POWER MECH PROJECTS LIMITED
Report on the Audit of the Standalone Financial Statements
Opinion
We have audited the accompanying Standalone financial statements of POWER MECH PROJECTS LIMITED (“the Company"), which comprise the Balance Sheet as at March 31, 2024, the Statement of Profit and Loss (including Other Comprehensive Income), the Statement of Changes in Equity and the Statement of Cash Flows for the year ended on that date, and a summary of the significant accounting policies and other explanatory information (hereinafter referred to as “the financial statements").
In our opinion and to the best of our information and according to the explanations given to us, the accompanying 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 March 31, 2024, the Profit and total comprehensive Income, changes in equity and its cash flows 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 (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 (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 we have obtained is sufficient and appropriate to provide a basis for our audit opinion on the Standalone financial statements.
Emphasis of Matter:
Attention is invited to the following:
Note No. 51, of the financial statements, relating to the search carried out by the Income Tax Department in July, 2022 at various locations of the company and the company received notices under section 148 of the Act for filing return of Income for the AY 2016-17 to AY 2021-22. In response to the said notices, the company filed return of income by disclosing the income as admitted. Pending outcome of the assessments, the company made provision towards Income-tax liability (including interest) aggregating to ? 51.38 crore for the year ending March 31, 2024 being the tax liability on the amount admitted and disclosed in the return of income filed and the management of the company is of opinion that no further provision is required.
Our opinion is not modified in respect of the matters stated above.
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.
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No
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Key Audit matter
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How the matter was addressed in our audit
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1
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Revenue recognition of long-term contracts
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As part of our audit, we obtained an understanding of the
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The Company has revenue from construction
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methodology applied, the internal process and controls used for
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contracts and long-term operating and
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determination of the physical proportion of work completed.
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maintenance agreements.
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We evaluated the process and systems used to record the
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Revenue related to these construction
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quantum of work completed against which invoices were raised.
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contracts is recognised using the percentage
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In respect of construction projects, we obtained work
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completion method, where progress is
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completion certificates, measurement work sheets from project
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determined with reference to completion of
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engineers and also obtained certificate of confirmations of
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physical proportion of the work to the extent
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work completed from customers to assess the appropriateness
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of work certified by the customer and revenue
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of management estimates of the physical proportion of work
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is also recognised in case of works pending
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completed. Further we also examined the payment advices
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certification as on date of balance sheet. The
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received subsequent to the balance sheet date which confirms
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Company raised invoices on monthly basis
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the extent of work completed and certified for which revenue
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based on the physical proportion of the work
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was recognised. In case of those works which were pending
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completed.
We focussed this area because of significant management judgement required in:
Estimation of the physical proportion of the contract work completed for the contracts and particularly in case of those works which were pending for certification by the customer as on date of balance sheet which may lead to over or understatement of revenues and profit.
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certification as on date of balance sheet, we obtained payment advices from the customers related to the said works, post balance sheet date.
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2
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Trade receivables
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Our audit procedures in relation to the recoverability of trade
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The Company has significant amount of trade
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receivables included
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receivables (Including retention and security
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• Understood and tested the Company’s credit control
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deposits) and their recoverability requires
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procedures and tested key controls over granting credit to
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management judgement due to the specific risks associated with these receivables.
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customers.
• Tested ageing of trade receivables at the year ended on a
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There is an element of management judgement
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sample basis.
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in assessment of extent of the recoverability
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• Obtained list of long outstanding receivables and identified
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of long outstanding trade receivables after the
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any debtors with financial difficulty through discussion
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end of the contractual credit period.
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with management.
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Management assessed the recoverability of
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• Assessed the recoverability of these outstanding
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trade receivables by reviewing customers
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receivables through our discussion with management
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ageing profile, credit history, nature and
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and with reference to detailed receivables listings for the
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ownership of organisation and status of
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subsequent period.
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subsequent settlements and determined
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• Also examined the arrangements/correspondences with
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whether an impairment provision is required.
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customers to assess the payment arrangement agreed
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We considered this matter to be significant to
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with the customers and assessed the recoverability of the
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our audit due to the quantum of the receivables
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significant outstanding receivables.
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and their period of outstanding.
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• Assessed the recoverability of the balances by comparing the outstanding amounts as at year end against subsequent recoveries.
• The status and their organisational structure was also examined with reference to the credit risk and their creditability in making payments since most of the customers are public sector organisations.
