To The Members of
STARLITE COMPONENTS LIMITED
Report on the Audit of the Standalone Financial Statements
Corporate Insolvency Proceedings as per Insolvency and Bankruptcy Code 2016 (IBC)
The Hon'ble National Company Law Tribunal Mumbai Bench ("NCLT") admitted aninsolvency and bankruptcy petition filed by a operational creditor against StarliteComponents Limited ("the Company") and appointed Resolution Professional (RP)whohas been vested with management of affairs and powers of the Board of Directors withdirection to initiate appropriate action contemplated with extant provisions of theInsolvency and Bankruptcy Code 2016 and other related rules.
We have audited the standalone financial statements of Starlite Components Limited("the Company") which comprise the balance sheet as at 31 March 2020 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 tothe standalone financial statements including a summary of the significant accountingpolicies and other explanatory information.
In our opinion and to the best of our information and according to the explanationsgiven to us except for the possible effect of matters described in the Basis forQualified Opinion section of our report the aforesaid Financial Statements give a trueand fair view in conformity with the Indian Accounting Standards prescribed under section133 of the Act read with the Companies( Indian Accounting Standards) Rules 2015 asamended ("Ind AS") and other accounting principles generally accepted in Indiaof the state of affairs of the Company as at March 31 2020 and its loss (including totalcomprehensive loss) and its cash flows for the year ended on that date.
Basis for Qualified Opinion
We draw attention to following notes to the accompanying financial statements for theyear ended March 31 2020:-
1. Regarding admission of the Company into Corporate Insolvency Resolution Process("CIRP") and pending determination of obligations and liabilities includingvarious claims submitted by the Operational/financial/other creditors and employeesincluding interest payable on loans during CIRP. We are unable to comment the accountingimpact and disclosure there of pending reconciliation and determination of finalobligation.
The Company accordingly has not provided interest on borrowings amounting to Rs.17.80Lakhs for the CIRP period for year ended March 31 2020 as per the terms of borrowings.
Had such interest as mentioned above has been provided the reported loss for the yearended March 31 2020 would have been Rs. 1557.60 Lakhs and total Equity of the Companywould have been Rs. 829.19 Lakhs. Non provision of interest on borrowings is not incompliance with Ind AS 23 "Borrowing Costs".
2. Regarding the pending comprehensive review of carrying amount of all the assets andliabilities as at March 31 2020 hence no provision in the books of account has been madeby the Company. In the absence of assessment of impairment by the Company & pendingconfirmation we are unable to comment on the recoverable/payable amount with regards tosaid terms and consequential impact if any on the Statement. Non determination of fairvalue of financial assets & liabilities and carrying amount for other assets andliabilities are not in compliance with Ind AS 109- Financial Instruments and Ind AS 37-Provisions Contingent Liabilities & Contingent Assets.
3. Regarding non adoption of Ind AS 116 "Leases" effective from April 012019 and the consequent impact thereof. The aforesaid accounting treatment is not inaccordance with the relevant Indian Accounting Standard Ind-AS 116
4. Regarding continuous losses incurred by the Company current liabilities exceedingits current assets default in repayment of borrowings and default in payment ofregulatory and statutory dues. This situation indicates that a material uncertainty existsthat may cast significant doubt on the Company's ability to continue as a going concern.The accounts however has been prepared by the management on a going concern basis for thereason stated in the aforesaid note. We however are unable to obtain sufficient andappropriate audit evidence regarding management's use of the going concern basis ofaccounting in the preparation of the financial statements in view of on-going CorporateInsolvency Resolution Process the outcome of which cannot be presently ascertained.
We conducted our audit in accordance with the Standards on Auditing (SAs) specifiedunder Section 143(10) of the Companies Act 2013 (the Act). Our responsibilities underthose Standards are further described in the Auditor's Responsibilities for Audit ofthe financial 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 Act and the Rules thereunder and we havefulfilled our other ethical responsibilities in accordance with these requirements and theCode of Ethics. We believe that the audit evidence we have obtained is sufficient andappropriate to provide a basis for our opinion.
Material Uncertainty Relating to Going Concern
We draw attention to Note 49 of the Statement in view of ongoing CIRP the outcome ofwhich cannot be presently ascertained and other matters mentioned above. The Companycontinues to incur losses and its current liabilities exceed current assets itsmanufacturing operations haven temporarily suspended and there is considerable decline inthe level of operations. Further the Company has defaulted in repayment of its borrowingsand payment of statutory dues.
