Winsome Yarns Ltd.
|BSE: 514348||Sector: Industrials|
|NSE: WINSOME||ISIN Code: INE784B01035|
|BSE 00:00 | 22 Jun||Winsome Yarns Ltd|
|NSE 05:30 | 01 Jan||Winsome Yarns Ltd|
|BSE: 514348||Sector: Industrials|
|NSE: WINSOME||ISIN Code: INE784B01035|
|BSE 00:00 | 22 Jun||Winsome Yarns Ltd|
|NSE 05:30 | 01 Jan||Winsome Yarns Ltd|
To the Members of Winsome Yarns Limited
Report on the Audit of the Standalone Financial Statement
1. Qualified Opinion.
We have audited the accompanying Standalone Ind AS financial statements of WinsomeYarns Limited ("the Company") which comprise the Balance Sheet as at March 312020 the Statement of Profit and Loss (including Other Comprehensive Income) the CashFlow Statement and the Statement of Changes in equity for the year then ended and asummary of the significant accounting policies and other explanatory information.
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 matters described in paragraphunder 'Basis of Qualified Opinion' the aforesaid Ind AS financial statements give theinformation required by the Act in the manner so required and give a true and fair view inconformity with the accounting principles generally accepted in India including the IndAS of the financial position of the Company as at March 312020 and profit/lossincluding other comprehensive income its cash flows and the changes in equity for theyear ended on that date.
2. Basis for Qualified Opinion.
i. In view of accumulated losses of the Company as at the end of March 312020 the networth of the Company as at that date being negative continuous losses negative cashflows and due to financial constraints material uncertainty exists about the companyability to continue as going concern. The decision of management of the Company to preparethe accounts of the Company on going concern basis for reasons that as refer to note no.3.11 to standalone financial statement(a) proposed rehabilitation plan of the Company isunder discussions with majority of lenders and (b) future business plans of the Companyand expected cash flows therefrom will suffice to service restructured debts of theCompany there would arise a need to adjust the realizable value of assets and liabilitiesin the event of failure of assumptions as to going concern and in the absence of impactof aforesaid assumptions having been un-ascertained we are unable to comment thereon.
ii. The Financial Statement for the year ended on March 312020 are understated due to:
(a) Non provisioning of interest expenses on borrowings of Rs. 12890.29 Iakhs for theyear ended on March 31 2020 (Rs. 11168.88 Lakhs for the year ended on March 312019) andRs. 52703.29 Lakhs being aggregate amount of interest unprovided till the year ended March312020 (Rs. 39813.00 Lakhs till the year ended March 31 2019) and further amounttowards penal interest penalty etc. as may be charged by the lenders. (In the absence ofstatement of account the above amount has been arrived at as per estimates of theCompany and the aggregate unprovided amount in books of account of the Company is notascertainable with accuracy).
(b) Non provisioning against long outstanding receivables of Rs. 521.57 Lakhs (Rs.492.12 Lakhs as at March 31 2019) including of overseas overdue trade receivables.Further Re-instatement of few debtors advance from customers on exchange fluctuation isnot recognized in line with Ind AS - 21 "The Effects of changes in Foreign ExchangeRates" the effect of which we are unable to comment.
iii. Refer to note no.2(D)and note no. 9 to the standalone financial statement duringthe end of financial year company measured its inventories of finished goods at netrealizable value which is below than their cost. During the financial year companyutilized its production below their capacity and fixed overhead allocated to each unit ofproduction is increased as a consequence of low production resulting is that cost ofinventories of finished good per unit increased due to idle capacity allocation of fixedoverheads on inventory of finished goods is not in line with Ind AS 2"Inventories".
iv. As stated in note no. 3.3and 10 of standalone financial statement investment inUSD 4819980 in Arise Money Market Fund. As per information given to us the balanceabove is as per rate of exchange prevailing at the time of investment and is subject toadjustment in rate of foreign exchange and accruals on money market investments. Inrespect of its reliability/receipt we are unable to comment. The non-accounting ofinvestment at fair value and nonrecognition of exchange fluctuation in respect thereto isnot in line with Ind AS 109 "Financial Instruments" and Ind AS-21 "TheEffects of Changes in Foreign Exchange Rates" which has the effect of understatementof investment by Rs. 1078.39lakhs as at March 31st 2020 (Rs. 793.73 lakhs as at March 31st2019) overstatement of losses by Rs.284.65 lakhs for the year ended March 31st 2020.(Rs.199.63 lakhs as at March 31st 2019) respectively.
v. Regarding provisions in case of investments in subsidiaries written off/writtenback and adjustment/ set off of payment of receivables/payables from/to overseasparties/suppliers which is pending necessary approval of the competent authority.
