Finolex Industries Limited
Report on the Audit of the Standalone Financial
Statements
Opinion
1) We have audited the accompanying standalone financial statements of Finolex Industries Limited ('the Company'), which comprise the Standalone Balance Sheet as at March 31, 2023, the Standalone Statement of Profit and Loss (including Other Comprehensive Income), the Standalone Statement of Cash Flow and the Standalone Statement of Changes in Equity for the year then ended, and notes to the standalone financial statements, including a summary of the 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, and based on the consideration of the audit report of the auditor of Finolex Industries Limited Employees' Welfare Trust ('Welfare Trust') as referred to in paragraph 15 below, 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') specified under section 133 of the Act read with the Companies (Indian Accounting Standards) Rules, 2015 and other accounting principles generally accepted in India, of the state of affairs of the Company as at 31 March 2023, and its profit (including other comprehensive income), its cash flows and the changes in equity for the year ended on that date.
Basis for Opinion
3) We conducted our audit in accordance with the Standards on Auditing 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 ('the ICAI') together with the ethical requirements that are relevant to our audit of the 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 together with the audit evidence obtained by the auditors of the Welfare Trust, in terms of their audit report referred to in paragraph 15 of the Other Matters section below is sufficient and appropriate to provide a basis for our opinion.
Key Audit Matter
4) Key audit matters are those matters that, in our professional judgment, and based on the consideration of the audit report of the auditors of Welfare Trust as referred to in paragraph 15 below, 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 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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5) We have determined the matter described below to our report.
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i be the key audit matter to be communicated in
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Key audit matter
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How our audit addressed the key audit matter
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Valuation of inventory
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Our audit procedures related to valuation of inventory included, but were not limited, to the
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At the balance sheet date 31 March 2023, the Company held inventories comprising of raw materials and
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following:
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components, finished goods, work-in-progress
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• Assessed the appropriateness of the Company's
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aggregating to ' 673.15 crores as disclosed in note 8
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accounting policy and valuation method of
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to the accompanying standalone financial statements of the Company. Such inventories are carried at cost
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inventory in accordance with Ind AS 2.
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or net realisable value whichever is lower, as per the
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. Evaluated the design and tested the operating
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accounting policy disclosed in note 2.7 to the aforesaid
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effectiveness of key controls (including IT
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standalone financial statements.
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automated controls) around purchase of inventory, valuation of inventory, computation
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Cost of inventory comprise of cost of purchase, costs
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of overhead, and determination of net realizable
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of conversion and other costs incurred in bringing the inventories to their present location and condition.
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value of inventory items.
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Key audit matter
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How our audit addressed the key audit matter
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Determination of cost of conversion includes costs
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Discussed with management the rationale
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directly related to production of units and also includes
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supporting assumptions and estimates used
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a systematic allocation of various fixed and variable
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in carrying out the inventory valuation and
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production overheads to convert raw material into
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corroborated the same to our understanding of
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finished goods. Fixed production overheads are
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the business.
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allocated to the costs of conversion based on the normal capacity of the production facilities and variable production overheads are allocated to each unit of production based on the actual use of the production facilities, in accordance with the principles of Ind AS 2, Inventories ('Ind AS 2'), which involves management judgement and estimation.
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Understood and assessed the management process of determining overhead absorption rates applied by verifying the appropriateness of underlying variables used such as cost data, normal production capacity, actual production data, bill of materials and stage of production.
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•
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Verified the expenses considered as cost of
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Further, at the end of each reporting period, the
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conversion including estimates for apportionment
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management of the Company also assesses whether
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of such conversion cost to different classes of
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the carrying value of inventory is in excess of amounts
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finished goods and work in progress, and ensured
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expected to be realised from their sale or use and in
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arithmetical accuracy of such workings.
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such cases inventories are written down to their net
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Performed substantive testing for samples of
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realisable value in accordance with Ind AS 2.
