To The Members of Hindustan Aeronautics Limited Report on the Audit of the Standalone Financial StatementsOpinion
We have audited the accompanying Standalone Financial Statements of Hindustan Aeronautics Limited ("the Company") which comprise the Balance Sheet as at 31st March 2023 and the Statement of Profit and Loss (including Other Comprehensive Income), Statement of Changes in Equity and the Statement of Cash Flows 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 which are included the returns of 29 divisions for the year ended on that date audited by the Division Auditors of the company.
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 ("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, ("Ind AS") and other accounting principles generally accepted in India, of the state of affairs of the Company as at March 31, 2023 and its profit, 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 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 there under, 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 on the standalone financial statement.
Emphasis of Matter1) Attention is invited to Notes to the Financial Results extracted below:a) Note:49 (33) (g)COVID-19 Impact
Current year Impact:
The Company has shown normal performance during the year. Hence, there is no impact during the year ended 31st March 2023.
Anticipated Future Impact:
Based on the information available (internal as well as external) up to the date of approval of this financial result, Company expects to recover the carrying amount of Intangible assets, Inventories, Property, Plant and Equipment's, Lease, Financial Instruments, Trade Receivables etc. The Company will continue to closely monitor the developments, the future economic and business outlook and its impact on Company's future financial statements with a view to minimize the Covid impact.
b) Note no :49 (43 G)
Revision of pay scales of executives and workmen, with effect from 01.01.2017 was implemented in accordance with the guidance issued by DPE vide OM dated 03.08.2017 for Executives and in accordance with the Wage Agreement entered into between Management and Employees Union representatives in 2019-20 in respect of Workmen. On an interpretation on pay refixation and pursuant to the directives of the Administrative Ministry, the pay fixation to be revised and the excess amount paid is to be recovered from the employees.
This has resulted in reduction of salaries and wages for the year ended 31 March 2023 by ' 5155 lakhs (Previous year: ' 5256 lakhs) and a consequential reduction in sales revenue for the year ended 31 March 2023 by '1239 lakhs (Previous year: ' 812 lakhs).
While so, the Employees Union and Officers Association have filed Writ Petitions with Hon'ble High Court of Karnataka to stay recovery of excess amount of salary paid by the Company. The Hon'ble High Court has granted interim stay on recoveries, Pending disposal of the writ petitions by the High court, the excess amount is shown under claims recoverable Note No.19 for ' 29645 lakhs (Previous year ' 24489 lakhs). Provision has been created for the full liability of ' 29645 lakhs during the year as a prudential measure in case the issue will be settled in favour of employees.
I n respect of employees who retired prior to 30 June, 2021, provision is made for the amount recoverable ' 2665 lakhs (Previous year: ' 2584 lakhs). The amount withheld from employees who retired after 30th June 2021 is kept under other liabilities ' 2706 lakhs (Previous year: ' 1835 Lakhs). Based on the final order that may be passed, suitable effect will be carried out in the accounts.
c) Note no :49 (31C)
I nventory amounting to ' 16,939 Lakhs were damaged due to floods caused by rains. An internal technical assessment committee estimated the loss of Inventory ' 7,856 Lakhs and the same has been provided in the books during the year. A claim for ' 750 Lakhs towards loss of Inventory and Plant & Equipment based on the original cost has been submitted to the Insurance Company.
Our opinion is not modified in respect of these matters.
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 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. We have determined the matters described below to be the key audit matters to be communicated in our report.
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Key Audit Matters
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Response to Key Audit Matters & Conclusion
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a) Revenue recognition
('Ind AS 115')
The revenue standard establishes a comprehensive framework for determining whether, how much and when revenue is recognized. This involves certain key judgements relating to identification of distinct performance obligations, determination of transaction price of identified performance obligation, the appropriateness of the basis used to measure revenue recognized over a period. Additionally, the standard mandates robust disclosures in respect of revenue and periods over which the remaining performance obligations will be satisfied subsequent to the balance sheet date.
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Our audit approach consisted testing of the design and operating effectiveness of the internal controls and substantive testing as follows:
• Evaluated the appropriateness of the disclosures provided under the revenue standard and assessed the completeness and mathematical accuracy of the relevant disclosures.
• Evaluated the design of internal controls relating to implementation of the revenue accounting standard.
• Selected a sample of continuing and new contracts, and tested the operating effectiveness of the internal control, relating to identification of the distinct performance obligations and determination of transaction price. We carried out a combination of procedures involving enquiry and observation, reperformance and inspection of evidence in respect of operation of these controls.
