Report on the Audit of the Standalone Financial Statements
We are issuing this revised audit report which supersedes our earlier report dated 25.05.2023 with an addition to Emphasis of Matter paragraph concurring to the opinion of the Comptroller and Auditor General of India under Section 143(6)(b) of the Companies Act, 2013.
Opinion
We have audited the accompanying standalone Ind AS financial statements of BHARAT DYNAMICS 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 Cash Flow Statement for the year then ended, and other explanatory information and a summary of the significant accounting policies and Notes to the standalone Ind AS financial statements (hereinafter referred to as "Standalone Ind AS financial statements").
In our opinion and to the best of our information and according to the explanations given to us, the aforesaid Standalone 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 accounting principles generally accepted in India, of the state of affairs of the Company as at 31st March 2023, and Profit and Other 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 SAs are further described in the Auditor's Responsibilities for the Audit of the Standalone Ind AS Financial Statements section of this 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 standalone 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. c
Key Audit Matters ("KAM") are those matters that, in our professional judgment, were of the most significance in our audit of the standalone Ind AS financial statements of the current period. These matters were addressed in the context of our audit of the standalone Ind AS financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
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Key Audit Matters
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How our audit addressed the Key Audit Matter
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Revenue Recognition: Sale and Service
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Principal Audit procedures performed include:
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Contracts:
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1. We assessed the appropriateness of the revenue recognition policies of the company and whether
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The principal products of the Company comprise
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its adoption is as per the covenants of the
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defense equipment where the sale is concluded
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applicable accounting standards.
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after inspection by or on behalf of the customer
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2. We evaluated the design of key controls and
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and after acceptance at its facility.
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operating effectiveness of the relevant key controls with respect to revenue recognition on selected
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Revenue is thus recognised after such inspection
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transactions.
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and when customer obtains control of the goods.
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3. We performed substantive testing by selecting
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We identified revenue recognition as a key audit
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samples of revenue transactions, recorded during
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matter because
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the year by testing the underlying documents.
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a. The Company and its external
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4. We tested the revenue transactions recorded
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stakeholders focus on revenue as a key
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nearer to the financial year end date by verifying
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performance indicator.
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the underlying documents to determine whether
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b. Such focus creates an incentive for
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the revenue had been recognized in the
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revenue to be overstated or recognised
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appropriate financial period.
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before control has been transferred.
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5. We tested the assumptions made by the
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c. In a few cases revenue has been
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management in determining full or proportionate
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recognized but goods are in the
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revenue recognition in respect of service contracts
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possession of the company based on the
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(job works and repairs & overhauls) by verifying
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instructions of the customer. Application
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appropriate evidence.
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of the principle of "bill and hold" required
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6. Recognition of unbilled revenue were validated
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examination.
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with milestone achievements with reference to
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d. There are performance obligations which
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contract terms.
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do not relate to core activity of the
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7. The levy of Liquidated damages were validated
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company but form part of the
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with reference to the contracts and effective
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deliverables under Sale Contracts. In such
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delivery dates. /"'"c'c
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A M
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cases time of recognition of performance
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8. The "bill and hold" principles adopted^^t^
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obligation is a complicated subject.
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company were validated with the F^P?/TOj!%(
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2424
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available with the company. f [jll&d,
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h/s
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Thus revenue recognition is a Key Audit Matter Refer:
Note Nos. 30, 38(11), 38(20) and Item No.3 of Accounting Policy.
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9. Satisfaction of performance obligations and recognition of revenue in respect of goods that are not the core product of the company, were examined in context to the overall sale contract.
Our audit approach did not reveal any noncompliance with the company's declared accounting policies, GAAP and Ind AS.
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Inventories:
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Principal Audit procedures performed include:
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Audit of Inventories comprise
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1. System and internal controls are evaluated
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a. Physical verification
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to ensure that there are no recording
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b. Confirmation of third party holdings
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delinquencies with respect to time of
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c. Valuation
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recording, quantity recorded, and item
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d. Redundancies - Recognition and reversal
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recorded.
2. Applied audit procedures to validate the
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Inventories held by the company are custom
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physical availability of the inventories as
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made, sensitive and of high value. The holding
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supported by physical verification reports
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period is also high in tune with the long time
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of the management teams.
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windows taken for order execution.
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3. Applied principles of roll back and roll over for few inventories to validate the year end
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The nature of activity of the company and the
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holding.