These events raise significant doubt on the ability of the Company to continue as a"Going Concern". These events or conditions along with other matters indicatethat a material uncertainty exists that may cast significant doubt on the Company'sability to continue as a going concern.
Our opinion is not modified in respect of the above matter.
Emphasis of Matter
We draw attention to Note 48 of the statement as regards to the management'sevaluation of COVID - 19 impact on the future performance of the Company. The actualoutcome of the assumptions and estimates may vary in future due to impact of pandemic.
Our opinion is not modified in respect of this matter.
Key Audit Matters
Key audit matters (KAM') are those matters that in our professional judgmentwere of most significance in our audit of the financial statements of the current period.These matters were addressed in the context of our audit of the financial statements as awhole and in forming our opinion thereon and we do not provide a separate opinion onthese matters.We have determined the matters described below to be the key audit mattersto be communicated in our report.
For each matter below our description of how our audit addressed the matter isprovided in that context.
We have fulfilled the responsibilities described in the Auditor's responsibilities forthe audit of the financial statements section of our report including in relation tothese matters. Accordingly our audit included the performance of procedures designed torespond to our assessment of the risks of material misstatement of the AS financialstatements. The results of audit procedures performed by us including those proceduresperformed to address the matters below provide the basis for our audit opinion on theaccompanying financial statements.
|The Key Audit Matter ||How the matter was addressed in our audit |
|1. Revenue Recognition || |
| ||Our audit procedures included: |
|Revenue is measured net of discounts rebates and incentives earned by customers on the Company's sales. Revenue is recognized when the control of the underlying products has been transferred to the customer. There is a risk of revenue being overstated due to fraud resulting from the pressure on management to achieve performance targets at the reporting period end. || Assessing the appropriateness of the revenue recognition accounting policies including those relating to discounts rebates and incentives by comparing with applicable Ind AS. |
| || Performing substantive testing (including year- end cutoff testing) by selecting samples of revenue transactions recorded during the year by verifying the underlying documents which included sales invoices/contracts and shipping documents. |
| || Assessing manual journals posted to revenue to identify unusual items. |
| || Considered the adequacy of the Company's disclosures in respect of revenue. |
|2. Inventory Valuation || |
|Inventories are held at the lower of cost and net realizable value (NRV). Due to high volume and nature of products the company is dealing with and the absence of adequate records valuation of inventory may be misstated. ||Our audit procedures included: |
| || Assessing the appropriateness of the inventory valuation method followed by the management and by comparing with applicable Ind AS. |
|Also NRV is being based on the assumptions / judgment of the management. Inappropriate assumptions of NRV can impact the assessment of the carrying value of inventories. || Performing substantive testing (including year end cut off testing) by selecting samples of inward and outward movement of inventory during the year by verifying the underlying documents which included sales invoices / purchase invoice and bill of entry. |
| || Evaluating the design and implementation of the Company's internal controls over the Net Realizable Value (NRV) assessment. |
| || Considered the valuation certificate provided by the management. |
|3. Litigations &Claims || |
|The Company operates in complex regulatory environment exposing it to a variety of different central and state laws regulations and interpretations thereof. In this regulatory environment there is an inherent risk of litigations and claims. ||Our procedures included: |
| || Reviewing the outstanding litigations against the Company for consistency with the previous years. Enquire and obtain explanations for movement during the year. |
|Consequently provisions and contingent liability disclosures may arise from direct and indirect tax proceedings legal proceedings including regulatory and other government/department proceedings as well as investigations by authorities and commercial claims. || Discussing the status of significantly known actual and potential litigations with the senior management personnel who have knowledge of these matters and assessing their responses. |
|Management applies significant judgment in estimating the likelihood of the future outcome in each case when considering whether and how much to provide or in determining the required disclosure for the potential exposure of each matter. These estimates could change substantially over time as new facts emerge as each legal case progress. || Reading the latest correspondence between the Company and the various tax/legal authorities and review of correspondence with / legal opinions obtained by the management from external legal advisors where applicable for significant matters and considering the same in evaluating the appropriateness of the Company's provisions or disclosures on such matters. |
|Given the inherent complexity and magnitude of potential exposures across the Company and the judgment necessary to estimate the amount of provisions required or to determine required disclosures this is a key audit matter. || Examining the Company's legal expenses and reading the minutes of the board meetings in order to ensure that all cases have been identified. |
| || With respect to tax matters involving our tax specialists and discussing with the Company's tax officers their views and strategies on significant cases as well as the related technical grounds relating to their conclusions based on applicable tax laws. |
| || Assessing the decisions and rationale for provisions held or for decisions not to record provisions or make disclosures. |
| || For those matters where management concluded that no provisions should be recorded considered the adequacy and completeness of the Company's disclosures. |
Information Other than the Financial Statements and Auditor's Report Thereon
The Company's Board of Directors is responsible for the preparation of otherinformation.