• Selected a sample of continuing and new contracts and performed the following procedures:
• Read, analyzed and identified the distinct performance obligations in these contracts.
• Compared these performance obligations with that generally identified and recorded by the company.
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Key Audit Matters
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Response to Key Audit Matters & Conclusion
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• Considered the terms of the contracts to determine the transaction price including any variable consideration to verify the transaction price used to compute revenue and to test the basis of estimation of the variable revenue.
• Examination of the correspondence relating to price revision and ascertained the reasonableness of the estimates.
• Sample of revenues disaggregated by type and service offerings was tested with the performance obligations specified in the underlying contracts.
Due to detailed procedures, a portion of is recognized based on the most likely amount based on past experience and the consistent practices followed. We have verified the procedures revenue recognition including unbilled revenue.
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b)
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Impairment of Trade Receivables
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We have verified the
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In respect of receivables from Government the company generally does not make any impairment provision based on past experience.
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i) Effectiveness of internal controls in place and procedures followed in identifying the recoverability of long outstanding dues.
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The amount involved being significant balance and management judgement we consider this as a Key Audit Matter.
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ii) The procedures and follow up actions in ascertaining the impairment of receivables.
Our audit procedures include evaluation of provisions made for impairment in earlier years. We also made test checks of invoice wise collection details provided made in respect of in the five preceding financial years and we concluded that the management assumption is reasonable.
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c)
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Contract Asset
Contract asset represents the revenue recognized but yet to be invoiced to the customer.
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Contract Assets represents the Company's right to receive the consideration in exchange for the Goods or Services that the Company has transferred to the Customer, when that right is conditioned on something other than passage of time.
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d)
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Liquidated damages
The Company's contract with the customers has standard clause for Liquidated damages for delayed delivery. The company's product have extended period of manufacturing; design approvals and inspection by customer at various stages which result in delay in certain cases leading to liquidated damages. The liquidated damages recognized being significant in the statement of profit and loss, is considered a key audit matter in our opinion.
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We have verified the controls, period of delay, the expected days of delay as on 31.03.2023 and also the calculation for the liquidated damages recognized and found the system followed and calculation to be in order.
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e)
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Work - in - Progress (WIP) - Inventories
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Our Audit Procedures include review of
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Inventories include Work in Progress which have been physically verified by the management based on physical verification instructions.
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• Physical Verification instructions
• Physical verification reports
• Roll back procedures
• Examining the basis of valuation on a test check basis
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Based on the above audit procedures we concluded that the valuation of WIP is proper.
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Key Audit Matters
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Response to Key Audit Matters & Conclusion
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f) Revision of pay
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We have verified the Audit para given by PDCA Bangalore, and the directives given by the Administrative Ministry dated
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Revision of pay scales of executives and workmen, with effect from 01.01.2017 was implemented in accordance
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07.04.2021.
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with the guidance issued by DPE vide OM dated
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We have verified the Copies of the writ petition filed by the
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03.08.2017 for Executives and in accordance with the
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employees, the interim orders of the Hon'ble High Court and
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Wage Agreement entered into between Management and
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the legal opinion from the company counsel.
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Employees Union representatives in 2019-20 in respect of Workmen. On an interpretation on pay refixation and
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We verified the internal control and the program logic for
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pursuant to the directives of the Administrative Ministry, the pay fixation is to be revised and the excess amount paid is to be recovered from the employees.
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recalculation of the employees cost and also made test check on walk through basis .Based on the above audit procedures we are satisfied with accounting treatment followed for employees benefits expenses, recognition of the amount recoverable, and
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The revision has resulted in reduction of salaries and
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the provision relating to retired employees and the provision
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wages for the year ended 31 March 2023 by ' 5155 lakhs (Previous year: ' 5256 lakhs ) and consequential reduction in sales revenue for the year ended 31 March 2023 by ' 1239 lakhs (Previous year: ' 812 lakhs) .
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made during the year.
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While so, the Employees Union and the Officers Association have filed Writ Petitions with Hon'ble High Court of Karnataka to stay recovery of excess amount of salary paid by the Company. The Hon'ble High Court has granted interim stay on recoveries, Pending final disposal of the writ petitions by the High court, the excess amount is shown under claims receivable Note No. 19 ' 29645 lakhs (Previous year ' 24489 lakhs). Provision has been created in FY 2022-23 for the full liability of ' 29645 lakhs as a prudential measure in case the issue will be settled in favour of employees.
