National Aluminium Company Limited
Report on the Audit of the Standalone Financial Statements
Opinion
We have audited the Standalone Financial Statements of National Aluminium Company Limited (“the Company”), which comprise the Balance Sheet as at 31st March, 2023, and the Statement of Profit and Loss (including Other Comprehensive Income), Statement of Changes in Equity and 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 (hereinafter referred to as the “Standalone Financial Statements”).
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 (Ind AS) prescribed under Section 133 of the Act read with the Companies (Indian Accounting Standards) Rules, 2015 as amended and accounting principles generally accepted in India, of the State of Affairs of the Company as at 31st March, 2023, and its Profit, 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 Standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements Section of our report. We are independent of the Company in accordance with the Code of Ethics issued by the Institute of Chartered Accountants of India together with the ethical requirements that are relevant to our audit of the 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 on the Standalone Financial Statements.
Emphasis of Matter
i. We draw attention to Note No. 7.3 regarding capitalisation of Coal Mines, starting of mining operations from 09.11.2022 and declaration of start of production from 01.04.2023; and
ii. We draw attention to Note No. 14.1 regarding non accounting of capital assets/ expenditure in absence of finalisation of issues arising out of Rehabilitation and Resettlement Policy and option yet to be given by the Project Displaced Families.
Our opinion is not modified in respect of above matters.
Key Audit Matters
Key audit matters are those matters that, in our professional judgement, 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. The key audit matters that we have identified in the current year are as follows:
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Key Audit Matter
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How the matter was addressed in our audit
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1. Carrying value of Property, Plant and Equipment, Intangible assets (including Capital work-in-progress and Intangible Assets under Development)
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Property, plant and equipment, capital work-in-progress (CWIP), intangible assets and Intangible assets under development represent significant balances recorded in the statement of financial position.
The evaluation of the recoverable amount of these assets requires significant judgement in determining the key assumptions supporting the expected future cash flows of the business and the utilisation of the relevant assets including impairment provisions related to the assets.
There are a number of areas where management judgement impacts the carrying value of property, plant and equipment, intangible assets and their respective depreciation profiles. These include the decision to capitalise or expense costs; the asset life review including the impact of changes in the Company’s strategy; and the timeliness of capitalisation, determination or the measurement and recognition criteria for assets retired from active use.
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Our audit procedures relating to the carrying value of property, plant and equipment
including intangible assets and capital work-in-progress included the following:
• We evaluated the assumptions made by management in the determination of carrying values and useful lives to ensure that these are consistent with the principles of Indian Accounting Standards (Ind AS) 16 Property, Plant and Equipment and Ind AS 38 Intangible Assets.
• We assessed whether the carrying values and the useful lives were reasonable by challenging management’s judgements through comparing the useful lives prescribed in Schedule II to the Companies Act, 2013 and the useful lives of certain assets as per the technical assessment of the management.
• We compared the useful lives of each class of asset in the current year to the previous year to determine whether there were any significant changes in the useful lives of assets, and considered the reasonableness of changes based on our knowledge of the business and the industry.
• We assessed whether indicators of impairment existed as at 31st March 2023 based on our knowledge of the business and the industry and wherever required the provision of impairment of assets/CWIP were reviewed.
• We tested the controls in place over the property, plant and equipment and intangible assets, evaluated the appropriateness of capitalisation policies, performed tests of details on costs capitalised and assessed the timeliness of capitalisation including decapitalisation of assets retired from active use and the application of the asset life.
• In performing these substantive procedures, we assessed the judgements made by management including the nature of underlying costs capitalised; the appropriateness of asset lives applied in the calculation of depreciation and amortisation; and in assessing the need for accelerated depreciation/amortisation, if required, in the context of impairment.
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Key Audit Matter
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How the matter was addressed in our audit
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2.Valuation of employees’ defined benefit obligations and other long-term benefits
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The Company has recognised long-term employee benefit liabilities and defined benefit obligations (net of plan asset against funded gratuity obligation).
The valuation of employee benefit obligations is dependent on market conditions and assumptions made. The key audit matter specifically relates to the following key assumptions like discount rate, inflation expectations and life expectancy assumptions. The setting of these assumptions is complex and requires the exercise of significant Management judgement with the support of third party actuary.