The other information comprises the information included in the Management Discussionand Analysis Board's Report including Annexure's to Board's Report Corporate Governanceand Shareholder's Information but does not include the standalone financial statementsand our auditors' report thereon.Our opinion on the standalone financial statements doesnot cover the other information and we do not express any form of assurance conclusionthereon.
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. We have nothing to report in thisregard.
Responsibility of Management and Those Charged with Governance for the FinancialStatements
The financial Statements which is the responsibility of the Company's Management isrelied upon by the Resolution Professional based on the assistance provided by theDirectors and taken on record by the Resolution Professional as fully described in NoteNo. 50 of financial Statements. The Company's Management is responsible for the mattersstated in section 134(5) of the Companies Act 2013 ("the Act") with respect tothe preparation of these financial statements that give a true and fair view of theFinancial position Financial performance (changes in equity) and cash flows of theCompany in accordance with the accounting principles generally accepted in Indiaincluding the accounting Standards specified under section 133 of the Act read withCompanies (Indian Accounting Standard) Rules 2015 as amended and other accountingprinciples generally accepted in India.
This responsibility also includes maintenance of adequate accounting records inaccordance with the provisions of the Act for safeguarding the assets of the Company andfor preventing and detecting frauds and other irregularities; selection and application ofappropriate accounting policies; making judgments and estimates that are reasonable andprudent; 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 standalone IndAS financial statements that give a true and fair view and are free from materialmisstatement whether due to fraud or error.
In preparing the financial statements Directors/Resolution Professional (RP) areresponsible for assessing the Company's ability to continue as a going concerndisclosing as applicable matters related to going concern and using the going concernbasis of accounting unless management (RP) either intends to liquidate the Company or tocease operations or has no realistic alternative but to do so.
The Management/RP is also responsible for overseeing the Company's financial reportingprocess.
Auditors' Responsibility 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 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 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 company hasadequate internal financial controls with reference to standalone financial statements inplace and 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 ourauditors' 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 auditors' 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.
1. The entire audit finalisation process was carried from remote locations i.e. otherthan the office of the Company where books of account and other records are kept based onthe data/details or financial information provided to us through digital medium owing tocomplete lockdown imposed by the Central Government to restrict the spread of COVID 19..Being constrained we resorted to and relied upon the results of the alternative auditprocedures to obtain sufficient and appropriate audit evidence for significant matters incourse of our audit. Our report is not modified in respect of this matter
2. Pursuant to applications filed by M/s. Shree Enterprises before the National CompanyLaw Tribunal Mumbai Bench ("NCLT") in terms of Section 9 of the Insolvency andBankruptcy Code 2016 read with the rules and regulations framed thereunder("Code") the NCLT had admitted the applications and ordered the commencement ofcorporate insolvency resolution process ("CIRP") of Starlite Components Limited("the Company") (the "Corporate Debtors") vide its orders datedJanuary 29 2020.
3. The financial statements of the Company shall be signed by the Chairperson orManaging Director or Whole Time Director or in absence of all of them; it shall be signedby any Director of the Company who is duly authorized by the Board of Directors to signthe financial statements. As mentioned in Note No. 50 of the financial statement in viewof the ongoing Corporate Insolvency Resolution Process the powers of the board ofdirectors stand suspended and are exercised by the Resolution Professional.
Report on Other Legal and Regulatory Requirements
1. As required by the Companies (Auditors' Report) Order 2016 ("the Order")issued by the Central Government of India in terms of Section 143(11) of the Act we givein the "Annexure A" a statement on the matters specified in paragraphs 3and 4 of the Order to the extent applicable.
