To the Members of
Mahindra & Mahindra Financial Services Limited
Report on the Audit of the Standalone Financial Statements Opinion
We have audited the accompanying standaLone financial, statements of Mahindra & Mahindra Financial Services Limited (the "Company”), which comprise the BaLance Sheet as at 31st March 2023, and the Statement of Profit and Loss (incLuding Other Comprehensive Income), the Statement of Cash FLows and the Statement of Changes in Equity for the year then ended, and a summary of significant accounting policies and other explanatory information.
In our opinion and to the best of our information and according to the expLanations given to us, the aforesaid standalone financial statements give the information required by the Companies Act, 2013 ("the Act”) in the manner so required and give a true and fair view in conformity with the Indian Accounting Standards prescribed under section 133 of the Act read with the Companies (Indian Accounting Standards) RuLes, 2015, as amended, ("Ind AS”) and other accounting principles generaLLy accepted in India, of the state of affairs of the Company as at 31st March 2023, and its profit , total comprehensive income, its cash flows and the changes in equity 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 specified under section 143(10) of the Act (SAs). Our responsibiLities under those Standards are further described in the Auditor's Responsibility 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 obtained by us is sufficient and appropriate to provide a basis for our audit opinion on the standalone financial statements.
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 year. 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.
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Key audit matter
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Auditor's Response
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• Judgements used in projecting economic scenarios
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• compLeteness, accuracy and appropriateness of
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and probability weights applied to reflect future
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information used in the estimation of the PD and LGD
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economic conditions; and
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for the different stages depending on the nature of the
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• Adjustments to modeL driven ECL resuLts to address
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portfoLio; and
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emerging trends.
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• accuracy of the computation of the ECL estimate
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(Refer Note 2.5 (ii), 2.11 (h), 7 and 49.2 to the StandaLone FinanciaL Statements)
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incLuding reasonabLeness of the methodoLogy used to determine macro-economic over Lays and adjustments to the output of the ECL ModeL.
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Test of detaiLs on a sampLe in respect of the foLLowing:
• accuracy and compLeteness of the input data such as
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period of defauLt and other reLated information used in estimating the PD;
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• the mathematicaL accuracy of the ECL computation by
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using the same input data as used by the Company;
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• compLeteness and accuracy of the staging of the
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Loans and the underLying data based on which the ECL estimates have been computed;
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• evaLuating the adequacy of the adjustment made to
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the output as per the ECL ModeL to ensure that the adjustment was in conformity with the poLicy approved by the Audit Committee of the Company.
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2
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Information TechnoLogy and GeneraL ControLs:
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With the assistance of our IT speciaLists, we obtained an
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The Company is dependent on its Information TechnoLogy ("IT”) systems due to the significant number of transactions that are processed daiLy across such muLtipLe and discrete IT systems. ALso, IT appLication controLs are criticaL to ensure that changes to appLications and underLying data are made in an appropriate manner and under controLLed environments. Appropriate controLs contribute to
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understanding of the Company's IT appLications, databases and operating systems reLevant to financiaL reporting and the controL environment. For these eLements of the IT infrastructure the areas of our focus incLuded access security (incLuding controLs over priviLeged access), program change controLs, database management and network operations. In particuLar:
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mitigating the risk of potentiaL fraud or errors as a resuLt
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• We tested the design, impLementation, and operating
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of changes to appLications and data. On account of the
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effectiveness of the Company's generaL IT controLs
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pervasive use of its IT systems, the testing of the generaL
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over the IT systems reLevant to financiaL reporting
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computer controLs of the IT systems used in financial
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This incLuded evaLuation of Company's controLs
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reporting was considered to be a Key Audit Matter.
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over segregation of duties and access rights being provisioned / modified based on duLy approved requests, access for exit cases being revoked in a timeLy manner and access of aLL users being recertified during the period of audit.
