To the Members of Manappuram Finance Limited
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 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 obtained by us is sufficient and appropriate to provide a basis for our opinion.
Emphasis of Matter
We draw your attention to Note 74 in the standalone financial statements in relation to show cause notice received from Reserve Bank of India (RBI) with respect to certain matters highlighted in the Annual Inspection report for Financial Year ended on March 31, 2021 and explained in the note. Penalties, if any, that may be imposed on the Company by RBI in this regard and the impact thereon on the standalone financial statements is currently unascertainable.
Our opinion is not modified with respect to this matter.
Key Audit Matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the standalone financial statements for the year ended 31st March, 2023 (current year). These matters were addressed in the context of our audit of the standalone financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
Report on the Audit of the Standalone Financial Statements
Opinion
We have audited the accompanying standalone financial statements of Manappuram Finance Limited ("the Company”), which comprise the Balance Sheet as at 31st March, 2023, 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 standalone 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 standalone financial statements give the information required by the Companies Act, 2013 ("the Act') in the manner so required and give a true and fair view in conformity with the Indian Accounting Standards prescribed under section 133 of the Act read with Companies (Indian Accounting Standards) Rules, 2015 ("Ind AS”) as amended and other accounting principles generally accepted in India, of the state of affairs of the Company as at 31st March, 2023, and profit, 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 Standalone
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No
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Key Audit Matter
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How the Key Audit Matter was addressed in our audit
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1
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Interest Income on Gold Loans:
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Our audit procedures in respect of this matter included the following but
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Interest Income on Gold Loan as at 31st March, 2023: ' 39,903.31
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not limited to:
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millions
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Obtained an understanding of management's process, systems/
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Refer note 27(i) to the standalone financial statements
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applications and controls implemented on in relation to computation
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Interest Income on Gold Loan is based on the various gold loan
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& recognition of interest income on gold loans.
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schemes provided by the Company which is netted off against the rebates & discounts given for prompt or early payments. The calculation of the rebates & discount amounts netted off against the interest income involve complexities on account of descretion & managment judgement which is dependent upon the timing and
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Evaluated and validated the design, implementation and operating
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effectiveness of key internal financial controls pertaining to the recognition of the various gold loan schemes and interest income thereon, including rebates & discounts.
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period of repayment under the different schemes. Penal interest charged on account of delay payments dependent on the nature & period of delay and hence subject to judgement.
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The entire computation of interest income is automated and system
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driven. We have performed the following audit procedure with respect to around interest income on gold loans:
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Considering the significance of interest income on gold loans and the above factors we have considered Interest Income on gold loan as Key Audit Matter
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i. Selected samples and verified accuracy of interest income under various gold loans schemes by performing recomputation.
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Sr.
No
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Key Audit Matter
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How the Key Audit Matter was addressed in our audit
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ii. SeLected sampLes of continuing and new goLd Loan schemes and tested the operating effectiveness of the internaL control reLating to interest income computation. We aLso carried out a combination of procedures invoLving inquiry, and observation and inspection of evidence in respect of operation of these controLs.
iii. Performed anaLyticaL procedures and test of detaiLs procedures for testing the accuracy and compLeteness of revenue recognized.
iv. Tested the reLevant IT generaL controLs around access and change management reLating to interest income computation and reLated information used in interest computation.
v. Obtained the List of modifications made in the interest scheme master during the year and verified the same on test check basis.
vi. Assessed the appropriateness, accuracy and adequacy of reLated presentation and discLosures in accordance with the appLicabLe accounting standards.
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2
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Provision for Expected Credit Losses (ECL) on Loans:
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Our audit procedures in respect of this matter incLuded the foLLowing,
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Total Gross Loans as at 31st March, 2023: ' 247,345. 68 millions
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but not Limited to:
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Impairment Provision as at 31st March, 2023: ' 1,761.66 millions Refer note 10 to the standalone financial statements
In accordance with IND AS 109, the Company applies expected credit Losses (ECL) model for measurement and recognition of
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•
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Examined poLicies approved by the Board of Directors for computation of ECL that addresses procedures and controLs for assessing and measuring credit risk on aLL Lending exposures commensurate with the size, compLexity and risk profiLe specific to the Company.
