To the Members of ZIM Laboratories Limited
Report on the Audit of the Standalone Financial Statements
1. We have audited the accompanying standalone financial statements ofZIM Laboratories Limited (the 'Company') which comprise the Balance Sheet as at 31 March2020 the Statement of Profit and Loss (including Other Comprehensive Income) theStatement of Cash Flow and the Statement of Changes in Equity for the year then ended anda summary of the significant accounting policies and other explanatory information.
2. In our opinion and to the best of our information and according tothe explanations given to us the aforesaid standalone financial statements give theinformation required by the Companies Act 2013 (the 'Act') in the manner so required andgive a true and fair view in conformity with the accounting principles generally acceptedin India including Indian Accounting Standards ('Ind AS') specified under Section 133 ofthe Act of the state of affairs of the Company as at 31 March 2020 and its profit(including other comprehensive loss) its cash flows and the changes in equity for theyear ended on that date.
Basis for Opinion
3. We conducted our audit in accordance with the Standards on Auditingspecified under Section 143(10) of the Act. Our responsibilities under those standards arefurther described in the Auditor's Responsibilities for the Audit of the StandaloneFinancial 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 ('ICAI') together with the ethical requirements that are relevant to our audit ofthe financial statements under the provisions of the Act and the rules thereunder and wehave fulfilled our other ethical responsibilities in accordance with these requirementsand the Code of Ethics. We believe that the audit evidence we have obtained is sufficientand appropriate to provide a basis for our opinion.
Emphasis of Matter
4. We draw attention to Note 12(b) to the accompanying StandaloneFinancial Statement regarding delay in receipt of foreign currency receivables aggregatingto INR 913.98 lakhs as at 31 March 2020 beyond the timelines stipulated vide FED MasterDirection No. 16/2015-16 under the Foreign Exchange Management Act 1999. The managementof the Company is in the process of recovering the outstanding dues and is of the viewthat the fine/ penalties if any that may be levied pursuant to the delay are currentlyunascertainable but would not be material and accordingly the accompanying StandaloneFinancial Statement do not include any consequential adjustments with respect to suchdelay/default. Our conclusion is not modified in respect of this matter.
Key Audit Matters
5. Key audit matters are those matters that in our professionaljudgment were of most significance in our audit of the standalone financial statements ofthe current period. These matters were addressed in the context of our audit of thefinancial statements as a whole and in forming our opinion thereon and we do not providea separate opinion on these matters.
6. We have determined the matters described below to be the key auditmatters to be communicated in our report.
|Key audit matters ||How our audit addressed the key audit matters |
|a) Capitalization and realisability of 'Product Marketing Authorization' Rights ||Our audit procedures included but were not limited to the following: |
|(Refer Note 2.1(d) to the accompanying financial statements for accounting policy and Note 5(A) related disclosures) || Obtained an understanding of the management process and controls for calculating the amount to be capitalized and their realisability and assessed the consistency of the accounting policies with relevant accounting standards; |
|The Company has applied for registration of its various pre-formulated products in different countries. The applications have been made to secure marketing rights/ product authorization's in respective geographies which are subject to regulatory approvals. The expenses towards registrations are capitalized as 'Product Marketing authorizations'. 'Product Marketing Authorization' (marketing rights) primarily include costs pertaining to bioequivalence studies analytical method validation studies and product registration costs in respective geographies. || Tested the mathematical accuracy of the amounts capitalized as marketing rights and also evaluated key assumptions regarding market potential used by the Company on sample basis. |
|Based on management's expectation of its commercial utilization of these products these costs are amortized over a period of three years from date of capitalization. || Verified sample of costs expensed to supporting documentation such as study reports invoices and payment records to ensure the correctness of the amounts being expensed. |
|For marketing rights under process of approval the primary risk relates to timely securing of requisite regulatory approvals. For capitalized marketing rights the key risk is the ability to successfully commercialize the individual product concerned in the respective geography over the expected timelines. || Obtained an understanding from management as to the status of each marketing right under process and corroborating on sample basis these status assessments from the communications of the Company's management (as distinct from the financial management function) with respective authorities. |
