To The Members of Piramal Enterprises Limited
Report on the Audit of the Standalone Financial Statements
OPINION
We have audited the accompanying standalone financial statements of Piramal Enterprises Limited ("the Company"), which comprises of Standalone Balance Sheet as at March 31, 2023, the Standalone Statement of Profit and Loss (including Other Comprehensive Income), the Standalone Cash Flow Statement and the Statement of Changes in Equity for the year then ended, and notes to the standalone financial statements, including a summary of significant accounting policies and other explanatory information (hereinafter referred to as "the standalone financial statements").
In our opinion and to the best of our information and according to the explanations given to us, the aforesaid standalone financial statements give the information required by the Companies Act, 2013 ("the Act") in the manner so required and give a true and fair view in conformity with the Indian Accounting Standards prescribed under Section 133 of the Act read with 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, its profit total other comprehensive income, its cash flows and the changes in equity for the year ended on that date.
BASIS FOR OPINION
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 (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 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. We have fulfilled the responsibilities described in the Auditor's responsibilities for the audit of the Standalone Financial Statements section of our report, including in relation to these matters.
Accordingly, our audit included the performance of procedures designed to respond to our assessment of the risks of material misstatement of the standalone financial statements. The results of our audit procedures, including the procedures performed to address the matters below, provide the basis for our audit opinion on the accompanying standalone financial statements.
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Sr. No. Key Audit Matters
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Auditors Response
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1 Expected Credit Loss allowance on financial assets and net loss on derecognition of financial instruments under amortised cost category.
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Refer to accounting policies in Note 2 (iii) to the standalone financial statements; Impairment and net loss on derecognition of financial instruments under
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amortised cost category - Notes 18, 25, 26 and 40.3 to the standalone financial statements.
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Under Ind AS 109, Financial Instruments, allowance
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Principal audit procedures followed:
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for loan losses are determined using expected credit loss (ECL)
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Reviewed the Board approved loss allowance policy and verified the
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estimation model. The estimation of ECL on financial instruments
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alignment of methodology adopted for computation of ECL that addresses
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involves significant judgement and estimates. The key areas where
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the policies approved by the Board of Directors.
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we
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identified greater levels of management judgement and therefore
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Tested the design and operating effectiveness of the key controls over the
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increased levels of audit focus in the Company's estimation of ECL are:
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completeness and accuracy of data, inputs and assumptions into the ECL
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The application of ECL model requires several data inputs to
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Model.
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calculate Probability of Default ("PDs"), Loss Given Default ("LGD")
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Evaluated whether the methodology applied by the Company is compliant
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and Exposure at Default (EAD). Inherently judgmental inputs /
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with the requirements of the relevant accounting standards, Reserve Bank
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model used to estimate ECL which involves determination of PD,
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of India's ('RBI') master directions relating to Prudential norms on Income
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LGD and EAD.
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Recognition, Asset Classification and Provisioning pertaining to Advances
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The PD and the LGD are the key drivers of estimation complexity in
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and confirmed that the calculations are performed in accordance with
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the ECL and as a result are considered as a significant judgmental
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the approved methodology and ECL amounts has been approved by the
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aspect of the Company's modelling approach.
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management and the Audit committee.
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Estimating Management overlay for economic uncertainty,
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Tested on sample basis key inputs, data and assumptions impacting ECL
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forward-looking information, and macro-economic factors
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calculations to assess the completeness, accuracy and relevance of data and
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Completeness and accuracy of the data from internal and external
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reasonableness of economic forecasts and model assumptions applied.
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sources used in the Models. Qualitative and quantitative factors
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Tested the arithmetical accuracy of the computation of ECL provision
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used in staging the loan assets.
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performed by the Company in spreadsheets.
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Considering the significance of ECL to the overall standalone financial
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Assessed whether the disclosures on key judgements, assumptions and
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statements and the degree of Management's estimates and judgements
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quantitative data with respect to impairment loss allowance in standalone
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involved in this matter that requires significant auditors' attention. We
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financial statements are appropriate and sufficient.
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have considered the expected credit loss allowance on financial assets
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to be a key audit matter.
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Sr. No.
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Key Audit Matters
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Auditors Response
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The disclosures regarding the Company's application of Ind AS 109 are key to explaining the key judgements and material inputs to ECL and net loss on derecognition of financial instruments under amortised category. Further, disclosures to be provided as per RBI circulars with regards to non-performing assets and provisions will also be an area of focus, particularly as this will be the first year some of these disclosures will be presented and are related to an area of significant estimate.
