To
The Members of
IndoStar Capital Finance Limited
Report on the Audit of the Standalone Financial
Statements
Opinion
We have audited the accompanying standalone financial statements of IndoStar Capital Finance
Limited (“the Company”), which comprise the Balance Sheet as at 31 March 2021, and the Statement of Profit and Loss (including Other Comprehensive Income), the Statement of Cash Flows and the Statement of Changes in Equity for the year then ended, and 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 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 31 March 2021, and its loss, total comprehensive loss, its cash flows and the changes in equity for the year ended on that date.
Basis for Opinion
We conducted our audit of the standalone financial statements in accordance with the Standards on
Auditing specified under section 143(10) of the Act (SAs). Our responsibilities under those Standards are further described in the Auditor's Responsibility for the Audit of the Standalone 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 made 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 the standalone financial statements.
Emphasis of Matter
We draw attention to Note 31(F) of the standalone financial statements, in which the Company describes the continuing uncertainties arising from the COVID 19 pandemic. Our opinion is not modified in respect of 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 of the current period. 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. We have determined the matters described below to be the key audit matters to be communicated in our report.
|
Sr.
No.
|
Key Audit Matter
|
Auditor’s Response
|
|
1
|
Allowances for Expected Credit Losses (ECL):
(Refer Notes 2.3(f)(i) and 5 to the standalone financial statements)
As at March 31, 2021, loan assets aggregated ' 6,692.46 crore (net of ECL ' 685.11 crore), constituting 68% of the Company's total assets which are measured at amortised cost.
Significant judgement is used in classifying these loan assets and applying appropriate measurement principles. The allowance for expected credit losses (“ECL”) on such loan assets measured at amortised cost is a critical estimate involving greater level of management judgement.
|
Principal audit procedures performed:
We have read and assessed the accounting policies and the governance framework approved by the Board of Directors of the Company including the policy with respect of one-time restructuring offered to customers pursuant to the Resolution Framework issued by RBI.
We have verified the methodology adopted for computation of ECL (“ECL Model”) that addresses policies approved by the Board of Directors, procedures and controls for assessing and measuring credit risk on loan assets measured at amortised cost.
|
|
As part of our risk assessment, we determined
|
Our audit procedures related to the allowance for
|
|
that the allowance for ECL on loan assets has
|
ECL included the following, among others:
|
|
a high degree of estimation uncertainty, with a potential range of reasonable outcomes for the financial statements. The elements of estimating
|
• Testing the design and effectiveness of internal controls over the:
|
|
ECL which involved increased level of audit focus
|
-
|
completeness and accuracy of the
|
|
are the following:
|
|
Exposure at Default (“EAD”) and the
|
|
• Staging the loan assets i.e. classification in 'significant increase in credit risk' ('SICR') and 'default' categories
|
|
classification thereof into stages consistent with the definitions applied in accordance with the policy approved by the Board of Directors including the appropriateness of
|
|
• Basis used for estimating Probabilities of
|
|
the qualitative factors to be applied.
|
|
Default (“PD”);
|
-
|
appropriateness of information used in the estimation of the PD and LGD for the
|
|
• Basis used for estimating Loss Given
|
|
different stages depending on the nature
|
|
Default (“LGD”);
|
|
of the portfolio; and
|
|
• Adjustments to model driven ECL results, to address emerging trends including the impact of COVID19 pandemic.
|
|
computation of the ECL including methodology used to determine macro-economic overlays and adjustments to the output of the ECL Model including the impact of COVID19 pandemic.
|
| |
| |
• Also, for selected sample of loan assets:
|
| |
|
we have tested the additional considerations applied by the management for staging of loans as SICR or default categories in view of Company's policy on one-time restructuring.
|
| |
-
|
we tested the input data used in estimating the PD;
|
| |
-
|
we evaluated reasonableness of LGD estimates.
|
| |
• We
|
tested the mathematical accuracy and
|
| |
computation of the allowances.
|
| |
•I IWe
|
also assessed the disclosures made in
|
| |
relation to the ECL allowance to confirm compliance with the provisions of Ind AS.
|
Information Other than the Financial Statements and
Auditor’s Report Thereon
• The Company's Board of Directors is responsible for the other information. The other information comprises the information included in the management discussion and analysis and Board's report and its annexures, but does not include the consolidated financial statements, standalone financial statements and our auditor's report thereon. The management discussion and analysis and Board's report and its annexures are 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 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 during the course of our audit or otherwise appears to be materially misstated.
