REPORT ON THE AUDIT OF THE STANDALONEFINANCIAL STATEMENTSOPINION
1. We have audited the accompanying standalone financial statements of KEC International Limited (“the Company”), which comprise the Balance Sheet as at March 31, 2023, and the Statement of Profit and Loss (including Other Comprehensive Income), the Statement of Changes in Equity and the Cash Flow Statement for the year then ended, and notes to the standalone financial statements, including a summary of significant accounting policies and other explanatory information in which are included the Returns for the year ended on that date audited by the branch auditors of the Company’s 40 branches located at Abu Dhabi, Afghanistan, Algeria, Bangladesh, Bhutan, Burundi, Burkina Faso, Cameroon, Egypt, Ethiopia, Georgia, Ghana, Guinea, Ivory Coast, Jordan, Kenya, Kuwait, Lebanon, Libya, Malaysia, Mali, Moldova, Morocco, Mozambique, Nepal, Nicaragua, Nigeria, Oman, Papua New Guinea, Philippines, Senegal, Sierra Leone, South Africa, Sri Lanka, Tanzania, Thailand, Togo, Tunisia, Uganda and Zambia and financial statements / financial information of 31 jointly controlled operations consolidated on a proportionate basis (refer Notes 3.3 and 50 to the attached standalone financial statements) (hereinafter referred to as “standalone financial statements”).
2. In our opinion and to the best of our information and according to the explanations given to us and based on the consideration of reports of other auditors on audited financial statements / financial information of branches and jointly controlled operations, 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 accounting principles generally accepted in India, of the state of affairs of the Company as at March 31, 2023, and total comprehensive income (comprising of profit and other comprehensive income), changes in equity and its cash flows for the year then ended.
BASIS FOR OPINION
3. 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 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 and the audit evidence obtained by the other auditors in terms of their reports referred to in sub-paragraphs 16 and 17 of the Other Matters Paragraph below, is sufficient and appropriate to provide a basis for our opinion.
EMPHASIS OF MATTER
4. We draw attention to Note 64(a) of the standalone financial statements, regarding the Company’s net exposure of ' 252 crores (including exposure of ' 79.20 crores in the Afghanistan branch) after netting off advances, liabilities (including contract liabilities) and proposed settlement with a funding agency from its transmission line projects in Afghanistan as at March 31, 2023, which are currently on hold due to Force Majeure event. The timing of the recovery of the said exposure is dependent upon the geopolitical environment in Afghanistan and negotiations with international funding agencies. Our opinion is not modified in respect of this matter.
5. Audit report on the Financial Statements of the Afghanistan branch issued by an independent firm of chartered accountants vide its report dated April 26, 2023 include an emphasis of matter paragraph which is reproduced by us as under:
‘‘We draw attention to Note xviii of the Financial Statements, regarding Afghanistan Branch net exposure of USD 90,87,881 (equivalent to INR. 79.20 crores) to its transmission line Projects as at March, 2023, which are currently on hold due to Force Majeure event. Timeline of the recovery of said exposure is dependent upon the geopolitical environment in Afghanistan and negotiation with international funding agencies. Further, the bank guarantees issued in respect of these ongoing projects are also currently not enforceable due to the force majeure event. Our Conclusion is not modified in respect of this matter.’’
Note xviii as described above is reproduced as Note 64(b) to the standalone financial statements for the year ended March 31,2023.
Our opinion is not modified in respect of this matter.
KEY AUDIT MATTERS
6. 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.
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Key audit matter
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How our audit addressed the key audit matter
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Estimation of contract cost and revenue recognition
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Our procedures over the recognition of construction revenue included the following:
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(Refer notes 38 and 51 to the standalone financial statements)
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Understood and evaluated the design and tested operating
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Contract revenue amounting to ' 13,813.01 crores for engineering, procurement and construction contracts which
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effectiveness of key internal financial controls, including those related to contracted revenue and review and
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usually extends over a period of 2-3 years, contract prices are
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approval of estimated project cost by the authorised
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fixed / subject to price variance clauses.
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representatives.
