THE MEMBERS OF
SHRIRAM EPC LIMITED
REPORT ON THE AUDIT OF THE STANDALONE FINANCIAL STATEMENTS
We have audited the standalone financial statements of Shriram EPC Limited ("theCompany") which comprise the Balance Sheet as at March 312021 and the Statement ofProfit and Loss (including other comprehensive income) Statement of Changes in Equity andStatement of Cash Flows for the year then ended and notes to the standalone financialstatements including a summary of significant accounting policies and other explanatoryinformation.
In our opinion and to the best of our information and according to the explanationsgiven to us except for the effects of the matter described in the Basis for QualifiedOpinion section of our report 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 Indian Accounting Standardsprescribed under section 133 of the Act read with Companies (Indian Accounting Standards)Rules 2015 as amended and other accounting principles generally accepted in India of thestate of affairs of the Company as at March 312021 and its loss including othercomprehensive income changes in equity and its cash flows for the year ended on thatdate.
Basis for Qualified Opinion
1. Financial Assets Loans (Non-Current) include Rs. 3.201.62 Lakhs (March 312020: Rs.3800.40 Lakhs) due from a related party. Sufficient appropriate audit evidence tocorroborate management's assessment of recoverability of the above said amount is notavailable and the amount is outstanding for more than five years. Further no provisionwith respect to the same is made in the books of account as explained in Note 9.2 of theStandalone Financial Statements. Accordingly we are unable to comment on the carryingvalue of above- mentioned Financial Assets Loans amounting to Rs. 3.201.62 Lakhs and theimpact if any on account of non-provisioning of the said balance on the financialstatements at present.
2. The carrying value of Deferred Tax Asset (DTA) include an amount of Rs. 43889.00Lakhs (March 31 2020: Rs. 43520 Lakhs) which is recognized on unabsorbed businesslosses. Due to unavailability of sufficient appropriate audit evidence to corroboratemanagement's assessment on reasonable certainty of future taxable profits as required byInd AS 12 on Income taxes considering the current pandemic situation we are unable toascertain the extent to which the deferred tax asset can be utilized. Refer Note 40 of thestandalone financial statements.
These matters were also qualified in our report on the standalone financial statementsfor the year ended March 312020.
We conducted our audit in accordance with the Standards on Auditing (SAs) specifiedunder section 143(10) of the Act. Our responsibilities under those Standards are furtherdescribed in the Auditor's Responsibilities for the Audit of the Standalone 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("ICAI") together with the ethical requirements that are relevant to our auditof the standalone financial statements under the provisions of the Act and the Rulesthereunder and we have fulfilled our other ethical responsibilities in accordance withthese requirements and the ICAI's Code of Ethics. We believe that the audit evidence wehave obtained is sufficient and appropriate to provide a basis for our qualified opinion.
Emphasis of Matter
We draw attention to Note 39 to the standalone financial statements which fullydescribes that the Company has made an assessment to recognize an impairment loss of Rs.1149.11 Lakhs on financial assets to reflect the business impact and uncertaintiesarising from the COVID 19 pandemic on the Company's operations financial performance andposition as at and for the year ended March 312021 (March 312020: INR 2748.97 Lakhs).
Our opinion is not modified in respect of this matter.
Information Other than the Standalone Financial Statements and Auditor's Report Thereon
The Company's Board of Directors is responsible for the other information. The otherinformation comprises the information included in the Management Report Chairman'sStatement Director's Report etc but does not include the standalone financial statementsand 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 in the audit or otherwise appears to be materially misstated. If based on thework we have performed we conclude that there is a material misstatement of this otherinformation we are required to report that fact. The other information included inManagement Report Chairman's Statement Director's Report etc have not been adjusted forthe impacts as described in the Basis for Qualified section above Accordingly we areunable to conclude whether or not the other information is materially misstated withrespect to this matter.
