Report on the Audit of the Standalone Financial Statements Opinion
We have audited the accompanying standalone financial statements of GAIL (India) Limited (hereinafter referred to as "the Company"), which comprise of the Standalone Balance Sheet as at March 31, 2023, the Standalone Statement of Profit and Loss (including Other Comprehensive Income), the Standalone Statement of Changes in Equity and the Standalone Statement of Cash Flows for the year then ended, and notes to the 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 ("Ind AS") prescribed under section 133 of the Act read with the Companies (Indian Accounting Standards) Rules, 2015, as amended and accounting principles generally accepted in India, of the state of affairs of the Company as at March 31, 2023, its profit including other comprehensive income, changes in equity, and its cash flows for the year ended on that date.
Basis for Opinion
We conducted our audit of the standalone 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 Auditors' 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 there under, and we have fulfilled our other ethical responsibilities in accordance with these requirements and the Code of Ethics. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion on the standalone financial statements.
Emphasis of Matter
1. We draw attention to Note No. 32 (III) to the standalone financial statements regarding, various final transportation tariff orders issued by Petroleum and Natural Gas Regulatory Board (PNGRB), which have been contested by the company at Appellate Tribunal for Electricity (APTEL) and also certain customers have challenged these orders of PNGRB in Court of Law. Adjustment if any will be recognized as and when matter is finally decided.
2. We draw attention to Note No. 29 (I) (a) (iii) to the standalone financial statements regarding CESTAT order confirming the demand for the differential amount by the Central Excise Department in the matter pertaining to classification of 'Naphtha' manufactured by the Company, of ' 3,391 crores including applicable penalty and interest thereon. Considering the merits of the case, Company has filed an appeal before the Hon'ble Supreme Court. Based on the legal opinion obtained, the Company does not foresee any probable outflow in the matter and accordingly has disclosed the same under contingent liability.
3. We draw attention to Note No. 29 (I) (a) (iii) to the standalone financial statements regarding, regarding demand by customs authorities amounting to ' 934.01 crore including penalty and interest, on account of Special Additional Duty (SAD) and Custom Duty on differential quantity, while finalizing provisionally assessed Bill of Entries in respect of import of LNG by Company during September 2017 to March 2022 at Dabhol Port, Ratnagiri. Considering the merits of the case, the Company is in process of filing an appeal before the Commissioner (Appeals) Pune. Further based on the exemption notification 51/2017 dated 30.06.2017, clarification provided by Central Board of Indirect Taxes and Customs (CBIC) and practice being followed at other Custom Port i.e. Dahej & Hazira, the Company is confident of favorable outcome in the matter and accordingly has disclosed the same under contingent liability
4. We draw attention to Note no 68 to the standalone financial statements regarding depreciation on Natural Gas/LPG Transmission Pipelines considering useful life 30 years and residual value 5%. During the year the company has sought an opinion of the Expert Advisory Committee (EAC) of the Institute of Chartered Accountants of India (ICAI) on the residual value of Natural Gas/LPG Transmission Pipelines for which opinion is awaited.
Our opinion is not modified in respect of matters mentioned in above paragraphs.
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 the 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. We have determined the matters described below to be the key audit matters to be communicated in our report.
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Sr. No. Key audit matter
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How our audit addressed the Key Audit Matter
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1 Recognition and measurement of revenues in view of adoption of ind as 115 "Revenue from contracts with Customers"
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Principal Audit Procedures
We assessed the Company's process to identify the impact of adoption of the revenue accounting standard and checked the appropriateness of accounting policy. Our audit approach consisted testing of design and operating effectiveness of the internal controls as follows:
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Sr. No.
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Key Audit Matter
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How our audit addressed the Key audit matter
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We identified above as Key Audit Matter as the
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1.
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Evaluated the design of internal controls relating to implementation
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application of the revenue accounting standard involves certain key judgements relating to identification of distinct performance obligations, determination
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2.
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of the revenue accounting standard, wherever applicable.
