National Fertilizers Limited
Report on the Audit of the Standalone Financial Statements Opinion
We have audited the accompanying standalone financial statements of National Fertilizers Limited (hereinafter referred to as “the Company”) which comprise the standalone balance sheet as at 31st March 2024, the standalone statement of profit and loss (including other comprehensive income), the standalone statement of cash flows and the standalone statement of changes in equity for the year then ended and notes to the financial statements including a summary of the material accounting policies and other explanatory information (herein after referred to as “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 other accounting principles generally accepted in India, of the state of affairs of the company as at 31st March 2024, 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 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 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 we have obtained is sufficient and appropriate to provide a basis for our audit opinion on the standalone financial statements.
Emphasis of Matter
We draw attention to:
(I) Note No. 37(C)(iii)(a) of accompanying standalone financial statements regarding recognizing insurance claim amounting to ' 77.01 crores pertaining to Gas Turbine Generator (GTG) at Bathinda Unit.
(ii) Note No. 37(C)(iii)(b) of accompanying standalone financial statements regarding recognizing receipt of interim payment of insurance claim amounting to ' 5.96 crores as income pending finalisation of claim and recognising loss of ' 18.92 crore towards damaged stock at tuna port.
(iii) Note No. 37(A) (ii) of accompanying standalone financial statements regarding recognition of revenue
for adversity of subsidy amounting to ' 486.53 crores on the basis of DOF letter for “No Profit - No Loss” basis and valuation of inventory at Cost instead of NRV.
(iv) Note No. 37(A) (iii) of accompanying standalone financial statements regarding recognition of subsidy on account of DAP amounting to ' 58.02 crores.
Our opinion is not modified in respect of above matters.
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. Summary of the same is mentioned here under:
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S.No.
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Key Audit Matter
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Response to Key Audit Matter
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1
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Revenue Recognition
Recognition of subsidy is made on the basis of inprinciple recognition/approval/orders settlement of claims from Fertilizer Industry Coordination Committee (FICC), Department of Fertilizers (DoF), Government of India, while finalizing the financial statements. Also the FICC regulates such subsidy and the bills raised on such notifications. Escalation/de-escalation in notified rates is estimated taking into account the effect of guidelines, policies, instructions and clarifications given.
Since there is a time lag between actual expenditure incurred and notification of concession rates for the year, management exercises significant judgment in arriving at the income entitled on account of same for the year.
Therefore, there is a risk of revenue being misstated on account of estimation of concession/ Import Parity Price (IPP) rates yet to be notified.
Regarding process of Collection, utilization and retention of Retailer Margin.
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Principal Audit Procedures
The following principal audit procedures have been performed by us in relation to revenue recognition:
a) We have reviewed the company's material accounting policies for Revenue Recognition (Refer Note No. 1.2.3 (b) of the standalone financial statements), relevant Notifications and Circulars issued by the DoF, Government of India.
b) We have carried out substantive
procedures on sample basis for evaluation of operating effectiveness of key controls over subsidy and each income stream, basis of management estimation and their corresponding disclosure.
c) We have reviewed directions of FICC, various Notifications/orders issued from time to time and management assessment in relation to retailer margin.
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2
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Estimation of Provision & Contingent Liabilities
The company has its operations in various States within India, exposing it to a variety of different Central and State laws. Litigations and claims may arise from direct and indirect tax proceedings. Resolution of litigations and claims proceedings may span over multiple years beyond 31st March 2024.
The determination of a provision or contingent liability requires significant judgement by the company because of the inherent complexity in
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Principal Audit Procedures
Our audit process involved understanding of identification process relating to litigations, claims and contingent liabilities.
We have evaluated the design and testing the operating effectiveness of controls in respect of process.
We have evaluated management’s
assessment of the likely outcome and potential exposures arising from significant
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estimating future liabilities.
The company has reported contingent liabilities amounting to Rs. 185.71 Crores in Note No. 50 to standalone financial statement.
