Bharat Electronics Ltd Directors Report.

TO THE MEMBERS OF BHARAT ELECTRONICS LIMITED

We are issuing this revised report to comply with the observations made by the Comptroller and Auditor General of India with respect to Emphasis of Matter paragraph to the Independent auditors report. This Independent auditors report supersedes our report issued on 29 June 2020.

Report on the Audit of the Standalone Financial Statements

Opinion

We have audited the accompanying standalone financial statements of Bharat Electronics Limited

("the Company"), which comprise the Balance Sheet as at 31 March, 2020, 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 then ended, and notes to financial statements, including a summary of significant accounting policies and other explanatory information, in which are included the Returns for the year ended on that date audited by the branch auditors of the Companys branches located at Ghaziabad, Panchkula, Kotdwara, Pune, Navi Mumbai and Machilipatnam.

In our opinion and to the best of our information and according to the explanations given to us, the aforesaid standalone financial statements 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 31 March, 2020 and its profit (including Other Comprehensive Income), the changes in equity and its cash flows for the year ended on that date.

Basis for Opinion

We conducted our audit in accordance with the Standards on Auditing (SAs) specified under section 143(10) of the Companies Act, 2013. Our responsibilities under those Standards are further described in the Auditors 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 Companies Act, 2013 and the Rules thereunder, we have fulfilled our other ethical responsibilities in accordance with these requirements and the ICAIs Code of Ethics. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Emphasis of Matter

1. We draw attention to Note no.30(17) of the financial statements toward impact of outbreak of coronavirus (COVID 19) on the business operations of the company which depends on certain developments that are uncertain and cannot be predicted. Our opinion is not modified in respect of the above matter.

2. We draw attention to Note no.30(14) of the financial statements towards recognition of retention sales due to lockdown on account of outbreak of coronavirus (COVID 19) and our opinion is not modified in respect of the above matter.

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.

