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Updated:23 Jul, 2019, 15:51 PM IST

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Updated:23 Jul, 2019, 16:01 PM IST

Disclosure in auditor’s report explanatory

INDEPENDENT AUDITOR’S REPORT

TO THE MEMBERS OF IRCON INTERNATIONAL LIMITED

1.      Report on the Consolidated Financial Statements

We have audited the accompanying consolidated financial statements of IRCON INTERNATIONAL LIMITED(“the Holding Company”) and its subsidiaries (the Holding Company and its subsidiaries together referred to as “the Group”), and its jointly controlled entities, comprising of the Consolidated Balance Sheet as at 31st March, 2015, the Consolidated Statement of Profit and Loss, the Consolidated Cash Flow Statement for the year then ended, and a summary of the significant accounting policies and other explanatory information (hereinafter referred to as “the consolidated financial statements”).

2.      Management’s Responsibility for the Consolidated Financial Statements

The Holding Company’s Board of Directors is responsible for the preparation of these consolidated financial statements in terms of the requirements of the Companies Act, 2013 (“the Act”) that give a true and fair view of the consolidated financial position, consolidated financial performance and consolidated cash flows of the Group including its jointly controlled entities in accordance with the accounting principles generally accepted in India, including the Accounting Standards specified under Section 133 of the Act, read with Rule 7 of the Companies (Accounts) Rules, 2014. The respective Board of Directors of the companies included in the Group are responsible for maintenance of adequate accounting records in accordance with the provisions of the Act for safeguarding the assets of the Group and for preventing and detecting frauds and other irregularities; the selection and application of appropriate accounting policies; making judgements and estimates that are reasonable and prudent; and the 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 financial statements that give a true and fair view and are free from material misstatement, whether due to fraud or error, which have been used for the purpose of preparation of the consolidated financial statements by the directors of the Holding Company, as aforesaid.

3.      Auditors’ Responsibility

Our responsibility is to express an opinion on these consolidated financial statements based on our audit.

While conducting the audit, we have taken into account the provisions of the Act, the accounting and auditing standards and matters which are required to be included in the audit report under the provisions of the Act and the Rules made thereunder.

We conducted our audit in accordance with the Standards on Auditing specified under Section 143(10) of the Act. Those Standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and the disclosures in the consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal financial control relevant to the Holding Company’s preparation of the consolidated financial statements that give a true and fair view in order to design audit procedures that are appropriate in the circumstances but not for the purpose of expressing an opinion on whether the Holding Company has an adequate internal financial controls system over financial reporting in place and the operating effectiveness of such controls. An audit also includes evaluating the appropriateness of the accounting policies used and the reasonableness of the accounting estimates made by the Holding Company’s Board of Directors, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that the audit evidence obtained by us and the audit evidence obtained by the other auditors in terms of their reports referred to in the ‘Other Matters’ paragraph below, is sufficient and appropriate to provide a basis for our qualified audit opinion on the consolidated financial statements.

                                                                                                               

4.      Basis for Qualified Opinion

a.     The Holding Company has been carrying balances at exchange rate prevalent on 31st March, 2011, of shareholder’s loan and interest accrued thereon, due from Joint Venture Company, Companhia Dos Caminhos De Ferro Da Beira SARL (CCFB), and not translating at rates prevalent on 31st March, 2015 is not in conformity with Accounting Standard – 11. As a result, Long term loan and advances is lower by Rs. 19.31 crore and Profit before tax is lower by Rs. 19.31 crore (current year Rs. 4.20 crore and earlier years Rs. 15.11 crore). (Refer Note No. 36). This matter was also qualified in the report of the auditors on the financial statements for the year ended 31st March, 2014.

Had the effect of the above been given, the Long term loan and advances and Profit Before Tax would be higher by Rs. 19.31 crore.

b.     An amount of Rs. 12.74 Crore, in the nature of commission has been debited to the consolidated statement of profit and loss for the year ended 31st March, 2015 (previous year Rs. 37.91 Crore), as included in “Operating and administrative expenses” in Note No. 25 as “Design, Drawing, Business Development, Agency and Consultancy Charges” in respect of projects in two countries. The total amount so far debited to the statement of profit and loss, in this regard, since inception of these projects, has been Rs. 422.43 Crore. The said amount is paid/ to be paid towards commission to the Foreign Agents appointed by the Holding Company, to secure orders and provide other services for foreign projects, being implemented in these countries for the respective Government/ Government Agencies.

The foreign commission agents are registered in Singapore (for Project in one country) and Hong Kong (for Project in another country). The Holding Company did not obtain any financial statements, tax returns, profile of the agent, details of their experience, standing and track record at the time of appointment of the foreign agents. The appointment of and payments to foreign agents was not approved by the Audit Committee or by the Board of directors of the Holding Company. We are not satisfied regarding the process followed for selection and appointment of the commission agents, documents in respect of their real identity, standing, expertise and experience of the agents.