2. As required by Section 143(3) of the Act we report that:
a) Except for the matters described in the Basis of Qualified opinion paragraph abovewe have sought and obtained all the information and explanations which to the best of ourknowledge and belief were necessary for the purposes of our audit.
b) Except for the possible effects of the matters described in the Basis of Qualifiedopinion paragraph above in our opinion proper books of account as required by law havebeen kept by 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 Flows dealt with bythis Report are in agreement with the books of account.
d) In our opinion the aforesaid standalone financial statements comply with the IndianAccounting Standard (Ind AS) specified under Section 133 of the Act read with theCompanies (Indian Accounting Standards) Rules 2015 as amended except requirement of IndAS 23 on Borrowing Cost Ind AS 116 on Leases Ind 37 on Provisions ContingentLiabilities and Contingent Assets with regard to matters described in the Basis ofQualified Opinion paragraph above.
e) The matter described under the basis for qualified opinion paragraph above andQualified Opinion paragraph of Annexure B' to this report in our opinion may havean adverse effect on functioning of the Company and on the amounts disclosed in financialstatements of the Company;
f) On the basis of the written representations received from the directors as on 31March 2020 taken on record by the Board of Directors none of the directors isdisqualified as on 31 March 2020 from being appointed as a director in terms of Section164(2) of the Act.
g) The qualification relating to maintenance of accounts and other matters connectedtherewith are as stated in the Basis for Qualified Opinion paragraph above.
h) With respect to the adequacy of the internal financial controls with reference tofinancial statements of the Company and the operating effectiveness of such controlsrefer to our separate Report in "Annexure B".
i) 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 requisite approvals mandated by the provisions of section 197 of theAct. The company has paid/provided total managerial remuneration amounting to INR 24.80Lakhs from the limits prescribed under this section the company has disclosed the same inthe Note No.31 of the financial statements. The Ministry of Corporate Affairs has notprescribed other details under section 197(16) which are required to be commented upon byus.
j) With respect to the other matters to be included in the Auditors' Report inaccordance with Rule 11 of the Companies (Audit and Auditors) Rules 2014 in our opinionand to the best of our information and according to the explanations given to us:
i. The Company has disclosed the impact of pending litigations as at 31 March
2020 on its financial position in its standalone financial statements - Refer Note 40to the standalone financial statements;
ii. The Company did not have any long-term contracts including derivative contracts forwhich there were any material foreseeable losses; and
iii. There were no amounts which were required to be to the Investor Education andProtection Fund by the Company during the year ended 31 March 2020;
For Jain Chhajed & Associates
ICAI Firm Registration No 127911W
CA Dinesh Burad
Date: July 30 2020
ANNEXURE A TO THE INDEPENDENT AUDITORS' REPORT 31 MARCH 2020
With reference to the Annexure A referred to in the Independent Auditors' Report to themembers of the Company on the standalone financial statements for the year ended 31 March2020 we report the following:
1. In respect of Property Plant and Equipments
(a) The Company has maintained proper records showing full particulars includingquantitative details and situation of fixed assets including property plant and equipmentand investment properties.
(b) We are informed that the Company physically verifies its assets over a three yearperiod. In our opinion this periodicity of physical verification is reasonable havingregard to the size of the Company and the nature of its assets. In accordance with thispolicy and on account of Covid 19 pandemic the Company has physically verified some ofthe fixed assets on sample basis during the year and no material discrepancies wereidentified on such physical verification
(c) According to the information and explanations given to us and on the basis of ourexamination of the records of the Company there are no immovable properties held in thename of the Company..
2. In respect of Inventories
(a) The inventory has been physically verified during the year by the management. Inour opinion the frequency of verification is reasonable.
(b) The management has conducted physical verification of inventory at reasonableintervals during the year. The discrepancies noticed on verification between physicalstock and book records were not material as reported by the management and the same hasbeen properly dealt within the books of accounts. There was no inventory lying with thirdparties.
3. Compliance under section 189 of the Companies Act 2013
According to the information & 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 theAct. Accordingly paragraph (iii) of the Order is not applicable to the Company.
4. Compliance under section 185 and 186 of The Companies Act 2013
In our opinion and according to the information and explanations given to us and basedon the audit procedures conducted by us the Company has not granted any loans or givenguarantees directly or indirectly to directors or any other person in whom directors areinterested in contravention of Section 185 of the Companies Act 2013. Accordinglycompliance under Section 185 and 186 of the Act in respect of providing securities is notapplicable to the Company.
