We have audited the accompanying standalone financial statements of IndoStar Capital Finance Limited (the “Company”), which comprise the Balance Sheet as at March 31, 2024, the Statement of Profit and Loss including Other Comprehensive Income, Statement of Changes in Equity and Statement of Cash Flow for the year then ended, and notes to the standalone financial statements, including material accounting policy information 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 prescribed under section 133 of the Act read with Companies (Indian Accounting Standards) Rules, 2015, as amended (the “Rules”) and other accounting principles generally accepted in India, of the state of affairs of the Company as at March 31, 2024, 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 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 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 thereunder, and we have fulfilled our other ethical responsibilities in accordance with these requirements and the Code of Ethics. We believe that the audit evidence obtained by us is sufficient and appropriate to provide a basis for our opinion.
Key Audit Matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements for the year ended March 31, 2024. 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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Sr. No Key Audit Matter
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How the Key Audit Matter was addressed in our audit
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1 Impairment of loans including Expected
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Our audit procedures in respect of this area
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Credit Losses (“ECL”):
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included, but not limited to:
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Total Loans as at March 31, 2024: ' 5,98,730.29
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Process understanding and control testing:
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lakhs (net of ECL)
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• Read the Company's Board approved ECL policy
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Impairment Provision as at March 31, 2024:
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and material accounting policy information
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' 31,071.10 lakhs)
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for estimation of ECL on financial assets and
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(Refer Note 5 of the Financial Statements)
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evaluated the appropriateness of the same with the principles of Ind AS 109;
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As per Ind AS 109 - Financial Instruments (“Ind AS 109”) requires the Company to provide for impairment of its financial assets using ECL approach involving an estimation
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• Performed end-to-end process walkthroughs to identify the controls used in the impairment loss allowance processes;
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of probability of loss on such financial assets,
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• Tested the design and the operating effectiveness
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considering reasonable and supportable
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of relevant internal controls, including the
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information about past events, current
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IT controls relevant to the impairment loss
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conditions and forecasts of future economic conditions which could impact the credit quality of the Company's financial assets.
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allowance process.
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Sr. No Key Audit Matter
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How the Key Audit Matter was addressed in our audit
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The estimation of impairment loss allowance
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•
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Verified the completeness and accuracy of
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on loan assets involves significant judgement
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the EAD and the classification thereof into
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and estimates, which are subject to
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stages consistent with the definitions applied
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uncertainty, and involves applying appropriate
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in accordance with the policy approved by the
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measurement principles in case of loss events.
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Board of Directors;
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ECL is calculated using the percentage of
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•
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Checked the appropriateness of information
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probability of default (“PD”), loss given default
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used in the estimation of the PD and LGD for the
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(“LGD”) and exposure at default (“EAD”) for
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different stages depending on the nature of the
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each of the stages of loan portfolio. Significant
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portfolio.
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management judgment and assumptions
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Performed the following substantive procedures on
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involved in measuring ECL is required with
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sample of loan assets:
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respect to:
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•
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Tested appropriateness of staging of borrowers
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• Segmentation of loan book in buckets
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based on days past due (“DPD”) and other loss
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based on common risk characteristics;
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indicators;
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• Staging of loans and in particular
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•
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Tested the factual accuracy of information such
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determining the criteria, which includes
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as period of default, ratings (wherever applicable)
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qualitative factors for identifying a
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and other related information used in estimating
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significant increase in credit risk (i.e. Stage
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the PD;
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2) and credit-impaired (i.e. Stage 3);
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•
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Evaluated the reasonableness of LGD estimates by
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• factoring in future macro-economic and
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comparing actual recoveries post the loan asset
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industry specific estimates and forecasts;
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becoming credit impaired and other applicable assumptions included in LGD computation;
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• past experience and forecast data on
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customer behaviour on repayments and;
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•
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Evaluated the methodology used to determine macroeconomic overlays and adjustments to the
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• varied statistical modelling techniques
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output of the ECL model;
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to determine probability of default,
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loss given default and exposure at
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•
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Tested the completeness of loans included in
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default basis, the default history of
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the ECL calculations as of March 31, 2024 by
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loans, subsequent recoveries made and
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reconciling such data with the balances as per
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other relevant factors using probability-
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loan book register; and
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weighted scenarios.