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order execution timelines are spread over
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4. Perused third party confirmations and
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several years. This results in dated inventories
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matched with the company's records.
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but not redundant considering ongoing the
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Variances if any, are reduced from
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production activity.
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inventory values.
5. Sample checking of valuation methodology
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The application of declared policy on redundancy
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by the system was done through manual
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and its appropriateness therefore needs to be
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validation for the material portion of the
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checked.
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inventory.
6. Methodology of loading actual overheads
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The focus on inventories is thus significant in the
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to the inventory values were validated and
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audit process and a Key Audit Matter.
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confirmed to be in tune with costing principles.
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Please refer Note No.10 and Accounting Policy
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7. The policy of recognizing redundancy of
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No.7
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materials (Accounting policy no 7.4.) and Management's override of such policy was_
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tested with appropriate evidence^Ijs; conform that such policies as wefl^Kthe
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5/
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override are reasonable and inftwff6Lw?tfe-( industry conditions. 1 ^ Ucfrias
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02f
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Our audit approach did not reveal any noncompliance with the company's declared accounting policies, GAAP and Ind AS.
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Recognition-Property, Plant and Equipment and
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Principal Audit procedures performed include:
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Capital Work in progress
a) The process of capitalization of an asset
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Understanding the process of initiating, approving
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encompasses several stages such as
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and issue of purchase/work orders
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placing of work orders, receipt, inspection, getting site ready,
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Method followed in capturing the relevant direct
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installation, trial runs and decision on
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and indirect costs for capitalization through the
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date of commercial operations. In some
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accounting software and fixed asset module
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instances procurement in components leading to a whole asset, would lead to
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Procedure for determining date of capitalization
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different time periods in the process.
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and useful life of the project/asset/component
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b) In cases of buildings the process would
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with communications/certificates from user
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involve inspection for each stage of
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departments.
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completion and approval of running bills from contractors. In some cases the cost
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Performed detailed testing of project/ asset/
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of an asset may not be captured correctly
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component capitalized during the year
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in the first instance since inspection and approval of bills may be done after COD.
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Ensured adequate disclosures as per Ind AS
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c) The processes in a) & b) above need to be properly translated in books of accounts
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The company has capitalized Rs 6,806.35 lakhs of
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ensuring correct costs (both direct and
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Tangible Assets and Rs 1,223.40 lakhs of Intangible
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indirect costs) are capitalized at the
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assets during the reporting period.
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correct date under correct asset classification.
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Our audit procedures as detailed above has not
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d) In cases where the asset purchases/
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revealed any incorrect capitalization or inadequate
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projects are spread over more than one
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disclosures
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financial year the recognition of Capital WIP with proper costs is essential.
The validation of various parameters of capitalization such as timing, cost, useful life, classification and depreciation rate is an area of higher risk of mis-statements. The compliance
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with Indian accounting standards also poses a
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significant audit risk.
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Hence it is considered as a Key Audit Matter,
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/ ./FRN: 002424 1 OrTn Kr,„uA
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Refer Note Nos. 1 & 5 and Accounting Policy
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No.ll.
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We draw attention to Note 38(25) to the standalone financial statements regarding ifnpact on the company's operation due to the ongoing Russia-Ukraine war.
We draw attention to Note: 38 (27) regarding the impact on the financials due to change in Accounting Policy on Customer Financed assets.
We draw attention to Note No 38(7) to the standalone financial statements:
The Company holds inventory valued at Rs 8,350.75 lakhs as at 31.03.2023 that was procured for certain orders. These orders were short closed by the customer. The company holds advance from customer of Rs 36,234.42 lakhs relating to such orders. The inventories are nonmoving for more than five years. As per company's accounting policy redundancy provision is to be recognised for inventory which are non-moving for more than five years. No redundancy provision is recognised for these inventories.
The company contends that the customer has impliedly agreed to take over the inventory against the advance which is sufficient to cover the value of inventory. Hence no loss would be incurred by the company on this account and no redundancy provision is therefore considered necessary. There is no explicit term in the sale contracts to set-off the advance to the value of inventory.
Our opinion is not modified in respect of the above matter.
Information other than the Standalone Financial Statements and Auditor's Report thereon
The Company's Management and Board of Directors are responsible for the other information. The other information comprises the information included in the Company's Annual Report but does not include the standalone Ind AS financial statements and our auditor’s report thereon.