5. Compliance under section 73 to 76 of The Companies Act 2013 and Rules framedthere under while accepting Deposits
In our opinion and according to the information and explanations given to us theCompany has not accepted deposits as per the directives issued by the Reserve Bank ofIndia and the provisions of Sections 73 to 76 or any other relevant provisions of the Actand the rules framed there under. Accordingly paragraph 3 (v) of the Order is notapplicable to the Company.
6. Maintenance of cost records
According to the information and explanations given to us and on the basis of ourexamination of books of account the Company need not maintain cost records as per theCompanies (Cost Accounting Records) Rules 2011 prescribed by the Central Government underSection 148(1) of the Act.
7. Deposit of Statutory Dues
(a) According to the information and explanations given to us and on the basis of ourexamination of the records of the Company we observed that there were delays in amountsdeposited with appropriate authorities for amounts deducted/accrued in the books ofaccount in respect of undisputed statutory dues including Provident Fund Income TaxGoods and Services Tax Customs Duty Sales Tax Value Added Tax (VAT) Employees' StateInsurance Cess and other material statutory dues. As explained to us the Company did nothave any dues on account of wealth tax.
(b) According to the information and explanations given to us undisputed amountpayable which were outstanding as on March 31 2020 for a period of more than six monthsfrom the due date consist of: Old BST / CST dues Rs. 1489890/-; Deferred BST LiabilityRs. 251439/-; Deferred CST Liability Rs. 414305/-; CST Rs.14750/-; VAT Rs.110432370/-; ESIC Rs.259880/-; Provident Fund Rs.483647/- and Profession TaxRs.61640/-
(c) No such dues of Income-Tax Service Tax Custom Duty Excise Duty and GSTwere outstanding on account of any dispute pending with any forum. Disputed dues notprovided for in the books of accounts are disclosed under Note No. 40 - ContingentLiabilities.
8. Repayment of Loans and Borrowings
In our opinion and according to the information and explanations given to us theCompany has not defaulted during the year in repayment of loans or borrowings to banks orfinancial institutions or dues to debenture holders except of Magma FincorpLimited. The Company does not have any loans or borrowings from government during theyear.
9. Utilization of Money Raised by Public Offers and Term Loan For which theyRaised
During the year the Company has not raised any money by way of initial public offer orfurther public offer (including debt instruments). The Company during the year has nottaken term loans from banks and financial institutions hence question of utilization ofterm loans does not arise.
10. Reporting of Fraud During the Period
During the course of our examination of the books and records of the Company carriedout in accordance with the generally accepted auditing practices in India and accordingto the information and explanations given to us we have neither come across any instanceof material fraud by the Company or on the Company by its officers or employees noticedor reported during the year nor have we been informed of any such case by the management.
11. Managerial Remuneration
According to the information and explanations given to us and based on our examinationof records of the Company the remuneration paid by the Company to its directors duringthe current year is in accordance with the provisions of Section 197 of the Act. Theremuneration paid to any director is not in excess of the limit laid down under Section197 of the Act.
12. Compliance by Nidhi Company Regarding Net Owned Fund to Deposits Ratio
In our opinion and according to the information and explanations given to us theCompany is not a Nidhi company and the Nidhi Rules 2014 are not applicable to it.Accordingly paragraph 3 (xii) of the Order is not applicable to the Company.
13. Related party compliance with Section 177 and 188 of Companies Act 2013
In our opinion and according to the information and explanations given to us theCompany has entered into transactions with related parties in compliance with theprovisions of Sections 177 and 188 of the Act. The details of such related partytransactions have been disclosed in the standalone financial statements as required byIndian Accounting Standard (Ind AS) 24 Related Party Disclosures specified under Section133 of the Act.
14. Compliance under section 42 of the Companies Act 2013 regarding private placementof Shares or Debentures
According to the information and explanations given to us and on the basis of 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 and hence reporting under clause (xiv) of paragraph 3 of the Order is notapplicable to the Company.
15. Compliance under section 192 of Companies Act 2013
According to the information and explanations given to us and on the basis of ourexamination of the records of the Company the Company has not entered into any non-cashtransactions with directors or persons connected with them. Accordingly paragraph (xv) ofthe Order is not applicable to the Company.
