TO THE MEMBERS OF BHARAT PETROLEUM CORPORATION LIMITED
Report on the Audit of the Standalone Ind AS Financial Statements
Opinion
1. We have audited the accompanying Standalone Indian Accounting Standards (“Ind AS”) Financial Statements of Bharat Petroleum Corporation Limited (“the Corporation”), which comprise the Balance Sheet as at March 31, 2023, the Statement of Profit and Loss (including Other Comprehensive Income), the Statement of Cash Flows and the Statement of Changes in Equity for the year ended on that date, and a summary of the Significant Accounting Policies and other explanatory information (hereinafter referred to as “the Standalone Ind AS Financial Statements ”).
2. In our opinion and to the best of our information and according to the explanations given to us, the aforesaid Standalone Ind AS Financial Statements give the information required by the Companies Act, 2013 (“the Act”) in the manner so required and give a true and fair view in conformity with the Indian Accounting Standards prescribed under section 133 of the Act read with the Companies (Indian Accounting Standards) Rules, 2015, as amended (“Ind AS”), and other accounting principles generally accepted in India, of the state of affairs of the Corporation as at March 31, 2023, the profit and total comprehensive income, its cash flows and changes in equity for the year ended on that date.
Basis for Opinion
3. We conducted our audit of the Standalone Ind AS Financial Statements in accordance with the Standards on Auditing (“SAs") specified under section 143(10) of the Act. Our responsibilities under those Standards are further described in the Auditor’s Responsibilities for the Audit of the Standalone Ind AS Financial Statements section of our report. We are independent of the Corporation in accordance with the Code of Ethics issued by the Institute of Chartered Accountants of India (ICAI) together with the ethical requirements that are relevant to our audit of the Standalone Ind AS Financial Statements under the provisions of the Act and the Rules made thereunder, and we have fulfilled our other ethical responsibilities in accordance with these requirements and the ICAI’s Code of Ethics. We believe that the audit evidence obtained by us is sufficient and appropriate to provide a basis for our audit opinion on the Standalone Ind AS Financial Statements.
Key Audit Matters
4. Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the Standalone Ind AS Financial Statements of the current period. These matters were addressed in the context of our audit of the Standalone Ind AS Financial Statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. We have determined the matters described below to be the key audit matters to be communicated in our report:
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S.No.
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Key Audit Matter
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Auditors’ Response
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1.
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Valuation of Investment in E&P Subsidiary (Refer Note 7 and Note 56):
The Corporation has an investment of Rs.9,601.37 crores in 100% subsidiary Bharat Petro Resources Ltd (BPRL). This subsidiary along with its stepdown subsidiaries, JVs & Associates holds participating interest in various oil/gas blocks for exploration & evaluation, development, and production activities (E&P).
The Corporation’s realisation from these E&P investments is dependent on the continued successful operations/development of reserves resulting in expected earnings and revenue growth of the respective companies. BPRL has relinquished or impaired certain oil and gas blocks on account of changes in circumstances and prospects of the blocks.
The above factors have impacted the value in use of BPRL’s assets and consequently the Corporation’s impairment analysis in respect of its Investment in BPRL. Accordingly, we considered this as a Key Audit Matter.
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The following procedures were carried out in this regard:
• We evaluated the design, implementation and operating effectiveness of key controls in relation to the annual impairment testing activity carried out by the Corporation for its investments in Subsidiary.
• We reviewed the audited consolidated Ind AS Financial Statements of BPRL for FY 2022-23 and the independent auditor’s report thereon.
• We assessed the Management’s explanation regarding key factors which have led to significant diminution in value of BPRL’s assets vis-a-vis the previous year and consequent trigger for impairment of the Corporation’s investment in the same.
• We evaluated the impairment analysis carried out during the year by the Corporation, which included an independent comparison of externally / internally assessed value in use of BPRL’s Net Assets with carrying cost of investment in BPRL in the Corporation’s Books of Account.
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2.
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Computation of Expected Credit Loss (ECL):
Trade receivables and loans granted under the Pradhan Mantri Ujwala Yojana (PMUY) scheme constitute a significant component of the total current assets of the Corporation. At each reporting date, the Corporation recognizes Lifetime ECL on Trade Receivables using a ‘simplified approach’ and 12 month ECL on loans are granted under the PMUY scheme wherein we relied on Management’s estimates regarding probability of default rates linked to age-wise bucketing of the corresponding asset. Since, this is a technical matter based on probable outcome of default, we considered this as a Key Audit Matter.