vi. The Internal Control Systems need to be further strengthened in order that they arecommensurate with the size of the Company and the nature of its business moreparticularly in areas of purchases and consumption of materials charging of expensesallocation of overheads set-off of balances and invoicing of sale of goods and services.
vii. Confirmation of balances and reconciliation thereof with respective parties arepending which include balances pertaining to accounts receivable and payable (includingAssociate Company/ies) bank balances secured loans other liabilities loans andadvances recoverable and contingent liabilities. All balances have been certified by themanagement of the Company. In the absence of the Company having aforementioned detailsthe impact thereof is unascertainable and therefore not being commented. Furtherstrengthening of internal controls by the Company will provide greater reliability.
viii. As refer to note no. 3.5 to standalone financial statement in earlier yearmanagement has noticed and found fraud in the nature of shortage/misappropriation of goodsstored at its Ludhiana Branch during the financial year 2017-18 by its employee/s againstwhich the management took action by lodging F.I.R. with the concerned Police Station andinvestigation in the matter is pending. The misappropriation of goods has been valued atRs. 70 Lakhs against which some of the parties to whom goods were sold by the concernedemployees have confirmed having received the goods and also confirmed to the Company ashaving made payment against the same. The Company also filed its claim to insurancecompany under Employee Fidelity Insurance effect whereof has been accounted in the booksof account of the Company considering the ongoing recovery process of its claims. As perinformation given to us by management of the Company the matter is still pending and itsstatus is same as it in previous financial year.
3. Emphasis of Matter.
We would like to draw attention to the following matters as stated in the notes to thefinancial statement:
i. As stated in Note no. 8 in the standalone financial statement as per informationgiven to us the company has made advance payment of Rs. 2268.50 Lakhs to Edelweiss AssetsReconstruction Company for advance against restructuring of loan. Loan outstanding fromEdelweiss Assets Reconstruction Company amounting of Rs. 47071.08 Lakhs.
ii. As stated in Note 3.1(A) &(B) to the standalone financial statements thecompany has not made provision for the demand raised by various authorities as the mattersare pending before various appellate forum. We are unable to comment upon possible impactin the standalone financial statements for the year 31st March 2020.
iii. As refer to note no. 3.10 to the standalone financial statement as stated inexceptional item to the standalone Financial statement the company has made provisioningagainst loans and advances interest receivable (including other current assets)outstanding since long amounting of Rs. 1414.10 lakhs.
iv. We draw attention to the users of the financial statement of the company ended on31st March 2020 that the lender Edelweiss Assets Reconstruction Company Limited andIndian Overseas Bank has filed an application against company under section 7 of theInsolvency & Bankruptcy Code 2016 before National Company Law Tribunal ChandigarhBranch. The Company Petition filed by Edelweiss Asset Reconstruction Company Limitedagainst the Company for initiation of Corporate Insolvency Resolution Process (CIRP) underInsolvency and Bankruptcy Code (IBC) 2016 has been rejected by National Company LawTribunal Chandigarh Bench vide its Order dated 17.03.2020.
Our opinion is not modified in respect of these matters.
4. 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. There 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. Inaddition the matters described in the basis for qualified opinion and emphasis of matterparagraph are by their nature are key audit matters.
5. 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 Section 134(5) of the Companies Act 2013 ("the Act") with respect to the preparation ofthese standalone lnd AS financial statements that give a true and fair view of thefinancial position financial performance including other comprehensive income cash flowsand changes in equity of the Company in accordance with the Indian Accounting Standards(Ind AS) prescribed under section 133 of the Act read with the Companies (IndianAccounting Standards) Rules 2015 as amended and other accounting principles generallyaccepted in India. This responsibility also includes maintenance of adequate accountingrecords in accordance with the provisions of the Act for safeguarding the assets of theCompany and for preventing and detecting frauds and other irregularities; selection andapplication of appropriate implementation and maintenance of accounting policies; makingjudgments and estimates that are reasonable and prudent; and design implementation andmaintenance of adequate internal financial controls that were operating effectively forensuring the accuracy and completeness of the accounting records relevant to thepreparation and presentation of the Ind AS financial statements that give a true and fairview and are free from material misstatement whether due to fraud or error.
In preparing the financial statement management is responsible for assessing thecompany's ability to continue as a going concern disclosing as application 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.
