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Shriram Pistons & Rings Ltd.

BSE: 533021 Sector: Auto
NSE: SHRIPISTON ISIN Code: INE526E01018
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Shriram Pistons & Rings Ltd. (SHRIPISTON) - Auditors Report

Company auditors report

To the Members of Shriram Pistons and Rings Limited

Report on the Audit of the Standalone Financial Statements

Opinion

We have audited the accompanying standalone financial statements of Shriram Pistons andRings Limited (the Company) which comprise the Balance Sheet as at March 31 2019 theStatement of Profit and Loss the Statement of Changes in Equity and the Statement of CashFlows for the year then ended and notes to the Financial Statements including a summaryof significant accounting policies and other explanatory information.

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 Act in the manner so required and give a true and fair view in conformity with theaccounting principles generally accepted in India of the state of affairs of the Companyas at March 31 2019 and profit changes in equity and its cash flows for the year thenended.

Basis for Opinion

We conducted our audit in accordance with the Standards on Auditing (SAs) specifiedunder section 143(10) of the Companies Act 2013. Our responsibilities under thoseStandards are further described in the Auditor's Responsibilities for the Audit of theFinancial Statements section of our report. We are independent of the Company inaccordance with the Code of Ethics issued by the Institute of Chartered Accountants ofIndia together with the ethical requirements that are relevant to our audit of thefinancial statements under the provisions of the Companies Act 2013 and the Rulesthereunder and we have fulfilled our other ethical responsibilities in accordance withthese requirements and the Code of Ethics. We believe that the audit evidence obtained issufficient and appropriate to provide a basis for our opinion.

Key Audit Matters

Key audit matters are those matters that in our professional judgment were of mostsignificance in our audit of the financial statements of the current period. These matterswere addressed in the context of our audit of the financial statements as a whole and informing our opinion thereon and we do not provide a separate opinion on these matters.

Key Audit Matter Response to key audit matter
(a) Revenue recognition with respect to occurrence and cut-off: Principal Audit Procedures:
There is an inherent risk of occurrence and cut off due to inappropriate revenue recognition that do not relate to valid sales/ shipments and if deliveries are recorded in the wrong accounting period. (Refer to Note 21 to the standalone financial statements) We assessed the Company's process to identify the occurrence and cut off as per revenue accounting standard.
Our audit approach consisted evaluation of design of controls and testing the operating effectiveness of the controls over: • Recording of revenue transactions in correct period;
• Recording of revenue in line with underlying contracts/agreements and proof of delivery; We performed tests of detail for samples of revenue transactions to verify that the performance obligation had been met by:
• analyzing the contract and terms of the sale to determine that the Company had fulfilled the requirements of the contract;
• confirming revenue could be reliably measured by reference to underlying documentation; and
• confirming collectability of the revenue was reasonably assured by agreeing to collection history.
We have performed the cut off testing for both late and early cut off to evaluate that sales are recorded in the appropriate period. We have identified the range of delivery period between 1 to 8 days in which sales is recognized and traced to proof of delivery (POD). We also performed analytical procedures supported with corroborative inquiry. We involved our internal IT specialists to test IT general controls and application specific controls surrounding billing and recording including testing of system generated reports used in our audit.
We examined and assessed the accounting policies applied in the recognition of revenue for compliance with the applicable financial reporting framework;
We challenged management estimates around appropriateness of revenue recognition and reversals for biases that could result in material misstatement.
(b) Amalgamation of Shriram Automotive Products Limited ("SAPL") Our audit procedures in relation to business combination included following:
On March 29 2019 the amalgamation of the SAPL was completed. The Company accounted for the business combination in accordance with IND AS 103-Business Combinations under acquisition method. • Evaluation of design of controls and testing of operating effectiveness of the controls established by Company for assessment and evaluation of amalgamation transactions including controls established by Company for ensuring regulatory compliances;
Due to considering the assumptions and estimates required made by management as part of the purchase price allocation. Reference to related disclosures: • Inspecting Scheme of Amalgamation and related documentation and considering whether the amalgamation were business combinations and accordingly whether the relevant accounting standards had been applied based on accounting papers prepared by Company's management.
With regard to the accounting and measurement policies applied explanations of the transaction and it's disclosures on the preliminary purchase price allocation are included in Note 48 to the standalone financial statements. • Performing audit procedure to test the workings prepared by the Company to bifurcate the assets and liabilities of the amalgamated entity and ensure that all assets and liabilities pertaining to that business have been appropriately identified in the Business Combination.
• Involvement of our internal valuation specialists wherever required in the valuation of the identifiable assets and liabilities including assessing the adequacy of the valuation methods and appropriateness of key assumptions used;
• Recomputing the value of the considerations transferred including calculation of share swap ratio with reference to the scheme agreements and ensuring that the correct effective date was used;
• Involving our tax specialist wherever required to evaluate and test the tax transactions arising upon business combination;
• Performing audit procedures to ensure that all identified assets and liabilities of both the Companies have been disclosed appropriately; and
• Performing adequate audit procedures to ensure the accuracy and completeness of the disclosures made in the Financial Statements in accordance with Indian accounting standards.