The provisions and contingent liabilities are subject to changes in the outcomes of litigations and claims over time as new facts emerge as each legal case progresses and positions taken by the company. There is an inherent complexity in estimations of magnitude of potential exposures. Significant judgment is required to estimate the likelihood amount of cash outflows, timing based on interpretations of the legal aspects, opinions, demand notices, relevant judgements etc.
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contingencies subject to ongoing court cases and arbitration proceedings and considered the requirements for any provision as per the best estimate of the possible expenditure.
In respect of significant claims, we checked the amount of claim, nature of issues involved, management submissions and corroborated the same with external evidence, where ever available.
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3
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Trade Receivables
Trade Receivables appearing in financial statement consists of receivables from sale of products as well as receivable from Government of India in the form of subsidy. Trade Receivables amounting to Rs. 4037.09 crores including subsidy receivable of Rs. 3592.02 crores were outstanding as at 31st March 2024.
Refer Note No. 13 to the Standalone Financial Statements.
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Principal Audit Procedures
Our audit approach was a combination of test of internal controls and substantive procedures which included the following:
a) In respect of Subsidy recoverable from Government of India, as no confirmation of balance is on record, we have relied on the management’s assertion and estimates on the recover ability.
As subsidy receivable is outstanding from Department of Fertilizer, Government of India (i.e. Sovereign Authority) and is backed by the approved claims generated from MFMS (Mobile Fertilizer Management System), amount outstanding as at balance sheet date has been considered as recoverable (net of provisions).
b) In respect of receivables other than subsidy receivables, management have sent request for confirmation from the parties. The response to the request was checked together, subsequent realisation check was also performed and long outstanding balances have been reviewed.
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4
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Property, Plant and Equipment
Management judgment is applied for determining the carrying value of property, plant and equipment, intangible assets and their respective depreciation/amortization rates. These include the decision to capitalize or expense costs; the annual asset life review; the timelines of the capitalization/decapitalization of assets and the
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Principal Audit Procedures
a) Testing of controls in place over the fixed assets cycle,
b) Evaluation of appropriateness of capitalization process. Performed tests to verify the capitalized costs,
c) Assessment of the timelines of the
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measurement and recognition criteria for assets retired from active use. Please refer material accounting policy no 1.2.9.
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capitalization of the assets and assessed the derecognition criteria for assets retired from active use.
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The useful life of assets has been assessed made by the management. In performing these procedures, we reviewed the judgments made by management for the following:
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a) Identification of the nature of underlying costs capitalized,
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b)Determination of realizable value of the assets retired from active use,
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c) Appropriateness of asset lives applied in the calculation of depreciation/ amortization,
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d)Useful lives of assets prescribed in Schedule II of the Companies Act, 2013.
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Information Other than the Standalone Financial Statements and Auditor’s Report Thereon
The company's management and board of directors are responsible for the preparation of other information. The other information comprises the Management Discussion and Analysis, Director's Report including annexures to Director's Report, Business Responsibility Report, Corporate Governance, Performance at a Glance and Chairman's Statement included in the annual report of the company, 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 identified above 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 audit, or otherwise appears to be materially misstated. On reading the annual report, if we conclude that there is a material misstatement therein, we are required to communicate the matter to those charged with governance and take necessary actions as per applicable laws and regulations.
Responsibilities of Management and those charged with Governance for the Standalone Financial Statements
The company’s management and 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 including other comprehensive income, cash flows and changes in equity of the company in accordance with the accounting principles generally accepted in India, including the IND AS prescribed under section 133 of the Act read with relevant rules issued thereunder. This responsibility also includes maintenance of adequate accounting records in accordance with the provisions of the Act for safeguarding the assets of the company and for preventing and detecting frauds and other irregularities; selection and application of appropriate accounting policies; making judgements 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, management 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 is also responsible for overseeing the company’s financial reporting process. Auditor’s Responsibility 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.
