Schneider Electric Infrastructure Limited
Report on the Audit of the Ind AS Financial Statements
Opinion
We have audited the Ind AS financial statements of Schneider Electric Infrastructure Limited (“the Company”), which comprise the Balance Sheet as at March 31,2023, and the Statement of Profit and Loss (including other Comprehensive Income), the Statement of Changes in Equity and the Statement of Cash Flows for the year then ended, and notes to the Ind AS Financial Statements, including a summary of significant accounting policies and other explanatory information.
In our opinion and to the best of our information and according to the explanations given to us, the aforesaid Ind AS financial statements give the information required by the Companies Act, 2013 (“the Act”) in the manner so required and give a true and fair view in conformity with the Indian Accounting Standards prescribed under Section 133 of the Act read with the Companies (Indian Accounting Standards) Rules, 2015, as amended and other accounting principles generally accepted in India, of the state of affairs of the Company as at March 31, 2023, and net profit and total comprehensive income, changes in equity and its cash flows 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 Ind AS 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 Ind AS 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 ICAI's 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 Matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the Ind AS financial statements of the current period. These matters were addressed in the context of our audit of the Ind AS 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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The key audit matter
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How the matter was addressed in our audit
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1
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Revenue Recognition
Revenue from contracts with customers is recognized when control of the goods or services are transferred to the customer at an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services.
The Company has concluded that as principal, it typically controls the goods or services before transferring them to the customers. There is an inherent risk and presumed fraud risk around the accuracy and existence of revenues recognised. Further, revenue is an important element of how the Company measures its performance. The Company focuses on revenue as a key performance measure, which could create an incentive for revenue to be recognized before the controls have been transferred.
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In view of the significance of the matter, following audit procedures were applied in this area, amongst others to obtain sufficient and appropriate audit evidence:
• We assessed the appropriateness of the revenue recognition accounting policies and its compliance in terms of Ind AS 115 ‘Revenue from contracts with customers'.
• We obtained an understanding of management's internal controls over the revenue recognition process and evaluated the design and tested the operating effectiveness of key controls.
• We carried out analytical procedures on revenue recognised during the year to identify unusual variances and discussed with designated management personnel.
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Accordingly, due to the significant risk associated with revenue recognition in accordance with terms of Ind AS 115 ‘Revenue from contracts with customers', it has been determined a key audit matter in our audit of the Ind AS financial statements.
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We performed substantive procedures by testing the underlying documents on samples selected based on a representative sampling of revenue transactions recorded during the year.
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In view of the above and given the Company and its stakeholders focus on revenue as a key performance indicator, we determined this to be a key audit matter.
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We performed cut-off testing on sales transactions made near the year-end on sample basis by obtaining supporting documentation including customer confirmation of receipt of goods to establish that sales and corresponding trade receivables are properly recorded in the correct period.
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We tested the relevant disclosures made in the Ind AS financial statements.
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The key audit matter
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How the matter was addressed in our audit
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2
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Trade Receivables
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In
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view of the significance of the matter, following audit
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procedures were applied in this area, amongst others to
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Trade receivables, including retention money with customers,
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obtain sufficient and appropriate audit evidence:
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amounted to ' 5,459.27 million at year-end, which is significant part of the total assets of the Company. Impairment loss on
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Obtained an understanding of the processes
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trade receivables is recognized in accordance with accounting
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implemented to estimate impairment provision against
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policies as detailed in “significant accounting policies” in the
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trade receivables.
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financial statements.
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•
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Tested key controls (both design and operating
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The Company is required to assess the recoverability of its
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effectiveness) over estimation of impairment loss.
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trade receivables on a regular basis. It makes an impairment
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•
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In respect of significant provisions made for specific
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allowance for specific customers on case-to-case analysis. It
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trade receivables, we obtained and evaluated specific
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further makes an estimate of impairment allowance for balance
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assessment from the Company and examined related
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receivables on the basis of lifetime expected credit loss method
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available information such as correspondences with
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based on provision matrix in accordance with Ind AS 109,
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customers and publicly available information.
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Financial Instruments. The Company further considers impact of
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Evaluated the “expected credit loss” model adopted
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external environment, such as possible effect from the COVID-19
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to estimate the impairment allowance and tested the
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pandemic.
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related assumptions and computations.
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In assessing the recoverability of trade receivables,
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Obtained and tested the base data used in the above-
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management also exercised significant judgements to evaluate
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mentioned model such as trade receivables ageing,
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the collectability from individual customers after considering their creditworthiness, whether they have financial difficulties,
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historical billing and collection data.