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. In addition to the matters described in the Basis forQualified Opinion section we have determined the matters described below to be the keyaudit matters to be communicated in our report.
|A) Provision for Expected credit loss |
|Refer to Note 9101214 & 18 in the standalone Ind AS Financial statements of 2020-21. The company has measured Loan and account receivables at amortized cost using the effective interest method. |
|The company has used the Expected credit loss (ECL) model for provisioning in respect of loan and account receivables which represent management's best estimate of the impairment losses incurred within the loan portfolio at the balance sheet date as per the Ind AS - 109 "Financial Instrument". The company's loan and account receivables consists of loans given to related parties trade receivables and unbilled revenue. |
|For trade receivables and loan assets that are individually significant expected credit losses are measured based on the present value of cash shortfalls over the remaining expected lives of the trade receivables and contract assets. The calculation of the collective credit loss provision is inherently judgmental. |
|We have identified provisioning for expected credit loss as a key audit matter as the calculation of credit loss provision is a complex area and requires management to make significant assumptions on customer payment behaviour and estimating the level and timing of expected future cash flows. |
|How the Key Audit Matter was addressed in our audit: |
|Our audit procedures in respect of this area included: |
|1. Obtained an understanding of the process relating to allowance for credit loss and assessed the management's estimate and related policies used in the credit loss analysis. |
|2. The management has assessed on individual level trade receivables and loan assets by Expected credit loss model laid down in Ind AS - 109 on "Financial Instruments" examined on a test check basis the objective evidence relating to the impairment of trade receivables and loan assets and the key assumptions used in the estimate of the present value of all cash shortfalls and reviewed whether amounts have been recovered after the end of reporting period. |
|3. Reviewed the appropriateness of management's ageing analysis based on days past due by examining the original documents (such as invoices and bank deposit advice). |
|4. Recalculated the ECL of each type of trade receivables and loan assets according to the provision matrix. |
|5. Assessed the accuracy of the disclosures in the financial statements and ensured that they were in accordance with Ind AS 109 Financial Instruments' |
|B) Going Concern Assessment |
|The Company is into Construction business. The Company has incurred losses amounting to INR Rs. 18288.53 Lakhs for the year ended 31 March 2021 (Previous year INR 8098.83 Lakhs) primarily due to lower volumes on account of COVID 19 pandemic high finance cost and certain provisions for impairment. |
|We have identified this as key audit matter because of management judgement and estimate involved in evaluation of the future plans and business projections. |
|How the Key Audit Matter was addressed in our audit: |
|Our audit procedures in respect of this area included: |
|1. Evaluated management plans for future actions and business projections whether the outcome of these plans is likely to improve the situation and whether management's plans are feasible in the circumstances. |
|2. Analysed and discussed cash flow profits and other relevant forecasts with management. |
|3. Read the minutes of the meeting held between the Lenders and the Company. |
|4. Request balance confirmation letters to the lenders to ensure the correct classification of the debt. |
|5. Obtain and read copy of the draft resolution plan and evaluate if the terms stated in the plan is appropriately factored in the estimation of future cash flows. |
Responsibilities of Management and Those Charged with Governance for the StandaloneFinancial 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 changesin equity 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 of 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 statement that give a true and fair view and are free frommaterial misstatement whether due to fraud or error.
In preparing the standalone financial statements the Board of Directors is responsiblefor assessing the Company's ability to continue as a going concern disclosing asapplicable matters related to going concern and using the going concern basis ofaccounting unless the Board of Directors either intends to liquidate the Company or tocease operations or has no realistic alternative but to do so.
Those Board of Directors are also responsible for overseeing the Company's financialreporting process.
Auditor's Responsibilities for the Audit of the Standalone Financial Statements
Our objectives are to obtain reasonable assurance about whether the standalonefinancial statements as a whole are free from material misstatement whether due to fraudor error and to issue an auditor's report that includes our opinion. Reasonable assuranceis a high level of assurance but is not a guarantee that an audit conducted in accordancewith SAs will always detect a material misstatement when it exists. Misstatements canarise from fraud or error and are considered material if individually or in theaggregate they could reasonably be expected to influence the economic decisions of userstaken on the basis of these standalone financial statements.