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In respect of employees who retired prior to 30 June, 2021, provision is made for the amount recoverable ' 2665 lakhs (Previous year: ' 2584 lakhs).The amount withheld from employees who retired after 30th June 2021 is kept under other liabilities ' 2706 lakhs (Previous year: ' 1835 Lakhs)
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Information Other than the Financial Statements and Auditors Reports Thereon
The company's Board of Directors is responsible for the other information. The other information comprises the information included in Board's Report, Management Discussion & Analysis Report, Business Responsibility Report, but does not include the financial statements and our auditor's report thereon. The Board's Report, Management Discussion & Analysis Report, Business Responsibility 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 will 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 identified above when it becomes available and, in doing so, consider whether the 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 reports, if we conclude that there is a material misstatement therein, we are required to communicate the matter to those charged with governance.
Responsibility 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 Companies Act,2013("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,(Changes in Equity)and cash flows 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 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.
In preparing the Financial Statements, The Board of Directors 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 Board of Directors 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 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 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 Companies Act, 2013, we are also responsible for expressing our opinion on whether the company has adequate internal financial controls system 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 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.
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.
Materiality is the magnitude of misstatements in the 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 any identified misstatements in the 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.
Other Matter
a) We did not audit the financial statements / information of 29 Divisions included in the financial statement of the company whose financial statements / financial information reflect total assets of ' 67,1 1,738 Lakhs as at 31st March 2023 and the total revenue of '26,92,785 lakhs for the year ended on that date, as considered in the standalone financial statements / information of these divisions have been audited by the division auditors whose reports have been furnished to us, and our opinion in so far as it relates to the amounts and disclosures included in respect of divisions, is based solely on the report of such division auditors.
Our opinion is not modified in respect of these matters 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 Companies Act, 2013 we give in the "Annexure -B" 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 and proper returns adequate for the purposes of our audit have been received from the divisions not visited by us.
c) The reports on the accounts of the divisions of the company audited under Section 143 (8) of the Act by the division auditors have been sent to us and have been properly dealt with by us in preparing this report.
d) The Balance Sheet, the Statement of Profit and Loss (the Statement of Changes in Equity) and Cash Flow Statement dealt with by this Report are in agreement with the books of account and with the returns received from the divisions not visited by us.
e) In our opinion, the aforesaid Standalone financial statements comply with the AccountingStandards prescribed under Section 133 of the Act, read with Rule 7 of the Companies (Accounts) Rules, 2014.
f) Ministry of Corporate Affairs vide notification no 1/2/2014-CL-V dated 23rd February 2018 has exempted the companies engaged in defense production to the extent of application of relevant Accounting Standard on Segment Reporting. In view of the above, no disclosure is made by the company as required by Ind AS 108. Subject to the above, we state that, in our opinion, the aforesaid standalone financial Statements comply with the Accounting Standards specified under Section 133 of the Act
g) In terms of circular NO. GSR 463(E) dated 05th June 2015 issued by the Ministry of Corporate Affairs, Government of India, the company being Government Company, is exempt from the provisions of section 164(2) of the Act regarding disqualification of Directors.
h) The provisions of Section 197 are not applicable to a government Company (in terms of MCA Notification NO.GSR 463 (E) dated 05th June 2015) as the managerial remuneration is paid as per the appointment letter from the Government of India.
i) 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 A"
j) With respect to the other matters to be included in the Auditors' Report in accordance with Rule 11 of the Companies (Audit and Auditors) Rules, 2014, 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 49 (2) (a),49 (2) (b) ,49 (20),49 (21),49 (41),49 (43G), to the financial statements
ii. The Company has made provision, as required under the applicable law or accounting standards, for material foreseeable losses, on long-term contracts. The company does not have any 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, 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 division to or in any other persons or entities, including foreign entities ("lntermediaries"}, 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 it's knowledge and belief, no funds have been received by the division from any persons or entities, 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 we have considered reasonable and appropriate in the circumstances, nothing has come to the notice that has caused us to believe that the representations under sub-clause (i) and (ii) contain any material mis-statement.
v) a) The company has declared final dividend for the financial year 2021-2022 on 29.08.2022.
b) The interim dividends declared on 1 1.1 1.2022 and 10.03.2023 for the financial year 2022-2023 and paid by the Company during the year is in accordance with Section 123 of the Companies Act, 2013.
c) The Company has not proposed any final dividend up to the date of our report.
I) As required by section 143(5) of the Act, we give in "Annexure C" a statement on the matters specified by the Comptroller and Audit General of India for the Company.
For A.John Moris & Co.
Chartered Accountants FRN NO:007220S
(A G Krishnan)
Partner
Membership No. 021183
Place: Bengaluru UDIN: 23021 183BGTCQC1773
Date: 12.05.2023
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