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Our audit procedures relating to the valuation of employees, defined benefit obligations
and other long-term benefits included the following:
• In testing the valuation, we have examined the reports of external actuarial specialists to review the key actuarial assumptions used, both financial and demographic, and considered the methodology utilised to derive these assumptions.
• We evaluated the assumptions made by management and the actuary to ensure that these are consistent with the principles of Ind AS 19 Employee Benefits.
• Furthermore, we have examined the sensitivity analysis on the key assumptions in valuing the defined benefit obligations.
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3. Ascertainment, disclosure and provisioning in respect of contingent liabilities
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The Company disclosed contingent liabilities in the Financial Statements.
The Company has material uncertain tax matters, both direct and indirect, under dispute involving material aggregate demand which require significant judgement to determine the possible outcome of these disputes.
Additionally, the Company has other on-going legal matters relating to various claims by the Government of Odisha or other agencies constituted by the State Government and by contractors/suppliers which require application of Management judgement in order to determine the likely outcome.
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Our audit procedures relating to the ascertainment, disclosure and provisioning in respect of contingent liabilities included the following:
We obtained a detailed understanding and evaluated the design and implementation of controls that the Company has established in relation to disclosure and provisioning of contingent liabilities in accordance to Ind AS 37 Provisions, Contingent Liability and Co n ti ngen t Assets.
Regarding direct and indirect tax contingent liabilities, we undertook following principal audit procedures:
• Assessment of the process and relevant controls implemented to identify tax litigations and pending administrative proceedings.
• Assessment of assumptions used in the evaluation of potential tax risks performed by the tax department of the Company considering the legal precedence and other rulings in similar cases.
• Discussion with the management regarding the status of the most significant disputes and inspection of the key relevant documentation.
• Analysis of opinion received from tax experts where available.
• Review of the adequacy of the disclosures in the notes to the financial statements.
In assessing the potential exposures of the Company in respect of other contingent liabilities, we have:
• assessed the design and implementation of controls in relation to the monitoring of known exposures;
• referred Board and other meeting minutes to identify areas subject to Company’s consideration;
• consulted with the Company’s internal legal advisors in understanding on-going and potential legal matters impacting the Company;
• reviewed available legal opinions from experts; and
• reviewed the proposed accounting and disclosure of actual and potential legal liabilities.
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4. Advances and deposits in respect of tax matters under litigation continuing as assets
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The Financial Statements disclose other assets, which includes material recoverable claims of direct and indirect tax deposits (net of provision) including VAT and Cenvat credits which are pending adjustment/ adjudication.
Significant judgement is required in assessing the nature of these exposures and their accounting and disclosure requirements.
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Our audit procedures relating to the advance and deposits in respect of tax matters
under litigation continuing as assets included the following:
• We obtained from management the details of completed tax assessments and demands and appeal orders of the appellate authority.
• We involved our internal experts to challenge the management’s underlying assumptions in estimating the tax liability and the possible outcome of the disputes.
• Our internal experts also considered legal precedence and other rulings in evaluating management’s position on these uncertain tax positions.
• Additionally, we have considered opinions of legal and tax experts, wherever available, to review the nature of the amounts recoverable, the sustainability and the likelihood of recoverability upon final resolution.
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Key Audit Matter
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How the matter was addressed in our audit
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5. Valuation of deferred tax assets and liabilities
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The Company has disclosed deferred tax assets/ liabilities in the Financial Statements. The Company operates in activities which involves application of various provisions in income tax.
The assessment of the valuation of deferred tax assets/liability, resulting from temporary differences, and provisions for uncertain tax positions is significant to our audit as the calculations are complex and depend on sensitive and judgemental assumptions. These include, amongst others, long-term future profitability and local fiscal regulations and developments.
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Our audit procedures relating to the advance and deposits in respect of tax matters
under litigation continuing as assets included the following:
• Ascertained the completeness and accuracy of the deferred tax assets/liabilities and recognizing uncertain tax positions.
• We challenged and tested the Management’s assessment of the recoverability of the deferred tax assets, and the probability of future cash outflows in respect deferred tax liabilities identified by the Company.
• We also assessed the applicable local fiscal regulations and developments, in particular those related to changes in the statutory income tax rate and of the statutes of limitation, as these are key assumptions underlying the valuation of the deferred tax assets/liabilities.
• We analysed the tax positions and evaluated the assumptions and methodologies used by the Company.