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Our audit approach consisted testing of the design implementation and operating effectiveness of the internal controls and substantive testing as follows:
• In respect of loans granted under PMUY, the Corporation along with other few industry peers have derived a common methodology for calculating ECL, based on the broad category of active and inactive consumers and last refill date with expected loan recovery period. We checked the working of the same and it is in line with the common methodology document shared with us.
• We have evaluated the methodology for age-wise bucketing of trade receivables and key assumptions underlying the probability of default estimates on the same, to ascertain that the same were broadly in-line with the Corporation’s historical default rates and have considered available information regarding the current economic scenario.
• We selected a few sample outstanding receivable cases having different overdue periods and checked that the computation of ECL has been appropriately carried out in line with the Corporation’s policy.
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S.No.
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Key Audit Matter
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Auditors’ Response
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3.
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Evaluation of Contingent Liabilities:
Contingent liabilities disclosed are in respect of items which in each case are above the threshold limit. The Corporation has material uncertain positions including matters under dispute which involves significant judgment to determine the possible outcome of these disputes. Contingent liabilities are not recognized in the Standalone Ind AS Financial Statements but are disclosed unless the possibility of an outflow of economic resources is considered remote. In view of significant management estimate and judgement involved, we considered this as a Key Audit Matter.
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The following audit procedures were carried out in this regard:
• We examined sample items above the threshold limit for determination of contingent liabilities and obtained details of completed Excise, VAT/ Sales Tax/ Entry Tax assessments, demands as well as other disputed claims against the Corporation as on March 31, 2023. The Corporation has obtained opinion from tax consultants in various disputed matters. We have relied upon such opinions and litigation history where the Corporation has concluded that possibility of cash outflow is remote while preparing its Standalone Ind AS Financial Statements.
• We have assessed the Management’s underlying assumptions in estimating the possible outcome of such disputed claims/ cases against the Corporation, based on records and judicial precedents made available.
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4.
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Inventories:
Verification and valuation of Inventories and related write down, if any, is a significant area requiring Management’s judgment of estimates and application of accounting policies that have significant effect on the amounts recognized in the Standalone Ind AS Financial Statements. Accordingly, we considered this as a Key Audit Matter.
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Our audit approach involved the following combination of test of control design, implementations, operating effectiveness and substantive testing in respect of verification and valuation of inventories:
• We evaluated the system of inventory monitoring and control. It was observed that inventory has been physically verified by the Management during the year at reasonable intervals.
• Our audit teams have also physically verified on sample basis the Inventories at various locations and compliance with cut off procedures. However, since physical verification at certain locations was not possible for us, in such cases we have relied on the physical verification of inventory carried out by the Management.
• In respect of inventory lying with third parties, we have ascertained that these have substantially been confirmed by them. We also examined the system of records maintenance for stocks lying at third party locations.
• We have also tested the values considered in respect of Net realisable value, cost of products and verified these on sample basis with the inventory valuation and accounting entries posted in this regard.
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S.No.
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Key Audit Matter
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Auditors’ Response
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5.
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Property, Plant & Equipment:
Estimates of useful lives and residual value of Property, Plant and Equipment is a significant area requiring Management judgment of estimates and application of accounting policies that have significant effect on the amounts recognized in the Standalone Ind AS Financial Statements. Accordingly, we considered this as a Key Audit Matter.
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Our audit approach involved the following combination of test of control design, implementations and operating effectiveness and substantive testing in respect of verification and recording of Property, Plant & Equipment:
• We examined whether the Corporation has maintained proper records showing full particulars, including quantitative details and situation of fixed assets.
• The physical verification of Property, Plant and Equipment (except LPG Cylinders and pressure regulators with customers) has been carried out by the Management in accordance with the phased program of verification of all assets and necessary accounting entries based on such physical verification have been appropriately posted which were verified by us.
• Changes in the useful life and residual value of class of assets were adopted based on internal evaluation and was also comparable with other entities in the same industry.
• We have tested the computation of depreciation on sample basis.
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6.
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Goodwill:
The Corporation tests for impairment of Goodwill at each reporting date, or whenever events or circumstances indicate that the implied fair value of goodwill is less than its carrying amount.