Selected a sample of continuing and new contracts, and tested
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of transaction price of the identified performance
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the operating effectiveness of the internal control, relating
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obligations, the appropriateness of the basis used
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to identification of the distinct performance obligations and
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to measure revenue recognized over a period. Additionally, revenue accounting standard contains
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determination of transaction price. We carried out a combination of procedures involving enquiry and observation, re-performance
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disclosures which involves collation of information in
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and inspection of evidence in respect of operation of these controls.
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respect of disaggregated revenue and periods over
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3.
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Tested the relevant information technology systems' access and
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which the remaining performance obligations will be
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change management controls relating to contracts and related
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satisfied subsequent to the balance sheet date.
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information used in recording and disclosing revenue in accordance
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Refer notes 21 and 38 to the standalone financial
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with the revenue accounting standard.
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statements.
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Selected a sample of continuing and new contracts and performed the following substantive procedures:
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1.
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Read, analyzed and identified the distinct performance obligations in these contracts.
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Compared these performance obligations with that identified and recorded by the Company.
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3.
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Considered the terms of the contracts to determine the transaction price including any variable consideration to verify the transaction price used to compute revenue and to test the basis of estimation of the variable consideration.
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2
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Evaluation of uncertain tax positions and
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We
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have applied the following audit procedures in this
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contingent liabilities
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regard:
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The company operates in multiple jurisdictions and is
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1.
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Obtained an understanding of key tax matters and other contingent
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subject to periodic challenges by local tax authorities and other regulatory authorities such as PNGRB on a
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liabilities.
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range of matters during the normal course of business
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2.
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Read and analyzed the key correspondences, external legal
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including indirect tax matters. We have identified
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opinions/ consultations obtained by the company
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above as Key Audit Matter as these involve significant
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3.
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Evaluated and challenged key assumptions made by the company in
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judgment to determine the possible outcome of
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estimating the current and deferred tax balances
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material uncertain tax positions and contingent liabilities including matters under dispute, consequently having an impact on related accounting and disclosures.
Refer note 29 (I) to the standalone financial statements.
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4.
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Assessed and challenged the company's estimate of the possible outcome of the disputed cases by considering legal precedence and other judicial rulings
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5.
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Assessed and tested the presentation and disclosures relating to uncertain tax positions and contingent liabilities
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3
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Derivative transaction and accounting of hedge
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We have applied the following audit procedures in this regard:
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transactions
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1.
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Obtained an understanding of management's controls over
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We have identified above as Key Audit Matter as hedge accounting has resulted into significant impact on financial statements coupled with complexity of its accounting, calculations and complex/numerous
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2.
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recording of derivative transactions and application of hedge accounting.
Tested the accuracy and completeness of derivative transactions.
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assumptions taken for establishing hedge relationship.
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3.
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We have relied on the valuation report evaluating the appropriateness
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Mark to market gain / loss pertaining to these derivative
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of the valuation methodologies applied and tested on sample basis
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contracts are recognized in other comprehensive
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the valuation of the derivative financial instruments.
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income.
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4.
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Validated that the derivative financial instruments qualify for
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Refer note 56 to the standalone financial statements.
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hedge accounting and tested accuracy of hedge effectiveness and ineffectiveness on sample basis.
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4
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Technical parameters and voluminous transactions
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We have applied the following audit procedures in this regard:
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of natural gas trading and transmission captured to measure Revenue and inventory through
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1.
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We have performed test of controls, assisted by our IT specialists,
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integrated system and complexities involved
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over the accuracy and completeness of the quantity captured via IT
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therein.
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system through to the accounting software.
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Sr. No. Key Audit Matter
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How our audit addressed the Key audit matter
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We have identified above as Key Audit Matter because 2. determination of the quantity of Natural Gas sold and in stock through gas-pipelines involves use of various technical aspects of the natural gas such as pressure, temperature etc. captured from the measuring devices 3. installed on the gas pipelines. We were informed that the methodology is standard and used industry-wide. This increases the complexity of validating quantity of Natural Gas sold and stock in pipeline as at March 31, 2023.