We give in "Annexure A" a detailed description of Auditor's responsibilitiesfor Audit of the Standalone Financial Statements.
Report on Other Legal and Regulatory Requirements
1. As required by the Companies (Auditor's Report) Order 2016 ("the Order")issued by the Central Government of India in terms of sub-section (11) of section 143 ofthe Act we give in the "Annexure B" 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 we report that:
(a) We have sought and except for the possible effect of the matter described in theBasis for Qualified opinion above obtained all the information and explanations which tothe best of our knowledge and belief were necessary for the purposes of our audit of theaforesaid standalone financial statements.
(b) Except for the effects of the matter described in the Basis of Qualified Opinionsection above in our opinion proper books of account as required by law have been keptby the Company 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) Except for the matter described in the Basis of Qualified Opinion section above inour opinion the aforesaid standalone financial statements comply with the AccountingStandards specified under Section 133 of the Act read with Rule 7 of the Companies(Accounts) Rules 2014.
(e) The matter described in Basis of Qualified Opinion section of our report in ouropinion may have an adverse effect on the functioning of the Company.
(f) On the basis of the written representations received from the directors as on March31 2021 taken on record by the Board of Directors none of the directors are disqualifiedas on March 312021 from being appointed as a director in terms of Section 164 (2) of theAct.
(g) The qualification relating to the maintenance of accounts and other mattersconnected therewith are as stated in the Basis for Qualified Opinion paragraph above.
(h) With respect to the adequacy of the internal financial controls with reference tostandalone financial statements of the Company and the operating effectiveness of suchcontrols refer to our separate Report in "Annexure C".
(i) 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 in our opinionand to the best 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 standalone financial statements - Refer Note 53 to the standalonefinancial statements
ii. Except for the possible effect of the matters described in the Basis of QualifiedOpinion paragraph above 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 be transferred tothe Investor Education and Protection Fund by the Company
3. As required by The Companies (Amendment) Act 2017 in our opinion according toinformation explanations given to us the remuneration paid/provided by the Company toits directors is within the limits laid prescribed under Section 197 of the Act and therules thereunder.
Annexure "A" to the Independent Auditor's Report on even date on theStandalone Financial Statements of Shriram EPC Limited
Auditor's Responsibilities for the Audit of the Standalone 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 control relevant to the audit in order todesign audit procedures that are appropriate in the circumstances. Under section 143(3)(i) of the Act we are also responsible for expressing our opinion on whether the companyhas internal financial controls with reference to standalone financial statements in placeand the operating 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.
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
Annexure "B" to the Independent Auditors' Report of even date on theStandalone Financial Statements of Shriram EPC Limited for the year ended March 312021
[Referred to in paragraph 1 under Report on Other Legal and RegulatoryRequirementsRs.in the Independent Auditors' Report]
i. (a) (a) The company has maintained proper records showing full particulars includingquantitative details and situation of fixed assets (Property Plant and Equipment).
(b) All the fixed assets (Property Plant and Equipment) have not been physicallyverified by the management during the year but there is a regular program of verificationwhich in our opinion is reasonable having regard to the size of the Company and thenature of its assets. No material discrepancies were noticed on such verification.
(c) In respect of immovable properties of land and building that have been taken onlease and disclosed as Fixed Assets in the financial statements the lease agreements arein the name of the Company where the Company is the lessee in the agreement.
