L&T Technology Services Limited
Report on the Audit of the StandaloneFinancial Statements
Opinion
We have audited the accompanying standalone financial statements of L&T Technology Services Limited ("the Company"), which comprise the Balance Sheet as at March 31, 2023, the Statement of Profit and Loss (including Other Comprehensive Income), Statement of Changes in Equity and Statement of Cash Flows for the year then ended, and notes to the standalone financial statements, including a summary of significant accounting policies and other explanatory information (hereinafter referred to as "the standalone financial statements").
In our opinion and to the best of our information and according to the explanations given to us, the aforesaid standalone 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 Companies (Indian Accounting Standards) Rules, 2015 ("Ind AS") and other accounting principles generally accepted in India, of the state of affairs of the Company
as at March 31, 2023, and profit and other comprehensive income, changes in equity and its cash flows for the year ended on that date.
Basis for Opinion
We conducted our audit 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 financial statements section of our report. We are independent of the Company 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 financial statements under the provisions of the Act and the Rules thereunder, and we have fulfilled our other ethical responsibilities in accordance with these requirements and the Code of Ethics. We believe that the audit evidence obtained by us is sufficient and appropriate to provide a basis for our opinion.
Key audit matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the standalone financial statements of current period. These matters were addressed in the context of our audit of the standalone financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
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Sr.
No
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Key audit matter
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How the Key Audit Matter was addressed in our audit
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1
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Revenue recognition- fixed price contracts
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Our audit procedures with respect to this area included,
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Refer Note 2(d) to accounting policies, Note 25 and
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among others, following:
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Note 46 to the standalone financial statements.
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1. Obtained an understanding of the systems, processes
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The Company engages in fixed price contracts with its customers wherein revenue from such contracts are recognized over time. The Company uses input method to recognise revenue, as it represents efforts expended towards satisfying a performance
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and controls implemented by the Company with respect to recognition of actual cost incurred on each contract, estimation of future cost to completion, measurement of unbilled revenue, unearned revenue and the total contract revenue on its completion.
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obligation relative to the total expected efforts or
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2. Involved Information Technology ('IT') specialists to assess
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inputs to satisfy the performance obligation.
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the design and operating effectiveness of the key IT controls
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This involves computation of actual cost incurred and estimation of total cost on each contract to measure progress towards completion.
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relating to revenue recognition and in particular:
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Sr. Key audit matter No
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How the Key Audit Matter was addressed in our audit
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Amount of revenue recognition in respect of fixed
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Assessed the IT environment in which the business systems
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price contracts has been identified as a Key Audit
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operate and tested system controls over computation of
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Matter considering that:
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revenue recognised;
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• these contracts involve identification of actual
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• Tested the IT controls over appropriateness of cost and
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cost incurred on each contract;
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revenue reports generated by the system;
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• these contracts require estimation of future cost
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• Assessed the appropriateness of actual cost incurred on
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for completion of each contract; and
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contracts including the testing of the IT general controls
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• at the period end a significant amount of
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and specific IT application controls over information
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contract assets (unbilled revenue) or contract
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systems used for capturing these costs; and
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liabilities (unearned revenue) related to each
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• Tested the controls pertaining to allocation of resources
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contract is to be identified.
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and budgeting systems which prevent the unauthorized
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For the year ended March 31, 2023, revenue from
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recording/changes to costs incurred on sample basis.
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fixed price contracts amounts to ' 20,113 million.
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3. Verified on test check basis that the revenue recognized is in accordance with the applicable Indian Accounting Standards, including:
• Verification of the underlying agreements and other forms of supporting documentation to ensure that each party's rights and obligations regarding the goods or services to be transferred and payment terms are identified and contracts have commercial substance.
• Inspection of the underlying agreements and other forms of supporting documentation to ensure that various performance obligations within a contract have been properly identified by management.
• Inspection of the underlying agreements and other forms of supporting documentation to ensure that transaction price has been properly determined and allocated to relevant performance obligations on an appropriate basis.
• Verification of the Company's computation of revenue to be recognized over a period of time on a sample basis, where we performed the following
o Verified management's process relating to the estimation of contract costs required to complete the respective projects and assessed that the estimates of costs to complete were reviewed and approved by appropriate designated management personnel and are appropriate;
o Verified the reasonableness of management's estimation of cost projections by comparing actual cost incurred with management initial/updated estimation of total cost for that project;
o Recomputed the amount of revenue recognised on these contracts and compared the same with the actual revenue recorded;
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Sr. Key audit matter No
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How the Key Audit Matter was addressed in our audit
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o Assessed the appropriateness of work in progress (contract assets and contract liabilities) as at the balance sheet date by evaluating the underlying documentation to identify possible delays in achieving milestones which require changes in estimated costs to complete the remaining performance obligations; and
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o Checked journal entries impacting the revenue recognition for the period selected based on specified risk- based criteria.