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2
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Determination of fair value for the purpose of measurement of certain financial assets measured at fair value and for the purpose of impairment assessment of investments in subsidiary, joint venture or associate companies measured at cost and investment property:
Refer to Accounting policies in Notes 2 (iv), 2 (vii) and 2 (xi) to the standalone financial statements; Investment measured at fair value, net gain on fair value changes and other operating income - Notes 6, 21 (iv) and 21 (v) to the standalone financial statements; Investment in subsidiary, joint venture and associate companies and provision thereon - Notes 6,28 and 43 to the standalone financial statements; Investment property - Note 34 to the standalone financial statements; Fair value disclosures - Note 38 to the standalone financial statements.
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The Company's investments in unquoted instruments (other than
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Principal audit procedures followed:
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investment in subsidiaries, joint ventures and associates) are measured
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Understood the process, evaluating the design and testing the operating
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at fair value at each reporting date and these fair value measurements
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effectiveness of such controls in respect of valuation of investments by
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significantly impact the Company's financial performance. The
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management.
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Company's investments in subsidiaries, joint ventures and associates
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Evaluated management's controls over collation of relevant information
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and investment property are measured at cost less provision for
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used for determining estimates for valuation and impairment testing of
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impairment, if any.
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investments.
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The valuation for the purpose of measurement and impairment
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Tested appropriate implementation of policy of valuation and impairment testing by management.
Reconciled the financial information mentioned in fair valuation and
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assessment requires significant judgement because of quoted prices being unavailable and limited liquidity.
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impairment testing to underlying source details.
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The disclosures regarding the Company's fair value estimation are key to
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Obtained independent valuation reports of unquoted investments.
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explaining the key estimation and judgements including material inputs
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Tested the reasonableness of management's estimates considered in such
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to the estimated valuation figures.
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assessment.
Assessed the competence, capabilities and objectivity of the experts used by management in the process of valuation models.
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Assessed the factual accuracy conclusion reached by the management and appropriateness of the disclosures made in the standalone financial statements in respect of investments.
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3
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Information Technology (IT) systems and controls impacting financial reporting.
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The IT environment of the Company is complex and involves a
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Principal audit procedures followed:
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number of independent and interdependent IT systems used in the
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In assessing the controls over the IT systems of the component, involved
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operations of the Company for processing and recording a large volume
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our technology specialists to obtain an understanding of IT environment, IT
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of transactions. As a result, there is a high degree of reliance and dependency on such IT systems for the financial reporting process of the
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infrastructure and IT systems.
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Company.
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Evaluated and tested relevant IT general controls and IT application controls of the “in-scope" IT systems identified as relevant for our audit of the
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Appropriate IT general controls and IT application controls are required
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Company's standalone financial statements and financial reporting process
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to ensure that such IT systems are able to process the data as required,
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of the Company.
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completely, accurately, and consistently for reliable financial reporting.
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On such “in-scope" IT systems, tested key IT general controls as follows:
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We have identified certain key IT systems (“in-scope" IT systems)
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• Program change management, which includes that program changes
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which have an impact on the financial reporting process and the
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are moved to production environment as per defined procedures.
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related control testing as a key audit matter because of the high
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• User access management, which includes user access provisioning,
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level of automation, significant number of systems being used by the
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de-provisioning, access review, password management, sensitive
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Company for processing financial transactions, the complexity of the IT
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access rights and segregation of duties to ensure that privilege access
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architecture and its impact.
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to applications, operating system and databases in the production environment were granted only to authorized personnel.
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• Program development, which comprises IT operations and system
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development life cycle for relevant in-scope applications, operating systems, and databases, which are relied upon for financial reporting.
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Other areas that were assessed under the IT control environment included backup management, business continuity, disaster recovery, incident management, interface, batch processing and monitoring.
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Evaluated the design and tested the operating effectiveness of key IT application controls within key business processes, which included testing automated calculations, automated accounting procedures, system interfaces, system reconciliation controls and key system generated reports.
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INFORMATION OTHER THAN THE STANDALONE 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 Report including annexures to the Board report but does not include the standalone financial statement and our auditor's report thereon.
Our opinion on the standalone financial statements does not cover the other information and we do not express any form of assurance conclusion thereon.
In connection with our audit of the standalone financial statements, our responsibility is to read the other information 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.
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 have nothing to report in this regard.
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 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 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.