• In addition, we also focused on the adequacy of the Company’s disclosures as per Ind AS 12 Income Taxes on deferred tax assets/liabilities and assumptions used.
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6. Extraction of Coal through Mine Developer and Operator (MDO)
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The Company has capitalised the Coal Blocks Utkal D & Utkal E under Mining Right with effect from 25.03.2021 and 20.01.2023 respectively. For extraction of coal, these coal mines have been given to the Mines Developer and Operator (MDO) vide agreement dated 8th March, 2022.
As per the terms of the contract, the MDO has the responsibility of executing certain capital works including payment for Mine Closure Liability and revenue works including removal of overburden and extraction of coal including its stacking at the Mines at designated places and transportation of coal to Railway Siding or site of the Captive Power Plant of the Company.
On transportation and receipt of coal at the site of the Company, liability with amount at agreed price per tonne, is to be provided. The expenses of overburden, day to day expenditure by the MDO for production of coal and declaration of stock of production thereof at site are required to be done by the MDO and accounting to be done by the Company.
The price of coal is dependent on calculation based on wholesale price index relevant on period of despatch.
Considering judgements involved in estimating various elements of expenditure, income, assets and liabilities balances and appropriate time at which these are to be accounted, we have determined this to be a key audit matter.
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Our audit procedures included the following:
• Obtained an understanding of the Company’s process and tested internal controls associated with the estimation and accounting of inventory of coal, liability of trade payable to MDO and Mine Closure Liability, cost of coal and other expenses and income.
• Discussed with the management to understand their assessment on each qualitative and quantitative factor and reviewed consistency of the Management’s explanation with the underlying documentation, rules, and regulations.
• Obtained certificate from Management on availability of Inventory at the Mines.
• Assessed disclosures made by the Company in accordance with the requirements of Ind AS.
• Obtained necessary management representation.
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7. Procedure adopted for awarding Contracts for expansion
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The Company has planned to setup the expansion of Alumina Refinery plant of 1 MTPA.
For execution of the above volume, multiple contracts for Works, Purchases & Services are required which include high inherent risk (i.e. complex calculations, significant estimation uncertainty, etc.) and control risk (i.e. possibility of human errors, circumvention by collusion, inappropriate management override).
The process of award requires multiple stage of appropriate evaluation of bidders which includes their, technical expertise, experience of similar execution, financial stability, human resources mobilisation, etc.
Assessment of appropriate evaluation includes management’s judgement to ascertain the competencies through large volume of documents submitted by prospective bidders on technical parameters, responding to the queries of bidders, setting the time line for acceptance, execution, completion etc. with the support of appointed Engineering, Procurement, Construction, Management (EPCM).
The above also includes assessment of financial parameters, matching the bid value with the estimation, evaluation of requirement of financial guarantee for any uncertainties, multiple level of management concurrences, classification of expenditure into capital or revenue and award of contracts.
Further, post award contracts activities like monitoring of progress of contracts, addressing any critical issues that come in between, resolution of local conflicts involve judgement and decision making by the Company.
Considering the complex technical & financial assessment and calculation for selection of appropriate bidder(s), we have determined this to be a key audit matter.
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Our audit approach was a combination of test of few contracts for assessment of
internal controls and substantive procedures which included the following:
• Obtained the Expansion budget allocation for various stages of sequential activities
• Evaluated the design of contract assessment procedures for technical & financial parameters and the estimation of efforts required to complete the NIT (notice inviting tenders);
• Tested the evaluated documents, views of EPCM, complex calculation, allocation of budgets estimation, application of index, application of statutory levies etc. to arrive at documents preparation
• Selected a sample of contracts and through the audit efforts, analytical skills and visit to the site of constructions, wherever necessary, to identify significant variations with any subsequent changes in NIT, estimations, terms, etc.;
• Discussed with the management, EPCMs on the above significant variations to obtain their judgement or justification that has bearing on possible delays in achieving the milestones as well as cost and time overrun;
• Tested few progress report of EPCM to identify the bottlenecks in execution, their suggestions, applying the corrections, milestones achieved, plan for the subsequent periods, etc.
• Reviewed the Board/Committee notes for any specific or significant changes in estimates of scope or vendors.
• Performed analytical procedures and tested the reasonableness of progress of the contracts that have exceeded the cost or time significantly or requires improvement in control measures.