|The assumptions/judgement applied by management in determining the recoverable value of such rights include expected contributions from projected business generated in respective countries. Changes in these assumptions could lead to an impairment to the carrying value of the intangible asset. || In respect of marketing rights for products that have received regulatory approvals we assessed the useful life and amortization period for the capitalized costs and challenged their total estimated profitability based on results achieved till date |
|Considering the amounts involved inherent subjectivity and significant management judgement involved to estimate the recoverable value of the marketing rights the matter has been considered to be a key audit matter for the current year audit. || In respect of marketing rights for products that are no longer considered viable we determined whether the carrying amount had been appropriately written off. |
| || Evaluated the adequacy of the related disclosures made in the standalone financial statements. |
b) Recoverability assessment of secured trade receivables
Our audit procedures included but were not limited to the following:
|(Refer Note 2.1(l) to the accompanying financial statements for accounting policy and Note 12 trade receivable disclosures) || Obtained an understanding of the management's process to determine the value of the security received for trade receivables and computation of expected credit loss for such secured assets. |
|As at 31 March 2020 the Company has reported trade receivable of Rs. 6334.16 lakhs which includes certain secured trade receivable. Trade receivables are stated at their original value less appropriate allowances for estimated irrecoverable amount. || Evaluated the design implementation and tested the operating effectiveness of the Company's key internal controls over the provisioning of secured trade receivables; |
|The impairment of trade receivables is calculated for each class of trade receivables using management's judgement on expected realization historical collection trends and realizable value of security for secured receivables in accordance with the expected credit loss guidance prescribed by Ind AS 109: 'Financial Instruments'. || Inspected the escrow agreement entered between the Company and the former chairman to confirm our understanding obtained from the management with respect to the security of the trade receivable. Scrutinized the agreement for any terms indicating possible conditions precedent that are required to be met before encashing the available security to set off outstanding debts. |
|For the trade receivables secured against the shares of the Company pledged with an escrow agent pursuant to an escrow agreement entered between the Company and its former chairman the management estimates the expected realizable value less cost of disposal of such shares to determine the provision required to be made for the secured debtors. Such estimation involves management judgement and estimation uncertainty due to possible price variation that may occur over the period over which such shares are expected to be liquidated to recover the dues. || Assessed the reasonableness of management's estimates and assumptions used to determine the value of security in respect of secured trade receivables and expected costs in order to test the impairment if any on specific secured trade receivables; |
|Considering the nature of the arrangement materiality of secured trade receivable balances and the judgements involved in the estimation of expected credit losses on such class of trade receivables this matter is considered to be a key audit matter for the current year audit. || Evaluated appropriateness of disclosures made in the standalone financial statements with respect to the trade receivables and provisioning thereof. |
Information other than the Standalone Financial Statements andAuditor's Report thereon
7. The Company's Board of Directors is responsible for the otherinformation. The other information comprises the information included in the AnnualReport but does not include the financial statements and our auditor's report thereon.The Annual Report is expected to be made available to us after the date of this auditor'sreport.
Our opinion on the financial statements does not cover the otherinformation and we will not express any form of assurance conclusion thereon.
In connection with our audit of the financial statements ourresponsibility is to read the other information identified above when it becomes availableand in doing so consider whether the other information is materially inconsistent withthe financial statements or our knowledge obtained in the audit or otherwise appears to bematerially misstated.
When we read the Annual Report if we conclude that there is a materialmisstatement therein we are required to communicate the matter to those charged withgovernance.