Our opinion on the standalone Ind AS 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 Ind AS 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 misstatemenj>-of this other information, we are required to report that fact. We have nothing to repopf^fo^ this regard. / »/ff
Responsibilities of Management and Those Charged with Governance for the Standalone Financial Statements
The Company's Board of Directors is responsible for the matters stated in section 134(5) of the Companies Act, 2013 ("the Act") with respect to the preparation of these standalone Ind AS 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 accounting principles generally accepted in India, including the Indian Accounting Standards (Ind AS) prescribed under Section 133 of the Act read with relevant rules issued thereunder.
This responsibility also includes maintenance of adequate accounting records in accordance with the provisions of the Act for safeguarding the assets of the Company and for preventing and detecting frauds and other irregularities; selection and application of appropriate accounting policies; making judgments and the 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 standalone 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 standalone financial statements, management and 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 management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so. Board of Directors are responsible for overseeing the Company's financial reporting process.
Auditor's Responsibilities for the Audit of the Standalone Financial Statements
Our objectives are to obtain reasonable assurance about whether the standalone financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance but is not a guarantee that an audit conducted in accordance with SAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these standalone financial statements.
As part of an audit in accordance with SAs, we exercise professional judgment and mairtM&i^
i 0 f Ý ”
professional skepticism throughout the audit. We also: (J r—
I *>4—
• 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 controls.
• Obtain an understanding of internal financial controls 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 control 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 management's use of the going concern basis of accounting in preparation of Standalone Financial Statements 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 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 standalone Ind AS financial statements, including the disclosures, and whether the standalone Ind AS financial statements represent the underlying transactions and events in a manner that achieves fair presentation.
Materiality is the magnitude of misstatements in the standalone Ind AS financial statements that, individually or in aggregate, makes it probable that the economic decisions of a reasonably knowledgeable user of the financial statements may be influenced. We consider quantitative materiality and qualitative factors (i) in planning the scope of our audit work aryla in evaluating the results of our work; and (ii) to evaluate the effect of any identif/$Ly misstatements in the financial statements. I *A
We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.
We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding Independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our Independence, and where applicable, related safeguards.
From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the standalone 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 in terms of sub-section (11) of Section 143 of the Act, we give in Annexure A, a statement on the matters specified in Paragraphs 3 and 4 of the Order, to the extent applicable.
2. As required under 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 Other Comprehensive Income, the Statement of Changes in Equity and Cash Flow Statement dealt with this Report are in agreement with the books of account.
d) In our opinion, the aforesaid Standalone Ind AS financial statements comply
with the Indian Accounting Standards prescribed under Section 133 of the Act^——^ and the Rules made thereunder.
e) In terms of Notification no. G.S.R.463(E)dt. 05.06.2015 issued by Ministry of Corporate Affairs, the provision of Section 164(2) of the Companies Act, 2013 in respect of disqualification of Directorate not applicable to the Company.
f) With respect to 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 Directions issued by the Comptroller and Auditor General of India under Section 143 (5) we give our report in Annexure C:
h) The provisions of Section 197 are not applicable to this 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, and
i) 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 does not have any pending litigations which would impact its financial position, except litigations with respect to taxation matters. The financial impact of such litigations are disclosed in Para 7(c) of Annexure A to this report.
ii) The company does not have any long-term contracts requiring a provision for material foreseeable losses.
iii) The company does not have any amounts required to be transferred to the Investor Education and Protection Fund
iv) The management has represented that, to the best of its knowledge and belief that no funds have been advanced to or in any other persons or entities, 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.
v) The management has represented that, to the best of its knowledge and belief that the company has not received any funds 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 otbw^ persons or entities identified in any manner whatsoever by or on beh^fgf^ the Funding Party ("Ultimate Beneficiaries") or provide any guarartte&i-x
security orthe like on behalf of the Ultimate Beneficiaries other than those disclosed in the notes to accounts
vi) Based on the audit procedures that we considered reasonable and appropriate in the circumstances, nothing has come to our notice that that has caused us to believe that the representations under sub clause(iv) and (v) contain any material mis-statement.
vii) a. 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 Companies Act 2013
b. The interim dividend declared and paid by the Company during the year and until the date of this audit report is in accordance with section 123 of the Companies Act 2013.
c. As stated in Note No. 38(9) to the 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.
viii) The reporting requirement on whether the company has used such accounting software that has a feature of recording audit trail is made applicable from the financial years commencing on or after 1st April 2023 and hence not applicable to the year under report.
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