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•
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Assessed the adequacy and appropriateness
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Considering the significance of the above
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of disclosures in compliance with the Ind AS
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matter to the Financial Statements and since
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107 in relation to ECL especially in relation to
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the matter required significant attention to test the calculation of ECL, we identified this as a key audit matters for current year audit.
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judgements used in estimation of ECL provision.
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2 Information Technology (“IT”) systems and
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Key IT audit procedures performed included the
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controls impacting financial controls
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following, but not limited to:
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The Company key financial accounting and
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For testing the IT general controls, application controls and IT dependent manual controls, we
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reporting processes are highly dependent
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involved IT specialists as part of the audit. The
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on information systems including automated
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team also assisted in testing the accuracy of
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controls in systems, such that there exists a
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the information produced by the Company IT
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risk that gaps in the IT control environment could result in the financial accounting and
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systems.
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reporting records being misstated.
Amongst its multiple IT systems, we scoped
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•
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Obtained a comprehensive understanding of IT applications landscape implemented at the Company. It was followed by process
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in systems that are key for overall financial reporting.
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understanding, mapping of applications to the same and understanding financial risks posed by
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Appropriate IT general controls and application controls are required to ensure that such IT systems are able to process the data, as required, completely, accurately and consistently for reliable financial reporting.
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people-process and technology.
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Sr. No Key Audit Matter
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How the Key Audit Matter was addressed in our audit
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We have identified 'IT systems and controls' as a key audit matter considering the high level of automation, significant number of systems being used by Management and the complexity of the IT architecture and its impact on overall financial reporting process and regulatory expectation on automation.
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• Key IT audit procedures includes testing design and operating effectiveness of key controls operating over user access management (which includes user access provisioning, de-provisioning, access review, password configuration review, segregation of duties and privilege access), change management (which include change release in production environment are compliant to the defined procedures and segregation of environment is ensured), program development (which include review of data migration activity), computer operations (which includes testing of key controls pertaining to, backup, Batch processing (including interface testing), incident management and data centre security), System interface controls. This included testing that requests for access to systems were appropriately logged, reviewed, and authorized.
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• In addition to the above, the design and operating effectiveness of certain automated controls, that were considered as key internal system controls over financial reporting were tested. Using various techniques such as inquiry, review of documentation / record / reports, observation, and re-performance. We also tested few controls using negative testing technique.
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• Tested compensating controls and performed alternate procedures, where necessary. In addition, understood where relevant changes made to the IT landscape during the audit period.
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Information Other than the Financial Statements and Auditor’s Report Thereon
The Company's Board of Directors is responsible for the other information. The other information comprises the Annual Report but does not include the financial statements and our auditor's report thereon. The Annual Report is expected to be made available to us after the date of this auditor's report.
Our opinion on the 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 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 financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated.
When we read the Annual Report, if we conclude that there is a material misstatement therein, we are required to communicate the matter to those
charged with governance under SA 720 'The Auditor's responsibilities Relating to Other Information'.
Responsibilities of Management and Board of Directors 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, changes in equity and cash flows of the Company in accordance with the accounting principles generally accepted in India, including the Indian Accounting Standards specified under section 133 of the Act read with the Rules thereunder. This responsibility also includes maintenance of adequate accounting records in accordance with the provisions of the Act for safeguarding of the assets of the Company and for preventing and detecting frauds and other irregularities; selection and application of appropriate accounting policies; making judgments and estimates that are reasonable and prudent; and design, implementation and maintenance of adequate internal financial controls, that were operating effectively
for ensuring the accuracy and completeness of the accounting records, relevant to the preparation and presentation of the standalone financial statement that give a true and fair view and are free from material misstatement, whether due to fraud or error.
