Indian Renewable Energy Development Agency Limited
Report on the Audit of the Financial Statements
Opinion
We have audited the accompanying Financial Statements of Indian Renewable Energy Development Agency Limited (“the Company”),which comprise the Balance Sheet as at March 31,2023, and the Statement of Profit and Loss (including Other Comprehensive income), Statement of Changes in Equity and Statement of Cash Flows for the year then ended, and Notes to the Financial Statements, including a summary of significant accounting policies and Other Explanatory information prepared in accordance with the requirement of ‘the Companies Act 2013 ( as amended) ( the Act) (hereinafter referred to as “Financial Statements”).
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 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 the accounting principles generally accepted in India, of the state of affairs of the Company as at March 31, 2023, and profit and the 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 (“SAs”). 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 (“ICAI”) together with the ethical requirements that are relevant to our audit of the Financial Statements under the provisions of the Companies Act, 2013 (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 obtained by us, is sufficient and appropriate to provide a basis for our audit opinion on Financial Statements.
Emphasis of Matter
1. As described in Note 38 (42) to the Financial Statements, the company has classified certain accounts required to be classified as stage III /Non-Performing Assets (NPA) as stage II / Standard aggregating to Rs. 89312.93 Lacs in terms of interim order of Hon’ble High Court of Andhra Pradesh. The statutory disclosures have been made accordingly. However, as a matter of prudence, interest income on such accounts becoming NPA in terms of prudential norms of Reserve Bank of India (“RBI”) has been recognized on collection basis and allowance for impairment loss has been made in accounts accordingly.
2. As described in Note 38 (40) to the Financial Statements, the company has considered possible effects from COVID-19 pandemic on Company’s financial performance including the recoverability of carrying amounts of financial and non- financial assets.
Our opinion is not modified in respect of above 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 considered the matters described below to be the Key Audit Matters for incorporation in our Report.
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Sr.
No.
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Key Audit Matters
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Auditor’s Response
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1.
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Impairment of Loan Assets - Expected Credit loss
Refer Note no. 38 (37 (A) (a) (ii)) to the Financial Statements read with accounting policy No.5(ii)- ‘Financial Instruments’)
Financing is principal business of the Company and disclosure of Loan assets at fair value considering the provision for loss due to impairment is most significant.
The Company follows a Board approved methodology wherein assessment for allowance is carried out by an external agency for impairment based on certain criterion / framework classifying the assets into various stages depending upon credit risk and level of evidence of impairment. The measurement of an expected credit loss allowance (ECL) for financial assets measured at amortized cost requires the use of complex models and significant assumptions about future economic conditions and credit behaviour (e.g., likelihood of customers defaulting and resulting losses).
The Company makes significant judgments while assessing ECL and the assumptions underlying the ECL are monitored and reviewed on an on-going basis.
The proper application of such assumptions is material for statement of the Loan Assets. In view of the significance of the amount of loan assets in the Financial Statements, the loss due to impairment of loan assets has been considered as Key Audit Matter in our audit.
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Our Audit procedures based on which we arrived at conclusion regarding reasonableness of the disclosures and accounting for Impairment of Loan Assets - Expected Credit loss include the following:
We have obtained an understanding of the guidelines as specified in Ind AS 109 “Financial Instruments”, various regulatory updates, guidance of ICAI and internal instructions and procedures of the Company in respect of the ECL and adopted the following audit procedures:
Evaluation and testing of the key internal control mechanisms with respect to the loan assets monitoring, assessment of the loan impairment including testing of relevant data quality, and review of the real data entered.
Recoveries in the loan assets are verified to ascertain level of stress thereon and impact on impairment allowance in financial statements.
Verification / review of the documentation, operations / performance, valuation of available securities and monitoring of the loan assets, especially large and stressed loan assets, to ascertain any overdue, unsatisfactory conduct or weakness in any loan asset account.
The company avails services of third party for evaluation of ECL Components. The calculations in the study for impairment allowance carried out by third party are relied upon by us and test checks are carried out for the same. The data shared with the third party is verified by us for correctness of material components being submitted. Our audit procedure in the same are limited in view of not sharing certain parameters and software used for study of such data being considered confidential by such third party.
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We also compared ECL with the provisioning as required by the applicable directions of the Reserve Bank of India and ensured adequacy of impairment allowance accordingly.
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2.
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Fair valuation of Derivative Financial Instruments
(Refer Note No. 38 (36) to the Financial Statement read with accounting policy No. 5 (ii).
To mitigate the Company’s exposure to foreign currency risk and interest rate, non-Rupee cash flows are monitored and derivative contracts are entered for hedging purpose. The derivatives are measured at fair value as per Ind AS 109.
To qualify for hedge accounting. The hedging relationship must meet certain specified requirements as per Ind As. Hedge accounting results in significant impact on financial statements together with complexity of its accounting/assumptions and numerous parameters therein for establishing hedge relationship. Gain/Loss on these derivatives is recognised in other comprehensive income or profit and loss as provided by Ind AS. The magnitude of such transactions is significant as per the operation of the company.
In view of facts of the matter we have identified it as a key audit matter.
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Our Audit procedures based on which we arrived at conclusion regarding reasonableness of the disclosures and accounting for derivatives include the following:
Discussing and understanding management’s perception and studying policy of the company for risk management.
Verification of fair value of derivative in terms of Ind AS 109, testing the accuracy and completeness of derivative transactions.
Evaluation of management’s key internal controls over classification, valuation, and valuation models of derivative instruments.
Obtained details of various financial derivatives contracts as outstanding/pending for settlement as on 31st March, 2023.