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experience of default or delinquency in payments and ageing
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Evaluated the various assumptions and judgements
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analysis. The judgements applied by management have a
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applied such as discount rate, period of delays of
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significant impact on the level of provision required for trade
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receipts from customers, etc.
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receivables.
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Circulated the balance confirmation letter to the customers and analysed the responses in balance
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In view of above, we determined this area to an area of audit
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confirmation letter obtained from the customers.
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focus, and accordingly, a key audit matter.
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We
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tested the relevant disclosures made in the Ind AS
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financial statements.
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3
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Tax Litigations
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In
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view of the significance of the matter, following audit
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The Company's operations are subject to complexities arising
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procedures were applied in this area, amongst others to obtain sufficient and appropriate audit evidence:
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from applicability of various laws and regulations with respect to positions on matters relating to income tax, sales tax, goods
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We obtained an understanding of the process of
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and services tax, service tax, excise, customs etc. (either past or
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identification of tax litigations, related contingent
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present). Provision for taxes is recognized or contingent liabilities
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liabilities and the key uncertain tax positions.
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are disclosed in accordance with accounting policies as detailed
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Obtained the list of ongoing litigations of the Company
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in “significant accounting policies” in the financial statements.
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and discussed the same with the management to
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Due to complexity of cases, significant amount involved and
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understand the details of the underlying matters.
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timescales for resolution, significant judgment and estimations
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Tested key controls (both design and operating
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are required in assessing the range of possible outcomes for
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effectiveness) over the estimate of provisions for various
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some of these matters. These judgments could change over time
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taxes.
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as each of the matter progresses depending on experience on
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We analysed the Company's judgment regarding the
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actual assessment proceedings by tax and other authorities and
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eventual resolution of matters with various tax authorities.
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other judicial precedents.
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In this regard, we understood how the Company has
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The Company makes an assessment to determine the outcome
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considered past experience, where available, with the
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of these tax positions and decides to make an accrual or
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authorities in the respective jurisdictions.
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consider it to be a possible contingent liability. This affects the
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We obtained representations from relevant consultants
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measurement and accuracy of provision for taxes.
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and legal counsels. We also evaluated the objectivity,
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In view of the above-mentioned factors, we have determined this
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competence, and relevant experience of those
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to be a key audit matter.
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consultants / legal counsels.
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Involved specialists to evaluate estimates on the basis of the facts of each case, internal evaluations, legal precedence, assumptions made and external legal opinions.
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We
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tested the relevant disclosures made in the Ind AS
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financial statements.
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The key audit matter
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How the matter was addressed in our audit
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4
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Impairment assessment of property plant and equipment,
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In view of the significance of the matter, following audit
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capital work in progress, right-of-use assets and intangible
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procedures were applied in this area, amongst others to
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assets
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obtain sufficient and appropriate audit evidence:
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The carrying amount of property, plant and equipment, capital
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We evaluated the method and models used to determine
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work in progress, right of use assets and intangible assets,
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whether the recoverable amounts were appropriate by
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amounted to ' 3,339.00 million at year-end, which is significant
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comparing them with the requirements of Ind AS 36 -
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part of the total assets of the Company. The Company has
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‘Impairment of Assets'.
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accumulated losses aggregating to ' 2,090.36 million including the net loss in recent most previous years. As a result, there is risk that carrying value of property, plant and equipment may be higher than their recoverable amount.
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We assessed the valuation methodology and assumptions developed and applied by the valuation expert appointed by the management by assessing:
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- Key judgements and assumptions applied against
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Management carried out an impairment assessment to determine
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industry norms and the asset type.
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whether the recoverable amounts of these assets are less than
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- The evaluation of the expectation of future cash
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the respective carrying amounts using a discounted cash flow method.
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flow projections
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- Agreed the base data of the valuation to underlying
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The evaluation of the recoverable amount of these assets requires the significant estimates in determining the key assumptions
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support.
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supporting the expected future cash flows of the business, the
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- Compared the discount rate and WACC used by
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utilisation of the relevant assets, the forecast revenue, profit,
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the management to independent external sources,
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Weighted Average Cost of Capital (WACC) and discount rates.
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where possible.
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We considered the revenue and margin growth rate
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Considering the above factors, we considered this area to be a
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used by the management by comparing the rate with
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key audit matter.
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the historical trend in revenue and margin within the Company and considering our own understanding about developments in the industry
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We compared the Company's margin percentage to similar sized companies in the region and to historical trend in the industry
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We performed a sensitivity analysis to understand the effect of changes in key variables on the outcome of the model.