Responsibilities of Management and Those Charged with Governance forthe Standalone Financial Statements
8. The accompanying standalone financial statements have been approvedby the Company's Board of Directors. The Company's Board of Directors is responsible forthe matters stated in Section 134(5) of the Act with respect to the preparation of thesestandalone financial statements that give a true and fair view of the financial positionfinancial performance including other comprehensive income changes in equity and cashflows of the Company in accordance with the accounting principles generally accepted inIndia including the Ind AS specified under Section 133 of the Act. This responsibilityalso includes maintenance of adequate accounting records in accordance with the provisionsof the Act for safeguarding of the assets of the Company and for preventing and detectingfrauds and other irregularities; selection and application of appropriate accountingpolicies; making judgments and estimates that are reasonable and prudent; and designimplementation and maintenance of adequate internal financial controls that wereoperating effectively for ensuring the accuracy and completeness of the accountingrecords relevant to the preparation and presentation of the financial statements thatgive a true and fair view and are free from material misstatement whether due to fraud orerror.
9. In preparing the financial statements management is responsible forassessing the Company's ability to continue as a going concern disclosing as applicablematters related to going concern and using the going concern basis of accounting unlessmanagement either intends to liquidate the Company or to cease operations or has norealistic alternative but to do so.
10. Those Board of Directors are also responsible for overseeing theCompany's financial reporting process.
Auditor's Responsibilities for the Audit of the Standalone FinancialStatements
11. Our objectives are to obtain reasonable assurance about whether thefinancial 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 Standards on Auditing will always detect a material misstatement when it exists.Misstatements can arise from fraud or error and are considered material if individuallyor in the aggregate they could reasonably be expected to influence the economic decisionsof users taken on the basis of these financial statements.
12. As part of an audit in accordance with Standards on Auditing weexercise professional judgment and maintain professional skepticism throughout the audit.We also:
Identify and assess the risks of material misstatement of thefinancial statements whether due to fraud or error design and perform audit proceduresresponsive to those risks and obtain audit evidence that is sufficient and appropriate toprovide a basis for our opinion. The risk of not detecting a material misstatementresulting from fraud is higher than for one resulting from error as fraud may involvecollusion forgery intentional omissions misrepresentations or the override of internalcontrol.
Obtain an understanding of internal control relevant to theaudit in order to design audit procedures that are appropriate in the circumstances. UnderSection 143(3)(i) of the Act we are also responsible for explaining our opinion onwhether the Company has adequate internal financial controls system in place and theoperating effectiveness of such controls.
Evaluate the appropriateness of accounting policies used and thereasonableness of accounting estimates and related disclosures made by management.
Conclude on the appropriateness of management's use of the goingconcern basis of accounting and based on the audit evidence obtained whether a materialuncertainty exists related to events or conditions that may cast significant doubt on theCompany's ability to continue as a going concern. If we conclude that a materialuncertainty exists we are required to draw attention in our auditor's report to therelated disclosures in the financial statements or if such disclosures are inadequate tomodify our opinion. Our conclusions are based on the audit evidence obtained up to thedate of our auditor's report. However future events or conditions may cause the Companyto cease to continue as a going concern.
Evaluate the overall presentation structure and content of thefinancial statements including the disclosures and whether the financial statementsrepresent the underlying transactions and events in a manner that achieves fairpresentation.
13. We communicate with those charged with governance regarding amongother matters the planned scope and timing of the audit and significant audit findingsincluding any significant deficiencies in internal control that we identify during ouraudit.
14. We also provide those charged with governance with a statement thatwe have complied with relevant ethical requirements regarding independence and tocommunicate with them all relationships and other matters that may reasonably be thoughtto bear on our independence and where applicable related safeguards.
15. From the matters communicated with those charged with governancewe determine those matters that were of most significance in the audit of the financialstatements of the current period and are therefore the key audit matters. We describethese matters in our auditor's report unless law or regulation precludes public disclosureabout the matter or when in extremely rare circumstances we determine that a mattershould not be communicated in our report because the adverse consequences of doing sowould reasonably be expected to outweigh the public interest benefits of suchcommunication.
Report on Other Legal and Regulatory Requirements
16. As required by Section 197(16) of the Act based on our audit wereport that the Company has paid remuneration to its directors during the year inaccordance with the provisions of and limits laid down under Section 197 read withSchedule V to the Act.