Verification of underlying assumptions in estimating the fair valuation arrived at for those financial derivative contracts.
Appropriateness of the valuation methodologies applied and testing the same on sample basis for the derivative instruments.
Additionally, we verified the accounting of gain/loss on derivatives in the other comprehensive income or Profit & Loss Account.
Reviewed the appropriateness and adequacy of disclosures by the management as required in terms of Ind AS 109.
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3.
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Liability for Taxation including Income Tax
Refer note 38 (3 a) The company has material uncertain tax demands in respect of matters under dispute which involves significant judgement to determine the possible outcome of these disputes.
The income tax cases for Financial Year (FY) 1997-1998 to FY 2008-2009 were referred back on direction of Hon’ble High Court / ITAT and
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Our Audit procedures based on which we arrived at conclusion regarding reasonableness of the disclosures and accounting for Liability for Income Tax include the following:
Our audit procedure includes review of various orders passed by Hon’ble High Court and Hon’ble ITAT on the subject matter in dispute with Department of Income Tax. We undertook procedure to evaluate management position on these uncertain tax positions.
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for FY 2009-10 to 2017-18 are pending with Appellate authorities. For FY 2020-21& 202122 substantial demands have been made by way of additions which are apparent mistakes and are yet to be rectified. Appropriate provision and disclosure of such liabilities is material to the presentation of financial statements.
Service Tax and Goods & Service Tax (GST) Authorities have also raised certain issues and recently raised demands for several past periods, which are being contested. Possible outcome of these demands is substantial.
In view of this we have identified it as a key audit matter.
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For other tax matters, the facts and the legal pronouncements were analyzed and reviewed.
We reviewed the appropriateness and adequacy of disclosures by the management as required in terms of Ind AS 37 “Provisions, Contingent Liabilities and Contingent Assets “
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4.
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Accounting of Grants and subsidies for Renewable Energy
The company is being engaged by the Indian Government and other organizations as well as International Agencies for implementing and monitoring various programs in the field of renewable energy. This involves accounting of such transactions separately from regular business transactions, Revenue Recognition and evaluation of tax implication under Indian Tax laws. The frequency and quantum of such transactions is increasing in view of which, we have identified it as Key Audit Matter.
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Our Audit procedures based on which we arrived at conclusion regarding reasonableness of the disclosures and accounting for grants and subsidies include the following:
Understanding the terms of reference for various such programs and their implications in accounting.
Analysing the tax implications and accounting in terms of Ind AS 20- Accounting for Government Grant and Disclosure of Government Assistance
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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 Board’s Report including Annexures to Directors’ Report, Management Discussion and Analysis Report, but does not include the financial statements and our auditors’ report thereon. The other information as stated above is expected to be made available to us after the date of this auditors’ 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 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 during the course of our audit or otherwise appears to be materially misstated. When we read the other information as stated above and if we conclude that there is a material misstatement therein, we are required to communicate the matter to those charged with governance and describe necessary actions required as per applicable laws and regulations.
Responsibilities of Management and Those Charged with Governance 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 state of affairs (financial position), Profit or Loss (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 specified under section 133 ofthe 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, 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. The Board of Directors is 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 Standard on Auditing (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 scepticism 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 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 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 ability of the company 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 of the Company 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 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.
Reports 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-A”, a statement on the matters specified in paragraphs 3 and 4 of the Order, to extent applicable and in terms of sub-section (5) of section 143 of the Act, we give in the “Annexure-B” information in respect of the directions issued by Comptroller and Auditor-General of India in respect of the company.
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 branches not visited by us;
c) The balance sheet, the Statement of Profit & Loss including Other Comprehensive Income, Statement of Change in Equity and the Cash Flow Statement 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 Rule 7 of the Companies (Accounts) Rules, 2014;
e) In terms of Notification no. G.S.R. 463 (E) dated 05th June 2015 issued by the Ministry of Corporate Affairs, provisions of Section 164(2) of the Act regarding disqualifications of the Directors, are not applicable as it is a government Company;
f) As per notification number G.S.R. 463 (E) dated 5th June, 2015 issued by Ministry of Corporate Affairs, section 197 of the Act as regards the managerial remuneration is not applicable to the Company, since it is a Government Company.
g) With respect to the adequacy of the internal financial controls over financial reporting of the Company and the operating effectiveness of such controls, refer to our separate report in “Annexure-C”.
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 ( ‘Audit Rules’) , 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 38 (3) to Financial Statements.
ii. The Company has made due provision as required under the applicable law or Indian Accounting Standards, for material foreseeable losses, if any, on long term contracts including derivatives contracts: - Refer note 38(37)(C) (II) (c) to the financial statements.
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 (Refer
note 38(53)) that to the best of its 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 company to or in any other person or entity, including foreign entity (“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 (Refer note 38(53)) that to the best of its knowledge and belief , no funds have been received by the company from any person or entity, including foreign entity (“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; and
(c) Based on audit procedure 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 mis-statement.
v. No dividend has been declared or paid during the year by the company.
vi. During the year, the company was not required to use a software for maintaining books of accounts having feature of recording Audit Trail (edit log) in terms of Companies (Accounts) Rules 2014 (as amended), in view of this we are unable to report on the same under clause 11(g) of Audit Rules.
For DSP & ASSOCIATES
Chartered Accountants
Firm’s Registration Number: 006791N
Sd/-
CA SANJAY JAIN
(Partner)
Membership No 084906
Place: New Delhi
Date: 25th April 2023
UDIN: 23084906BGWRRB6185
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