AGS Transact Technologies Limited Report on the Audit of the Standalone Financial Statements
OPINION
We have audited the standalone financial statements of AGS Transact Technologies Limited (the “Company”)(in which are included financial information from an Employee Stock Option Plan (ESOP) trust) which comprise the standalone balance sheet as at 31 March 2023, and the standalone statement of profit and loss (including other comprehensive income), standalone statement of changes in equity and standalone 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 (“Act”) in the manner so required and give a true and fair view in conformity with the accounting principles generally accepted in India, of the state of affairs of the Company as at 31 March 2023, and its profit and other comprehensive income, changes in equity and its cash flows for the year ended on that date.
BASIS FOR OPINION
We conducted our audit in accordance with the Standards on Auditing (SAs) specified under Section 143(10) of the Act. Our responsibilities under those SAs are further described in the Auditor’s Responsibilities for the Audit of the Standalone 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.
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.
Going concern assessment
See Note 52 to standalone financial statements
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The key audit matter
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How the matter was addressed in our audit
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While the Company has earned profit after tax for the year ended 31 March 2023 of ' 148.77 million, the Company has incurred a loss of ' 153.72 million for the quarter ended 31 March 2023. Further, revenue related to Payment solutions business has largely been consistent during the year, increased receivable days lead to increased working capital cycle and borrowings.
Note 52 to the standalone financial statements explains that management has concluded that the going concern basis is appropriate in preparing the standalone financial statements of the Company. The Company evaluated its ability to continue as a concern based on estimated future cash flows, forecasted results and margins from operations, The estimates are based on assumptions, including expectations regarding future developments in the economy and the market This required the exercise of significant judgement, particularly in forecasting the Company’s future revenues, profitability and cash flows.
Based on this assessment, the Company concluded that there is no material uncertainty related to events or conditions which, individually or collectively, may cast doubt on the Company’s ability to continue as a going concern.
Considering the significance of the area to the overall financial statements, this was significant to our audit.
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Our audit procedures to assess the going concern assumption and 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 included the following audit procedures to obtain sufficient and appropriate audit evidence:
• Gaining an understanding of the Company’s business planning process and assessing the design, implementation and operating effectiveness of management’s key internal controls over preparation of cash flow forecasts to assess its liquidity.
• Evaluating the key assumptions in the cash flow forecasts (including future revenue, profitability and cash flows) with reference to historical information, current performance, future plans, and market and other external available information;
• Performing sensitivity analysis on the forecasted statement of profit and loss and cash flows by considering plausible changes to the key assumptions adopted by the Company.
• Performed a retrospective analysis to assess the reasonableness of Company’s past projections by comparing historical forecast to actual results;
• Assessing the availability of undrawn banking and other financing facilities and history of actual rollover of facilities by inspecting underlying documentation.
• We also considered the adequacy of the required disclosure in the standalone financial statements.
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Impairment of Investments
See Note 5 to standalone financial statements
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The key audit matter
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How the matter was addressed in our audit
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The Company has investments in subsidiaries and associate (collectively “the investments”) aggregating ' 2,903.95 million as at 31 March 2023. The Company records the investments at cost less any provision for impairment loss. Changes in business environment, including the economic uncertainty created by the novel corona virus (COVID-19), could have a significant impact on the valuation of these investments. As such, the investments are tested for any triggers for impairment. If triggers are identified, the recoverable amounts of the investments are determined and if the amount is lower than the carrying value of the investments, impairment loss is recognised in the statement of profit and loss.
The impairment assessment involves the use of estimates and judgements. The identification of impairment event and the determination of an impairment charge also require the application of significant judgement by the Company. The judgement, in particular, is with respect to the timing, quantity and estimation of projected cash flows.
This annual impairment test is considered to be a key audit matter due to the complexity of the accounting requirements and the significant judgement required in determining the key assumptions, including estimates of future revenues from contracts, operating costs, terminal value growth rates, capital expenditure and the weighted-average cost of capital (discount rate), to be used to estimate the recoverable amount.
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In view of the significance of the matter we applied the following
audit procedures in this area, among others to obtain sufficient
appropriate audit evidence:
• Evaluating design, implementation and operating effectiveness of key controls in respect of the Company’s impairment assessment process, including the approval of forecasts and valuation models;
• Evaluated the key assumptions used in estimating future cash flows such as sales volumes and prices, operating costs, inflation and growth rates by comparing these inputs with externally derived data, past performances, consistency with the Board approved investment plans and knowledge of the industry;
• Involved our internal valuation specialists to evaluate the assumptions including the discount rates used in the calculations, through external market data;
• Evaluated past performances where relevant, and assessed historical accuracy of the forecast used in the the calculations;
• Assessed the adequacy of disclosures in the financial statements on key judgements, assumptions and quantitative data with respect to impairment losses;
• Performing a sensitivity analysis to evaluate the impact of change in key assumptions individually or collectively on the recoverable value; and
• Assessing the adequacy of the Company’s disclosures in respect of its impairment testing.
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Revenue recognition
See Note 27 to standalone financial statements
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The key audit matter
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How the matter was addressed in our audit
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Revenue from rendering of services net of service level agreement adjustments/credits is recognised when the Company satisfies performance obligation by transferring the services to the customers.
The revenue from ATM management services is disclosed net of service level agreement adjustments/credits, one-time upfront fees and premium on purchase of property, plant and equipment. Revenue from maintenance contracts is recognised pro-rata over the period of the contract as and when services are rendered.
Revenue from sales of goods is measured at fair value of the consideration received or receivable, net of returns, service level agreement adjustments/credits, non-current warranties, trade discounts, goods and service tax and volume rebates, where applicable.