17. As required by the Companies (Auditor's Report) Order 2016 (the'Order') issued by the Central Government of India in terms of Section 143(11) of the Actwe give in the Annexure I a statement on the matters specified in paragraphs 3 and 4 ofthe Order.
18. Further to our comments in Annexure I as required by Section143(3) of the Act we report that:
a) we have sought and obtained all the information and explanationswhich to the best of our knowledge and belief were necessary for the purpose of our auditof the accompanying standalone financial statements;
b) in our opinion proper books of account as required by law have beenkept by the Company so far as it appears from our examination of those books;
c) the standalone financial statements dealt with by this report are inagreement with the books of account;
d) in our opinion the aforesaid standalone financial statements complywith Ind AS specified under Section 133 of the Act;
e) on the basis of the written representations received from thedirectors and 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;
f) we have also audited the internal financial controls with referenceto standalone financial statements of the Company as on 31 March 2020 in conjunction withour audit of the standalone financial statements of the Company for the year ended on thatdate and our report as per Annexure II expressed an unmodified opinion; and
g) with respect to the other matters to be included in the Auditor'sReport in accordance with rule 11 of the Companies (Audit and Auditors) Rules 2014 (asamended) in our opinion and to the best of our information and according to theexplanations given to us:
i. the Company has disclosed the impact of pending litigations on itsfinancial position as at 31 March 2020 in the standalone financial statements;
ii. the Company did not have any long term contract includingderivatives contracts for which there were any foreseeable losses;
iii. following is the instance of delay in transferring amountsrequired to be transferred to the Investor Education and Protection Fund by the Company;
Unpaid dividend for Financial Year 2011-2012 amounting to INR 6.32lakhs
iv. the disclosure requirements relating to holdings as well asdealings in specified bank notes were applicable for the period from 8 November 2016 to 30December 2016 which are not relevant to these standalone financial statements. Hencereporting under this clause is not applicable.
Independent Auditor's Report on the Audit of the Standalone FinancialStatements
Annexure I to the Independent Auditor's Report of even date to themembers of ZIM Laboratories Limited on the standalone financial statements for the yearended 31 March 2020
Based on the audit procedures performed for the purpose of reporting atrue and fair view on the standalone financial statements of the Company and taking intoconsideration the information and explanations given to us and the books of account andother records examined by us in the normal course of audit and to the best of ourknowledge and belief we report that:
|(i) (a) The Company has maintained proper records showing full particulars including quantitative details and situation of property plant and equipment. ||Partnerships (LLPs) or other parties covered in the register maintained under Section 189 of the Act. Accordingly the provisions of clauses 3(iii)(a)3(iii)(b) and 3(iii)(c) of the Order are not applicable. |
|(b) The Company has a regular program of physical verification of its property plant and equipment under which fixed assets are verified in a phased manner over a period of 3 years which in our opinion is reasonable having regard to the size of the Company and the nature of its assets. In accordance with this program certain fixed assets were verified during the year and no material discrepancies were noticed on such verification. ||(iv) In our opinion the Company has complied with the provisions of Section 186 in respect of investments. Further in our opinion the Company has not entered into any transaction covered under Section 185 and Section 186 of the Act in respect of loans guarantees and security. |
|(c) The title deeds of all the immovable properties (which are included under the head 'Property plant and equipment') are held in the name of the Company. ||(v) In our opinion the Company has not accepted any deposits within the meaning of Sections 73 to 76 of the Act and the Companies (Acceptance of Deposits) Rules 2014 (as amended). Accordingly the provisions of clause 3(v) of the Order are not applicable. |
|(ii) In our opinion the management has conducted physical verification of inventory at reasonable intervals during the year except for goods-in-transit. No material discrepancies were noticed on the aforesaid verification. ||(vi) We have broadly reviewed the books of account maintained by the Company pursuant to the Rules made by the Central Government for the maintenance of cost records under sub-section (1) of Section 148 of the Act in respect of Company's products and are of the opinion that prima facie the prescribed accounts and records have been made and maintained. However we have not made a detailed examination of the cost records with a view to determine whether they are accurate or complete. |
