To the Members of Hitachi Energy India Limited (formerly known as ABB Power Products and Systems India Limited)
Report on the Audit of the Financial StatementsOpinion
We have audited the accompanying financial statements of Hitachi Energy India Limited (formerly known as ABB Power Products and Systems India Limited) (“the Company”), which comprise the Balance sheet as at March 31, 2023, the Statement of Profit and Loss, including the statement of Other Comprehensive Income, the Cash Flow Statement and the Statement of Changes in Equity for the year then ended, and notes to the 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 financial statements give the information required by the Companies Act, 2013, as amended (“the Act”) in the manner so required and give a true and fair view in conformity with the accounting principles generally accepted in India, of the state of affairs of the Company as at March 31, 2023, its profit including 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 of the financial statements in accordance with the Standards on Auditing (SAs), as 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 Financial Statements’
section of our report. We are independent of the Company in accordance with the ‘Code of Ethics’ issued by the Institute of Chartered Accountants of India together with the ethical requirements that are relevant to our audit of the 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 audit opinion on the 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 financial statements for the financial year ended March 31, 2023. 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. For each matter below, our description of how our audit addressed the matter is provided in that context.
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 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 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 financial statements.
|
Key audit matters
|
How our audit addressed the key audit matter
|
|
Revenue recognition for long term projects and contract estimates
|
|
|
(as described in Note 38 of the accompanying financial statements)
|
|
|
|
A significant portion of the Company’s business comprises of long-term fixed price projects. Revenue from these contracts is recognized in accordance with the principles laid down in Ind AS 115, Revenue from Contracts with Customers and as detailed in “significant accounting policies” of the financial statements.
In accordance with Ind AS 115, the Company classifies its various contracts with customers and determines whether revenue should be recognized at “point in time” or “over the time” basis.
|
In view of the significance of the matter we applied the following audit procedures in this area, among others to obtain sufficient appropriate audit evidence:
• We assessed the revenue recognition accounting policies by comparing with applicable accounting standards.
• We tested key controls (both design and operating effectiveness) with respect to revenue recognition and related cost estimations.
|
|
Key audit matters
|
How our audit addressed the key audit matter
|
|
There are various areas involving complexities, judgements and
|
•
|
We carried out analytical procedures on revenue recognized
|
|
estimates involved in accounting for revenue recognized on “over the time” basis, including:
|
|
during the year ended to identify unusual variances.
|
| |
•
|
We performed substantive testing by selecting samples of
|
|
• Estimation of total contract costs at inception and remaining
|
|
revenue transactions, recorded during the year ended by
|
|
costs to completion, which is a critical factor in measuring
|
|
testing the underlying documents using statistical sampling.
|
|
progress of a contract and amounts of revenue to be recognized; and
|
•
|
We evaluated management’s estimates (contract costs and risk provisions) by performing analytical procedures on such
|
|
• Assessment of various risks emanating from operational
|
|
estimates.
|
|
delays, contract terms, changes in estimations and scope, accounting for onerous obligations, technical, legal, external
|
•
|
We performed a retrospective review for contracts completed
|
|
environment etc. This requires the Company to estimate
|
|
during the current year by comparing the final outcome of the
|
|
various costs to capture such risks, including liquidated
|
|
contracts with previous estimates made for those contracts to
|
|
damages and warranties.
|
|
assess the reliability of the management’s estimation process.
|
|
In view of the above and because the Company and its external
|
•
|
We performed tests for completeness and appropriateness
|
|
stakeholders focus on revenue as a key performance indicator,
|
|
of actual cost booked in the correct period, by testing the
|
|
we determined this area to be an area involving significant risk,
|
|
underlying documents for samples selected using statistical
|
|
an area of audit focus, and accordingly a key audit matter.
|
|
sampling.
|
| |
•
|
We assessed the disclosures made in the financial statements.
|
|
Trade receivables (including unbilled revenue) and contract assets
|
|
|
(as described in Note 38 of the accompanying financial statements)
|
|
|
|
Trade receivables including unbilled revenue and retention money
|
In view of the significance of the matter we applied the following
|
|
with customers and contract assets forms a significant part of the
|
audit procedures in this area, among others to obtain sufficient
|
|
financial statements. Customer contracts typically involve time
|
appropriate audit evidence:
|
|
consuming and complex conditions around closure of contracts, including technical acceptances. This generally leads to longer
|
•
|
We obtained an understanding of the processes implemented
|
|
and significant time for realization of receivables. As a result of
|
|
by management over the recognition and the recoverability
|
|
the above, management’s assessment of recoverability of trade
|
|
of the trade receivables (including unbilled revenue) and
|
|
receivables (including unbilled revenue) and contract assets, involves critical evaluation of all factors impacting recoverability,
|
|
contract assets.