No evidence or document has been provided to us in respect of legal compliances in respect of these payments. We are also not satisfied about the genuineness of services received by the Holding Company from foreign agents, in the absence of any satisfactory evidence or communication in respect of actual services rendered.

Emphasis was also drawn by auditors in this matter in the Audit Report in respect of financial statements for the year ended 31st March, 2014.

5.      Qualified Opinion

In our opinion and to the best of our information and according to the explanations given to us, except for the effects of the matter described in the Basis for Qualified Opinion paragraph above, the aforesaid consolidated financial statements give the information required by the 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 consolidated state of affairs of the Group, and its jointly controlled entitiesas at 31st March, 2015, and their consolidated profit and their consolidated cash flows for the year ended on that date.

6.      Emphasis of Matters

(a)    We draw attention to Note No. 33 to the consolidated financial statements regarding admissibility of certain expenditures amounting to Rs. 1099.25 crore in executing a Broad Gauge Rail Link Project called “Udhampur–Srinagar–Baramulla Rail Link Project” (USBRL) in the state of Jammu & Kashmir by the Client, Northern Railways. The Holding Company has suitably replied to the matter and does not expect any liability on this account.

(b)    We draw attention to Note No. 35 to the consolidated financial statements regarding Income Tax provision made in the consolidated financial statements for disallowance of deduction claimed under section – 80IA of Income Tax Act, 1961 and taxability of income earned by its permanent establishments in foreign countries in India. Both the matters are contested by the Holding Company with the concerned Authorities.

Our opinion is not qualified in respect of these matters.

7.      Other Matters

(a)    We did not audit the financial statements of 3 subsidiaries and 8 jointly controlled entities, whose financial statements reflect total assets of Rs. 1,063.54 crore as at 31st March, 2015, total revenues of Rs. 176.80 crore and net cash flows amounting to Rs. 103.59 crore for the year ended on that date, as considered in the consolidated financial statements. These financial statements have been audited by other auditors whose reports have been furnished to us by the Management and our opinion on the consolidated financial statements, in so far as it relates to the amounts and disclosures included in respect of these subsidiaries, jointly controlled entities and associates, and our report in terms of sub–sections (3) and (11) of Section 143 of the Act, in so far as it relates to the aforesaid subsidiaries, jointly controlled entities and associates, is based solely on the reports of the other auditors.

(b)    We did not audit the financial statements/ financial information of one jointly controlled entity, whose financial statements/ financial information reflect total assets of Rs. 13.26 crore as at 31st March, 2015, total revenues of Rs. 41.17 crore and net cash flows amounting to Rs. (0.43) crore for the year ended on that date, as considered in the consolidated financial statements. These financial statements/ financial information are unaudited and have been furnished to us by the Management and our opinion on the consolidated financial statements, in so far as it relates to the amounts and disclosures included in respect of this jointly controlled entity, and our report in terms of sub–sections (3) and (11) of Section 143 of the Act, in so far as it relates to the aforesaid jointly controlled entity, is based solely on such unaudited financial statements/ financial information. In our opinion and according to the information and explanations given to us by the Management, these financial statements/ financial information are not material to the Group.

Our opinion on the consolidated financial statements, and our report on Other Legal and Regulatory Requirements below, is not qualified in respect of the above matters with respect to our reliance on the work done and the reports of the other auditors and the financial statements/ financial information certified by the Management.

8.      Report on Other Legal and Regulatory Requirements

                                                                                                                                                                                                                                                         

      I.        As required by the Companies (Auditor’s Report) Order, 2015 (“the Order”), issued by the Central Government of India in terms of sub–section (11) of Section 143 of the Act, based on the comments in the auditors’ reports of the Holding company, subsidiary companies and jointly controlled companies incorporated in India, we give in the Annexure, a statement on the matters specified in paragraphs 3 and 4 of the Order, to the extent applicable.

     II.        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 purpose of audit of the aforesaid consolidated financial statements.

b)     In our opinion, except for the effect of the matters described in the clause 4(a) of Basis for Qualified Opinion paragraph above, proper books of account as required by law relating to preparation of the aforesaid consolidated financial statements have been kept so far as it appears from our examination of those books and the reports of the other auditors.

c)     The reports on the accounts of the branch offices of the Holding Company, and its subsidiaries and jointly controlled companies incorporated in India,audited under Section 143(8) of the Act by branch auditors have been sent to us/ the other auditors, as applicable, and have been properly dealt with in preparing this report.

d)     The Consolidated Balance Sheet, the Consolidated Statement of Profit & Loss, and the Consolidated Cash Flow Statement dealt with by this report are in agreement with the books of account maintained for the purpose of preparation of the consolidated financial statements.