Information Other than the 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 Discussion and AnalysisBoard's Report including Annexures to the Board's Report Business Responsibility Reportbut does not include the consolidated financial statements standalone financialstatements 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 this regard.

Management's Responsibility for the Standalone Financial Statements

The Company's Board of Directors is responsible for the matters stated in section134(5) of the Companies Act 2013 ("the Act") with respect to the preparation ofthese standalone financial statements that give a true and fair view of the financialposition financial performance changes in equity and cash flows of the Company inaccordance with the accounting principles generally accepted in India including theAccounting Standards specified under section 133 of the Act. This responsibility alsoincludes maintenance of adequate accounting records in accordance with the provisions ofthe Act for safeguarding of the assets of the Company and for preventing and detectingfrauds and other irregularities; selection and application of appropriate implementationand maintenance of accounting policies; making judgments and estimates that are reasonableand prudent; and design implementation and maintenance of adequate internal financialcontrols that were operating effectively for ensuring the accuracy and completeness ofthe accounting records relevant to the preparation and presentation of the financialstatement that give a true and fair view and are free from material misstatement whetherdue to fraud or error.

In preparing the financial statements 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 managementeither intends to liquidate the Company or to cease operations or has no realisticalternative 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 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 FinancialStatements whether due to fraud or error design and perform audit procedures responsiveto those risks and obtain audit evidence that is sufficient and appropriate to provide abasis for our opinion. The risk of not detecting a material misstatement resulting fromfraud is higher than for one resulting from error as fraud may involve collusionforgery intentional omissions misrepresentations or the override of internal control.

• Obtain an understanding of internal financial control relevant to the audit inorder to design audit procedures that are appropriate in the circumstances but not forthe purpose of expressing an opinion on the effectiveness of the Company's internalcontrol.

• 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 Financial Statements or if such disclosures are inadequate to modify our opinion.Our conclusions 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.

• 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.

Materiality is the magnitude of misstatements in the financial statements thatindividually 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 financial statements of thecurrent period and are therefore the key audit matters. We describe these matters in ourauditor's report unless law or regulation precludes public disclosure about the matter orwhen in extremely rare circumstances we determine that a matter should not becommunicated in our report because the adverse consequences of doing so would reasonablybe expected to outweigh the public interest benefits of such communication.

Report on Other Legal and Regulatory Requirements

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 Companies Act 2013 we give in the Annexure a statement on the matters specified inparagraphs 3 and 4 of the Order to the extent applicable.

1. As required by Section 143(3) of the Act we report that:

a) We have sought and obtained all the information and explanations which to the bestof our knowledge and belief were necessary for the purposes of our audit.

b) In our opinion proper books of 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 Cash Flow Statement and Statement of Changes in Equity dealt with by thisReport are in agreement with the books of account.

d) In our opinion the aforesaid standalone Ind AS financial statements comply with theIndian Accounting Standards prescribed under section 133 of the Act.

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

f) With respect to the adequacy of the internal financial controls over financialreporting of the Company and the operating effectiveness of such controls refer to ourseparate Report in "Annexure A".

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 our opinion and to the best of our information and according to the explanationsgiven to us the remuneration paid by the Company to its directors during the year is 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 Ind AS financial statements. Refer note-39 to the standaloneInd AS financial statements.

ii. The Company did not have any long-term contracts including derivative contracts forwhich there were any material foreseeable losses. Refer note-46 to the standalone Ind ASfinancial statements.

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

2. As required by the Companies (Auditor's Report) Order 2016 ("the Order")issued by the Central Government in terms of Section 143(11) of the Act we give in"Annexure B" a statement on the matters specified in paragraphs 3 and 4 of theOrder.