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Information Other than the Standalone 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 contained in the Company’s Annual Report but does not include the Standalone Financial Statements and our report thereon. These reports are expected to be made available to us after the date of this auditors’ report.
Our opinion on the Standalone 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 Financial Statements, our responsibility is to read the other information mentioned 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 other information, if we conclude that there is material misstatement therein, we are required to communicate the matter to those charged with governance and take appropriate action, if required.
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 and presentation of these Standalone 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 Accounting Standards (Ind AS) 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 implementation and maintenance of 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 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 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 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:
• 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 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 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; and
• 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 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 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 of India in terms of Sub-section (11) of Section 143 of the Act, we give in the Annexure “A” to this report a statement on the matters specified in paragraphs 3 and 4 of the Order, to the extent applicable.
2. In compliance to directions of the Comptroller and Auditor General of India under Section 143(5) of the Act, we give in Annexure “B” to this report a statement on the matters specified therein.
3. 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), Statement of Changes 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 Standalone Financial Statements comply with the Indian Accounting Standards specified under Section 133 of the Act, read with the Companies (Indian Accounting Standards) Rules, 2015, as amended;
(e) Section 164(2) of the Act regarding disqualification of directors is not applicable to the Company by virtue of Notification No. G.S.R. 463(E) dated 05.06.2015 issued by the Ministry of Corporate Affairs, Government of India;
(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 “C”;
(g) With respect to the other matters to be included in the Auditors’ Report in accordance with the requirements of Section 197(16) of the Act, as amended:
The provision of Section 197 read with Schedule V of the Act, relating to managerial remuneration is not applicable to the Company by virtue of Notification No. G.S.R. 463(E) dated 05.06.2015 issued by the Ministry of Corporate Affairs, Govt. of India; and
(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, in our opinion and to the best of our information and according to the explanations given to us:
i. The Company has pending litigations, the liabilities in respect of which is either provided for or disclosed as contingent liabilities - Refer Note 27 to the Standalone Financial Statements;
ii. The Company has made provision, as required under the applicable law or Indian Accounting Standards, for material foreseeable losses, if any, in respect of long term contracts. As explained to us, there are no derivative contracts entered into by the Company;
iii. There has been no delay in transferring amounts, required to be transferred, to the Investor Education and Protection Fund by the Company;
iv. (a) The Management has represented that, to the best of its knowledge and belief, no funds (which are material either individually or in the
aggregate) 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, whether, directly or indirectly lend or invest in other persons or entities identified in any manner whatsoever by or on behalf of the Company (“Ultimate Beneficiaries”) or provide any guarantee, security or the like on behalf of the Ultimate Beneficiaries;
(b) The Management has represented, that, to the best of its knowledge and belief, no funds (which are material either individually or in the aggregate) 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, whether, directly or indirectly, lend or invest in other persons or entities identified in any manner whatsoever by or on behalf of the Funding Party (“Ultimate Beneficiaries”) or provide any guarantee, security or the like on behalf of the Ultimate Beneficiaries;
(c) Based on the audit procedures 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 (i) and (ii) of Rule 11(e), as provided under (a) and (b) above, contain any material misstatement;
v. As stated in Para 19.3 to the Standalone Financial Statements:
a. The final dividend proposed in the previous year, declared and paid by the Company during the year is in accordance with Section 123 of the
Act, as applicable; and
b. The interim dividends declared and paid by the Company during the year and until the date of this report is in compliance with Section 123 of the Act; and
vi. As proviso to Rule 3(1) of the Companies (Accounts) Rules, 2014 for maintaining books of accounts using accounting software which has a feature of recording audit trail (edit log) facility is applicable for the Company only w.e.f. 1st April, 2023, reporting under Rule 11(g) of the Companies (Audit and Auditors) Rules, 2014 is not applicable for the financial year ended 31st March, 2023.
For GNS & Associates For A. K. Sabat & Co.
Chartered Accountants Chartered Accountants
FRN: 318171E FRN: 321012E
Sd/- Sd/-
(CA Rajesh K. Pahadi) (CA B. R. Mohanty)
Partner Partner
Membership No. : 058221 Membership No. : 057266
UDIN: 23058221BGXMBD1808 UDIN: 23057266BGSMTW7954
Place: Bhubaneswar Date: 24th May, 2023
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