gkn driveline india ltd Auditors report

AUDITORS

TO THE MEMBERS OF GKN DRIVELINE (INDIA) LIMITED

1. We have audited the attached Balance Sheet of GKN Driveline (India) Limited (the "Company") as at December 31, 2012, and the related Statement of Profit and Loss and Cash Flow Statement for the year ended on that date annexed thereto, which we have signed under reference to this report. These financial statements are the responsibility of the Companys Management. Our responsibility is to express an opinion on these financial statements based on our audit.

2. We conducted our audit in accordance with the auditing standards generally accepted in India. Those Standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by Management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

3. As required by the Companies (Auditors Report) Order, 2003, as amended by the Companies (Auditors Report) (Amendment) Order, 2004 (together the "Order"), issued by the Central Government of India in terms of sub-section (4A) of Section 227 of The Companies Act, 1956 of India (the Act) and on the basis of such checks of the books and records of the Company as we considered appropriate and according to the information and explanations given to us, we give in the Annexure a statement on the matters specified in paragraphs 4 and 5 of the Order.

4. We draw your attention to Note 46 to the financial statements regarding physical verification of inventory carried out by the Management during the year resulting in a cumulative inventory shortage at one plant, where the inventory balance as per the books of account exceeded the physical inventory balance by Rs. 123,201,729 for which management has made an adjustment in the books of account to state the physical inventory as at balance sheet date in the books of account. Considering that the internal controls over inventory movements are weak, timely and accurate inventory records have not been maintained during the year and management has not been able to determine the cause(s) for shortage fully, including the quantitative impact of each of the cause(s), of the aforesaid inventory shortage, we are unable to obtain sufficient and appropriate audit evidence in respect of such adjustments. Consequently, we are unable to comment whether the financial statements contain misstatement, if any, in this regard.

5. Further to our comments in the Annexure referred to in paragraph 3 above, we report that:

(a) Except for the matter referred to in paragraph 4 above, we have 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, except for the matter referred to in paragraph 4 above, proper books of account as required by law have been kept by the Company so far as appears from our examination of those books;

(c) The 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) In our opinion, the Balance Sheet, Statement of Profit and Loss and Cash Flow Statement dealt with by this report comply with the accounting standards referred to in sub-section (3C) of Section 211 of the Act;

(e) On the basis of written representations received from the directors, as on December 31, 2012 and taken on record by the Board of Directors, none of the directors is disqualified as on December 31, 2012 from being appointed as a director in terms of clause (g) of sub-section (1) of Section 274 of the Act;

(f) In our opinion and to the best of our information and according to the explanations given to us, except for the matter referred to in paragraph 4 above which is not presently quantifiable, the said financial statements together with the notes thereon and attached thereto give, in the prescribed manner, the information required by the Act, and give a true and fair view in conformity with the accounting principles generally accepted in India:

(i) in the case of the Balance Sheet, of the state of affairs of the company as at December 31, 2012;

(ii) in the case of the Statement of Profit and Loss, of the loss for the year ended on that date; and

(iii) in the case of the Cash Flow Statement, of the cash flows for the year ended on that date.

	For and on behalf of
	Price Waterhouse
	Firm Registration Number:	012754N
	Chartered Accountants
	Sd/-
	Suchita Sharma
Place : Gurgaon	Partner
Date : June 4, 2013	Membership Number -	073897

ANNEXURE TO AUDITORS REPORT

Referred to in paragraph [3] of the Auditors Report of even date to the members of GKN Driveline (India) Limited on the financial statements for the year ended December 31, 2012 i. (a) The Company is maintaining proper records showing full particulars, including quantitative details and situation, of fixed assets.

(b) The fixed assets of the Company have been physically verified by the Management during the year. The discrepancies noticed on such verification were not material and have been properly dealt with in the books of account. In our opinion, the frequency of verification is reasonable.

(c) In our opinion, and according to the information and explanations given to us, a substantial part of fixed assets has not been disposed off by the Company during the year. ii. (a) The inventory, has been physically verified by the Management during the year and as at the year end. In our opinion, the frequency of verification is reasonable.