6. Auditor's Responsibilities for the Audit of 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.
7. Report on Other Legal and Regulatory Requirement.
i. As required by the Companies (Auditor's Report) Order 2016 (the Order) issued bythe Central Government of India in terms of section 143(11) of the Act we give in the"Annexure A" a statement on the matters specified in paragraphs 3 and 4 of theOrder.
ii. 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 purpose of our audit except as statedin para under the head "Basis of Qualified Opinion".
b) Except for the effects/possible effects of the matters described in the "Basisof Qualified Opinion" paragraph above in our opinion proper books of account asrequired by law have been kept by the Company in so far as it appears from our examinationof those books.
c) The Balance Sheet the Statement of Profit and Loss the Cash Flow Statement andStatement of Changes in Equity dealt with by this Report are in agreement with the booksof account.
d) Except for the matter described in para under the "Basis for QualifiedOpinion" in our opinion the aforesaid Ind AS financial statement comply with theIndian Accounting Standards prescribed under Section 133 of the Act.
e) The matters described in the 'Basis of Qualified Opinion" paragraph above inour opinion may have an adverse effect on the functioning of the Company.
f) On the basis of written representations received from the directors as on March312020 taken on record by the Board of Directors none of the directors is disqualifiedas on March 312020 from being appointed as a director in terms of section 164 (2) of theAct.
g) With respect to the adequacy of the internal financial controls over financialreporting of the Company and the operating effectiveness of such controls refer to ourseparate Report in "Annexure B".
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) Rules2014 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 no. 3.1 to the standalonefinancial statement.
ii. Except as matter described under paragraph of "basis for qualifiedopinion" as required under the applicable law or Accounting Standards The Companyhas made provision for material foreseeable losses if any on long erm contractsincluding derivative contracts;
iii. There were no amounts which were required to be transferred to the investorEducation and Protection Fund by the Company.
"ANNEXURE A" TO INDEPENDENT AUDITOR'S REPORT
(Annexure referred to in paragraph 6 on Report on Other Legal and RegulatoryRequirements)
I. a) As per information and explanation given to us the Company is maintaining properrecords showing full particulars including quantitative details and situation of fixedassets.
b) As per information and explanation given to us the fixed assets have beenphysically verified by the management at reasonable intervals. However we have not beenprovided complete physical verification report.
c) According to the information and explanations given to us and on the basis of ourexamination of the records of the Company the title deeds of immovable freeholdproperties are held in the name of the Company. However we have not been providedcomplete title deed of immovable property situated at Derabassi (Punjab) location.
ii. According to the information explanation and representation provided by themanagement physical verification of inventory has been conducted at reasonable intervalsby the management. However we did not provide any occasion to overview the physical stocktaking. Further according to information and explanation given to us no materialdiscrepancy was noticed in such verification by management.
iii. As informed to us the Company has not granted any loans secured or unsecured tocompanies firms limited liability partnerships or other parties covered in the registermaintained under section 189 of the Act. Accordingly provisions of clause 3 (iii) of theOrder is not applicable.
iv. According to the information explanation and representation provided by themanagement and based upon audit procedures performed the Company has not given any loansprovided any guarantee or security in connection with any loan and/ or acquiringsecurities of any other body corporate.
v. As explanation given to us and on the basis of our examination of the records theCompany has accepted deposits from public in violation of provisions of section 73 to 76of companies act 2013 read with rule 3 of companies (acceptance of deposits) Rules 2014.The nature of the amountis trade advance from customers which are of more than 365 days.
vi. We have broadly reviewed the books of account maintained by the Company pursuant tothe Rules made by the Central Government for the maintenance of cost records undersub-section (1) of section 148 of the Act in respect of the Company's products to whichthe said Rules apply and are of the opinion that prima facie the prescribed records havebeen made and maintained. However; we have not made a detailed examination of the saidrecords with a view to determine whether they are accurate or complete.
vii. a) According to the information and explanations given to us the company is notregular in depositing undisputed statutory dues including provident fund employees' stateinsurance income-tax sales- tax service tax goods and service tax duty of customsduty of excise value added tax cess and any other statutory dues to the appropriateauthority. The arrear of outstanding statutory dues as on the last day of the financialyear concerned for a period of more than six months from the date they became payableare indicated below:
b) According to the information and explanations given to us the following dues ofincome tax sales tax service tax duty of excise and Value added tax have not beendeposited by the company on account of disputes:
*This para to be read with note no. 3.1(A) and 3.1(B) to the financial statements.
viii. In our opinion based on audit procedures performed and according the informationand explanation given to us the Company has defaulted in repayment of loans andborrowings to bank. However the Company has not taken loans from any bank financialinstitution and Government or debenture holders during the year. The lender wise detailsof default is as under:
EARC = Edelweiss Asset Reconstruction Company Ltd.
