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INDEPENDENT AUDITORS' REPORT
TO THE MEMBERS OF PETRON ENGINEERING CONSTRUCTION LIMITED
Report on the Financial Statements
We have audited the accompanying financial statements of Petron Engineering Construction Limited ("the Company"), which comprise the Balance Sheet as at March 31, 2015, the Statement of Profit and Loss and Cash Flow Statement for the year then ended, and a summary of significant accounting policies and other explanatory information.
Management's Responsibility for the Financial Statements
The Company's Board of Directors is responsible for the matters stated in Section 134(5) of the Companies Act, 2013 ("the Act") with respect to the preparation of these financial statements that give a true and fair view of the financial position, financial performance and cash flows of the Company in accordance with 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. 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 the design, implementation and maintenance of adequate internal financial control 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.
Our responsibility is to express an opinion on these financial statements based on our 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 there under. We conducted our audit in accordance with the Standards on Auditing, issued by the Institute of Chartered Accountants of India, as 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 financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal financial control relevant to the Company's preparation of the 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 Company has in place an adequate internal financial controls system over financial reporting and the effectiveness of such controls. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of the accounting estimates made by the Company's Directors, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion on the financial statements.
Basis for Qualified Opinion
a) He report that in respect of certain contracts, as at March 31, 2015, trade receivables and unbilled revenue of Rs. 1,501 Lacs (net of provisions and mobilization advance of Rs. 4,240 Lacs) and Rs. 7,756 Lacs respectively are doubtful of recovery as the said contracts are under suspension or are delayed and the balances receivable from the customers are subject to final confirmation due to pending negotiations. Similarly, the trade payables to vendors in respect of the above mentioned suspended contracts as recorded in the books aggregating Rs. 1,323 Lacs are also subject to negotiations and final confirmation. In the absence of such confirmations and pending final outcome of the negotiations, we are unable to comment upon the amounts ultimately receivable/payable in respect of this contract and the consequential impact on the reported profit for the year ended March 31, 2015 and corresponding assets and liabilities as at that date. Our Audit Report on the financial statements for the year ended March 31, 2014 was also modified in respect of the above matter
b) He report that the Company has recognized revenue of Rs. 2,555 Lacs (during earlier periods) on cost overruns arising due to design changes and delay in completion on certain contracts, without change orders/customer acceptance in respect of the same. Due to the uncertainty over ultimate collection and recoverability of the said amounts, we are unable to comment on the amounts ultimately receivable in respect of these contracts including consequential adjustments that may be required in this regard and consequential impact on the reported profit for the year ended March 31, 2015 and corresponding assets as at that date. Our audit report on the financial statements for the year ended March 31, 2014 was also modified in respect of the above matter
c) He report that the Company has recognized revenues of Rs. 1,301 Lacs during the year ended March 31, 2015 on cost overruns arising due to design changes, contract interpretation issues and delay in completion on certain contracts, which in our opinion, should not have been recognized because they are not in accordance with the revenue recognition principles set out in the Accounting Standard AS 7 Construction Contracts. Accordingly the revenue, profit and unbilled revenue balance as of and for the year ended March 31, 2015 would be lower by Rs. 1,301 Lacs.
In our opinion and to the best of our information and according to the explanations given to us, except for the possible effects of the matters described in sub–paragraphs (a) and (b) of the Basis for Qualified Opinion paragraph above and except for the effects of the matter described in sub–paragraph (c) of the Basis for Qualified Opinion paragraph above, the aforesaid 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 state of affairs of the Company as at March 31, 2015, of its profit and its cash flows for the year ended on that date.
Report on Other Legal and Regulatory Requirements
1. A s 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, we give in the Annexure 1, a statement on the matters specified in paragraphs 3 and 4 of the Order.
2. Hs required by section 143 (3) of the Act, we report that:
(a) We have sought and except for the matters described in the Basis for Qualified Opinion paragraph, obtained all the information and explanations which to the best of our knowledge and belief were necessary for the purpose of our audit;
(b) H xcept for the effects of the matters described in the Basis for Qualified Opinion paragraph, 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) H he Balance Sheet, Statement of Profit and Loss, and Cash Flow Statement dealt with by this Report are in agreement with the books of account;
(d) except for the effects of the matter described in the Basis for Qualified Opinion paragraph above, in our opinion, the aforesaid financial statements comply with the Accounting Standards specified under section 133 of the Act, read with Rule 7 of the Companies (Accounts) Rules, 2014;
(e) The matters described in the Basis for Qualified Opinion paragraph above, in our opinion, may have an adverse effect on the functioning of the Company;
(f) H n the basis of written representations received from the directors as on March 31, 2015, and taken on record by the Board of Directors, none of the directors is disqualified as on March 31, 2015, from being appointed as a director in terms of section 164 (2) of the Act;
(g) The qualification relating to the maintenance of accounts and other matters connected therewith are as stated in the Basis for Qualified Opinion paragraph above.