(b) In our opinion, 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) On the basis of our examination of the inventory records, in our opinion, the Company is not maintaining accurate and timely records of inventory at one plant particularly of the inward and outward movement of raw material, scrap and work in progress inventory including inventory movements with sub contractors (Also refer paragraph 4 of the Auditors Report and Note 46 to the financial statements). The aggregate cumulative shortages amounting to Rs. 123,201,729, noticed on physical verification of inventory by Management as at the year end, as compared to the book records were material and have been dealt with in the books of accounts as described in Note 46 to the financial statements. iii. (a) The Company has not granted any loans, secured/ unsecured, to companies /firms /other parties covered in the register maintained under Section 301 of the Act.Therefore, the provisions of Clause 4(iii)[(b),(c) and (d)] of the said Order are not applicable to the Company.

(b) The Company has not taken any loans secured/ unsecured, from companies /firms / other parties covered in the register maintained under Section 301 of the Act. Therefore, the provisions of Clause 4(iii)[(f) and (g)] of the said Order are not applicable to the Company. iv. In our opinion and according to the information and explanations given to us, and as described in Note 46 to the financial statements, the internal control system of the Company in respect of purchase and consumption of inventory and sale of scrap is not commensurate with its size and the nature of business since cumulative shortages aggregating to Rs. 123,201,729 were found during physical verification of inventory, which were adjusted in the books of accounts as described in Note 46 to the financial statements. We are unable to obtain sufficient appropriate evidence for the adjustments made in the books of account with respect to these differences (Also refer paragraph 4 of the Auditors Report). We further report that, in our opinion, there is an adequate internal control system commensurate with the size of the Company and the nature of its business for the purchase of fixed assets and sale of goods. The Companys operations do not involve sale of services. In our opinion there has been continuing failure to correct the aforesaid material weakness. The management has initiated steps to correct such weaknesses as described in Note 46 to the financial statements.

v (a) According to the information and explanations given to us, we are of the opinion that the particulars of all contracts or arrangements that need to be entered into the register maintained under section 301 of the Companies Act, 1956have been so entered.

(b) In our opinion and according to the information and explanations given to us, the transactions made in pursuance of such contracts or arrangements and exceeding the value of Rupees Five Lakhs in respect of any party during the year have been made at prices which are reasonable having regard to the prevailing market prices at the relevant time except to the extent of Rs.278,514,935 in respect of transactions for Sales, Purchase and other expenses payable to various parties, where we are unable to comment as there are no comparable market prices available, being transactions of specialized/ proprietary nature. vi. The Company has not accepted any deposits from the public within the meaning of Sections 58A and 58AA of the Act and the rules framed there under. vii. In our opinion, the Company has an internal audit system commensurate with its size and the nature of its business.

viii. We have broadly reviewed the books of account maintained by the Company in respect of products where, pursuant to the rules made by the Central Government of India, the maintenance of cost records has been prescribed under clause (d) of sub-section (1) of Section 209 of the Act, 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 records with a view to determine whether they are accurate or complete.

ix. (a) According to the information and explanations given to us and the records of the Company examined by us, in our opinion, the Company is generally regular in depositing undisputed statutory dues in respect of Provident Fund and Employee State Insurance, though there has been a slight delay in a few cases, and is regular in depositing undisputed statutory dues, including, investor education and protection fund, income tax, sales tax, wealth tax, service tax, customs duty, excise duty and other material statutory dues, as applicable, with the appropriate authorities.