In preparing the standalone financial statements, the management is responsible for assessing the Company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so.
The Board of Directors is also responsible for overseeing the Company's financial reporting process.
AUDITOR'S RESPONSIBILITIES FOR THE AUDIT OF THE STANDALONE FINANCIAL STATEMENTS
Our objectives are to obtain reasonable assurance about whether the standalone financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance but is not a guarantee that an audit conducted in accordance with SAs will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these standalone financial statements.
As part of an audit in accordance with SAs, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:
• Identify and assess the risks of material misstatement of the standalone financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
• Obtain an understanding of internal 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 the 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 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 entity 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 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 period and are therefore the key audit matters. We describe these matters in our auditors' 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:
(i) The standalone financial statements of the Company for the year ended March 31, 2022 included in these standalone financial statements, were audited by the predecessor auditor. The report of the predecessor auditor of this comparative information dated May 26, 2022 expressed an unmodified opinion on those statements.
(ii) The comparative Standalone Financial Statements, as mentioned above in para (i) above, of the Company for year ended 31 March, 2022 have been restated pursuant to:
(a) the Company on receiving the Certificate of Registration from the Reserve Bank of India, to carry on the business of non-banking financial company. The Company has prepared and presented its standalone financial statements as per the format prescribed in Division III of Schedule III to Companies Act, 2013, (Refer note 1B to the standalone financial statements and)
(b) the National Company Law Tribunal approval of Composite Scheme of Arrangement for demerger of Pharma undertaking and merger of PHL Fininvest Private Limited, a wholly owned subsidiary, into the Company, effective from April 1, 2022 (Refer Note 42 to the standalone financial statements.)
Our opinion is not modified in respect of these matters.
REPORT ON OTHER LEGAL AND REGULATORY REQUIREMENTS
1. Pursuant to 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, and on the basis of such checks of the books and records of the Company as we considered appropriate and according to the information and explanations given to us, we give in the Annexure "A" a statement on the matters specified in paragraphs 3 and 4 of the Order, to the extent applicable.
2. As required by Section 143(3) of the Act, we report that:
(a) We have sought and obtained all the information and explanations which to the best of our knowledge and belief were necessary for the purposes of our audit.
(b) In our opinion, proper books of account as required by law have been kept by the Company so far as it appears from our examination of those books.
(c) The Balance sheet, the Statement of Profit & Loss (including other comprehensive income), the Cash Flow Statement and Statement of Changes in Equity dealt with by this Report are in agreement with the books of account.
(d) In our opinion, the aforesaid standalone financial statements comply with the Accounting Standards specified under Section 133 of the Act, read with Companies (Indian Accounting Standards) Rules, 2015, as amended.
(e) On the basis of the written representation received from the directors as on March 31, 2023 taken on records by the Board of Directors, none of the directors are disqualified as on March 31, 2023 from being appointed as a Directors in terms of Section 164(2) of the Act.
(f) With respect to the adequacy of the internal financial controls with reference to standalone financial statements of the Company and the operating effectiveness of such controls, refer to our separate Report in Annexure "B".
Our report expresses an unmodified opinion on the adequacy and operating effectiveness of the Company's internal financial controls with reference to standalone financial statements.
(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 explanations given to us, the Company has complied with the provisions of Section 197 read with Schedule V 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. (Refer note 32 (a) to standalone financial statements)
ii. The Company did not have any long-term contracts including derivative contracts for which there were any material foreseeable losses.
iii. There has been no delay in transferring amounts required to be transferred to the Investor Education and Protection Fund by the Company.
iv. (a) The management has represented, that to the
best of their 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 or entity, including foreign entity ("Intermediaries"), with the understanding, whether recorded in writing or otherwise, that the Intermediary shall, whether, directly or indirectly lend to 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 their knowledge and belief, no funds (which are material either individually or in the aggregate) have been received by the Company
from any person or entity, including foreign entity ("Funding Parties"), with the understanding, whether recorded in writing or otherwise, that the Company shall, whether, directly or indirectly, lend to 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 the audit procedures that have been considered reasonable and appropriate in the circumstances, nothing has come to our notice that has caused us to believe that the representation under Sub Clause (i) and (ii) of Rule 11(e) of The Companies (Audit and Auditors) Rules, 2014, as provided under (a) and (b) above, contains any material misstatement. [Refer note 45 (ix) and 45 (x) to the standalone financial statements.]
v. The dividend declared or paid during the year by the Company is in compliance with the Section 123 of the Act.
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.
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