Key Audit Matter Auditors Response
1 Accuracy of recognition, measurement, presentation and disclosure of revenue and related balances towards Ind AS 115- Revenue from Contracts with Customers. Principal Audit Procedures
Our audit procedures involve identification of internal controls and their operating effectiveness towards application of this standard. We have also carried out the substantive testing of the transactions.
The application of this standard involves the assessment towards identification of the distinct performance obligations, determination of the transaction price for each of the identified performance obligation, the judgements used for determining the satisfaction of those performance obligations over time or at a point in time. (i) Selected the sample of continuing contracts and the new contracts and identified the performance obligations and compared the same with the performance obligation identified by the company.
(ii) Verified the basis of allocation of transaction price to the identified performance obligation if not specifically mentioned in the contract.
(iii) Identified the basis to be considered to determine the satisfaction of performance obligation and compared the same with the judgements used by the Company in determining the satisfaction of performance obligation over time or at a point in time.
Additionally, the application of the standard also involves judgements used in identifying the amount of cost incurred to obtain or fulfil a contract and the disclosure of the periods over which performance obligations are satisfied over time subsequent to the reporting date.
(iv) Verified the appropriate evidences considered for determining the satisfaction of performance obligations towards transfer of promised goods or services.
(v) In respect of contracts where the satisfaction of performance obligation is over time, we have verified the method identified by the Company for recognising the revenue and ensured that those methods are appropriate considering the nature of the performance obligation.
(Refer Note no. 23 to the standalone financial statements and S.No. 5 to the Accounting policies)
(vi) Verified judgements used by the Company to identify those costs that are incurred to obtain or fulfil the contract and period over which, those costs will be amortised.
(vii) Reviewed the Plan available with the Company towards satisfaction of remaining performance obligations identified based on the delivery terms defined in the customer order to prepare the disclosure relating to periods over which remaining unsatisfied or partially satisfied performance obligations will be satisfied subsequent to the reporting date.
2 Critical Estimates in respect of Onerous Contracts. Principal Audit Procedures
We have enquired with the management regarding the internal controls available towards identification of onerous contracts and cost to fulfil those contracts.
Estimation of unavoidable costs for meeting or satisfaction of performance obligations in respect of contracts that have become onerous is critical. The estimate has inherent limitation of certainty towards estimating the unavoidable costs to complete the performance obligations.
(i) Selected the sample of continuing and existing contract and tested the effectiveness of the controls towards cost incurred and estimated costs of fulfilling the contract.
(Refer Note no. 21 to the standalone financial statements and S.No. 23 to the Accounting policies) (ii) Carried out test of internal controls and also the substantive procedures in determining the estimates for unavoidable costs towards onerous contracts.
(iii) Verified and understood the internal controls available in estimating the basis for arriving the unavoidable costs for meeting the performance obligations in respect of onerous contracts.
(iv) Verified the purchase order issued for satisfying the performance and identified those remaining costs which are to be incurred to satisfy the remaining performance obligations.
(v) Verified the internal controls towards identification of costs incurred towards the concerned contracts and ensured that only the related cost of the contract is recorded.
(vi) Verified the possible reductions in the contract price towards the balance performance obligations in respect of penalties.
(vii) Performed analytical procedures and test of details for reasonableness of cost incurred and estimated cost to be incurred.
3 Critical estimates made in respect of expected cost to complete the contract for performance obligation over time. The estimate has inherent limitation of certainty towards estimating the cost to satisfy the performance obligation. Principal Audit Procedures
We have enquired with the management regarding the internal controls available towards identification of contract where the performance obligations are satisfied over the period of time.
(i) Selected the sample contracts of continuing and existing contract and tested the effectiveness of the controls towards cost incurred and estimated costs.
(Refer Note no. 23 to the standalone financial statements and S.No. 5 to the Accounting policies)
(ii) Carried out test of internal controls and also the substantive procedures in determining the estimates made to complete contract.
(iii) Verified the purchase order issued for satisfying the performance and identified those remaining costs which are to be incurred to satisfy the balance performance obligations.
(iv) Verified the internal controls towards identification of costs incurred towards the concerned contracts and ensured that only the related cost of the contract is considered.
(v) Discussed with the management and analysed that the cost estimated is towards the work that are pending to be carried out for completion and satisfaction of the performance obligations.
(vi) Performed analytical procedures and test of details for reasonableness of cost incurred and estimated cost to be incurred.
4 a) Determination of transfer of control where dispatch of the goods to the customer could not be made during the lockdown period caused by outbreak of COVID-19. (i) Ensured whether the goods are designed and manufactured to the customer specifications by perusing appropriate evidences.
(ii) Verified the customer acceptance for the goods for assessment of transfer of control.
(iii) Verified the customer request to the company to retain the goods since the goods could not be dispatched and delivered during the lockdown period due to outbreak of COVID-19.
(Refer Note no. 23 to the standalone financial statements and S.no. 5 to the Accounting policies)
(iv) Ensured whether the goods have been appropriated by the company.
(v) Verified whether the goods have been subsequently despatched after the lock down is released wherever possible.
b) Determination of cost incurred in respect of contracts where performance obligation is satisfied over the period of time where the goods despatched from vendors premise could not reach the customer site during the lockdown period caused by outbreak of COVID-19. (i) Obtained the list of goods which were moved before the lock down period but could not reach the customer site.
(ii) Verified the supporting evidences for the movement of the goods.
(iii) Verified the acceptance of the goods by the company.
(iv) Verified that the goods have been subsequently received at the customer site after the lock down is released wherever possible.
(Refer Note no. 23 to the standalone financial statements and S.no. 5 to the Accounting policies) (v) Verified the cost incurred is appropriately considered for the purpose of calculation of revenue in respect of contracts where performance obligation is satisfied over the period of time.

Information Other than the Standalone Financial Statements and Auditors Report Thereon

The Companys Board of Directors is responsible for the preparation of the other information. The other information comprises the Boards Report including its annexures, Corporate Governance and shareholders information but does not include the standalone Financial Statements and our auditors report thereon.

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 and, in doing so, consider whether the other information is materially inconsistent with the standalone financial statements or our knowledge obtained during the course of our audit or otherwise appears to be materially misstated.

If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.

Responsibilities of Management and Those Charged with Governance for the Standalone Financial Statements

The Companys Board of Directors is responsible for the matters stated in section 134(5) of the Companies Act, 2013 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 accounting principles generally accepted in India, including the accounting standards specified under Section 133 of the Act. 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 Companys 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 also responsible for overseeing the Companys financial reporting process.

Auditors Responsibility for the Audit of the Standalone Financial Statements

Our objectives are to o btain 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 auditors 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 professionaljudgment 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 Companies Act, 2013, 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 the management.

• Conclude on the appropriateness of managements 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 Companys ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditors 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 auditors 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 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 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 auditors 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.

We have considered the audit report of 6 branches audited by branch auditor in forming our opinion on the standalone financial statements.

Other matter

1. We did not audit the financial statements of six branches included in the standalone financial statements of the Company whose financial statements reflect total assets of Rs 7,15,674 lakhs as at 31 March 2020 and total revenues of Rs 4,76,833 lakhs for the year ended on that date, as considered in the standalone financial statements. The financial statements of these branches have been audited by the branch auditors appointed by Comptroller & Auditor General of India, whose reports have been furnished to us, and our opinion in so far as it relates to the amounts and disclosures included in respect of these branches, is based solely on the report of such branch auditors.

