Hindustan Organic Chemicals Limited, Kochi Report on the Audit of the Standalone financial statements
Opinion
1. We have audited the accompanying standalone financial statements of M/s. HINDUSTAN ORGANIC CHEMICALS LIMITED (CIN: L99999MH1960GOI011895) (The company’) which comprises of: -
(a) The Standalone Balance Sheet as at 31s March, 2023
(b) The Standalone Statement of Profit and Loss for the year (including other comprehensive income) ended 31st March, 2023
(c) Standalone Statement of Change in Equity for the year ended 31s March, 2023
(d) Standalone Cash Flow Statement for the year ended 31a March 2023, and
(e) A Summary of significant accounting policies and other explanatory information
2. 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 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 its loss, total comprehensive income, the changes in equity and its cash flows for the year ended 31st March, 2023.
Basis for opinion
3. We conducted our audit in accordance with the Standards on Auditing (SAs) specified under section 143(10) of the Companies Act, 2013 (‘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 we have obtained is sufficient and appropriate to provide a basis for our opinion.
Going Concern
4. During the year, the company has repotted a 'net loss including other comprehensive income’ of Rs. 4,239.63 Lakhs (PYRs. 1,015.89 lakhs) and an accumulated loss amounting to Rs.1,07,078.48 lakhs (previous yearRs.1,02,056.08 lakhs). Further, the net worth of the company is negative amounting to Rs. 95,512.95 lakhs (previous year Rs. 90,490.55 lakhs), excluding Other Comprehensive Income', as a result of the capital erosion due to losses reported by the company over the previous years.
However, we are informed that, the company, with the approval of the Government of India, is in the process of divesting and selling off its loss making unit at Rasayani, Mumbai, which includes assets with carrying amount amounting to Rs. 99,219.74 lakhs, including 551.172 acres of land owned by the unit. This process is expected to generate sufficient cash flow for the company. Further, as reported by the company in Note No. 45 of the Financial Statements, we draw the attention regarding the increased performance of the Manufacturing unit at Kochi. Considering the above, the management has prepared the standalone Ind AS financial statements on going concern basis.
Our opinion is not modified in respect of the above.
Emphasis of Matter
5. We draw attention to the interim financial results published by the company for the Quarter 2 of the current year included a write back of 'provision for statutory liability’ created in the previous years amounting to Rs. 530.58 lakhs, which was reported under ‘Other income’. However, based on further discussions, the management reinstated the said liability in the Quarter 4 and accordingly, the effect of such restatement was reported under ‘other income’ for the said quarter. As the write back as well as its reinstatement occurred in the current year itself, there is no net impact on the financial statements for the current year.
Our opinion is not modified in respect of the above.
Key Audit Matters
6. Key Audit Matters are those matters that, in our professional judgement, 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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S.
No
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The Key Audit Matters
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How our audit addressed the key audit matter
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1.
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Investment in Subsidiary
Hindustan Fluorocarbons Limited (“HFL") is a subsidiary of the Company, wherein the company holds 56.43% equity shares by way of an investment of Rs. 1,106 lakh, which is classified as a Financial Asset.
Subsequent to initial recognition, the investment made at HFL is measured at fair value through other comprehensive income (FVTOCI).As per the provisions of the Ind AS 107/9, the fair value of the financial asset is to be determined every year and accordingly, the carrying amount should be restated. Accordingly, the same has been considered as a key audit matter.
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Our audit procedures included and were not limited
to the following:
1. Carried out market research with respect to the volume of quoted shares of HFL being traded on the BSE.
2. Evaluated the future prospects of HFL’s operations in light of CCEA decision dated 29.01.2020 to close down HFL.
3. Assessed the financial statements of HFL to verify whether the assets held for sale as shown in the financial statements exceeds its liability to the extent of the company’s investment therein.
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2.
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Valuation of Inventory
LPG, Benzene and chemical based inventory forms a significant part of the Company’s inventory of which prices are fluctuating in nature and also depends on prices, decisions and conditions of other countries Inventories are valued at lower of cost and net realisable value except raw materials, work-in progress & stores.
The audit mainly focused on verification of the cost and net realizable value of the above.
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Our audit procedures included and were not limited
to the following:
1. Reviewing data from software used by the company such as Distributed Control System for plant operations, independent PLC for the safety of the Plant, Tank Level Monitoring System “LMS’ for the detailed statistics about stock of raw materials, finished products, and intermediate products along with various alarms, warnings and history of the tank operations etc.
2. Testing the design, implementation and operating effectiveness of key internal financial controls, including controls over valuation of inventory.
3. Testing on a sample basis the accuracy of cost for inventory by verifying the actual purchase cost. Testing the net realizable value by comparing actual cost with most recent selling price.