• Considering all these, we found that the judgment made by the management in assessment of recoverability of receivables are found to be appropriate.
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No
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Key Audit matter
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How the matter was addressed in our audit
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3
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Advances with sub-contractors
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Our audit procedures in relation to the recoverability of trade
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The Company has significant amount of
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advances to sub-contractors provided while execution of sub-
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Trade advances with Sub-contracts and their
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contracts awarded included
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recoverability/adjustment against subsequent
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•
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Understood and tested the Company's policies of
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works carried requires management judgement
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providing advances and tested the design and operating
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due to the specific risks associated with these
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effectiveness of key controls over granting of advances to
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recoveries.
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sub-contractors.
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There is an element of management judgement
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•
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Tested ageing of advances recoverable at the year ended
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in assessment of extent of the recoverability of
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on a sample basis.
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long outstanding trade advances after the end
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•
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Examined management assessment of recoverability of the
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of the contractual credit period.
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advances
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Management assessed the recoverability
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•
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Obtained list of long outstanding advances and identified
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of these trade advances by reviewing the
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any sub-contractors with financial difficulty through
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contractors ageing profile, credit history,
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discussion with management.
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subsequent orders proposed to be placed with
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•
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Assessed the recoverability of these outstanding advances
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them, nature and ownership of organisation
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through our discussion with management and with
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and status of subsequent settlements and
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reference to detailed recoveries made for the subsequent
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determined whether an impairment provision
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period.
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is required.
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•
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Also examined the arrangements/correspondences with
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We considered this matter to be significant to
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sub-contractors to assess the arrangement agreed with
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our audit due to the quantum of the advances
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the sub-contractors and assessed the recoverability of the
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and their period of outstanding.
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•
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significant outstanding advances.
The status and their organisational structure was also examined with reference to the credit risk and their creditability in making payments since most of the subcontractors are from unorganised sectors.
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Also discussed with the management about the probability of providing new works to the sub-contractors and the chances of recoverability of the outstanding advances against the works to be executed.
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Considering all these, we found that the judgment made by the management in assessment of recoverability of receivables are found to be appropriate.
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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 preparation of the other information. The other information comprises the information included in the Management Discussion and Analysis, Board's Report including Annexures to Board's Report, Business Responsibility Report, Corporate Governance and Shareholder's Information, but does not include the Standalone financial statements and our auditor's report thereon which are expected to be made available to us at a later date.
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, which is not available to us as on the date of this report. In the absence of the said other information, we are unable to comment upon whether the other information is materially misstated or not.
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, total comprehensive income, changes in equity and cash flows 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 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 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 financial controls 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.
• 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.
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.
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 accounts 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 Statement of Cash Flow 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, read with Rule 7 of the Companies (Accounts) Rules, 2014.
e) On the basis of the written representations received from the directors as on March 31, 2024 taken on record by the Board of Directors, none of the directors is disqualified as on March 31, 2024 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 B". 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, in our opinion and to the best of our information and according to the explanations given to us, the remuneration paid by the Company to its directors during the year is in accordance with the provisions of section 197 of the Act.
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 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.
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. 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. As stated in note 48 to the financial statements, the Board of Directors of the Company have proposed final dividend for the year which is subject to the approval of the members at the ensuing Annual General Meeting. The amount of dividend proposed is in accordance with section 123 of the Act, as applicable.
vi. Based on our examination which included test checks, the company has used an accounting software for maintaining its books of account which has a feature of recording audit trail (edit log) facility and the same has operated throughout the year for all relevant transactions recorded in the software. Further, during the course of our audit we did not come across any instance of audit trail feature being tampered with.
As provision to Rule 3(1) of the Companies (Accounts) Rules, 2014 is applicable from April 1, 2023, reporting under Rule 11 (g) of the Companies (Audit and Auditors) Rules, 2014 on preservation of audit trail as per the statutory requirements for record retention is not applicable for the financial year ended March 31, 2024
2. As required by the Companies (Auditor's Report) Order, 2020 (“the Order") issued by the Central Government in terms of Section 143(11) of the Act, we give in “Annexure-A" a statement on the matters specified in paragraphs 3 and 4 of the Order.
Sd/-
For K.S. Rao & Co
Chartered Accountants (Firm Registration No. 003109S)
Place: Hyderabad Gopikrishna Chowdary Manchinella
Date: 20.5.2024 Partner
UDIN: 24235528BKBEHW7849 Membership No. 235528
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