(d) Immovable properties of land and buildings whose title deeds have been pledged witha bank as security for term loans are held in the name of the Company based on theMortgage deed executed between the bank and the Company for which confirmation has beenobtained from the bank.
ii. The Company does not have any inventory. Accordingly the provisions stated inparagraph 3(ii) of the Order are not applicable to the Company.
iii. According to the information and explanations given to us and on the basis of ourexamination of the records of the Company The company has granted loans secured orunsecured to companies covered in the register maintained under section 189 of the act:
a) According to the information and explanations given to us and on the basis of ourexamination of the records of the Company the terms and conditions on which the loanshave been granted by the Company are in our opinion prima facie not prejudicial to theinterest of the Company.
b) We are informed that the Company has not demanded repayment of any of the aforesaidloans during the year. Hence there has been no default by the parties to whom the loanshave been granted.
c) There are no overdue amounts remaining outstanding as at the Balance Sheet dateexcept for an amount of Rs. 3201.62 Lakhs as referred to in Basis of Qualified opinionparagraph in the Independent Auditors' Report which have been outstanding for aconsiderable period of time and as explained to us the Management has taken reasonablesteps for recovery of the principal amounts and interest.
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 in respect ofloans investments guarantees and securities as applicable.
v. In our opinion and according to the information and explanations given to us theCompany has not accepted any deposits from the public within the meaning of Sections 7374 75 and 76 of the Act and the rules framed there under.
vi. We have broadly reviewed the books of account relating to materials labour andother items of cost maintained by the Company pursuant as specified by the CentralGovernment for the maintenance of cost records under sub-section (1) of section 148 of theAct and we are of the opinion that prima facie the prescribed accounts and records havebeen made and maintained. We have not however made a detailed examination of the recordswith a view to determine whether they are 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 undisputed statutory dues includingprovident fund employees' state insurance income-tax sales-tax service tax duty ofcustom duty of excise value added tax goods and service tax cess and other statutorydues have generally been regularly deposited with the appropriate authorities though therehas been a slight delay in a few cases (Provident Fund delay range - 76 to 319 days &Tax deducted at Source delay range - 61 to 327 days).
(b) According to the information and explanations given to us and the records of theCompany examined by us in our opinion no disputed amount payable in respect ofemployees' state insurance income- tax goods and service tax duty of customs cess andany other statutory dues outstanding at the year end for a the period of more than sixmonths from the date they became payable except provident fund and tax deducted at sourcewhich are outstanding as at March 312021 for a period more than six months from the datethey became payable are as follows:
|Name of statue ||Natures of Dues ||Amount (Rs. In Lakhs) ||Period to which the amount relates ||Due Date ||Date of payment ||Remarks if any |
|Employee provident fund Act 1952 ||Provident Fund ||81.77 ||April'2020- August'2020 ||Various dates ||Various dates ||Subsequently Paid. |
| || ||60.60 || || || ||Pending to be paid |
|Income tax Act 1961 ||Tax deducted at Source ||54.75 ||April'2020- August'2020 ||Various dates ||Various dates ||Subsequently Paid. |
| || ||46.78 || || || ||Pending to be paid |
(c) According to the information and explanation given to us and examination of recordsof the Company the outstanding dues of income-tax goods and service tax customs dutycess and any other statutory dues on account of any dispute are as follows:
|Name of the statute ||Nature of dues ||Period to which the amount relates ||Forum where dispute is pending ||Amount involved (Rs. In Lakhs) ||Amount Unpaid (Rs. In Lakhs) |
|Income Tax Act 1961 ||Income Tax Interest and Penalty ||2010-11 ||Income Tax Appellate Tribunal ||1800.58 ||1800.58 |
|Service Tax (Chapter V of the Finance Act 1994) ||Service Tax and Penalty ||2010-11 to 2012-13 ||Customs Excise and Service Tax Appellate Tribunal ||408.00 ||408.00 |
|Andhra Pradesh Value Added Tax Act ||Value Added Tax ||2008-09 and 200910 ||Supreme Court ||223.33 ||223.33 |
|Tamil Nadu Value Added Tax Act ||Value Added Tax ||2008-09 to 2014-15 ||High Court ||57.16 ||57.16 |