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For sample of contracts, we obtained the percentage of
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The contract revenue is measured based on the proportion of
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completion calculations, agreed key contractual terms back
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contract costs incurred for work performed to date relative to the
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to signed contracts, tested the mathematical accuracy of
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estimated total contract costs.
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the cost to complete calculations and re-performed the calculation of revenue recognized during the year based on
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This method requires the Company to perform an initial assessment of total estimated cost and further, reassess the
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the percentage of completion.
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total construction cost at each reporting period to determine the
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•
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For costs incurred to date, we tested samples to
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appropriate percentage of completion.
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appropriate supporting documentation and performed cut off procedures.
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We considered the estimation of construction contract cost
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•
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To test the forecasted cost to complete, for sample of
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as a key audit matter given the involvement of significant
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contracts, we obtained the breakdown of forecasted
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management judgement which has a consequential impact on
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costs and tested elements of the forecast by obtaining
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revenue recognition.
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executed purchase orders and agreements, evaluating reasonableness of management’s judgements / and assumptions using past trends and comparing the estimated costs to the actual costs incurred for the completed projects.
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Assessed the adequacy of presentation and related disclosures in the standalone financial statements.
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Based on the procedures performed above, we considered manner of estimation of contract cost and recognition of revenue to be reasonable.
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Recoverability of Trade Receivables
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Our
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procedures towards recoverability of trade receivables
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involved the following:
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(Refer to Notes 10 and 15 to the standalone financial statement)
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Understood and evaluated the accounting policy
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Trade receivables amounting to ' 6,962.91 crores (including
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of the Company.
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retention receivables) is a significant balance in the Company’s standalone financial statements as at March 31, 2023 and assumptions used for estimating the credit loss on receivables is an area which is influenced by management’s judgment.
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Evaluated the design and tested the operating effectiveness of key controls in relation to determination of estimated credit loss.
Inquired with senior management regarding status of
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The Company makes an assessment of the estimated credit
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collectability of the receivables.
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losses basis credit risk, project status, past history, ongoing
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Assessed and challenged the information used by the
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litigations and disputes, if any, existing market conditions and
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Management to determine the expected credit losses by
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forward looking estimates, with the customer.
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considering credit risk of the customer, project status, past history, ongoing litigations and disputes, if any,
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Given the relative significance of these receivables to the
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existing market conditions and forward looking estimates,
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standalone financial statements and judgement involved as well as the nature and extent of audit procedures involved to assess
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with the customer.
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the recoverability of receivables, we determined this to be a key audit matter.
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Based on the procedures performed above, no significant deviations were observed in respect of management’s assessment of recoverability of trade receivables.
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Key audit matter
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How our audit addressed the key audit matter
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Assessment of carrying value of investments in a subsidiary
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Our procedures over the assessment of carrying value of investment in a subsidiary included the following:
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(Refer to Note 9 to the standalone financial statement)
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• Evaluated the design and tested the operating effectiveness
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The Company has an investment of ' 1,056.49 crores in KEC Investment Holding, Mauritius, whose wholly owned subsidiary
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of key controls in relation to the assessment of the carrying value of investment.
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SAE Tower holdings LLC (‘SAE’) is making losses over the past
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• Assessed and challenged the information used by
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few years and the carrying value of the investment is higher than
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Management for assessing impairment if any, in the
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the net assets of SAE.
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carrying value of investment.
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This is an indicator of a potential impairment of the investment.
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• Compared the growth rates used in the Model with historical information, economic and industry forecasts.
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The management’s assessment of impairment depends on the
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• Evaluated the competency and capabilities of the
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value in use of SAE derived by business plans, anticipating the
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management’s external valuation expert performing the
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future market conditions and cash flows, key assumptions such
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impairment assessment of the carrying value of investment.
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as estimated long term growth rates, weighted average cost of capital and estimated operating margins.
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• Involved auditor’s valuation expert to assist in assessing the reasonableness of the valuation approach and
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In addition, there is significant scope for judgement in determining the assumptions underlying the forecasted results.
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methodology including the independent assessment of the underlying assumptions relating to weighted average cost of capital and terminal value growth rate.