Accordingly, we considered this as a Key Audit Matter.
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Our Audit Procedures included Test of Details in respect
of the following:
• Obtained an understanding from the management with respect to process and controls followed by the Corporation to perform annual impairment test related to goodwill.
• Obtained the impairment analysis model from the management and reviewed their conclusions.
• We assessed the reasonableness of the assumptions used and appropriateness of the valuation methodology applied.
• Tested the discount rate and long term growth rates used in the forecast including comparison to economic and industry forecasts where appropriate.
• Assessed and validated the adequacy and appropriateness of the disclosures made by the management in the standalone financial statements.
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S.No.
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Key Audit Matter
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Auditors’ Response
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7.
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Information Technology:
A significant part of the Corporation’s financial reporting process is heavily reliant on IT systems with automated processes and controls over the capture, storage and extraction of information. A fundamental component of these processes and controls is ensuring appropriate user access and change management protocols exist and being adhered to.
These protocols are important because they ensure that access and changes to IT systems and related data are made and authorized in an appropriate manner. As our audit sought to place a high level of reliance on IT systems and application controls related to financial reporting, high proportion of the overall audit effort was in Information Technology (IT) Systems and Controls.
We focused our audit on those IT systems and controls that are significant to the Corporation’s financial reporting process.
Accordingly, we considered this as a Key Audit Matter.
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Our procedures included:
We focused our audit on those IT systems and controls that are relevant to preparation of financial statements for financial year ended 31st March 23.
As audit procedures over IT Systems and controls require specific expertise, we involved our IT specialist.
Our review of the IT Controls covers the following areas:
• Physical and Logical Security;
• Change Management;
• Backup, Business Continuity and
• IT Operations.
Our assessment of the IT Controls is performed according to the following approach:
• Understanding the IT environment.
• Information gathering about the control framework surrounding the IT environment.
• Evidence gathering with respect to Control testing.
• Review of Implementation of controls testing.
• Review of limited cases to identify whether there had been unauthorized or inappropriate access or changes made to critical IT systems and related data.
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Information Other than the Standalone Ind AS Financial Statements and Auditors’ Report Thereon
5. The Corporation’s Board of Directors is responsible for the preparation of the other information. The other information comprises the information included in the Management Discussion and Analysis, Board’s Report including Annexures to Board’s Report, Business Responsibility Report, Corporate Governance and Shareholder’s Information, but does not include the Standalone Ind AS Financial Statements and our audit report thereon.
Our opinion on the Standalone Ind AS Financial Statements does not cover the other information and we do not express any form of assurance thereon.
6. In connection with our audit of the Standalone Ind AS Financial Statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the Standalone Ind AS Financial Statements or our knowledge obtained during the course of our audit or otherwise appears to be materially misstated.
7. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact to those charged with governance and review the steps taken by the management to communicate to those in receipt of the other information, if previously issued, to inform them of the revision.
The Other information is expected to be made available to us after the date of this auditor’s report and if we conclude that there is a material misstatement therein, we are required to communicate the matter to those charged with governance.
Board of Directors / Management’s Responsibility for the Standalone Ind AS Financial Statements
8. The Corporation’s Board of Directors is responsible for the matters stated in section 134(5) of the Act with respect to the preparation of these Standalone Ind AS Financial Statements that give a true and fair view of the financial position, financial performance including the other comprehensive income, cash flows and changes in equity of the Corporation in accordance with the Ind AS and other accounting principles generally accepted in India. This responsibility also includes maintenance of adequate accounting records in accordance with the provisions of the Act for safeguarding the assets of the Corporation and for preventing and detecting frauds and other irregularities; selection and application of appropriate accounting policies; making judgments and estimates that are reasonable and prudent; and design, implementation and maintenance of adequate internal financial controls, that were operating effectively for ensuring the accuracy and completeness of the accounting records, relevant to the preparation and presentation of the Standalone Ind AS Financial Statements that give a true and fair view and are free from material misstatement, whether due to fraud or error.
9. In preparing the Standalone Ind AS Financial Statements, management is responsible for assessing the Corporation’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Corporation or to cease operations, or has no realistic alternative but to do so.
10. The Corporation’s Board of Directors / Management is responsible for overseeing the Corporation’s financial reporting process.