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4. Assessed the adequacy and appropriateness of disclosures made in standalone financial statements in compliance with applicable Indian Accounting Standards and applicable financial reporting framework.
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2 Derivate financial instruments and hedge accounting
Our audit procedures with respect to this area included,
among others, following:
1. Obtained understanding of the Company's overall hedge accounting strategy, forwards and options valuation methodologies and hedge accounting process from initiation to settlement of derivative financial instruments including assessment of the design and implementation of controls and tested the operating effectiveness of these controls.
2. Assessed whether the Company's accounting policy for hedge accounting is in accordance with the applicable Indian Accounting Standards.
3. Verified the assertion relating to existence of the derivative contracts outstanding as at March 31, 2023 by obtaining independent balance confirmation from the respective counterparties, verification on a sample basis the underlying agreements and other forms of supporting documentation and verification of supporting documentation for subsequent realisation or settlement after the end of the reporting year.
4. Verified the assertion relating to completeness of derivative transactions by requesting confirmation from counterparties who are frequently used but with whom the accounting records indicate there are presently no derivatives, reading other information, such as minutes of meetings of the board of directors or other relevant committees, inspecting documentation in paper or electronic form for activity subsequent to the end of the reporting period.
5. Verified the assertion relating to existence and accuracy by inspecting on a sample basis the underlying agreements and other forms of supporting documentation.
Refer Note 2(m)(iii) to accounting policies and Note 8, Note 16, Note 20, Note 22 and Note 38 to the standalone financial statements.
The Company enters into derivative financial instruments such as forward and option contracts to manage its exposure of foreign currency risk of highly probable forecasted transactions which arise during the normal course of its business.
Derivative financial assets and derivative financial liabilities measured at fair value amounted to ' 811 million and ' 478 million respectively as at March 31, 2023. The net movement of cashflow hedge reserve (net of taxes) recorded in other comprehensive income for the year ended March 31,2023 amounted to ' (1,600) million.
In order to apply hedge accounting, management is required to demonstrate that the underlying contract is considered to be a highly probable forecasted transaction, that the hedges are effective and maintain adequate hedge documentation. A degree of subjectivity is also required to determine when hedge accounting is to be considered as ineffective. Fair value movements of the forward and option contracts are driven by movements in financial markets. These transactions may have a significant financial effect and have extensive accounting and reporting obligations and accordingly, this is considered as a Key Audit Matter.
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Sr. Key audit matter No
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How the Key Audit Matter was addressed in our audit
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6.
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Verified management's hedge documentation and underlying hedge contracts, on a sample basis.
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7.
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Verified management's expectation at the inception of the hedge that the hedging relationship will be highly effective and its periodic assessment of the ongoing effectiveness of the hedging relationship in accordance with the applicable Indian Accounting Standards.
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8.
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Verified that the amounts reclassified from cash flow hedge reserve to the Statement of Profit and Loss as a reclassification adjustment being in the period in which the cash flows of the hedged items affect the Statement of Profit and Loss.
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9.
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Verified on a sample basis the input data used in the company's valuation model with independent sources and externally available market data.
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10
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. Re-performed the year-end fair valuations including evaluation of hedge effectiveness of derivative financial instruments on a sample basis and compared these valuations with those recorded by the Company including assessing the valuation methodology and key assumptions used therein.
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11
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. Assessed the adequacy and appropriateness of disclosures made in standalone financial statements in compliance with applicable Indian Accounting Standards and applicable financial reporting framework.
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Information Other than the Standalone Financial Statements and Auditor's Report Thereon
The Company's Board of Directors is responsible for the other information. The other information comprises the Director's report but does not include the standalone financial statements and our auditor's report thereon.
Our opinion on the standalone financial statements does not cover the other information and we do not express any form of assurance conclusion thereon.
In connection with our audit of the standalone 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 financial statements or our knowledge obtained in course of our audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.
Responsibilities of Management and Those Charged with Governance for the Standalone Financial Statements
The Company'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 financial statements that give a true and fair view of the financial position, financial performance, changes in equity and cash flows of the Company in accordance with the accounting principles generally accepted in India, including the Accounting Standards specified under section 133 of the Act. This responsibility also includes maintenance of adequate accounting records in accordance with the provisions of the Act for safeguarding of the assets of the Company 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 financial statement that give a true and fair view and are free from material misstatement, whether due to fraud or error.
In preparing the standalone financial statements, the Board of Directors is responsible for assessing the Company'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 the Board of Directors either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so.
