Electronics Mart India Limited
Report on the Audit of the Standalone Financial Statements
OPINION
1. We have audited the accompanying standalone financial statements of Electronics Mart India Limited (‘the Company1), which comprise the Standalone Balance Sheet as at 31 March 2023, the Statement of Standalone Profit and Loss (including Other Comprehensive Income), the Statement of Standalone Cash Flow and the Statement of Standalone 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, 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 (‘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 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 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 financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
5. We have determined the matter described below to be the key audit matters to be communicated in our report.
Key Audit Matters
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How our audit addressed the key audit matter
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Revenue recognition — Incentive income:
Refer note 2(o) & 2(l) for the accounting policies and note 21 for the relevant disclosures in the accompanying standalone financial statements.
The Company has recognised incentive income aggregating to ' 2,925.25 million for the year ended 31 March 2023 and has discount and rebate aggregating to ' 2,074.23 million on account of purchase of goods. Such incentive income is earned by the Company pursuant to the terms of arrangement with its vendors. Accordingly, the Company is entitled to receive incentives under various schemes which are predominantly linked to multiple variable elements such as volume of purchases, sales achieved during the specified periods on an aggregate basis or for a specified product.
Accrual and measurement of such incentives during the reporting period and as at balance sheet date involves significant estimates and management judgment in respect of forecast of expected volume sales and purchases, compliances with other varying terms and conditions of different eligible schemes which is being calculated and tracked by the management based on manual efforts.
Considering the significant manual intervention and high degree of judgment involved, we have identified recognition of such incentives as a key audit matter as this involved significant auditor attention for the current year audit.
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Our audit procedures included, but were not limited to the following:
i) Understood the process followed by the Company to determine the amount of accrual for incentives including the Company’s policy for accounting such incentive income.
ii) Evaluated the design and implementation and tested operating effectiveness of Company’s key manual controls over incentive agreements/ arrangements/schemes including computation of incentive income, its classification between purchase and sales linked income and Company’s review over the accounting treatment including accrual of incentive income.
iii) Inspected different types of incentive schemes received from the dealers/vendors on a sample basis, to understand the terms and conditions of such schemes and based on such understanding, assessed whether the Company’s revenue recognition policies is in accordance with the financial reporting framework of the Company.
iv) Performed substantive testing by selecting samples of incentive income recorded during the year as well as period end accruals. This involved testing the eligibility conditions i.e. various parameters used in the computation with the relevant source documents and recomputation of the incentive recognised by the management.
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Key Audit Matters
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How our audit addressed the key audit matter
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v) Verified the incentive income accounted with the communications received from vendors/dealers where applicable. Obtained independent confirmation on sample basis where deemed necessary for the balances outstanding during the year-end.
vi) With respect to incentives accounted based on management estimates, we also examined historical incentive accruals together with our understanding of current year developments to form an expectation of the incentive accrual as at year end and compared this expectation against the actual accruals and held further inquiries with the management and corroborated such inquiries by obtaining underlying documentation, on a sample basis, as appropriate. Further, we also performed retrospective review to evaluate the precision with which management makes estimates including wherever possible the subsequent receipt of such income.
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Valuation of inventories:
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Our audit procedures included, but were not limited to the following:
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Refer note 2(l) for accounting policies and note 10 for the related
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- Understood the process followed by the Company to determine
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disclosures in the accompanying standalone financial statements.
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the valuation of closing stock of inventories including allowances
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As at March 31, 2023, the carrying amount of inventories amounted to
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for slow moving inventory and towards net realizable values.
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' 7,735.34 million after considering allowances for Inventory towards
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- Evaluated the design, implementation and tested the operating
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net realizable value (‘NRV’) and slow moving inventory ot ' 56.13
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effectiveness of Company’s key manual controls over valuation
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million. These inventories are held at the stores and warehouses of
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of inventories including computation of purchase linked
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the Company.
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incentive adjustments, inventory ageing, provisioning policy and
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There are judgements required in assessing the appropriate level
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assessment of subsequent incentives received and factored in
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of allowance for slow moving inventory. Such judgements include
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arriving at the subsequent sales pricing.
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management's expectations of forecast inventory demand, product
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- Tested the purchases prices of closing stock of inventories on a
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obsolescence and support expected to be received from the respective
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sample basis and performed recomputation of weighted average
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original equipment manufacturers (OEM s) etc.
Further, considering the nature of arrangements wherein various
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cost considered for valuation as at year end.
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purchase linked incentives are being received by the Company, the same
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- Inspecting different types of incentive schemes being received
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requires adjustments to closing values of inventories, in line with the
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for subsequent period and considered by management in NRV
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requirements of accounting policy and such adjustments are carried
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assessment on a sample basis.
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out manually by the Company.
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- Examined historical trend of inventory ageing and provisioning
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Evaluation of net realizable values of inventory involves evaluation
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towards slow moving inventories together with our understanding
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of subsequent sale prices along with assessment of various other
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of current year developments to form an expectation of the
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incentives being received from the respective OEMs during the
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reasonableness of managements provisioning policy and held
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subsequent periods which is considered by management in determining
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further inquiries with the management and corroborated such
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the market sales prices.
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inquiries by obtaining underlying documentation, on a sample
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Considering the significance of carrying value of inventories to the
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basis, as appropriate.
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overall balance sheet, significant manual efforts by the management to
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- Assessed the Company’s disclosures concerning this in Note 3(A)
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assess the value of closing stock after considering impact of incentives
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on significant accounting estimates and judgements and Note 10
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and detailed assessment of provision required relating to net realizable values and the judgements applied for determining the allowance for slow moving inventory, we have identified valuation of the inventories as a key audit matter for current year5 s audit.
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Inventories to the standalone financial statements
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INFORMATION OTHER THAN THE STANDALONE 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.
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 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 have nothing to report in this regard.
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 standalone 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 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 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 standalone 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 standalone financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control;
• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances. Under section 143(3)(i) of the Act we are also responsible for expressing our opinion on whether the Company has adequate internal financial controls with reference to standalone financial statements in place and the operating effectiveness of such controls;
• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management;
• Conclude on the appropriateness of 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 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; and
• 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.
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.
REPORT ON OTHER LEGAL AND REGULATORY REQUIREMENTS
15. 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.
16. As required by the Companies (Auditor’s Report) Order, 2020 (‘the Ordefi) issued by the Central Government of India in terms of section 143(11) of the Act we give in the Annexure I a statement on the matters specified in paragraphs 3 and 4 of the Order, to the extent applicable.
17. Further to our comments in Annexure I, as required by section 143(3) of the Act based on our audit, 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 II 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:
i. the Company, as detailed in note 34 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 long-term contracts including derivative contracts for which there were any material foreseeable losses as at 31 March 2023;
iii. There were no amounts which were required to be transferred to the Investor Education and Protection Fund by the Company during the year ended 31 March 2023;
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a. The management has represented that, to the best of its knowledge and belief, as disclosed in note 41(i) 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 persons or entities, 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 41(ii) to the standalone financial statements, no funds have been received by the Company from any persons or entities, 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 subclauses (a) and (b) above contain any material misstatement.
v. The Company has not declared or paid any dividend during the year ended 31 March 2023.
vi. 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
Sanjay Kumar Jain
Partner
Membership No.: 207660
UDIN: 23207660BGYCIK3092
Place: Hyderabad
Date: 26 May 2023
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