(h) With respect to the other matters to be included in the Auditor's Report in accordance with Rule 11 of the Companies (Audit and Auditors) Rules, 2014, in our opinion and to the best of our information and according to the explanations given to us:
i. The Company has disclosed the impact of pending litigations on its financial position in its financial statements – Refer Note 31 and Note 35 to the 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 – Refer Note 7 to the financial statements. The Company does not have any derivative contracts for which there were any material foreseeable losses;
iii. H h ere has been no delay in transferring amounts, required to be transferred, to the Investor Education and Protection Fund by the Company.
Annexure referred to in paragraph 1 under the heading "Report on other legal and regulatory requirements" of our report of even date
Re: Petron Engineering Construction Limited ('the Company')
(i) (a) H he Company has maintained proper records showing full particulars, including quantitative details and situation of fixed assets.
(b) H he fixed assets are physically verified by the management according to a phased programme designed to cover all the items over a period of three years which in our opinion is reasonable having regard to the size of the Company and the nature of its assets. Pursuant to the programme, certain fixed assets were physically verified by the management during the year and no material discrepancies have been noticed on such verification.
(ii) (a) The management has conducted physical verification of inventory at reasonable intervals during the year.
(b)the procedures of physical verification of inventory followed by the management are reasonable and adequate in relation to the size of the Company and the nature of its business.
(c) the Company is maintaining proper records of inventory and no material discrepancies were noticed on physical verification.
(iii) according to the information and explanations given to us, the Company has not granted any loans, secured or unsecured to companies, firms or other parties covered in the register maintained under section 189 of the Act. Accordingly, the provisions of clause 3 (iii) (a) and (b) of the Order are not applicable to the Company and hence not commented upon.
(iv) H n our opinion and according to the information and explanations given to us, there is an adequate internal control system commensurate with the size of the Company and the nature of its business, for the purchase of inventory and fixed assets and for the sale of goods. However, the internal control system for cost estimation process needs to be strengthened in order to correct variances in costs estimated and costs subsequently incurred, to make it commensurate with the size and nature of the operations of the Company. In our opinion, this is a continuing failure to correct a major weakness in the internal control system.
(v) The Company has not accepted any deposits from the public.
(vi) We have broadly reviewed the books of account maintained by the Company pursuant to the rules made by the Central Government for the maintenance of cost records under section 148 (1) of the Act, related to the manufacture of Machinery and Mechanical appliances and parts thereof and execution of projects having application of Mechanical Engineering, Fabrication, Construction and Refractory products, and are of the opinion that prima facie, the prescribed accounts and records have been made and maintained. We have not, however, made a detailed examination of the same.
(vii) (a) undisputed statutory dues including income–tax, wealth tax, customs duty, excise duty, value added tax, cess and other material statutory dues have generally been regularly deposited with the appropriate authorities though there have been serious delays in large number of cases of tax deducted at source, provident fund, employees' state insurance, service tax and sales–tax.
(b)according to the information and explanations given to us, no undisputed amounts payable in respect of provident fund, employees' state insurance, income–tax, wealth–tax, service tax, sales–tax, customs duty, excise duty, value added tax, cess and other material statutory dues were outstanding, at the year end, for a period of more than six months from the date they became payable.
(c) According to the records of the Company, the dues outstanding of income–tax, sales–tax, wealth–tax, service tax, customs duty, excise duty, value added tax and cess on account of any dispute, are as follows:
(d) According to the information and explanations given to us, the amount required to be transferred to investor education and protection fund in accordance with the relevant provisions of the Companies Act, 1956 (1 of 1956) and rules made there under has been transferred to such fund within time.
(viii) Without considering the consequential effects, if any, of the matters stated in paragraph (a), (b) and (c) of the Basis of Qualified Opinion paragraph in our auditors' report, the Company has no accumulated losses at the end of the financial year and it has not incurred cash losses in the current and immediately preceding financial year
(ix) Hased on our audit procedures and as per the information and explanations given by the management, there have been 8 instances of delays in repayment of dues to a bank aggregating to Rs. 494 Lacs (delays ranging from 03 to 30 days). The delays observed were for the period up to September 30, 2014 and dues have been fully paid by the Company before September 30, 2014. The Company did not have any outstanding dues in respect of a financial institutions or debentures during the year.
(x) According to the information and explanations given to us, the Company has not given any guarantee for loans taken by others from bank or financial institutions.
(xi) Based on information and explanations given to us by the management, term loans were applied for the purpose for which the loans were obtained.
(xii) Based upon the audit procedures performed for the purpose of reporting the true and fair view of the financial statements and as per the information and explanations given by the management, we report that no fraud on or by the Company has been noticed or reported during the year.
For S R B C & CO LLP
Chartered Accountants ICAI Firm Registration Number: 324982E
per Shyamsundar Pachisia
Membership Number: 49237
Place : Mumbai,
date : 13 July 2015