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We
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considered the adequacy of the disclosures of the
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assumptions and judgements applied to determine whether
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they
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were in accordance with Ind AS 36 ‘Impairment of
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Assets'.
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Information Other than the Ind AS 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 annual report, but does not include the Ind AS 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 Ind AS 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 Ind AS financial statements, our responsibility is to read the other information identified above when it becomes available and, in doing so, consider whether such other information is materially inconsistent with the Ind AS financial statements, or our knowledge obtained in the audit, or otherwise appears to be materially misstated.
Management’s Responsibility for the Ind AS 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 Ind AS financial statements that give a true and fair view of the financial position, financial performance, total comprehensive income, changes in equity and cash flows of the Company in accordance with the accounting principles generally accepted in India, including the Indian 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 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 Ind AS financial statements that give a true and fair view and are free from material misstatement, whether due to fraud or error.
In preparing the Ind AS 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 the Management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so.
Those Board of Directors are also responsible for overseeing the Company's financial reporting process.
Auditor’s Responsibilities for the Audit of the Ind AS Financial Statements
Our objectives are to obtain reasonable assurance about whether the Ind AS 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 Ind AS 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 Ind AS 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 system 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 the Management.
• Conclude on the appropriateness of the 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 Ind AS 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 Ind AS financial statements, including the disclosures, and whether the Ind AS financial statements represent the underlying transactions and events in a manner that achieves fair presentation.
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 Ind AS 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
1. As required by 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, 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, except that the back-up of the books of account and other records and papers maintained in electronic mode has not been maintained on servers physically located in India, on a daily basis.
(c) The Balance Sheet, the Statement of Profit and Loss including Other Comprehensive Income, the Statement of Changes in Equity and the Statement of Cash Flows dealt with by this Report are in agreement with the books of account.
(d) In our opinion, the aforesaid Ind AS financial statements comply with the Indian Accounting Standards specified under Section 133 of the Act.
(e) On the basis of the written representations received from the directors as on March 31,2023 taken on record by the Board of Directors, none of the directors is disqualified as on March 31,2023 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 and the operating effectiveness of such controls, refer to our separate Report in “Annexure B”.
(g) With respect to the other matters to be included in the Auditor's Report in accordance with the requirements of Section 197(16) of the Act, as amended, in our opinion and to the best of our information and according to
the explanations given to us, the remuneration paid/ provided by the Company to its directors during the year is in accordance with the provisions of Section 197 of the Act.
(h) With respect to the other matters to be included in the Auditor's Report in accordance with Rule 11 of the Companies (Audit and Auditors) Rules, 2014 (as amended), in our opinion and to the best of our information and according to the explanations given to us:
i. The Company has disclosed the impact of pending litigations on its financial position in its Ind AS financial statements - refer note 33 to the Ind AS financial statements;
ii. The Company has made provision, as required under the applicable law or Indian Accounting Standards, for material foreseeable losses, if any, on long-term contracts - refer note 16(ii)(d) to the Ind AS financial statements. The Company did not have any material foreseeable losses on derivative contracts.
iii. There were no amounts which were required to be transferred to the Investor Education and Protection Fund by the Company
iv. (a). The Management has represented that, to the
best of it's knowledge and belief, as disclosed in the note 45(ii) to the Ind AS financial statements, 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 person(s) or entity(ies), 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 it's knowledge and belief, as disclosed in the note 45(ii) to the Ind AS financial statements, no funds have been received by the Company from any person(s) or entity(ies), including foreign entities (“Funding Parties”), with the understanding, whether recorded in writing or otherwise, that the Company shall, 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 the audit procedures performed that have been considered reasonable and appropriate in the circumstances, nothing has come to our notice that has caused us to believe that the representations under subclause (a) and (b) of Rule 11(e) contain any material misstatement.
v. The Company has not declared or paid any dividend during the year.
vi. As proviso to Rule 3(1) of the Companies (Accounts) Rules, 2014, as amended is applicable for the Company only w.e.f. 1 April 2023, therefore, reporting under Rule 11(g) of the Companies (Audit and Auditors) Rules, 2014, as amended, is not applicable.
For S.N. Dhawan & Co LLP
Chartered Accountants
Firm Registration No.: 000050N/N500045
Pankaj Walia
Partner
Membership No.: 509590
UDIN No.: 23509590BGWRYR8246
Place: Gurugram
Date: May 23, 2023
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