|
|
including impact of external environment, capability of customers
|
•
|
We tested key controls (both design and operating effectiveness)
|
|
to pay, historical payment records, evaluation of litigations,
|
|
over the recognition and the recoverability of the trade receivables
|
|
etc. including the possible effect from the pandemic relating to COVID-19.
|
|
(including unbilled revenue) and contract assets.
|
| |
•
|
We obtained and tested the ageing of aforesaid receivables /
|
|
Management makes an impairment allowance for trade receivables (including unbilled revenue) and contract assets on the basis of it’s assessment of recoverability of specific customers and on the basis of expected credit loss model for the remaining customers
|
•
|
assets on a sample basis.
We performed test of details and tested relevant contracts and
|
|
in accordance with Ind AS 109, Financial Instruments. For the purposes of impairment assessment, significant judgements and assumptions are made, including assessing credit risk, timing and amount of realization, etc.
|
•
|
documents for material trade receivable balances (including unbilled revenue) and amounts included in contract assets.
We evaluated the model adopted by management to estimate
|
|
the expected credit loss including the possible effect from the
|
|
In view of above, we determined this area to be an area of audit focus, and accordingly a key audit matter.
|
|
pandemic relating to COVID-19. We enquired the management in respect of the various judgements and estimates made relating to impairment provision against trade receivable (including unbilled revenue) and contract assets.
|
| |
•
|
We obtained and discussed management assessment of impairment for specific customer balances and understood reasons for the determination.
|
| |
•
|
We have circulated direct confirmations on a sample basis using statistical sampling. In case of non- receipt of such confirmations, alternate test procedures such as testing subsequent receipts and underlying documents have been performed.
|
| |
•
|
We assessed the disclosures made in the financial statements.
|
Information Other than the 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 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 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 financial statements, our responsibility is to read the other information and, in doing so, consider whether such other information is materially inconsistent with the 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 and take necessary actions as applicable under the applicable laws and regulations.
Responsibilities of Management for the 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 financial statements that give a true and fair view of the financial position, financial performance including other comprehensive income, cash flows and changes in equity of the Company in accordance with the accounting principles generally accepted in India, including the Indian Accounting Standards (Ind AS) specified under section 133 of the Act read with the Companies (Indian Accounting Standards) Rules, 2015, as amended. 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 the 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.
In preparing the financial statements, management is responsible for assessing the Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so.
Those Board of Directors are also responsible for overseeing the Company’s financial reporting process.
Auditor’s Responsibilities for the Audit of the Financial Statements
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 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 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 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 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 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.
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 financial statements for the financial year ended March 31, 2023 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 1” a statement on the matters specified in paragraphs 3 and 4 of the Order.
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 and Loss including the Statement of 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 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 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 these financial statements and the operating effectiveness of such controls, refer to our separate Report in “Annexure 2” to this report;
(g) In our opinion, the managerial remuneration for the year ended March 31, 2023 has been paid / provided by the Company to its directors in accordance with the provisions of section 197 read with Schedule V to 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 financial statements - Refer Note 35 to the accompanying financial statements;
ii. The Company has made provision, as required under the applicable law or accounting standards, for material foreseeable losses, if any, on long-term contracts including derivative contracts -Refer Notes 18 and 22 to the accompanying financial statements;
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 its knowledge and belief, and as disclosed in the note 45 to the accompanying 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, whether, directly or indirectly lend or invest in other persons or entities identified in any manner whatsoever by or on behalf of the Company (“Ultimate Beneficiaries”)
or provide any guarantee, security or the like on behalf of the Ultimate Beneficiaries;
b) The management has represented that, to the best of its knowledge and belief, and as disclosed in the note 45 to the accompanying 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, 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 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 sub-clause (a) and (b) contain any material misstatement.
v. The final dividend paid by the Company during
the year in respect of the same declared
for the previous year is in accordance with section 123 of the Act to the extent it applies to payment of dividend.
As stated in note 16 to the accompanying financial statements, the Board of Directors of the Company have proposed final dividend for the year 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.
vi. As proviso to Rule 3(1) of the Companies (Accounts) Rules, 2014 is applicable for the Company only w.e.f. April 1,2023, reporting under this clause is not applicable.
For S.R. Batliboi & Associates LLP
Chartered Accountants
ICAI Firm Registration Number: 101049W/E300004
per Sandeep Karnani
Partner
Membership Number: 061207
UDIN: 23061207BGYKVA1541
Place: Bengaluru
Date: May 24, 2023
|