(b) According to the information and explanations given to us and the records of the Company examined by us, the particulars of dues of income tax, service tax and excise duty as at December 31, 2012 which have not been deposited on account of a dispute, are as follows:

Name of the statute	Nature of dues	Amount(Rs.)	Period to which the amount relates	Forum where the dispute is pending
Income Tax Act, 1961	Income Tax and Interest thereon	1,699,809	Assessment Year 2002-03	Commissioner of Income Tax (A)
Income Tax	Income Tax and	10,884,100	Assessment Year	Commissioner of
Act, 1961	Interest thereon		2005-06 and 2006-07	Income Tax (A)
Income Tax Act, 1961	Interest	196,679	Assessment Year 2010-11	Commissioner of Income Tax (A)
Income Tax Act, 1961	Income Tax and Interest thereon	130,482,450	Assessment Year 2009-10	Dispute Resolution Panel
Income Tax	Income Tax and	206,166,368	Assessment Year	Income Tax Appellate
Act, 1961	Interest thereon		2008-09	Tribunal
Central Excise Act, 1944	Excise Duty Demands & Penalty thereon	89,572	2007-09 to 2010-11	Commissioner (A)
Central Excise Act, 1944	Excise Duty Demands & Penalty thereon	14,753,983	2000-01 to 2008-09	Central Excise and Service TaxAppellate Tribunal
The Finance Act, 1994	Service Tax	1,381,246	2005-06 to 2010-11	Commissioner (Appeals)
The Finance Act, 1994	Service Tax	51,734,007	2005-06 to 2007-08	Commissioner (Appeals)

The Company has no accumulated losses as at the end of the financial year and it has not incurred any cash losses in the financial year ended on that date or in the immediately preceding financial year.

XI. According to the records of the Company examined by us and the information and explanation given to us, the Company has not defaulted in repayment of dues to any financial institution or bank or debenture holders as at the balance sheet date.

XII. The Company has not granted any loans and advances on the basis of security by way of pledge of shares, debentures and other securities. Therefore, the provisions of Clause 4(xii) of the Order are not applicable to the Company.

XIII. As the provisions of any special statute applicable to chit fund/ nidhi/ mutual benefit fund/ societies are not applicable to the Company, the provisions of Clause 4(xiii) of the Order are not applicable to the Company. XIV. n I our opinion, the Company is not dealing in or trading in shares, securities, debentures and other investments.

Accordingly, the provisions of Clause 4(xiv) of the Order are not applicable to the Company.

XV. In our opinion, and according to the information and explanations given to us, the Company has not given any guarantee for loans taken by others from banks or financial institutions during the year. Accordingly, the provisions of Clause 4(xv)of the Order are not applicable to the Company xvi. In our opinion, and according to the information and explanations given to us, the term loans have been applied, for the purposes for which they were obtained. xvii. According to the information and explanations given to us and on an overall examination of the balance sheet of the company, we report that the company has used funds raised on short-term basis for long-term investment.

The company has obtained working capital demand loan amounting to Rs.70,951 on a short term basis, which has been used for capital expenditure.

xviii. The Company has not made any preferential allotment of shares to parties and companies covered in the register maintained under Section 301 of the Act during the year. Accordingly, the provisions of Clause 4(xviii) of the Order are not applicable to the Company.

xix. The Company has not issued any debentures during the year and does not have any debentures outstanding as at the beginning of the year and at the year end. Accordingly, the provisions of Clause 4(xix) of the Order are not applicable to the Company.

xx. The Company has not raised any money by public issues during the year. Accordingly, the provisions of Clause 4(xx) of the Order are not applicable to the Company.

xxi. During the course of our examination of the books and records of the Company, carried out in accordance with the generally accepted auditing practices in India, and according to the information and explanations given to us, except for cumulative shortages in inventory at one plant, as described in Note 46 to the financial statements, aggregating to Rs.123,201,729 and for which we are unable to obtain sufficient and appropriate evidence, and consequently we are unable to conclude as to whether there is any material fraud on or by the Company or not

(also refer paragraph 4 of the Auditors Report), we have not come across any instance of material fraud on or by the Company, noticed or reported during the year, nor have we been informed of any such case by the Management.

	For and on behalf of
	Price Waterhouse
	Firm Registration Number:	012754N
	Chartered Accountants
	Sd/-
Place: Gurgaon	Suchita Sharma
Date : June 4, 2013	Partner
	Membership Number - 073897