|(iii) The Company has not granted any loan secured or unsecured to companies firms Limited Liability || |
(vii) (a) The Company is regular in depositing undisputed statutorydues including employees' state insurance
income-tax sales-tax service tax duty of customs duty of excisevalue added tax cess and other material statutory dues as applicable with theappropriate authorities except for delays in certain amounts of provident fund. Furtherthe amount of provident fund outstanding at the year-end for a period of more than sixmonths from the date they became payable are as follows:
Statement of arrears of statutory dues outstanding for more than sixmonths
|Name of the statute ||Nature of the dues ||Amount (Rs in lakhs) ||Period to which the amount relates ||Due Date ||Date of Payment |
|Employee Provident Fund Act 1952 ||Provident Fund ||4.08 ||April 2019 to 31 August 2019 ||7th day of subsequent month ||15 May 2020 |
(b) The dues outstanding in respect of income-tax on account of anydispute are as follows: Statement of Disputed Dues
|Name of the statute ||Nature of dues ||Amount (Rs in lakhs) ||Amount paid under Protest (Rs in lakhs) ||Period to which the amount relates ||Forum where dispute is pending |
|Income Tax Act 1961 ||Income tax ||395.94 ||84.00 ||Assessment Year 2008-09 2009-10 and 2011-12 to 2013-14 ||Commissioner of Income Tax (Appeal) |
| || ||155.48 ||50.10 ||Assessment Year 2010-11 ||Income Tax Appellate Tribunal |
There were no amounts disputed with respect to service-tax sales taxduty of customs duty of excise and value added tax.
(viii) The Company has not defaulted in repayment of loans orborrowings to any financial institution or a bank or government or any dues todebenture-holders during the year.
(ix) The Company did not raise moneys by way of initial public offer orfurther public offer (including debt instruments). In our opinion the term loans availedduring the year were applied for the purposes for which the loans were obtained.
(x) No fraud by the Company or on the Company by its officers oremployees has been noticed or reported during the period covered by our audit.
(xi) Managerial remuneration has been paid and provided by the Companyin accordance with the requisite approvals mandated by the provisions of Section 197 ofthe Act read with Schedule V to the Act.
(xii) In our opinion the Company is not a Nidhi Company. Accordinglyprovisions of clause 3(xii) of the Order are not applicable.
(xiii) In our opinion all transactions with the related parties are incompliance with Sections 177 and 188 of Act where applicable and the requisite detailshave been disclosed in the financial statements etc. as required by the applicable IndAS.
(xiv) During the year the Company has not made any preferentialallotment or private placement of shares or fully or partly convertible debentures.Accordingly provisions of clause 3(xiv) of the Order are not applicable.
(xv) In our opinion the Company has not entered into any non-cashtransactions with the directors or persons connected with them covered under Section 192of the Act.
(xvi) The company is not required to be registered under Section 45-IAof the Reserve Bank of India Act1934.
Independent Auditor's Report on the Audit of the Standalone FinancialStatements
Annexure II to the Independent Auditor's Report of even date to themembers of ZIM Laboratories Limited on the standalone financial statements for the yearended 31 March 2020
Independent Auditor's report on the Internal Financial Controls withreference to the Standalone Financial Statements under Clause (i) of sub-section 3 ofSection 143 of the Companies Act 2013 (the "Act")
1. In conjunction with our audit of the standalone financial statementsof ZIM Laboratories Limited ('the Company') as at and for the year ended 31 March 2020 wehave audited the internal financial controls with reference to standalone financialstatements of the Company as at that date.
RESPONSIBILITIES OF MANAGEMENT AND THOSE CHARGED WITH GOVERNANCE FORINTERNAL FINANCIAL CONTROLS
2. The Company's Board of Directors is responsible for establishing andmaintaining internal financial controls based on the internal financial controls withreference to standalone financial statements criteria established by the Companyconsidering the essential components of internal control stated in the Guidance Note onAudit of Internal Financial Controls over Financial Reporting (the "GuidanceNote") issued by the Institute of 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 the Company's business including adherence to Company's policies thesafeguarding of its assets the prevention and detection of frauds and errors theaccuracy and completeness of the accounting records and the timely preparation ofreliable financial information as required under the Act.