• When we read management discussion and analysis and Board's report and its annexures, if we conclude that there is a material misstatement
therein, we are required to communicate the matter to those charged with governance as required under SA 720 'The Auditor's responsibilities Relating to Other Information'.
Management’s Responsibility for the Standalone 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 standalone financial statements that give a true and fair view of the financial position, financial performance including other comprehensive income , cash flows and changes in equity of the Company in accordance with the Ind AS and other accounting principles generally accepted in India. 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 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, management is responsible for assessing the Company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so.
Those Board of Directors are also responsible for overseeing the Company's financial reporting process.
Auditor’s Responsibility 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:
• 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 control.
• Obtain an understanding of internal financial 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 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 the 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.
• Obtain sufficient appropriate audit evidence regarding the financial information of the Company to express an opinion on the standalone financial statements.
Materiality is the magnitude of misstatements in the standalone 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 standalone 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.
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 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.
Other Matter
The comparative financial information of the Company as of and for the year ended March 31, 2020 prepared in accordance with Ind AS included in this standalone financial statement have been audited by the predecessor auditor. The report of the predecessor auditor on these comparative financial information dated June 17, 2020 expressed an unmodified opinion.
Our opinion on the standalone financial statements and our report on Other Legal and Regulatory Requirements below is not modified in respect of this matter.
Report on Other Legal and Regulatory Requirements
1. As required by Section 143(3) of the Act, based on our audit 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 Cash Flows and Statement of Changes in Equity dealt with by this Report are in agreement with the relevant books of account.
d. In our opinion, the aforesaid standalone financial statements comply with the Ind-AS specified under Section 133 of the Act.
e. On the basis of the written representations received from the directors as on 31 March, 2021 taken on record by the Board of Directors, none of the directors is disqualified as on 31 March, 2021 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 over financial reporting of the Company and the operating effectiveness of such controls, refer to our separate Report in “Annexure A”. Our report expresses an unmodified opinion on the adequacy and operating effectiveness of the Company's internal financial controls over financial reporting.
g. With respect to the other matters to
be included in the Auditor's Report in accordance with the requirements of section 197(16) of the Act, as amended:
• We draw attention to Note 32 of the standalone financial statements regarding excess remuneration paid to the whole-time director amounting to ' 0.44 crore for the year ended March 31, 2021 in terms of the prescribed limits under section 197 read with Schedule V to the Act, is subject to approval of the shareholders which the Company proposes to obtain at the forthcoming annual general meeting. Our opinion is not modified in respect to this matter.
h. With respect to the other matters to be included in the Auditor's Report in accordance with Rule 11 of the Companies (Audit and Auditors) Rules, 2014, as amended in our
opinion and to the best of our information and according to the explanations given to us:
i. The Company has disclosed the impact of pending litigations on its financial position in its standalone financial statements;
ii. The Company did not have any long-term contracts including derivative contracts for which there were any material foreseeable losses;
iii. There were no amounts which were required to be transferred to the Investor Education and Protection Fund by the Company.
2. As required by the Companies (Auditor's Report) Order, 2016 (“the Order”) issued by the Central Government in terms of Section 143(11) of the Act, we give in “Annexure B” a statement on the matters specified in paragraphs 3 and 4 of the Order.
For Deloitte Haskins & Sells LLP
Chartered Accountants (Firm's Registration No. 117366W/W-100018)
Mukesh Jain
(Partner)
Place: Mumbai (Membership No. 108262)
Date: 17 June 2021 (UDIN: 21108262AAAALK3406)
|