|West Bengal Value Added Tax Act ||Value Added Tax ||2007-08 to 2015-16 ||Revisional Board ||2003 ||2003 |
|Orissa Value Added Tax Act ||Value Added Tax ||2011-12 and 201213 ||High Court ||6700.75 ||6700.75 |
|Jharkhand Value added tax act ||Interest VAT Tax Amount ||2013- 14 & 2014- 15 ||Dy. Commissioner of commercial tax ||41.64 ||41.64 |
|Kerala Value added tax act ||Disputed on Penalty ||2013-14 to 2016-17 ||Sales tax Officer ||127.19 ||127.19 |
|Kerala Value added tax act ||Disputed on Tax & Interest ||2009-10 ||Assistant commissioner ||78.83 ||78.83 |
|West Bengal Value Added Tax Act ||Value Added Tax ||2016-17 ||Revisional Board ||24.84 ||24.84 |
vii. In our opinion and according to the information and explanations given to us theCompany has not defaulted in repayment of dues to the financial institutions and banksexcept for in the following cases the details of which are as follows:
|Particulars ||Amount of default as of March 31 2021 (Rs. In Lakhs) ||Period of default ||Remarks if any |
|Central Bank of India ||386.88 ||182 Days ||Principal pending to be repaid |
| ||541.63 ||90 days || |
| ||541.63 ||1 Day || |
| ||532.85 ||3 days to 90 Days ||Interest pending to be repaid |
| ||874.12 ||121 days to 365 days || |
|IFCI WCTL ||16.78 ||182 Days ||Principal pending to be repaid |
| ||23.49 ||90 days || |
| ||23.49 ||1 Day || |
| ||27.26 ||3 days to 90 Days ||Interest pending to be repaid |
| ||49.26 ||121 days to 365 days || |
|IFCI FITL ||12.46 ||182 Days ||Principal pending to be repaid |
| ||15.85 ||90 Days || |
| ||15.86 ||1 day || |
| ||3.61 ||3 days to 90 Days ||Interest pending to be repaid |
| ||6.59 ||121 days to 365 days || |
|ACRE ||200.00 ||182 Days ||Principal pending to be repaid |
| ||400.00 ||90 Days || |
| ||400.00 ||1 Days || |
ix. The Company did not raise any money by way of initial public offer or furtherpublic offer (including debt instruments) and term loans during the year. Accordingly theprovisions stated in paragraph 3 (ix) of the Order are not applicable to the Company.
x. During the course of our audit 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 employees.
xi. According to the information and explanations given to us and based on ourexamination of the records of the Company the Company has paid/ provided for managerialremuneration in accordance with the requisite approvals mandated by the provisions ofsection 197 read with 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 the provisions stated in paragraph 3(xii) ofthe Order are not applicable to the Company.
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 to us and based on ourexamination of the records of the Company the Company has not made any preferentialallotment or private placement of shares or fully or partly convertible debentures duringthe year. Accordingly the provisions stated in paragraph 3 (xiv) of the Order are notapplicable to the Company.
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 provisions statedin paragraph 3(xv) of the Order are not applicable to the Company.
xvi. In our opinion the Company is not required to be registered under section 45 IAof the Reserve Bank of India Act 1934 and accordingly the provisions stated in paragraphclause 3 (xvi) of the Order are not applicable to the Company
Annexure "C" to the Independent Auditor's Report of even date on theStandalone Financial Statements of Shriram EPC Limited
[Referred to in paragraph 2(h) under Report on Other Legal and RegulatoryRequirementsRs.in the Independent Auditors' Report]
Report on the Internal Financial Controls under Clause (i) of Sub-section 3 of Section143 of the Companies Act 2013 ("the Act")
We have audited the internal financial controls with reference to standalone financialstatements of Shriram EPC Limited ("the Company") as of March 312021 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
The Company's Management is responsible for establishing and maintaining internalfinancial controls based on the internal control with reference to standalone financialstatements criteria established by the Company considering the essential components ofinternal control stated in the Guidance Note on Audit of Internal Financial Controls overFinancial Reporting issued by the Institute of Chartered Accountants of India (ICAI) (the"Guidance Note"). These responsibilities include the design implementation andmaintenance of adequate internal financial controls that were operating effectively forensuring the orderly and efficient conduct of its business including adherence toCompany's policies the safeguarding of its assets the prevention and detection of fraudsand errors the accuracy and completeness of the accounting records and the timelypreparation of reliable financial information as required under the Act.
