended 31st March
Report on the Internal Financial Controls under Clause (i) of sub-section 3 of Section143 of the Act
1. We have audited the internal financial controls over financial reporting of SakthiFinance Limited ("the Company") as at 31st March 2021 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
2. The Company's management is responsible for establishing and maintaining internalfinancial controls based on the internal controls over financial reporting criteriaestablished by the Company considering the essential components of the internal controlsstated in the Guidance Note on Audit of Internal Financial Controls over FinancialReporting issued by the Institute of Chartered Accountants of India ("iCAi").These responsibilities include the design implementation and maintenance of adequateinternal financial controls that were operating effectively for ensuring the orderly andefficient conduct of its business including adherence to 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 Act.
3. 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 Guidance Note on Audit of Internal Financial Controls over Financial Reporting (the"Guidance Note") and the Standards on Auditing issued by ICAI and deemed to beprescribed under Section 143(10) of the Act to the extent applicable to an audit ofinternal financial controls both applicable to an audit of Internal Financial Controlsand both issued by the ICAI. Those standards and the Guidance Note require that we complywith ethical requirements and plan and perform the audit to obtain reasonable assuranceabout whether adequate internal financial controls over financial reporting wasestablished and maintained and if such controls operated effectively in all materialrespects.
4. Our audit involves performing procedures to obtain audit evidence about the adequacyof 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 controls based on the assessed risk. Theprocedures selected depend on the auditor's judgment including the assessment of the riskof material misstatement of the financial statements whether due to fraud or error.
5. We believe that the audit evidence we have obtained is sufficient and appropriateto provide a basis for our audit opinion on the Company's internal financial controlsystem over financial reporting.
Meaning of Internal Financial Control Over Financial
6. A Company's internal financial control over financial reporting is a processdesigned to provide reasonable assurance regarding the reliability of financial reportingand the preparation of financial statements for external purposes in accordance withgenerally accepted accounting principles. A Company's internal financial controls overfinancial reporting includes those policies and procedures that
a) pertains to the maintenance of records that in reasonable detail accurately andfairly reflect the transactions and dispositions of the assets of the company;
b) provide reasonable assurance that transactions are recorded as necessary to permitpreparation of financial statements in accordance with generally accepted accountingprinciples and that receipts and expenditure of the company are being made only inaccordance with authorizations of management and directors of the company; and
c) provide reasonable assurance regarding prevention or timely detection ofunauthorized acquisition use or disposition of the company's assets that could have amaterial effect on the financial statements.
Inherent Limitations of Internal Financial Controls over
7. Because of the inherent limitation 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 internal financial controls over financialreporting to future periods are subject to the risk that the internal financial controlsover financial reporting may become inadequate because of changes in condition or thatthe degree of compliance with the policies or procedures may deteriorate.
8. In our opinion the Company has in all material respects an adequate internalfinancial control system over financial reporting and such internal financial controlsover financial reporting were operating effectively as at 31st March 2021 based on theinternal controls over financial reporting criteria established by the Company consideringthe essential components of internal controls stated in the Guidance Note on Audit ofInternal Financial Controls Over Financial Reporting issued by ICAI.
| ||For P K Nagarajan & Co. Chartered Accountants Firm Registration Number : 016676S |
|Place : Coimbatore Date : 30.06.2021 ||S P Muthusami Partner Membership No.224171 UDIN: 21224171AAAAHV1828 |