16. Requirement of Registration under 45-IA of Reserve Bank of India Act 1934
In our opinion and according to the information and explanations given to us theCompany is not required to be registered under Section 45-IA of the Reserve Bank of IndiaAct 1934. Accordingly paragraph 3 (xvi) of the Order is not applicable to the Company.
For Jain Chhajed & Associates
ICAI Firm Registration No 127911W
CA Dinesh Burad
Date: July 30 2020
ANNEXURE B TO THE INDEPENDENT AUDITORS' REPORT 31 MARCH 2020
Report on the Internal Financial Controls with reference to the aforesaid standalonefinancial statements under Clause (i) of Sub-section 3 of Section 143 of the CompaniesAct 2013 ("the Act")
We have audited the internal financial controls with reference to financial statementsof STARLITE COMPONENTS LIMITED ("the Company") as of 31stMarch 2020 in conjunction with our audit of the standalone Ind AS financial statements ofthe Company for the year 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 over financial reporting criteriaestablished by the Company considering the essential components of internal control statedin the Guidance Note on Audit of Internal financial controls over financial reportingissued by the Institute of Chartered Accountants of India (ICAI). These responsibilitiesinclude the design implementation and maintenance of adequate internal financial controlsthat were operating effectively for ensuring the orderly and efficient conduct of itsbusiness including adherence to company's policies the safeguarding of its assets theprevention and detection of frauds and errors the accuracy and completeness of theaccounting records and the timely preparation of reliable financial information asrequired under the Companies Act 2013.
Our responsibility is to express an opinion on the Company's internal financialcontrols over financial reporting based on our audit. We conducted our audit in accordancewith the Guidance Note on Audit of Internal Financial Controls Over Financial Reporting(the "Guidance Note") issued by the Institute of Chartered Accountants of Indiaand the Standards on Auditing 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 adequate internal financial controls overfinancial reporting was established and maintained and if such controls operatedeffectively 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 judgment 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 systemwith reference to financial statements.
Meaning of Internal Financial Controls with reference to financial statements
A company's internal financial control with reference to financial statements is aprocess designed to provide reasonable assurance regarding the reliability of financialreporting and the preparation of financial statements for external purposes in accordancewith generally accepted accounting principles.
A company's internal financial control over financial reporting includes those policiesand procedures that (1) pertain to the maintenance of records that in reasonable detailaccurately and fairly reflect the transactions and dispositions of the assets of thecompany; (2) provide reasonable assurance that transactions are recorded as necessary topermit preparation of 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 of unauthorizedacquisition use or disposition of the company's assets that could have a material effecton the financial statements.
Inherent Limitations of Internal Financial Controls with reference to financialstatements
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.
Basis of Qualified Opinion
According to the information and explanations given to us and based on our audit thefollowing material weaknesses has been identified in the operating effectiveness of theCompany's internal financial controls over financial statements as at March 31 2020:
(i) Balances of Trade Receivables Trade Payables other liabilities and loan &advances are subject to confirmations.
(ii) The Company's internal financial control with regard to the compliance with theapplicable Indian Accounting Standards and evaluation of carrying values of assets andliabilities and other matters as fully explained in basis for qualified opinion of ourmain report resulting in the Company not providing for adjustments which are required tobe made to the standalone financial statements.
A material weakness' is a deficiency or a combination of deficiencies ininternal financial control over financial statements such that there is a reasonablepossibility that a material misstatement of the Company's financial statements will not beprevented or detected on a timely basis.
In our opinion and to the best of our information and according to the explanationsgiven to us except for the effects / possible effects of the material weaknessesdescribed above under Basis for Qualified Opinion paragraph on the achievement of theobjectives of the control criteria the Company has in all material respects an adequateinternal financial controls system with reference to financial statements and suchinternal financial controls over financial statements were operating effectively as atMarch 31 2020 based on the internal control over financial statements criteriaestablished by the Company considering the essential components of internal control statedin the Guidance Note on Audit of Internal financial controls over financial statementsissued by the ICAI.
We have considered material weakness identified and reported above in determining thenature timing and extent of audit tests applied in our audit of the financial statementsof the Company for the year ended March 31 2020 and these material weaknesses affect ouropinion on the financial statements of the Company for the year ended March 31 2020 [ouraudit report dated July 30 2020 which expressed a qualified opinion on those financialstatements of the Company].
For Jain Chhajed & Associates
ICAI Firm Registration No 127911W
CA Dinesh Burad
Date: July 30 2020