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• We aLso tested key automated business cycLe controLs
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and Logic for the reports generated through the IT infrastructure that were reLevant for financiaL reporting or were used in the exercise of internaL financiaL controLs with reference to financiaL statements. Our tests incLuded testing of the compensating controLs or aLternate procedures to assess whether there were any unaddressed IT risks that wouLd materiaLity impact the FinanciaL Statements.
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Sr.
No.
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Key audit matter
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Auditor's Response
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1
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Allowances for Expected Credit Losses ("ECL”):
As at 31st March 2023, the carrying vaLue of Loan assets measured at amortised cost, aggregated ? 79,454.73 crore (net of allowance of expected credit Loss ? 3,287.83 crore) constituting approximately 83% of the Company's total assets. Significant judgement is used in classifying these Loan assets and appLying appropriate measurement principLes. ECL on such Loan assets measured at amortised cost is a criticaL estimate invoLving greater LeveL of management judgement. As part of our risk assessment, we determined that the ECL on such Loan assets has a high degree of estimation uncertainty, with a potentiaL range of reasonabLe outcomes for the StandaLone FinanciaL Statements. The elements of estimating ECL which involved increased LeveL of audit focus are the foLLowing:
• QuaLitative and quantitative factors used in staging the Loan assets measured at amortised cost;
• Basis used for estimating ProbabiLities of DefauLt ("PD”), Loss Given DefauLt ("LGD”) and Exposure at DefauLt ("EAD”) at product LeveL with past trends;
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We have examined the poLicies approved by the Board of Directors of the Company that articuLate the objectives of managing each portfoLio and their business modeLs We have also verified the methodology adopted for computation of ECL ("ECL ModeL”) that addresses poLicies approved by the Board of Directors, procedures and controLs for assessing and measuring credit risk on aLL Lending exposures measured at amortised cost. AdditionaLLy, we have confirmed that adjustments to the output of the ECL ModeL is consistent with the documented rationaLe and basis for such adjustments and that the amount of adjustment has been approved by the Audit Committee of the Board of Directors. Our audit procedures reLated to the aLLowance for ECL incLuded the foLLowing, among others:
Testing the design and operating effectiveness of the foLLowing:
• compLeteness and accuracy of the EAD and the cLassification thereof into stages consistent with the definitions appLied in accordance with the poLicy approved by the Board of Directors incLuding the appropriateness of the quaLitative factors to be appLied;
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financiaL statement that give a true and fair view and are free from material misstatement, whether due to fraud or error.
In preparing the standaLone financiaL statements, 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's 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 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 wifl always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if) individuafly 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 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 respect of StandaLone financiaL statements in pLace and the operating effectiveness of such controLs.
Information Other than the Financial Statements and Auditor's Report Thereon
The Company's Board of Directors is responsible for the other information. The other information comprises the information incLuded in the Board's Report (including annexures thereto), Business Responsibility and sustainability report and Management Discussion and Analysis ("MD&A”) (collectively referred to as "other information”), but does not incLude the financial statements and our auditor's report thereon. The Other Information is expected to be made avaiLabLe to us after the date of our auditor's 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.
• In connection with our audit of the standalone financiaL statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materiaLLy inconsistent with the standalone financial statements or our knowLedge obtained during the course of our audit or otherwise appears to be materiaLLy misstated.
When we read the other information incLuded in the above reports, if we concLude that there is materiaL misstatement therein, we are required to communicate the matter to those charged with governance and determine the actions under the appLicabLe Laws and reguLations.
Responsibilities of Management and Those Charged with Governance for the Standalone Financial Statements
The Company's Board of Directors is responsible for the matters stated in section 134(5) of the Act with respect to the preparation of these standalone financiaL statements that give a true and fair view of the financiaL position, financiaL performance incLuding other comprehensive income, cash flows and changes in equity of the Company in accordance with the Ind AS and other accounting principles generaLLy accepted in India. This responsibiLity aLso includes maintenance of adequate accounting records in accordance with the provisions of the Act for safeguarding the assets of the 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
• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and reLated discLosures in the standaLone financiaL statements made by the 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.