Auditors’ Responsibilities for the Audit of the Standalone Ind AS Financial Statements
11. Our objectives are to obtain reasonable assurance about whether the Standalone Ind AS Financial Statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with SAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these Standalone Ind AS Financial Statements.
12. As part of an audit in accordance with SAs, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:
• Identify and assess the risks of material misstatement of the Standalone Ind AS Financial Statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
• Obtain an understanding of internal financial controls relevant to the audit in order to design 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 Corporation has adequate internal financial controls system in place and the operating effectiveness of such controls.
• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.
• Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Corporation’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the Standalone Ind AS Financial Statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditors’ report. However, future events or conditions may cause the Corporation to cease to continue as a going concern.
• Evaluate the overall presentation, structure and content of the Standalone Ind AS Financial Statements, including the disclosures, and whether the Standalone Ind AS Financial Statements represent the underlying transactions and events in a manner that achieves fair presentation.
13. Materiality is the magnitude of misstatements in the Standalone Ind AS Financial Statements that, individually or in aggregate, makes it probable that the economic decisions of a reasonably knowledgeable user of the financial statements may be influenced. We consider quantitative materiality and qualitative factors in (i) planning the scope of our audit work and in evaluating the results of our work; and (ii) to evaluate the effect of any identified misstatements in the Ind AS standalone financial statements.
14. We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.
15. We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.
16. From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the Standalone Ind AS Financial Statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.
17. Other Matters
A. In terms of Ministry of Corporate Affairs (MCA) Order dated June 22, 2022, ‘Bharat Oman Refineries Limited’ (BORL), a wholly owned subsidiary of the Corporation has been amalgamated with the Corporation. Upon filing the Copy of Order sanctioning the Scheme of Merger (‘BORL Scheme’) with the Registrar of Companies (ROC), on July 1,2022, BORL stands merged with the Corporation. The BORL Scheme has become effective from the appointed date i.e. October 1, 2021. To comply with requirements of Ind AS 103 - (‘Business Combinations’), the restatement of the financial statements has been given effect from the date of control
i.e. June 30, 2021 when BORL became wholly owned subsidiary of the Corporation.
B. In terms of Ministry of Corporate Affairs (MCA) Order dated August 8, 2022, ‘Bharat Gas Resources Limited’ (BGRL), a wholly owned subsidiary of the Corporation has been amalgamated with the Corporation. Upon filing the Copy of Order sanctioning the Scheme of Merger (‘BGRL Scheme’) with the Registrar of Companies (ROC), on August 16, 2022, BGRL stands merged with the Corporation. The BGRL Scheme has become effective from the appointed date i.e. April 1,2021. To comply with requirements of Ind AS 103 - (‘Business Combinations’), the restatement of the financial statements has been given effect from the beginning of the preceding period i.e. April 1,2021 in the financial statements (being the date of control with respect to BGRL is the date of incorporation of BGRL i.e. June 7, 2018).
C. Accordingly, the figures of standalone financial statements for previous year ended March 31, 2022 have been restated basis the audited standalone financial statements of Corporation on which we have issued our audit report dated May 25, 2022 and standalone financial statements of BORL and BGRL which were audited by other auditors, who have issued an unmodified opinion vide their reports dated May 4, 2022 and May 9, 2022 respectively after considering the elimination / adjustments.
D. With respect to 17(C) above, we have audited the eliminations / adjustments which have been reported in the standalone financial statements. However, we have not issued a separate report on these restated figures since these have been audited by respective auditors in the previous year. The impact of the Business combination has been explained in Note 44 to the Standalone Financial Statements.
Our Conclusion is not modified in respect of the above matters.
Report on Other Legal and Regulatory Requirements
18. As required by the Companies (Auditor’s Report) Order, 2020 (“the Order”) issued by the Central Government in terms of Section 143(11) of the Act, and on the basis of verification of the books and records of the Corporation, as we considered appropriate and according to the information and explanations given to us, we give in “Annexure A” a statement on the matters specified in paragraphs 3 and 4 of the Order to the extent applicable.
19. As required by Section 143(5) of the Act, we give in “Annexure B”, a statement on the matters specified by the Comptroller and Auditor General of India for the Corporation.