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We have obtained management representation that the IT system applies a standard methodology to capture the quantity of Natural Gas for the purpose of Revenue and inventory measurement.
We have verified valuation of closing Inventories by applying various aspects made available to us by the management such as conversion factors, meter reading etc.
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Refer notes 10 and 21 to the standalone financial statements.
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5 Evaluation of the recoverable amounts of We investments in and advances to certain subsidiaries 1
The Company's evaluation of the recoverable amounts of investments in and advances to certain subsidiaries involves comparison of their recoverable value and the carrying amount. Management determines 2. the recoverable amount based on management's estimates of future cash flows. Significant judgements are required to determine the aforesaid assumptions 3. used in the discounted cash flow models. Due to the uncertainty of forecasting and discounting future cash flows, being inherently subjective, the level of management's judgement involved and the significance of the Company's investment as at March 31,2023, we 4. have considered this as a key audit matter.
Refer notes 5 and 7 to the standalone financial 5 statements.
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have applied the following audit procedures in this regard:
We have carried out assessment of forecasts of future cash flows prepared by the management, evaluating the assumptions and comparing the estimates to externally available industry, economic and financial data.
Assessed the reasonableness of the key business assumptions such as revenue growth and EBIDTA margins, by understanding the management's plan and performing retrospective testing.
We have evaluated the Company's valuation methodology in determining the fair value of the investment. In making this assessment, we also assessed the professional competence, objectivity and capabilities of the valuation specialist engaged by the management.
Assessed the reasonableness of the key assumptions adopted in the cash flow forecasts with the assistance of our internal valuation experts.
We have carried out discussions with management on the performance of the Company's investments as compared to previous year in order to evaluate whether the inputs and assumptions used in the cash flow forecasts were suitable.
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6.
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Evaluated management's sensitivity analysis around the key assumptions.
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6 Provision for Performance Related Pay We
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have applied the following audit procedures in this regard:
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The provision for performance related pay for financial 1. year 2022-23 is made based on Department of Public enterprises guidelines (DPE). The rating factors are yet to be approved by Board of directors.
2.
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We have reviewed the circular issued by DPE and verified the computations shared by the management for FY 2022-23 to satisfy that the methodology as prescribed in the circular have been followed and the provision made is reasonable.
We have verified the self-evaluation report of GAIL's Memorandum of Understanding (MOU) for the FY 2021-22 where ratings have been approved by the Board of Directors to determine reasonability of assumptions used for FY 2022-23.
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3.
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We have also obtained MOU ratings communicated by DPE for FY 2021-22 mentioning scores and rating of the Company.
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information other than the Standalone Financial Statements and auditors' Report Thereon
The Company's Board of Directors is responsible for the preparation of other information. The other information includes the Director's Report, Corporate Governance Report, Business Responsibility and Sustainability Report and Management Discussion and Analysis, but does not include the Standalone Financial Statements and our report thereon. The Director's Report, Corporate Governance Report, Business Responsibility and Sustainability Report and Management Discussion and Analysis is expected to be made available to us after the date of this auditors' report.
Our opinion on the standalone financial statements does not cover the other information and we do not express any form of assurance conclusion thereon.
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In connection with our audit of the standalone financial statements, our responsibility is to read the other information identified above when it becomes available to us and, in doing so, consider whether the other information is materially inconsistent with the Standalone Financial Statements or our knowledge obtained during the course of our audit, or otherwise appears to be materially misstated.
When we read such other information as and when made available to us and if we conclude that there is a material misstatement therein, we are required to communicate the matter to those charged with governance.
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
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of these standalone financial statements that give a true and fair view of the financial position, financial performance including other comprehensive income, changes in equity and cash flows of the Company in accordance with the accounting principles generally accepted in India, including the Indian Accounting Standards (Ind AS) prescribed under section 133 of the Act read with the Companies (Indian Accounting Standards) Rules, 2015 as amended. 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 statements 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 management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so.