Our responsibility is to express an opinion on the Company's internal financialcontrols with reference to standalone financial statements based on our audit. Weconducted our audit in accordance with the Guidance Note and the Standards on Auditingissued by ICAI and deemed to be prescribed under section 143(10) of the Act to the extentapplicable to an audit of internal financial controls. Those Standards and the GuidanceNote require that we comply with ethical requirements and plan and perform the audit toobtain reasonable assurance about whether internal financial controls with reference tostandalone financial statements was established and maintained and if such controlsoperated effectively in all material respects.
Our audit involves performing procedures to obtain audit evidence about the internalfinancial controls with reference to financial statements and their operatingeffectiveness. Our audit of internal financial controls with reference to financialstatements included obtaining an understanding of internal financial controls withreference to financial statements assessing the risk that a material weakness exists andtesting and evaluating the design and operating effectiveness of internal control based onthe assessed risk. The procedures selected depend on the auditor's judgement includingthe assessment of the risks of material misstatement of the financial statements whetherdue to fraud or error.
We believe that the audit evidence we have obtained is sufficient and appropriate toprovide a basis for our qualified audit opinion on the Company's internal financialcontrols with reference to financial statements.
Meaning of Internal Financial Controls with reference to Standalone FinancialStatements
A Company's internal financial control with reference to standalone financialstatements is a process designed to provide reasonable assurance regarding the reliabilityof financial reporting and the preparation of standalone financial statements for externalpurposes in accordance with generally accepted accounting principles.
A Company's internal financial control with reference to standalone financialstatements includes 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 standalone financial statements in accordance with generally acceptedaccounting principles and that receipts and expenditures of the company are being madeonly in accordance with authorizations of management and directors of the company; and
(3) 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 standalone financial statements.
Inherent Limitations of Internal Financial Controls with reference to StandaloneFinancial Statements
Because of the inherent limitations of internal financial controls with reference tostandalone financial statements including the possibility of collusion or impropermanagement override of controls material misstatements due to error or fraud may occurand not be detected. Also projections of any evaluation of the internal financialcontrols with reference to standalone financial statements to future periods are subjectto the risk that the internal financial control with reference to standalone financialstatements may become inadequate because of changes in conditions or that the degree ofcompliance with the policies or procedures may deteriorate.
According to the information and explanations given to us and based on our audit thefollowing material weaknesses have been identified in the operating effectiveness of theCompany's internal financial controls with reference to standalone financial statements asat March 312021:
a) Provisioning of overdue receivables and provisioning of advances which have beenoutstanding for a period of more than five years which could potentially result in theCompany not recognizing a provision for the said receivables and advances.
b) Assessment of future taxable profits which could result in recognition of excessdeferred tax asset which the Company may not be able to utilize.
A material weakness' is a deficiency or a combination of deficiencies ininternal financial control with reference to standalone financial statements such thatthere is a reasonable possibility that a material misstatement of the company's annual orinterim financial statements will not be prevented or detected on a timely basis.
In our opinion the Company has in all material respects maintained internalfinancial controls with reference to financial statements as of March 31 2021 based onthe internal control with reference to standalone financial statements criteriaestablished by the Company considering the essential components of internal control statedin the Guidance Note and except for the possible effects of the material weaknessesdescribed above on the achievement of the objectives of the control criteria theCompany's internal financial controls with reference to standalone financial statementswere operating effectively as of March 312021.
We have considered the material weaknesses identified and reported above in determiningthe nature timing and extent of audit tests applied in our audit of the March 31 2021financial statements of the Company and these material weaknesses affects our opinion onthe standalone financial statements of the Company.