For Deloitte Haskins & Sells
Chartered Accountants
(Firm's Registration No. 015125N)
Vijay Agarwal
Place: Gurugram (Partner)
Date: May 10 2019 (Membership No. 094468)

ANNEXURE "A" TO THE INDEPENDENT AUDITOR'S REPORT

(Referred to in paragraph 1(f) under 'Report on Other Legal and RegulatoryRequirements' section of our report of even date)

Report on the Internal Financial Controls Over Financial Reporting under Clause (i) ofSub-section 3 of Section 143 of the Companies Act 2013 ("the Act")

We have audited the internal financial controls over financial reporting of ShriramPistons & Rings Limited ("the Company") as of March 31 2019 in conjunctionwith our audit of the standalone Ind AS financial statements of the Company for the yearended 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 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. These responsibilities includethe design implementation and maintenance of adequate internal financial controls thatwere operating effectively for ensuring the orderly and efficient conduct of its businessincluding adherence to company's policies the safeguarding of its assets the preventionand detection of frauds and errors the accuracy and completeness of the accountingrecords and the timely preparation of reliable financial information as required underthe Companies Act 2013.

Auditor's Responsibility

Our responsibility is to express an opinion on the Company's internal financialcontrols over financial reporting of the Company based on our audit. We conducted ouraudit in accordance with the Guidance Note on Audit of Interna! Financial Controls OverFinancial Reporting (the "Guidance Note") issued by the Institute of CharteredAccountants of India and the Standards on Auditing prescribed under Section 143(10) of theCompanies Act 2013 to the extent applicable to an audit of internal financial controls.Those Standards and the Guidance Note require that we comply with ethical requirements andplan and perform the audit to obtain reasonable assurance about whether adequate internalfinancial controls over financial reporting was established and maintained and if suchcontrols operated effectively in all material 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.

Opinion

In our opinion to the best of our information and according to the explanations givento us the Company has in all material respects an adequate internal financial controlssystem over financial reporting and such internal financial controls over financialreporting were operating effectively as at March 31 2019 based on the criteria forinternal financial control over financial reporting established by the Company consideringthe essential components of internal control stated in the Guidance Note on Audit ofInternal Financial Controls Over Financial Reporting issued by the Institute of CharteredAccountants of India.

For Deloitte Haskins & Sells
Chartered Accountants
(Firm's Registration No. 015125N)
Vijay Agarwal
Place: Gurugram (Partner)
Date: May 10 2019 (Membership No. 094468)

ANNEXURE "B" TO THE INDEPENDENT AUDITOR'S REPORT

(Referred to in paragraph 2 under 'Report on Other Legal and Regulatory Requirements'section of our report of even date)

(i) (a) The Company has maintained proper records showing full particulars includingquantitative details and situation of fixed assets.

(b) The fixed assets were physically verified during the year by the Management inaccordance with a regular program of verification which in our opinion provides forphysical verification of all the fixed assets at reasonable intervals. According to theinformation and explanation given to us no material discrepancies were noticed on suchverification.

(c) Based on the examination of confirmation received by us from "IDBI Bank"custodian on behalf of all the term loans and working capital loan lenders in respect ofimmovable properties of land that have been taken on lease and disclosed as"Non-current asset" in the financial statements whose title deeds have beenpledged as security for loans are held in the name of Company.

(ii) As explained to us the inventories were physically verified during the year bythe Management at reasonable intervals other than for goods in transit for whichsubsequent receipts have been verified in most of the cases and no material discrepancieswere noticed on physical verification.

(iii) According to the information and explanations given to us the Company has notgranted any loans secured or unsecured to companies firms Limited LiabilityPartnerships or other parties covered in the register maintained under section 189 of theCompanies Act 2013.

(iv) According to the information and explanations given to us the Company has notgranted any loans made investments or provided guarantees under Section 185 and 186 ofthe Companies Act 2013 and hence reporting under clause (iv) of the Order is notapplicable.

(v) In our opinion and according to the information and explanations given to us theCompany has complied with the provisions of Section 73 to 76 or any other relevantprovisions of the Companies Act 2013 and Companies (Acceptance of Deposits) Rules 2014as amended with regard to the deposits accepted. According to the information andexplanations given to us no order has been passed by the Company Law Board or theNational Company Law Tribunal or the Reserve Bank of India or any Court or any otherTribunal.

(vi) The maintenance of cost records has been specified by the Central Government undersection 148(1) of the Companies Act 2013. We have broadly reviewed the cost recordsmaintained by the Company pursuant to the Companies (Cost Records and Audit) Rules 2014as amended prescribed by the Central Government under sub-section (1) of Section 148 ofthe Companies Act 2013 and are of the opinion that prima facie the prescribed costrecords have been made and maintained We have however not made a detailed examination ofthe cost records with a view to determine whether they are accurate or complete.