The Board of Directors are responsible for overseeing the Company's financial reporting process.
Auditors' 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 auditors' 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.
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 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 control 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 Company 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 and Board of Directors 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 Company's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditors' report to the related disclosures in the standalone 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 Company to cease to continue as a going concern.
• Evaluate the overall presentation, structure and content of the standalone financial statements, including the disclosures, and whether the standalone financial statements represent the underlying transactions and events in a manner that achieves fair presentation.
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.
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.
From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the standalone financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditors' 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.
other Matters
1. We draw attention to the Note no. 45 (II) (c ) to the standalone financial statements regarding inclusion of proportionate share in Jointly Controlled Operations in the standalone financial statements of the Company. The total proportionate share includes Assets of ' 1,533.68 crores, Liabilities of ' 195.46 crores, Expenditure of ' 688.34 crores, Income of ' 1,182.78 crores along with the elements making up the Cash Flow Statement and related disclosures. The aforesaid amounts have been included based on the unaudited statements of these entities. Management is of view that this will not have a material impact on the Company's financial statements.
Our opinion is not modified in respect of above matter.
Report on other Legal and Regulatory Requirements
1. As required by the Companies (Auditors' Report) Order, 2020 ("the Order"), issued by the Central Government of India in terms of Section 143(11) of the Act, and on the basis of such checks of the books and records of the Company as we considered appropriate and according to the information and explanation given to us, we give in "Annexure A”, a statement on the matters specified in paragraphs 3 and 4 of the said Order, to the extent applicable.
2. As required by Comptroller and Auditor General of India through directions/sub-directions issued under Section 143(5) of the Companies Act 2013, on the basis of written representation received from the management, we give our report on the matter specified in the "Annexure -B” attached.
3. 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 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 Standalone Balance Sheet, the Standalone Statement of Profit and Loss (including the Other Comprehensive Income), the Standalone Statement of Changes in Equity and the Standalone Statement of Cash Flows dealt with by this Report are in agreement with the books of account;
(d) In our opinion, the aforesaid standalone financial statements comply with the Indian Accounting Standards (Ind AS) prescribed under section 133 of the Act read with the Companies (Indian Accounting Standards) Rules, 2015 as amended;
(e) Pursuant to the Notification No. GSR 463(E) dated 5th June 2015 issued by the Ministry of Corporate Affairs, Government of India, provisions of sub-section (2) of Section 164 of the Act are not applicable to the Company, being a Government Company;
(f) We are enclosing herewith a report in "Annexure-C” for our opinion on adequacy of internal financial controls system in place in the Company and the operating effectiveness of such controls;
(g) Pursuant to the Notification No. GSR 463(E) dated 5th June 2015 issued by the Ministry of Corporate Affairs, Government of India, provisions of Section 197 of the Companies Act, 2013, are not applicable to the Company, being a Government Company; and
(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, 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 29(l)(a)to the standalone financial statements;
ii. The Company has made provision, as required under the applicable law or accounting standards, for material foreseeable losses, if any and to the extent ascertainable, 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 Company.
iv. (a) 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 the Intermediary shall, directly or indirectly lend or invest in other persons or entities identified in any manner whatsoever by or on behalf of the Company ("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 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, that the Company shall, 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 performed 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) contain any material misstatement.
v. (a) The final dividend paid by the Company during the year in respect of the same declared for the previous year is in accordance with Section 123 of the Act as applicable.
(b) The company has declared Interim dividend during the year. The same is paid by the Company in accordance with Section 123 of the Act as applicable.
vi. Proviso to Rule 3(1) of the Companies (Accounts) Rules, 2014 for maintaining books of account using accounting software which has a feature of recording audit trail (edit log)facility is applicable to the Company with effect from April 1, 2023, and accordingly, reporting under Rule 11(g) of Companies (Audit and Auditors) Rules, 2014 is not applicable for the financial year ended March 31, 2023.
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