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Given the relative significance of this investment to the
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• Checked the mathematical accuracy of the
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standalone financial statements and the nature and extent of
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impairment model.
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audit procedures involved in assessing the carrying value of this investment, we determined this to be a key audit matter.
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• Obtained results of work performed by the component auditor of the subsidiary in their impairment testing
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including consistency of the future cash flow projections and assumptions used in the component’s valuation model.
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• Assessed the adequacy of presentation and disclosures
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made in the financial statements.
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Based on the above procedures performed, we observed the management’s impairment assessment related to investments in a subsidiary to be reasonable.
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7. The following Key Audit Matters were included in the audit report dated April 17, 2023, issued by an independent firm, containing
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an unmodified audit opinion on the standalone financial statements of Sri Lanka, a branch of the Parent Company issued by an independent firm of Chartered Accountants reproduced by us as under:
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Key audit matter
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How the other auditor addressed the key audit matter
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Estimation of Contract Cost and Consequential Revenue For sample of contracts, we obtained the percentage of
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Recognition :
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completion calculations, and we noticed that the manner of estimation of contract cost to be reasonable.
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We considered that estimation of construction contract cost
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is a key audit matter given the involvement of significant
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management judgement which has consequential impact on
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revenue recognition.
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OTHER INFORMATION
8. The Company’s Board of Directors is responsible for the other information. The other information comprises the information included in the annual report but does not include the financial statements and our auditor’s report thereon. The annual report is expected to be made available to us after the date of this auditor’s report.
Our opinion on the standalone financial statements does not cover the other information and we will 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 when it becomes available and, in doing so, consider whether the other information is materially inconsistent with the standalone financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated.
When we read 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 appropriate action as applicable under the relevant laws and regulations.
RESPONSIBILITIES OF MANAGEMENT AND THOSECHARGED WITH GOVERNANCE FOR THE STANDALONEFINANCIAL STATEMENTS
9. 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 statements that give a true and fair view and are free from material misstatement, whether due to fraud or error.
10. 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. 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
11. 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.
12. As part of an audit in accordance with SAs, we exercise professional judgment and maintain professional scepticism 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 with reference to standalone financial statements 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 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 auditor’s 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 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 achieves fair presentation.
• Obtain sufficient appropriate audit evidence regarding the financial statements/financial information of the branches and jointly controlled operations which are included in the Company to express an opinion on the standalone financial statements. We are responsible for the direction, supervision and performance of the audit of financial information of such entities included in the standalone financial statements of which we are the independent auditors. For the other entities included in the standalone financial statements, which have been audited by other auditors, such other auditors remain responsible for the direction, supervision and performance of the audits carried out by them. We remain solely responsible for our audit opinion.
13. 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.
14. 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.
15. 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.
OTHER MATTERS
16. We did not audit the financial statements/ financial information of 33 branches and 30 jointly controlled operations included in the standalone financial results of the Company, whose financial statements / financial information reflect total assets of ' 3,896 crores and net assets of ' 287 crores as at March 31,2023, total revenues of ' 3,715 crores, total net loss after tax of ' 187 crores, total comprehensive loss (comprising of loss and other comprehensive income) of ' 149 crores for the year ended March 31, 2023 and net cash outflows amounting to ' 1 crore for the year ended March 31,2023. The financial statements / financial information of these branches and jointly controlled operations have been audited by branch auditors and other auditors whose reports have been furnished to us by the Management, and our opinion on the standalone financial results in so far as it relates to the amounts and disclosures included in respect of these branches and jointly controlled operations, is based solely on the reports of such branch auditors and other auditors.