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impairment Loss on the Loans assets. Significant judgements are used in cLassifying Loan assets and appLying appropriate measurement principles. The allowance for expected credit Losses ("ECL") involves a significant Level of management judgement and estimation uncertainty in the foLLowing key areas:
Assessesing whether there has been a significant increase in credit risk for exposures since its initiaL recognition by comparing the risk of defauLt occurring over the expected
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•
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EvaLuated & vaLidated the design and operating effectiveness of controLs across the processes reLevant to aLLowance for ECL. These controLs, among others, incLuded controLs over the aLLocation of assets into stages incLuding management's monitoring of stage effectiveness, modeL monitoring incLuding the need for post modeL adjustments, modeL vaLidation, credit monitoring, individuaL/ coLLective provisions and production of journaL entries and discLosures.
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Life of the asset between the date of initiaL recognition and the reporting date, which invoLves estimation uncertanity in computing the defauLt risk over Life of the assets which is
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•
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Verified the compLeteness of Loans incLuded in the Expected Credit Loss caLcuLations as of 31st March, 2023.
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LikeLy to be more than one year.
CLassification of Loan assets to stage 1, 2, or 3 using criteria in accordance with Ind AS 109 where no significant increase in credit risk has been observed, such assets are cLassified
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•
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SeLected sampLes & verified appropriateness of cLassification of Loan assets in stage 1, 2 and 3 in accordance with the poLicy approved by the Board of Directors.
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in "Stage 1", Loans that are considered to have significant increase in credit risk are not credit impaired are considered to be in "Stage 2" and those which are in defauLt or for which there is an objective evidence of impairment are considered to be in "Stage 3". Such cLassification requires significant management judgements due to the nature of Loan assets
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•
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SeLected sampLes of exposure and verified the appropriateness of determining Exposure at DefauLt (EAD), PD and LGD. Further, aLso checked the appropriateness of information used in the estimation of the ProbabiLity of DefauLt ("PD") and Loss given DefauLt ("LGD") for the different stages depending on the nature of the portfoLio.
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and assessment required thereon.
Determination of Exposures at DefauLt ("EAD"), probability of defauLts (PD) and estimation of Loss given defauLts (LGD).
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•
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Performed an overaLL assessment of the ECL provision LeveLs at each stage.
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The probabiLity of defauLt for the pooLs are computed based on the historicaL trends, adjusted with any forward Looking factors which is subject to estimation ncertainty. SimiLarLy the Company computes the Loss Given DefauLt based on the recovery rates as estimated by management.
Considering the above, aLLowance for Expected Credit Loss on Loan Assets requires a high degree of judgement and estimation uncertainty, with a potentiaL range of outcomes which have a significant impact on the financiaL statements. AccordingLy, we have determined Provision for Expected Credit Losses (ECL) on Loans as Key Audit Matter.
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Assessed the adequacy and appropriateness of discLosures in compLiance with the Ind AS 107 in reLation to ECL especiaLLy in reLation to judgements used in estimation of ECL provision.
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Sr.
No
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Key Audit Matter
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How the Key Audit Matter was addressed in our audit
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3
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Information Technology ("IT”) Systems and Controls
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Our audit procedures with respect to this matter included the following, but were not limited to the following:
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The Company has a complex IT system to support its recording of customer's operational data, business processes, ensuring complete and accurate processing of financial transactions and supporting the overall internal control framework.
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•
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Involved IT specialists as part of the audit for the purpose of
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testing the IT general controls and application controls (automated
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and semiautomated controls) to determine the accuracy of the
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information produced by the Company's IT systems;
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In particular, the IT system is used for recording all disbursements
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•
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Obtained a comprehensive understanding of IT applications
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and collections, identification and tagging of pledged loans to
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landscape implemented at the Company. It was followed by
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customers and calculating interest income and overdue days.
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process understanding, mapping of applications to the same and understanding financial risks posed by people-process and
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The Company's accounting and financial reporting processes are
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technology;
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dependent on automated controls enabled by IT systems which impacts key financial accounting and reporting items such as
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•
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Tested design and operating effectiveness of key controls operating
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loans, interest income, impairment on loans amongst others.
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over user access management, change management, computer operations (which includes testing of key controls pertaining to,
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The reliability and security of IT systems play a key role in the
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backup and incident management and data centre security), System
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business operation. The controls implemented by the Company in
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interface controls. This included testing that requests for access to
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its IT environment determine the integrity, accuracy, completeness
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systems were appropriately logged, reviewed, and authorized.