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raw materials purchase transactions recorded during the year, and purchase transactions
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Considering the abovementioned complexities and
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recorded before and after year end, to ensure
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materiality of amounts and management judgement
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such purchases are booked accurately and in
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involved, valuation of inventory matter is considered to
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the correct period, by verifying the underlying
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be a key audit matter for the current year audit.
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documents for such selected samples, which included contracts, purchase orders, invoices, shipping documents such as lorry receipts, etc.
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Obtained understanding of management process for identification of slow moving, nonmoving or obsolete inventories and ensured that the same is consistently applied. Tested ageing of inventory items obtained through system reports, as applicable.
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Recomputed the net realisable value of the finished goods on a sample basis and ensured the inventory is carried at lower of cost or net realizable value as per Ind AS 2.
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Performed analytical procedures on current year cost of goods sold based on product-wise gross profit margin analysis, and where appropriate, conducted further enquiries and testing.
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Assessed that the disclosures made in the accompanying standalone financial statements is in accordance with the applicable accounting standards.
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Information other than the Financial Statements and Auditor’s Report thereon
6) The Company's Board of Directors are responsible for the other information. The other information comprises the information included in the Annual Report, but does not include the standalone 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.
Responsibilities of Management and Those Charged with Governance for the Standalone Financial Statements
7) The accompanying standalone financial statements have been approved by the Company's Board of Directors. The Company's Board of Directors are responsible for the matters stated in section 134(5) of the Act with respect to the preparation and presentation of these standalone financial statements that give a true and fair view of the financial position, financial performance including other comprehensive income, changes in equity and cash flows of the Company in accordance with the Ind AS specified under section 133 of the Act 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 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 financial statements that give a true and fair view and are free from material misstatement, whether due to fraud or error.
8) In preparing the financial statements, the Board of Directors are 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 the Board of Directors either intend to liquidate the Company or to cease operations, or has no realistic alternative but to do so.
9) 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
10) Our objectives are to obtain reasonable assurance about whether the 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 Standards on Auditing 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 financial statements.
11) As part of an audit in accordance with Standards on Auditing, specified under section 143(10) of the Act we exercise professional judgment and maintain professional skepticism throughout the audit. We also:
• Identify and assess the risks of material misstatement of the 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 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 Board of Directors' use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company's
ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor's report to the related disclosures in the 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 financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation;
• Obtain sufficient appropriate audit evidence regarding the financial information of the Company and its Welfare Trust or the business activities within the Company to express an opinion on the financial statements. We are responsible for the direction, supervision and performance of the audit of financial statements of the Company of which we are the independent auditors. For the Welfare Trust included in the financial statements, which have been audited by the other auditor, such other auditor remain responsible for the direction, supervision and performance of the audit carried out by them. We remain solely responsible for our audit opinion.
12) 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.
13) 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.
14) From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the 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
15) We did not audit the financial statements of the Welfare Trust included in the standalone financial statements of the Company whose financial statements reflects total assets and net assets of ^ 43.69 crore and ^ 43.21 crores respectively as at 31 March 2023, and the total revenues of ^ Nil crores, total net profit after tax of ^ 3.94 crores, total comprehensive income of ^ 3.94 crores, and cash flows (net) of ^ 0.02 crores respectively for the year ended on that date, as considered in the standalone financial statements. These financial statements have been audited by the another auditor whose reports have been furnished to us by the management and our opinion on the standalone financial statements in so far as it relates to the amounts and disclosures included in respect of the Welfare Trust and our report in terms of sub section 3 of section 143 of the Act in so far as it relates to aforesaid Welfare Trust, is based solely on the report of such other auditor. The aforementioned financial statements of this trust have been prepared in conformity with the Accounting Standards specified under section 133 of the Act, read with the Companies (Accounting Standards) Rules, 2021. The Company's management has converted these financial statements of the Welfare Trust to accounting principles enunciated under the Indian Accounting Standards ('Ind AS') specified under section 133 of the Act read with the Companies (Indian Accounting Standards) Rules, 2015 as applicable to the Company. We have audited these conversion adjustments made by the Company's management. Our opinion on the standalone financial statements, in so far as it relates to the amounts and disclosures included in respect of such Welfare Trust is based solely on the report of such other auditor and the conversion adjustments prepared by the management of the Company and audited by us.