(vii) According to the information and explanations given to us in respect ofstatutory dues:

(a) The Company has been regular in depositing undisputed statutory dues includingProvident Fund Employees' State Insurance Income-tax Customs Duty Goods and ServiceTax cess and other material statutory dues applicable to it to the appropriateauthorities. Also refer to the note 40 in the financial statement regarding managementassessment on certain matters relating to the provident fund.

(b) There were no undisputed amounts payable in respect of Provident Fund Employees'State Insurance Income-tax Customs Duty Goods and Service Tax 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 Customs Duty which have not been deposited as on March 312019. Details of dues of Income- tax Sales Tax Service Tax Value Added Tax Excise Dutywhich have not been deposited as on March 31 2019 on account of disputes are given below:

Name of the Statute Nature of the Dues Forum where dispute is pending Period to which the amount relates (various years covering the period) Amount Involved* (Rs. Million) Amount Unpaid (Rs. Million)
Income Tax Act 1961 Income tax Appellate authority up to Commissioners' level 2003-04 2004-05 2015-16 & 2016-17 9.60 0.00
Central Excise Act 1944 Excise Duty Custom Excise & Service Tax Appellate Tribunal (CESTAT) 2010-11 0.40 0.39
Finance Act 1994 Service Tax Custom Excise & Service Tax Appellate Tribunal (CESTAT) 2013-14 2014-15 2015-16 2016-17 & 2017-18 (till June-2017) 0.63 0.60
Finance Act 1994 Service Tax Commissioner (Appeal) 2012-13 (from July- 2012) 2013-14 2014-15 & 2015-16 14.65 14.65
Central Sales Tax Act 1956 Sales Tax Appellate authority up to Commissioners' level 2012-13 2013-14 2014-15 & 2015-16 32.18 31.64
Appellate Tribunal 2005-06 2006-07 2007-08 2010-11 2012-13 & 2014-15 18.96 16.96
Sales Tax Laws Sales Tax / Value Added Tax/ Entry Tax Appellate authority up to Commissioners' level 2011-12 2012-13 2014-15 & 2015-16 440.37 377.92
Appellate Tribunal 2007-08 2008-09 2009-10 2010-11 2011-12 & 2012-13 12.40 8.38

* amount as per demand orders including interest and penalty wherever quantified in theorder.

The following matters which have been excluded from the table above have been decidedin favour of the Company but the department has preferred appeals at higher levels. Thedetails are given below:

Name of the Statute Nature of the Dues Forum where dispute is pending Period to which the amount relates (various years covering the period) Amount* (Rs. Million)
Income Tax Act 1961 Income tax Income Tax Appellate Tribunal 2013-14 & 2014-15 10.03

* amount as per demand orders including interest and penalty wherever quantified in theorder.

(viii) In our opinion and according to the information and explanations given to usthe Company has not defaulted in the repayment of loans or borrowings to financialinstitutions and banks. The Company has not taken any loan from government or has notissued any debentures.

(ix) In our opinion and according to the information and explanations given to usmoney raised by way of initial public offer/ further public offer (including debtinstruments) were applied for the purposes for which those are raised. The Company has notraised amount by way of term loans during the year.

(x) To the best of our knowledge and according to the information and explanationsgiven to us no fraud by the Company and no material fraud on the Company by its officersor employees has been noticed or reported during the year.

(xi) In our opinion and according to the information and explanations given to us theCompany has paid/provided managerial remuneration in accordance with the requisiteapprovals mandated by the provisions of section 197 read with Schedule V to the CompaniesAct 2013.

(xii) The Company is not a Nidhi Company and hence reporting under clause (xii) of theOrder is not applicable.

(xiii) In our opinion and according to the information and explanations given to us theCompany is in compliance with Section 188 and Section 177 of the Companies Act 2013where applicable for all transactions with the related parties during the year and thedetails of related party transactions have been disclosed in the financial statements asrequired by the applicable accounting standards.

(xiv) During the year the Company has not made any preferential allotment or privateplacement of shares or fully or partly convertible debentures and hence reporting underclause (xiv) of the Order is not applicable to the Company.

(xv) In our opinion and according to the information and explanations given to usduring the year the Company has not entered into any non-cash transactions with itsdirectors or directors of its holding company or persons connected with them and henceprovisions of section 192 of the Companies Act 2013 are not applicable.

(xvi) The Company is not required to be registered under section 45-IA of the ReserveBank of India Act 1934.

For Deloitte Haskins & Sells
Chartered Accountants
(Firm's Registration No. 015125N)
Vijay Agarwal
Place: Gurugram (Partner)
Date: May 10 2019 (Membership No. 094468)