AUDITORS' RESPONSIBILITY FOR THE AUDIT OF THE INTERNAL FINANCIALCONTROLS WITH REFERENCE TO STANDALONE FINANCIAL STATEMENTS
3. Our responsibility is to express an opinion on the Company'sinternal financial controls with reference to standalone financial statements based on ouraudit. We conducted our audit in accordance with the Standards on Auditing issued by theICAI and deemed to be prescribed under Section 143(10) of the Act to the extentapplicable to an audit of Internal financial controls with reference to standalonefinancial statements and the Guidance Note issued by the ICAI. Those Standards and theGuidance Note require that we comply with ethical requirements and plan and perform theaudit to obtain reasonable assurance about whether adequate Internal financial controlswith reference to standalone financial statements were established and maintained and ifsuch controls operated effectively in all material respects.
4. Our audit involves performing procedures to obtain audit evidenceabout the adequacy of the Internal financial controls with reference to standalonefinancial statements and their operating effectiveness. Our audit of Internal financialcontrols with reference to standalone financial statements includes obtaining anunderstanding of such Internal financial controls assessing the risk that a materialweakness exists and testing and evaluating the design and operating effectiveness ofinternal control based on the assessed risk. The procedures selected depend on theauditor's judgement including the assessment of the risks of material misstatement of thefinancial statements whether due to fraud or error.
5. We believe that the audit evidence we have obtained is sufficientand appropriate to provide a basis for our audit opinion on the Company's Internalfinancial controls with reference to standalone financial statements.
MEANING OF INTERNAL FINANCIAL CONTROLS WITH REFERENCE TO STANDALONEFINANCIAL STATEMENTS
6. A Company's Internal financial controls with reference to standalonefinancial statements is a process designed to provide reasonable assurance regarding thereliability of financial reporting and the preparation of financial statements forexternal purposes in accordance with generally accepted accounting principles. A Company'sInternal financial controls with reference to standalone financial statements includesthose policies and procedures that (1) pertain to the maintenance of records that inreasonable detail accurately and fairly reflect the transactions and dispositions of theassets of the Company; (2) provide reasonable assurance that transactions are recorded asnecessary to permit preparation of standalone financial statements in accordance withgenerally accepted accounting principles and that receipts and expenditures of theCompany are being made only in accordance with authorisations of management and directorsof the Company; and (3) provide reasonable assurance regarding prevention or timelydetection of unauthorised acquisition use or disposition of the Company's assets thatcould have a material effect on the standalone financial statements.
INHERENT LIMITATIONS OF INTERNAL FINANCIAL CONTROLS WITH REFERENCE TOSTANDALONE FINANCIAL STATEMENTS
7. Because of the inherent limitations of Internal financial controlswith reference to standalone financial statements including the possibility of collusionor improper management override of controls material misstatements due to error or fraudmay occur and not be detected. Also projections of any evaluation of the Internalfinancial controls with reference to standalone financial statements to future periods aresubject to the risk that Internal financial controls with reference to standalonefinancial statements may become inadequate because of changes in conditions or that thedegree of compliance with the policies or procedures may deteriorate.
8. In our opinion the Company has in all material respects adequateinternal financial controls with reference to standalone financial statements and suchcontrols were operating effectively as at 31 March 2020 based on the internal financialcontrols with reference to standalone financial statements criteria established by theCompany considering the essential components of internal control stated in the GuidanceNote issued by the ICAI.
For Walker Chandiok & Co LLP
Firm's Registration No.: 001076N/N500013
Adi P. Sethna
Membership No.: 108840
Date: 02 June 2020
Independent Auditor's Report on the Audit of the Standalone Financial Statements