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and validity of data that is processed by the applications and is
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•
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Tested the design and operating effectiveness of certain automated
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ultimately used for financial reporting.
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controls, that were considered as key internal system controls over financial reporting were tested. Using various techniques such as
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Accordingly, we have identified 'IT systems and controls' as key
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inquiry, review of documentation / record / reports, observation, and
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audit matter because of the high level automation, significant
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re-performance. We also tested few controls using negative testing
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number of systems being used by the management and the complexity of the IT architecture and its impact on the financial
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technique;
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reporting system.
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•
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Tested compensating controls and performed alternate procedures, where necessary. In addition, understood where relevant, changes made to the IT landscape during the audit period.
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Information Other than the Standalone Financial Statements and Auditor's Report thereon
Responsibilities of Management and Those Charged with Governance for the Standalone Financial Statements
The Company's Management and Board of Directors are responsible for the matters stated in section 134(5) of 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 standalone financial statement 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, the Board of Directors are responsible for assessing the Company's ability to
continue as a going concern, disclosing, as applicable, matters
The Company's Management and Board of Directors are responsible for the other information. The other information comprises of Director's Report including annexures to the Director's Report which is included in the Annual Report but does not include the standalone 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 standalone financial statements does not cover the other information and we do not and will not express any form of assurance conclusion thereon.
In connection with our audit of the standalone 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 standalone 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 under SA 720 'The Auditor's responsibilities Relating to Other Information'.
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 standalone financial statements.
As part of an audit in accordance with SAs, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:
I dentify 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 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 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 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 standalone financial statements, including the disclosures, and whether the standalone 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 standalone financial statements for the year ended 31st March, 2023 (current year) 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 "Annexure A” a statement on the matters specified in paragraphs 3 and 4 of the Order, to the extent applicable.
2. As required by Section 143(3) of the Act, we report that:
(a) We have sought and obtained all the information and explanations which to the best of our knowledge and belief were necessary for the purposes of our audit.
(b) In our opinion, proper books of account as required
by law have been kept by the Company so far as it appears from our examination of those books.
(c) The Balance Sheet, the Statement of Profit and Loss (including other comprehensive income), the Statement of Changes in Equity and the Statement of Cash Flow dealt with by this Report are in agreement with the books of account.
(d) I n our opinion, the aforesaid standalone financial
statements comply with the Accounting Standards specified under Section 133 of the Act.
(e) On the basis of the written representations received from the directors as on 31st March, 2023 taken on record by the Board of Directors, none of the directors are disqualified as on 31st March, 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 standalone financial statements of the Company and the operating effectiveness of such controls, refer to our separate
Report in "Annexure B”.
(g) With respect to the other matters to be included in the Auditor's Report in accordance with 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
standalone financial statements - Refer Note 23 to the standalone financial statements;
ii. The Company did not have any long-term contracts including derivative contracts for which there were any material foreseeable losses
- Refer Note 76 to the standalone financial statements.
iii. The Company has transferred ' 4.59 millions of Unclaimed dividend to the Investor Education and Protection Fund during the financial
year 2022-23.
iv. (1) The Management has represented that,
to the best of its knowledge and belief, as disclosed in Note 64B(i) to the standalone 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.
(2) The Management has represented that, to the best of it's knowledge and belief, as disclosed in Note 64B(ii) to the standalone financial statements, no funds have been received by the Company from any person(s)/entity(ies), including foreign entities ("Funding Parties”), that the Company has 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
(3) Based on such audit procedures performed, as considered reasonable and appropriate in the circumstances, nothing has come to our attention that causes us to believe that the management representations under sub-clauses (1) and (2) above contain any material misstatement.
v. The Company has declared and paid dividend during the year which is in compliance with section 123 of the Act.
vi. As the proviso to Rule 3(1) of the Companies (Accounts) Rules, 2014 (as amended), which provides for the accounting software used by the Company for maintaining its books of account to have the feature for recording of audit trail (edit log) facility and related matters, is applicable for the Company only with effect from financial year beginning 1 April 2023, the reporting under clause (g) of Rule 11 is currently not applicable.
3. In our opinion, according to information, explanations given
to us, the remuneration paid by the Company to its directors is within the limits laid prescribed under Section 197 of the Act and the rules thereunder.
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