17. The financial statements/ financial information of 7 branches and 1 jointly controlled operation located outside India, included in the standalone financial results, which constitute total assets of ' 567 crores and net liabilities of ' 97 crores as at March 31, 2023, total revenue from operations of ' 325 crores, total net loss after tax of ' 33 crores, total comprehensive loss (comprising of loss and other comprehensive loss) of ' 34 crores and net cash outflows amounting to ' 11 crores for the year then ended, have been prepared in accordance with accounting principles generally accepted in their respective countries and have been audited by other auditors under generally accepted auditing standards applicable in their respective countries. The Company’s management has converted the financial statements/ financial information of such branches/ jointly controlled operation located outside India from the accounting principles generally accepted in their respective countries to the accounting principles generally accepted in India. We have audited the conversion adjustments, if any, made by the Company’s management. Our opinion in so far as it relates to the balances and affairs of such branches and jointly controlled operation located outside India, is based on the report of such other auditors and the conversion adjustments prepared by the management of the Company and audited by us. Material uncertainty related to going concern has been reported by two branches and one jointly controlled operation on account of loss incurred during the year by these branches and jointly controlled operation which are not material in relation to the operations of the Company.
Our opinion on the standalone financial statements, and our ‘Report on Other Legal and Regulatory Requirements’ below, is not modified in respect of the above matters with respect to our reliance on the work done and the reports of the other auditors.
REPORT ON OTHER LEGAL AND REGULATORYREQUIREMENTS
18. 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 the Annexure B, a statement on the matters specified in paragraphs 3 and 4 of the Order, to the extent applicable.
19. 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 and proper returns adequate for the purposes of our audit have been received from the branches.
(c) The reports on the accounts of the branch offices of the Company audited under Section 143(8) of the Act by branch
auditors have been sent to us and have been properly dealt with by us in preparing this report.
(d) The Balance Sheet, the Statement of Profit and Loss (including Other Comprehensive Income), the Statement of Changes in Equity and the Cash Flow Statement dealt with by this Report are in agreement with the books of account and with the returns received from the branches and the financial information/ financial statements received from the jointly controlled operations.
(e) In our opinion, the aforesaid standalone financial statements comply with the Accounting Standards specified under Section 133 of the Act.
(f) On the basis of the written representations received from the directors as on April 1, 2023 taken on record by the Board of Directors, none of the directors is disqualified as on March 31, 2023 from being appointed as a director in terms of Section 164(2) of the Act.
(g) With respect to the adequacy of the internal financial controls with reference to financial statements of the Company and its 40 branches, and the operating effectiveness of such controls, refer to our separate Report in “Annexure A”.
(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 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 standalone financial statements disclose the impact, if any, of pending litigations on the standalone financial position of the Company, its branches and jointly controlled operations - Refer note 57 to the standalone financial statements.
ii. Provision has been made in the standalone financial statements, as required under the applicable law or accounting standards, for material foreseeable losses, if any, on long-term contracts including derivative contracts - Refer note 36 to the standalone financial statements.
iii. There has been no delay in transferring amounts, required to be transferred, to the Investor Education and Protection Fund by the Company during the year.
iv. a) The management has represented that, to the best of its knowledge and belief, other than as disclosed in the notes to these standalone financial statements, 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 persons or entities including foreign entities (“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 Company (“Ultimate Beneficiaries”) or provide any guarantee, security or the like on behalf of the Ultimate Beneficiaries (Refer note 9 to the standalone financial statements);
(b) The management has represented that, to the best of its knowledge and belief, as disclosed in the notes to these standalone financial statements, 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 (Refer note 9 to the standalone financial statements); and
(c) Based on such audit procedures that we 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 (a) and (b) contain any material misstatement.
v. The dividend declared and paid during the year by the Company is in compliance with Section 123 of the Act.
vi. As proviso to Rule 3(1) of the Companies (Accounts) Rules, 2014 (as amended), which provides for books of account to have the feature of audit trail, edit log and related matters in the accounting software used by the Company, is applicable to the Company only with effect from financial year beginning April 1, 2023, the reporting under clause (g) of Rule 11 of the Companies (Audit and Auditors) Rules, 2014 (as amended), is currently not applicable.
20. The Company has paid/provided for managerial remuneration in accordance with the requisite approvals mandated by the provisions of Section 197 read with Schedule V to the Act.
For Price Waterhouse Chartered Accountants LLP
Firm Registration Number: 012754N/N500016 Chartered Accountants
Sarah George
Partner
Place: Mumbai Membership Number: 045255
Date: May 03, 2023 UDIN: 23045255BGYVVM1375
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