Our opinion on the above standalone financial statements, and our report on other legal and regulatory requirements below, are not modified in respect of the above matters with respect to our reliance on the work done by and the report of the Welfare Trust auditor.
16) The standalone financial statements of the Company for the year ended 31 March 2022 were audited by the predecessor auditor, P G Bhagwat LLP, who have expressed an unmodified opinion on those standalone financial statements vide their audit report dated 18 May 2022.
Report on Other Legal and Regulatory Requirements
17) As required by section 197(16) of the Act based on our audit, we report that the Company has paid remuneration to its directors during the year in accordance with the provisions of and limits laid down under section 197 read with Schedule V to the Act.
18) 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 paragraphs 3 and 4 of the Order, to the extent applicable.
19) Further to our comments in Annexure A, as required by section 143(3) of the Act based on our audit and on consideration of the report of the Welfare Trust referred to in paragraph 15 above, we report, to the extent applicable, 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 of the accompanying standalone financial statements;
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 financial statements dealt with by this report are in agreement with the books of account;
d) In our opinion, the aforesaid standalone financial statements comply with Ind AS specified under section 133 of the Act;
e) On the basis of the written representations received from the directors and taken on record by the Board of Directors, none of the directors is disqualified as on 31 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 with reference to financial statements of the Company as on 31 March
2023 and the operating effectiveness of such controls, refer to our separate Report in Annexure B wherein we have expressed an unmodified opinion; and
g) 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 and on consideration of the report of the Welfare Trust referred to in paragraph 15 above:
i. The Company, as detailed in note 38.2 to the standalone financial statements, has disclosed the impact of pending litigations on its financial position as at 31 March 2023;
ii. The Company did not have any longterm contracts including derivative contracts for which there were any material foreseeable losses as at 31 March 2023;
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 ended 31 March 2023;
iv. a. The management has represented
that, to the best of its knowledge and belief, as disclosed in note 45 to the standalone financial statements, no funds have been advanced or loaned or invested (either from borrowed funds or securities premium or any other sources or kind of funds) by the Company to or in any person(s) or entity(ies), including foreign entities ('the 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 ('the Ultimate Beneficiaries') or provide any guarantee, security or the like on behalf the Ultimate Beneficiaries;
b. The management has represented that, to the best of its knowledge and belief, as disclosed in note 45 to the standalone financial
statements, no funds have been received by the Company from any person(s) or entity(ies), including foreign entities ('the 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 such audit procedures performed as considered reasonable and appropriate in the circumstances, nothing has come to our notice that has caused us to believe that the management representations under sub-clauses (a) and (b) above contain any material misstatement.
v. The final dividend paid by the Company during the year ended 31 March 2023 in respect of such dividend declared for the previous year is in accordance with section 123 of the Act to the extent it applies to payment of dividend.
vi. As stated in note 15 to the accompanying standalone financial statements, the Board of Directors of the Company have proposed final dividend for the year ended 31 March 2023 which is subject to the approval of the members at the ensuing Annual General Meeting. The dividend declared is in accordance with section 123 of the Act to the extent it applies to declaration of dividend.
vii. Proviso to Rule 3(1) of the Companies (Accounts) Rules, 2014 requires all companies which use accounting software for maintaining their books of account, to use such an accounting software which has a feature of audit trail, with effect from the financial year beginning on 1 April 2023 and accordingly, reporting under Rule 11(g) of Companies (Audit and Auditors) Rules, 2014 (as amended) is not applicable for the current financial year.
For Walker Chandiok & Co LLP
Chartered Accountants
Firm's Registration No.: 001076N/N500013
Rajni Mundra
Partner
Membership No.: 058644
UDIN: 23058644BGXZOJ7796
Place: Pune
Date: 22 May 2023
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