In preparing the standalone financial statements, the Management and Board of Directors are 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 the Board of Directors 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 with reference to standalone
financial statements in place and the operating effectiveness of such controls.
• Evaluate the appropriateness of material accounting policies used and the reasonableness of accounting estimates and related disclosures made by Management and Board of Directors.
• Conclude on the appropriateness of management and Board of Director's use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor's report to the related disclosures in the standalone financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor's report. However, future events or conditions may cause the Company to cease to continue as a going concern.
• Evaluate the overall presentation, structure and content of the standalone financial statements, including the disclosures, and whether the standalone financial statements represent the underlying transactions and events in a manner that achieves fair presentation.
We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.
We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.
From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the standalone financial statements for the year ended March 31, 2024 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 Statement of the Company for the year ended March 31, 2023 was audited by previous statutory auditor whose report dated May 25, 2023 expressed a modified opinion on those standalone financial statements.
Our opinion is not modified in respect of the above matter.
Report on Other Legal and Regulatory Requirements
1. As required by the Companies (Auditor's Report) Order, 2020 (the “Order”), issued by the Central Government of India in terms of sub-section (11) of section 143 of the Act, we give in “Annexure A” a statement on the matters specified in paragraphs 3 and 4 of the Order, to the extent applicable.
2. As required by Section 143(3) of the Act, we report that:
(a) We have sought and obtained all the information and explanations which to the best of our knowledge and belief were necessary for the purposes of our audit.
(b) In our opinion, proper books of account as required by law have been kept by the Company so far as it appears from our examination of those books.
(c) The Balance Sheet, the Statement of Profit and Loss including other comprehensive income, the Statement of Changes in Equity and the Statement of Cash Flow dealt with by this Report are in agreement with the books of account.
(d) In our opinion, the aforesaid standalone financial statements comply with the Indian Accounting Standards specified under Section 133 of the Act read with the Rules thereunder. .
(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 are 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 with reference to standalone financial statements of the Company and the operating effectiveness of such controls, refer to our separate Report in “Annexure B”.
(g) With respect to the other matters to be included in the Auditor's Report in accordance with Rule 11 of the Companies (Audit and Auditors) Rules, 2014, in our opinion and to the best of our information and according to the explanations given to us:
i. The Company has disclosed the impact of pending litigations on its financial position in its standalone financial statements - Refer Note 34 of the standalone financial statements.
ii. The Company did not have any long-term contracts including derivative contracts for which there were any material foreseeable losses.
iii. There were no amounts which were 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, as disclosed in the Note 41.2 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.
b. The Management has represented, that, to the best of its knowledge and belief, as disclosed in the Note 41.2 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 Party (“Ultimate Beneficiaries”) or provide any guarantee, security or the like on behalf of the Ultimate Beneficiaries.
c. Based on the audit procedures performed that have been considered reasonable and appropriate in the circumstances, and according to the information and explanations provided to us by the Management in this regard 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) of the Act as provided under (1) and (2) above, contain any material mis-statement.
v. The Company has neither declared nor
paid any dividend during the year.
vi. Based on our examination, the Company has used an accounting softwares for maintaining its books of account which has / have a feature of recording audit trail (edit log) facility. The audit trail feature has been operated throughout the year for all transactions recorded in the accounting software(s). Further, during the course of our audit, we did not come across any instance of the audit trail feature being tampered with.
3. As required by The Companies (Amendment) Act, 2017, in our opinion, according to information, explanations given to us, the remuneration paid by the Company to its directors is within the limits laid prescribed under Section 197 read with Schedule V of the Act and the rules thereunder.
For M S K A & Associates
Chartered Accountants ICAI Firm Registration Number. 105047W
Tushar Kurani
Partner
Mumbai Membership No. 118580
April 29, 2024 UDIN: 24118580BKFLYM5425
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