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S.
No
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The Key Audit Matters
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How our audit addressed the key audit matter
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3.
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Recognition, Measurement, and Depreciation
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Our audit procedures included and were not limited
to the following:
1. Evaluating management’s processes and controls over the identification, capitalization, classification, and subsequent measurement of PPE. We assessed the company’s policies for determining the initial cost, subsequent measurement, and depreciation of PPE, including the application of appropriate depreciation methods and useful lives.
2. We also tested a sample of PPE additions and disposals to verify the accuracy and completeness of their recognition and measurement.
3. We assessed the consistency of depreciation policies and their compliance with applicable accounting standards and the accuracy of the calculation of depreciation.
4. We verified the compliance with the provisions of Ind AS 16 for adopting the Revaluation model and its impact on the asset disclosures.
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of PPE
The company, being a asset based entity, the recognition, measurement and depreciation of the PPE is very significant.
The audit was mainly focused on the compliance of the provisions of the Ind AS 16 - Property, Plant and Equipments and the other aspects of asset accounting.
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Information Other than the Standalone financial statements and Auditor’s Report thereon
7. The Company’s management and Board of Directors are responsible for the other information. The other information comprises the information included in the Company’s annual report, but does not include the standalone financial statements and our auditors’ report thereon.
8. Our opinion on the standalone financial statements does not cover the other information and we do not express any form of assurance conclusion thereon.
9. In connection with our audit of the standalone financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the standalone financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information; we are required to report that fact. We are not in receipt of other information and therefore we do not comment on the same.
Management’s responsibility for the standalone financial statements
10. The Company’s Management and Board of Directors are 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 Indian Accounting Standards (Ind AS) specified under Section 133 of the Act.
11. 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 financial statements that give a true and fair view and are free from material misstatement, whether due to fraud or error.
12. 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.
13. The Board of Directors is also responsible for overseeing the Company’s financial reporting process.
Auditor’s Responsibility for the Audit of Standalone Financial Statements
14. 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.
15. 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 Companies Act, 2013, 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 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.
16. 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.
17. 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.
18. 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
19. As required by the Companies (Auditor’s Report) Order, 2020 issued by the Central Government of India in terms of sub-section 11 of section 143 of the Act, we give in the “Annexure A”, a statement on the matters specified in paragraphs 3 and 4 of the Order.
20. As required by the directions and sub directions issued by the office of the Comptroller & Auditor General of India under section 143 (5) of the Act, we give in the “Annexure B” a statement on the matters referred in those directions.
21. 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 purpose of our audit;
b) In our opinion, proper books of account as required by law have been kept by the Company so far as appears from our examination of those books.
c) The Standalone Balance Sheet, Statement of Profit and Loss including Other Comprehensive Income, Statement of changes in Equity, and 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 specified under section 133 of the Companies Act, 2013, read with Rule 7 of Companies (Accounts), Rules 2014;
e) As per Notification No. G.S.R. 463(E) dated June 5, 2015, the Government Companies are exempted from provisions of section 164(2) of the Act. Accordingly, we are not required to report whether any directors are disqualified in terms of provisions contained in the said section.
f) The report on internal financial control as required under clause (i) of sub section 3 of section 143 of the Companies Act 2013 is attached as “Annexure C”.
g) With respect to other matters to be included in the Auditors Report in accordance with Rule 11 of 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 financial statement. - Refer note 36 to the standalone financial statements.
(ii) The company do not have any long-term contracts including derivative contracts for which there were any material foreseeable losses;
(iii) There were no amounts which were required to be transferred to Investor Education and Protection Fund by the company.
(iv) a. The management has represented that, to the best of its knowledge and belief, as disclosed in
note 47 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
• 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, as disclosed in note 48 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
• 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 such audit procedures considered reasonable and appropriate in the circumstances, nothing has come to our notice that has caused us to believe that the representations under subclause (iv) (a) and (iv) (b) contain any material mis-statement.
(v) No dividend was declared or paid during the year which required compliance with section 123 of the Companies Act, 2013.
(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.
22. Non-Compliance of the SEBI Listing Obligation and Disclosure Requirements (LODR) Regulations, 2015:
The Company has not complied with the Regulations 17(1)(a) and 17(1)(b) in respect of maintenance of an oftimum combination of executive and non-executive directors with at least one-woman director and no less than fifty percent of the Board of Directors as non-executive directors and maintenance of at least half of the board of Directors comprised of Independent Directors. (Refer Note 44 to the Standalone Financial Statements).
For Balan & Co. Chartered Accountants
Firm Regn. No.340S
Joyal George, FCA
Date: 18-05-2023 Partner (Memb. No: 228702)
Place: Kochi-11 UDIN: 23228702BGXDRK1444
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