Those Board of Directors are also responsible for overseeing the Company's financial reporting process.
Auditor's Responsibilities for the Audit of the Standalone Financial Statements
Our objectives are to obtain reasonable assurance about whether the standalone 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 financial statements.
We give in "Annexure A" a detailed description of Auditor's responsibilities for audit of the standalone financial statements.
Other Matter
The standalone financial statements of the Company for the year ended March 31, 2022, were audited by another auditor whose report dated April 21, 2022 expressed an unmodified opinion on those statements.
Our opinion is not modified in respect of this matter.
Report on Other Legal and Regulatory Requirements
1. As required by the Companies (Auditor's Report) Order, 2020 ("the Order"), issued by the Central Government of India in terms of sub-section (11) of section 143 of the Act, we give in "Annexure B" a statement on the matters specified in paragraphs 3 and 4 of the Order, to the extent applicable.
2. As required by Section 143(3) of the Act, based on our audit, we report, to the extent applicable, 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 Company 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 Changes in Equity and the Statement of Cash Flow dealt with by this Report are in agreement with the books of account.
(d) I n our opinion, the aforesaid standalone financial statements comply with the Accounting Standards specified under Section 133 of the Act.
(e) On the basis of the written representations received from the directors as on March 31, 2023 taken on record by the Board of Directors, none of the directors are disqualified as on March 31, 2023 from being appointed as a director in terms of Section 164 (2) of the Act.
(f) With respect to the adequacy of the internal financial controls with reference to standalone financial statements of the Company and the operating effectiveness of such controls, refer to our separate report in "Annexure C".
(g) With respect to the other matters to be included in the Auditor's Report in accordance with Rule 11 of the Companies (Audit and Auditors) Rules, 2014, in our opinion and 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 financial position in its standalone financial statements - Refer Note 33 to the standalone financial statements.
ii. The Company did not have any material foreseeable losses on long-term contracts during the year ended March 31, 2023. Provision has been made in the standalone financial statements, as required under the applicable law or Ind AS, for material foreseeable losses, on derivative contracts.
iii. There were no amounts which were required to be transferred to the Investor Education and Protection Fund by the Company during the year ended March 31,2023.
iv. (1) The Management has represented that,
to the best of its knowledge and belief, no funds have been advanced or loaned or invested (either from borrowed funds
or share premium or any other sources or kind of funds) by the Company to or in any other person(s) or entity(ies), including foreign entities ("Intermediaries"), with the understanding, whether recorded in writing or otherwise, that such parties shall, directly or indirectly lend or invest in other persons or entities identified in any manner whatsoever ("Ultimate Beneficiaries") by or on behalf of the Company or provide any guarantee, security or the like on behalf of the Ultimate Beneficiaries.;
(2) The Management has represented, that, to the best of its knowledge and belief, no funds have been received by the Company from any person(s) or entity(ies), including foreign entities (Funding Parties), with the understanding, whether recorded in writing or otherwise, as on the date of this audit report, that the Company shall, directly or indirectly, lend or invest in other persons or entities identified in any manner whatsoever ("Ultimate Beneficiaries") by or on behalf of the Company or provide any guarantee, security or the like on behalf of the Ultimate Beneficiaries; and
(3) Based on the audit procedures performed that have been considered reasonable and appropriate in the circumstances, and according to the information and explanations provided to us by the Management in this regard 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 (1) and (2) above, contain any material mis-statement.
v. On the basis of our verification and on
consideration of the reports of the statutory
auditors of subsidiaries that are Indian companies under the Act, we report that:
• The final dividend proposed in the previous year, declared and paid by the Company during the year is in accordance with section 123 of the Companies Act 2013, as applicable.
• The interim dividend declared and paid by the Company during the year and until the date of this audit report is in accordance with section 123 of the Companies Act, 2013.
• The Board of Directors of the Company have proposed final dividend for the year which is subject to the approval of their respective members at the ensuing Annual General Meeting. The dividend declared is in accordance with section 123 of the Act to the extent it applies to declaration of dividend (Refer Note 18.9 to the standalone financial statements).
vi Proviso to rule 3(1) of the Companies (Accounts) Rules, 2014 is applicable for the company only w.e.f. April 1, 2023, and accordingly reporting under this clause is not applicable for the financial year ended March 31, 2023.
3. I n our opinion, according to information, explanations given to us, the remuneration paid by the Company to its directors is within the limits laid prescribed under Section 197 of the Act and the rules thereunder.
For M S K A & Associates
Chartered Accountants ICAI Firm Registration No. 105047W
Vishal Divadkar
Partner
Place: Mumbai Membership no. 118247
Date: April 26, 2023 UDIN: 231 18247BGYDKJ6266
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