e)     Except for the effects of the matter described in the clause 4(a) of ‘Basis for Qualified Opinion’ paragraph above, in our opinion, the aforesaid consolidated financial statements comply with the Accounting Standards specified under Section 133 of the Act, read with Rule 7 of the Companies (Accounts) Rules, 2014.

f)      The matter described in clause 4(b) of Basis for Qualified opinion paragraph above, in our opinion, may have an adverse effect on the functioning of the Holding Company.

g)     Being a Government Company, pursuant to the notification no. G.S.R. 463(E) dated 5th June, 2015 issued by the Central Government of India, provisions of Section 164(2) of the Act are not applicable on the Holding Company.

h)     The qualification relating to the maintenance of accounts and other matters connected therewith are as stated in clause 4(a) of the ‘Basis for Qualified Opinion’ paragraph above.

i)      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 explanation given to us:

a)     The consolidated financial statements disclose the impact of pending litigations on the consolidated financial position of the Group and its jointly controlled entities – Refer Note No. 31, 35 and 36 to the consolidated financial statements.

b)     Provision has been made in the consolidated financial statements, as required under the applicable law or accounting standards, for material foreseeable losses, if any, on long–term contracts – Refer ‘Foreseeable Losses’ in Note No. 28(B) to the consolidated financial statements in respect of such items as it relates to the Group. The Group and its jointly controlled entitiesdid not have any derivative contracts for which there were any material foreseeable losses.

c)     There were no amounts which were required to be transferred to the Investor Education and Protection Fund by the Holding Company and its subsidiary company and jointly controlled companies incorporated in India.

              

For Vinod Kumar & Associates

Chartered Accountants

FRN 002304N

Mukesh Dadhich

Partner

Membership No. 511741

Place: New Delhi

Date: 13th October, 2015

For T. R. Chadha & Co.

Chartered Accountants

FRN 06711N

Neena Goel

Partner

Membership No. 057986

              

Auditor's qualification(s), reservation(s) or adverse remark(s) in auditors' report

1. Basis for Qualified Opinion a. The Holding Company has been carrying balances at exchange rate prevalent on 31st March, 2011, of shareholder’s loan and interest accrued thereon, due from Joint Venture Company, Companhia Dos Caminhos De Ferro Da Beira SARL (CCFB), and not translating at rates prevalent on 31st March, 2015 is not in conformity with Accounting Standard – 11. As a result, Long term loan and advances is lower by Rs. 19.31 crore and Profit before tax is lower by Rs. 19.31 crore (current year Rs. 4.20 crore and earlier years Rs. 15.11 crore). (Refer Note No. 36). This matter was also qualified in the report of the auditors on the financial statements for the year ended 31st March, 2014. Had the effect of the above been given, the Long term loan and advances and Profit Before Tax would be higher by Rs. 19.31 crore. b. An amount of Rs. 12.74 Crore, in the nature of commission has been debited to the consolidated statement of profit and loss for the year ended 31st March, 2015 (previous year Rs. 37.91 Crore), as included in “Operating and administrative expenses” in Note No. 25 as “Design, Drawing, Business Development, Agency and Consultancy Charges” in respect of projects in two countries. The total amount so far debited to the statement of profit and loss, in this regard, since inception of these projects, has been Rs. 422.43 Crore. The said amount is paid/ to be paid towards commission to the Foreign Agents appointed by the Holding Company, to secure orders and provide other services for foreign projects, being implemented in these countries for the respective Government/ Government Agencies. The foreign commission agents are registered in Singapore (for Project in one country) and Hong Kong (for Project in another country). The Holding Company did not obtain any financial statements, tax returns, profile of the agent, details of their experience, standing and track record at the time of appointment of the foreign agents. The appointment of and payments to foreign agents was not approved by the Audit Committee or by the Board of directors of the Holding Company. We are not satisfied regarding the process followed for selection and appointment of the commission agents, documents in respect of their real identity, standing, expertise and experience of the agents. No evidence or document has been provided to us in respect of legal compliances in respect of these payments. We are also not satisfied about the genuineness of services received by the Holding Company from foreign agents, in the absence of any satisfactory evidence or communication in respect of actual services rendered. Emphasis was also drawn by auditors in this matter in the Audit Report in respect of financial statements for the year ended 31st March, 2014. 2. Qualified Opinion In our opinion and to the best of our information and according to the explanations given to us, except for the effects of the matter described in the Basis for Qualified Opinion paragraph above, the aforesaid consolidated financial statements give the information required by the 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 consolidated state of affairs of the Group, and its jointly controlled entities as at 31st March, 2015, and their consolidated profit and their consolidated cash flows for the year ended on that date.

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