• MateriaLity is the magnitude of misstatements in the standaLone financiaL statements that, individuaLLy or in aggregate, makes it probabLe that the economic decisions of a reasonabLy knowLedgeabLe user of the standaLone financiaL statements may be infLuenced. We consider quantitative materiaLity and quaLitative factors in (i) pLanning the scope of our audit work and in evaLuating the resuLts of our work; and (ii) to evaLuate the effect of any identified misstatements in the standalone financial statements.
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 year 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 Section 143(3) of the Act, based
on our audit we report that:
a. We have sought and obtained aLL the information and explanations which to the best of our knowLedge and beLief were necessary for the purposes of our audit.
b. In our opinion, proper books of account as required by Law have been kept by the Company so far as it appears from our examination of those books.
c. The standaLone BaLance Sheet, the Statement of Profit and Loss incLuding Other Comprehensive Income, the Statement of Cash FLows and Statement of Changes in Equity deaLt with by this Report are in agreement with the reLevant books of account.
d. In our opinion, the aforesaid standaLone financiaL statements compLy with the Ind AS specified under Section 133 of the Act.
e. On the basis of the written representations received from the directors as on 31 March 2023 taken on record by the Board of Directors, none of the directors are disquaLified as on 31st March 2023 from being appointed as a director in terms of Section 164(2) of the Act.
f With respect to the adequacy of the internal financiaL controLs over standaLone financiaL statements reporting of the Company and the operating effectiveness of such controLs, refer to our separate Report in "Annexure A”. Our report expresses an unmodified opinion on the adequacy and operating
effectiveness of the Company's internal, financial. controLs over financial, reporting.
g. With respect to the other matters to be incLuded in the Auditor's Report in accordance with the requirements of section 197(16) of the Act, as amended,
• In our opinion and to the best of our information and according to the expLanations given to us, the remuneration paid by the Company to its directors during the year is in accordance with the provisions of section 197 of the Act.
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 Company has disclosed the impact of pending Litigations on its financial position in its standalone financial statements.
ii. The Company has made provision,
as required under the appLicabLe Law or accounting standards, for materiaL foreseeabLe Losses, if any, on Long-term contracts incLuding
derivative contracts.
iii. There has been no delay in transferring amounts, required to be transferred, to the Investor Education and Protection Fund by the Company.
iv. (a) The Management has represented
that, to the best of it's knowLedge and beLief, no funds (which are materiaL either individuaLLy or in the aggregate) have been advanced or Loaned or invested (either from borrowed funds or share premium or any other sources or kind of funds) by the 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, 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;
(b) The Management has represented that, to the best of it's knowLedge and beLief no funds (which are materiaL either individuaLLy or in the aggregate) 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, 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 has been considered reasonabLe and appropriate in the circumstances, nothing has come to our notice that has caused us to beLieve that the representations under sub-cLause (i) and (ii) of RuLe 11(e), as provided under (a) and (b) above, contain any materiaL misstatement.
v. The finaL dividend proposed with respect to previous year, decLared and paid by the Company during the year is in compLiance with section 123 of the Act, as appLicabLe. As stated in Note no. 23(ii) to the standaLone financial statements, the Board of Directors of the Company have proposed final dividend for the year which is subject to the approvaL of the members in the
ensuing AnnuaL GeneraL Meeting. The amount of the dividend proposed is in accordance with the section 123 of the Act, as appLicabLe.
vi. Proviso of RuLe 3(1) of the Companies (Accounts) RuLes, 2014 for maintaining books of accounts 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 31st March 2023.
2. As required by the Companies (Auditor's Report) Order, 2020 (the "Order”) issued by the CentraL Government in terms of section 143(11) of the Act, we give in "Annexure B” a statement on the matters specified in paragraphs 3 and 4 of the Order.
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