*Total default amount excludes the interest that is not provided in the books.
ix. According to the information and explanation given to us the Company did not raiseany money by way of initial public offer or further public offer (including debtinstruments) and term loans during the year.
x. To the best of our knowledge and according to the information and explanations givento us we have neither come across any instances of fraud by the Company or any fraud onthe Company by its officers or employees noticed or reported during the year.
xi. According to the information and explanations given to us and based on ourexamination of the records of the Company the Company has not paid managerialremuneration during the year under review for which requisite approval is required by theprovisions of section 197 read with schedule V of the companies' act 2013.
xii. The Company is not a Nidhi 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 Ind AS standalone financial statements as requiredby the applicable accounting standards.
xiv. The Company has not made any preferential allotment or private placement of sharesof fully or partly convertible debentures during the year under review.
Accordingly we are not offering any comment with respect to compliance of requirementof section 42 of the Act and utilization of the money.
xv. On the basis of records made available to us and according to the information andexplanation given to us the Company has not entered into any non-cash transactions withdirectors or persons connected with him.
xvi. The Company is not required to be registered under section 45-IA of the ReserveBank of India Act 1934.
ANNEXURE 'B TO INDEPENDENT AUDITOR'S REPORT OF EVEN DATE ON THE
STANDALONE FINANCIAL STATEMENTS OF WINSOME YARNS LTD.
Report on the Internal Financial Controls under Clause (i) of sub-section 3 of thesection 143 of the Act.
We have audited the internal financial controls over financial reporting of WinsomeYarns Limited ("the Company") as of March 312020 in conjunction with our auditof the Ind AS financial statements of the Company for the year ended on that date.
Management's Responsibility for Internal Financial Controls.
The Company's management is responsible for laying down 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 Reporting(Guidance Note) issued by the Institute Chartered Accountants of India (ICAI). Theseresponsibilities include the design implementation and maintenance of adequate internalfinancial controls that were operating effectively for ensuring the orderly and efficientconduct of its business including adherence to Company's policies the safeguarding ofits assets the prevention and detection of frauds and errors the accuracy andcompleteness of the accounting records and the timely preparation of reliable financialinformation as required under the Companies Act 2013 (the Act).
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 accordance with the Standards of Auditing to the extentapplicable to an audit of internal financial controls and the Guidance Note both issuedby the ICAI. Those Standards and the Guidance Note require that we comply with ethicalrequirements and plan and perform the audit to obtain the reasonable assurance aboutwhether adequate internal financial controls over financial reporting was established andmaintained and if such controls 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 judgment including the assessment of the risks ofmaterial misstatement of the Ind AS 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 internal financial controls system overfinancial 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
(i) pertain to the maintenance of records that in reasonable detail accurately andfairly reflect the transactions and dispositions of the assets of the Company;
(ii) provide reasonable assurance that transactions are recorded as necessary to permitpreparation of Ind AS 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
(iii) 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 Ind AS financial statements.
Inherent Limitations of Internal Financial Controls over Financial Reporting.
Because of its 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 to 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
We draw attention to the paragraph 2 "Basis for Qualified Opinion" of ourmain report and the same to be read with our comments as stated below:
According to the information and explanation given to us and based on our audit thefollowing material weaknesses have been identified as at March 312020:
1. The Company did not have appropriate internal control system fora) Adjustment/Setoff and written off/write back payment of receivables/payables.
b) Credit control policy and procedure.
c) No policy or procedure for receipt of balance confirmation of receivablesparticularly overseas overdue receivables bank balances payables (including of anassociate company) secured loans and other liabilities and loans and advances.
2. The company did not have any extensive internal control system for followup/recovery/ adjustment of old outstanding receivables and payables including balanceconfirmation and reconciliation.
Material weakness is a deficiency or a combination of deficiencies in internalfinancial control over financial reporting such that there is a reasonable possibilitythat a material misstatement of the Company's annual financial statements will not beprevented or deleted on a timely basis. In our opinion except for the effects/possibleeffects of the material weaknesses described above and on the achievement of theobjectives of control criteria the Company has
in all material respects an adequate internal financial controls system over financialreporting and such internal financial controls over financial reporting were operatingeffectively as at March 31 2020 based on the internal control over financial reportingcriteria established by the Company considering the essential components of internalcontrol stated in the Guidance Note on Audit of Internal Financial Controls Over FinancialReporting issued by the ICAI.
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 2020standalone financial statements of the Company and these material weaknesses does notaffect our opinion on the standalone financial statements of the Company.
STATEMENT OF IMPACT OF AUDIT QUALIFICATIONS (FOR AUDIT REPORT WITH MODIFIED OPINION)SUBMITTED ALONG-WITH ANNUAL AUDITED FINANCIAL RESULTS - STANDALONE BASIS - WINSOME YARNSLIMITED
Statement of Impact of Audit Qualifications for the Financial Year ended March 312020[See Regulation 33/52 of the SEBI (LODR) (Amendment) Regulations 2016]
* all adjustments are without tax effect.