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 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 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 and the board of directors.
• Conclude on the appropriateness of the management and the 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 ability of the company 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 Statement 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 auditor’s 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 achieve 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 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.
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 section 143(11) of the Act, we give in the “Annexure A”, a statement on the matters specified in paragraph 3 and 4 of the order to the extent applicable.
2. As required by Section 143(5) of the Act, we have considered the directions issued by the Comptroller & Auditor General of India. We give our report in the attached “Annexure B”.
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, the standalone statement of cash flows and the standalone statement of changes in equity 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 IND AS specified under Section 133 of the Act read with relevant rule issued thereunder;
(e) Notification number G.S.R. 463(E) dated 5 June 2015 issued by the Ministry of Corporate Affairs, section 164(2) of the Act regarding disqualifications of directors is not applicable to the company, since it is a Government Company;
(f) With respect to the adequacy of the internal financial controls over financial reporting of the company and the operating effectiveness of such controls, refer to our separate report in “Annexure C”. Our report expresses an unmodified opinion on the adequacy and operating effectiveness of the company’s internal financial controls over financial reporting;
(g) Notification number G.S.R. 463 (E) dated 5 June 2015 issued by the Ministry of Corporate Affairs, section 197 of the Act regarding remuneration to director is not applicable to the company, since it is a Government Company; and
(h) With respect to the other matters to be included in the Auditor’s Report in accordance with Rule 11 of the Companies (Audit and Auditor’s) 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 No. 50 to the standalone financial statements;
ii. The company did not have any long-term contract including derivative contracts for which there were any material foreseeable losses;
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 or entity, 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”);
• 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 persons or entities, including foreign entities (“Funding Parties”), with the understanding, whether recorded in writing or otherwise, that the company 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; and
(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 mis-statement.
v. The interim and final dividend declared and paid by the Company during the year 31st March 2024 is in
accordance with section 123 of the Act, as Applicable.
vi. As required, maintenance of audit trail in accounting software under Rule 11(g) of the Companies
(Audit and Auditor’s) Rules, 2014, we have to report as under;
a. Based on our examination which included test checks, except for the instances mentioned in Para b and c below, the Company has used Oracle System (Accounting Software for recording financial transactions) for maintaining its books of account, which have a feature of recording audit trail (edit log) facility and the same has operated throughout the year for all relevant transactions recorded in the respective software.
Further, for the periods where audit trail (edit log) facility was enabled and operated throughout the year for the respective accounting software, we did not come across any instance of the audit trail feature being tampered with.
b. The Company is using different software/application for recording Payroll, sales transactions and for maintaining price store ledgers for stores and spares items. The data generated through these systems do not auto feed to the Oracle System and its summary is manually posted in Oracle System. In the absence of any information on existence of audit trail (edit logs) for any changes made at the application level in the aforesaid systems, we are unable to comment on whether audit trail features of the said systems was enabled and operated throughout the year.
c. Beside this, the feature of recording audit trail at database level is enabled and maintained throughout the year which contains standard log feature enabled in oracle system. However, the said audit log doesn’t have the feature of recording what data was changed.
As proviso to Rule 3(1) of the Companies (Accounts) Rules, 2014 is applicable from 1st April 2023, reporting under Rule 11(g) of the Companies (Audit and Auditor’s) Rules, 2014 on preservation of audit trail as per the statutory requirements for record retention is not applicable for the financial year ended 31st March 2024.
For Dhawan & Co. For R S P H & Associates
Chartered Accountants Chartered Accountants
Firm’s Registration No.: 002864N Firm’s Registration No.: 003013N
Sunil Gogia Tarun Kumar Batra
Partner Partner
M. No.: 073740 M. No.: 094318
UDIN No. : 24073740BKFAKI1908 UDIN No.: 24094318BKFLDL6832
Place: Noida Date: 30-05-2024
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