20. As required by Section 143(3) of the Act, based on our audit we report that:
a) We have sought and obtained all the information and explanations which to the best of our knowledge and belief were necessary for the purposes of our audit.
b) In our opinion, proper books of account as required by law have been kept by the Corporation so far as it appears from our examination of those books.
c) The Balance Sheet, the Statement of Profit and Loss including Other Comprehensive Income, the Statement of Cash Flow and Statement of Changes in Equity dealt with by this Report are in agreement with the relevant books of account.
d) In our opinion, the aforesaid Standalone Ind AS Financial Statements comply with the Ind AS specified under Section 133 of the Act.
e) In view of exemption given vide notification no. G.S.R. 463(E) dated June 5, 2015, issued by Ministry of Corporate Affairs, provisions of Section 164(2) of the Act regarding disqualification of directors, are not applicable to the Corporation;
f) With respect to the adequacy of the internal financial controls over financial reporting of the Corporation and the operating effectiveness of such controls, refer to our separate Report in “Annexure C”.
g) Being a Government Corporation, pursuant to the notification number GSR 463(E) dated 5th June, 2015 issued by the Government of India, the provisions of section 197 of the Act are not applicable to the Corporation.
h) With respect to the other matters to be included in the Auditors’ Report in accordance with Rule 11 of the Companies (Audit and Auditors) Rules, 2014, as amended in our opinion and to the best of our information and according to the explanations given to us:
i. The Corporation has disclosed the impact, if any, of pending litigations on its financial position in its Standalone Ind AS Financial Statements. (Refer Note 57 of the Standalone Ind AS Financial Statements;)
ii. The Corporation has made provision, as required under the applicable law or accounting standards, for material foreseeable losses, if any, on long-term contracts including derivative contracts.
iii. There has been no delay in transferring amounts, required to be transferred, to the Investor Education and Protection Fund by the Corporation.
iv. (a) The Management has represented that, to the best of its knowledge and belief, no funds (which
are material either individually or in the aggregate) have been advanced or loaned or invested (either from borrowed funds or share premium or any other sources or kind of funds) by the Corporation to or in any other person or entity, including foreign entity (“Intermediaries”), with the understanding, whether recorded in writing or otherwise, that the Intermediary shall, whether, directly or indirectly lend or invest in other persons or entities identified in any manner whatsoever by or on behalf of the Corporation (“Ultimate Beneficiaries”) or provide any guarantee, security or the like on behalf of the Ultimate Beneficiaries;
(b) The Management has represented, that, to the best of its knowledge and belief, no funds (which are material either individually or in the aggregate) have been received by the Corporation from any person or entity, including foreign entity (“Funding Parties”), with the understanding, whether recorded in writing or otherwise, that the Corporation shall, whether, directly or indirectly, lend or invest in other persons or entities identified in any manner whatsoever by or on behalf of the Funding Party (“Ultimate Beneficiaries”) or provide any guarantee, security or the like on behalf of the Ultimate Beneficiaries;
(c) Based on the audit procedures that have been considered reasonable and appropriate in the circumstances, nothing has come to our notice that has caused us to believe that the representations under sub-clause (i) and (ii) of Rule 11(e), as provided under (a) and (b) above, contain any material misstatement.
v. As stated in Note 24 to the standalone I nd AS financial statements, the Board of Directors of the Corporation have proposed final dividend for the year which is in accordance with section 123 of the Act to the extent it applies to declaration of dividend. Final dividend paid during the year in respect of the previous year is in accordance with section 123 of the Act.
vi. In respect of the financial year 2022-23, Corporation has not been mandated to use the accounting software with requisite audit trail facility. Accordingly, proviso to Rule 3(1) of the Companies (Accounts) Rules, 2014 is applicable for the corporation only w.e.f. April 1,2023. Consequently, reporting under Rule 11(g) of the Companies (Audit and Auditors) Rules, 2014 is not applicable.
For Kalyaniwalla & Mistry LLP For K. S. Aiyar & Co
Chartered Accountants Chartered Accountants
ICAI FRN: 104607W/W100166 ICAI FRN: 100186W
Sd/- Sd/-
Sai Venkata Ramana Damarla Rajesh S. Joshi
Partner Partner
M. No.107017 M. No.038526
UDIN: 23107017BGXHFE3000 UDIN: 23038526BGWQDA7173
Place: Mumbai Place: Mumbai
Date: May 22, 2023 Date: May 22, 2023
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