Revenue is recognised when the Company satisfies performance obligation by transferring the goods to the customers. The Company ‘transfers’ goods to the customers when the customers obtains control of that goods, which may be transferred either at a point in time or over time.
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In view of the significance of the matter we applied the following audit procedures in this area, among others to obtain sufficient appropriate audit evidence:
• Obtaining and understanding of the systems, processes and controls implemented by the Company for recording and computing revenue and the associated contract assets, unearned and deferred revenue balances.
• Performing walkthrough, testing the design, implementation and operating effectiveness of Company’s general IT controls, key manual and application controls over the Company’s IT systems;
• Assessing the appropriateness of the policies in respect of revenue recognition by comparing with the applicable accounting standards and their consistent application to the significant sales contracts;
• Inspecting on a sample basis, key customer contracts. Based on the terms and conditions defined in the contracts, we assessed the Company’s revenue recognition policies with reference to the requirements of the applicable accounting standards;
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The key audit matter
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How the matter was addressed in our audit
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We identified revenue recognition as a Key Audit Matter since there is an element of inherent risk and presumed fraud risk around the accuracy and existence of revenues recognised. Further, overstatement of revenue is considered to be a significant audit risk as it is the key driver of returns to investors and incentives linked to performance for a reporting period.
Due to judgments involved in the estimate of total revenue and significant audit risk of overstatement, we have considered measurement of revenue as a key audit matter.
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• Testing timeliness of revenue recognition by comparing individual sample sales transactions to underlying contracts;
• Performing substantive testing by selecting samples of revenue transactions recorded during the year and matching the parameters used in the computation with the relevant source documents;
• Scrutinising the revenue journal entries raised throughout the reporting period and comparing details of sample of these journals, which met certain risk-based criteria, with relevant underlying documentation;
• Checking completeness and accuracy of the data used by the Company for revenue recognition by performing specific cut off procedures on revenue. On a sample basis, we evaluated the revenue being recognized in the correct accounting period.
• Evaluating the adequacy of the disclosures in the standalone financial statements in accordance with Ind AS 115 - Revenue from Contracts with Customers.
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OTHER INFORMATION
The Company’s Management and Board of Directors are responsible for the other information. The other information comprises the information included in the annual report, but does not include the financial statements and 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 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 and take necessary actions, as applicable under the relevant laws and regulations.
MANAGEMENT’S AND BOARD OF DIRECTORS’/BOARD OF TRUSTEES’ RESPONSIBILITIES 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 state of affairs, profit/ loss and other comprehensive income, changes in equity and cash flows of the Company in accordance with the accounting principles generally accepted in India, including
the Indian Accounting Standards (Ind AS) specified under Section 133 of the Act. The respective Management and Board of Directors of the company/Board of Trustees of the Employee Stock Option Plan (ESOP) trust (“Trust”) are responsible for maintenance of adequate accounting records in accordance with the provisions of the Act for safeguarding of the assets of each company/trust 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 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, the respective Management and Board of Directors/Board of Trustees are responsible for assessing the ability of each company/trust to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the respective Board of Directors/Board of Trustees either intends to liquidate the company/trust or to cease operations, or has no realistic alternative but to do so.
The respective Board of Directors/Board of Trustees are responsible for overseeing the financial reporting process of each company/trust.
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 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 the Management and Board of Directors.
• Conclude on the appropriateness of the Management and Board of Directors use of the going concern basis of accounting in preparation of standalone financial statements and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the standalone 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 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 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 Section 143(11) of the Act, we give in the “Annexure A” a statement on the matters specified in paragraphs 3 and 4 of the Order, to the extent applicable.
2 A. 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 standalone balance sheet, the standalone statement of profit and loss (including other comprehensive income), the standalone statement of changes in equity and the standalone statement of cash flows 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 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 2023 taken on record by the Board of Directors,
none of the directors is disqualified as on 31 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 financial statements of the Company and the operating effectiveness of such controls, refer to our separate Report in “Annexure B”.
B. 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
a. The Company has disclosed the impact of pending litigations as at 31 March 2023 on its financial position in its standalone financial statements - Refer Note 40 to the standalone financial statements.
b. The Company has made provision, as required under the applicable law or accounting standards, for material foreseeable losses, if any, on long-term contracts including derivative contracts - Refer Notes 20 and 26 to the standalone financial statements.
c. There were no amounts which were required to be transferred to the Investor Education and Protection Fund by the Company.
d. (i) The management of the Company
represented to us that, to the best of its knowledge and belief, as disclosed in the Note 55 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 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.
(ii) The management of the Company represented to us that, to the best of its knowledge and belief, as disclosed in the Note 55 to the standalone financial statements, no funds have been received by the Company from any person(s) or entity(ies), including foreign entities (“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 Parties (“Ultimate Beneficiaries”) or provide any guarantee, security or the like on behalf of the Ultimate Beneficiaries.
(iii) Based on the audit procedures 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 (i) and (ii) of Rule 11(e), as provided under (i) and (ii) above, contain any material misstatement.
e. The Company has neither declared nor paid any dividend during the year.
C. With respect to the matter to be included in the Auditor’s Report under Section 197(16) of the Act:
In our opinion and according to the information and explanations given to us the remuneration paid/ payable by the Company to its directors during the current year is in accordance with the provisions of Section 197 of the Act. The remuneration paid/ payable to any director by the Company is not in excess of the limit laid down under Section 197 of the Act. The Ministry of Corporate Affairs has not prescribed other details under Section 197(16) of the Act which are required to be commented upon by us.
For BSR&Co. LLP
Chartered Accountants Firm’s Registration No.:101248W/W-100022
Rajesh Mehra
Partner
Membership No.: 103145 ICAI UDIN:23103145BGXWWR9148
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