Our opinion is not modified in respect of the above matter.

2. In respect of the units audited by the branch auditors on whose report we rely on, we observed that the branch auditors of the Ghaziabad and Kotdwara units without modifying their opinion have emphasised that liquidated damages are inherent in determination of transaction price in contracts and it shall form part of the variable consideration and need to be reduced from revenue instead providing the same. We have considered the above and observed that the accounting treatment followed in these units are in line with the accounting policy of the company and as followed in the other units.

Our opinion is not modified in respect of the above matter.

Report on Other Legal and Regulatory Requirements

1. As required by the Companies (Auditors Report) Order, 2016 ("the Order"), issued by the Central Government of India in terms of sub-section (11) of section 143 of the Companies Act, 2013, we give in the 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. The audit of the accounts of Bangalore complex, Hyderabad and Chennai units and Corporate office were carried out by us, whilst the audit of Ghaziabad, Panchkula, Kotdwara, Pune, Navi Mumbai and Machilipatnam units were audited by the respective branch auditors. The report of the branch auditors have been considered by us while preparing our report. In case of New York, Singapore and other offices, not visited by us, the returns / records received from the said offices have been verified and found to be adequate for the purpose of our audit.

c) The reports on the accounts of the branch offices of the Company audited under Section 143(8) of the Act by branch auditors (in respect of Ghaziabad, Panchkula, Kotdwara, Pune, Navi Mumbai and Machilipatnam units) have been sent to us and have been properly dealt with by us in preparing this report.

d) The Balance Sheet, the Statement of Profit and Loss including Other Comprehensive Income, Statement of Changes in Equity and Statement of Cash Flow dealt with by this Report are in agreement with the books of accounts of the Company and with the Returns received from the offices not visited by us.

e) In our opinion, the aforesaid standalone financial statements comply with the Indian Accounting Standards specified under Section 133 of the Act, read with Rule 7 of the Companies (Accounts) Rules, 2014.

f) The Company being a Government Company, the provisions of Section 164(2) of the Companies Act, 2013 in respect of disqualification of Directors are not applicable.

g) 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".

h) With respect to the other matters to be included in the Auditors Report in accordance with the requirement of Section 197(16) of the Companies Act, 2013 as amended:

The company being a Government Company, the provisions in relation to payment of managerial remuneration as mandated by Section 197 read with Schedule V to the Companies Act, 2013 is not applicable.

i) With respect to the other matters to be included in the Auditors 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 as at 31 March 2020 -Refer Note 30(8) to the 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- Refer Note No.21 to the standalone financial statements. The Company do not have any derivative contracts - Refer Note No. 30(15) to the standalone financial statements.

iii. There has been no delay in transferring amounts, required to be transferred, to the Investor Education and Protection Fund by the Company.

3. As required by Section 143(5) of the Act, we have considered the directions issued by the Comptroller and Auditor General of India, the action taken thereon and its impact on the standalone financial statements of the Company in "Annexure C".

For Suri & Co.
Chartered Accountants
Firm Registration No. 004283S
Natarajan V
Partner
Bengaluru Membership No.223118
19 August 2020 UDIN: 20223118AAAACZ9108

ANNEXURE A TO THE INDEPENDENT AUDITORS REPORT

(Referred to in our report of even date)

The Annexure referred to in Independent Auditors Report to the members of the company on the standalone financial statements for the year ended 31 March, 2020, we report that:

i) a) The Company has generally maintained proper records showing full particulars including quantitative details and situations of its fixed assets.

b) As explained to us and based on our examination of records, the Management has generally carried out the physical verification of a portion of the Fixed Assets in accordance with their phased programme of physical verification, which is considered reasonable, having regard to the size of the Company and nature of its fixed assets. In accordance with the programme, certain fixed assets were verified during the year and discrepancies, if any, were properly dealt with on such verification during the year. As informed to us, no material discrepancies have been noticed on such verification during the year.

c) As explained to us and based on our examination of records, the title deeds of immovable properties are held in the name of the company, except for those which are mentioned in Note No.1(xv) (D),(F),(H) & Note No.3(xiii)(A) to the standalone financial statements.

ii) The Physical verification of inventory (excluding stock with third parties and material in transit) have been conducted at reasonable intervals by the company. We were informed that, no material discrepancies have been noticed on such verification. The discrepancies noticed on such verification have been properly dealt in the books of accounts.

In respect of materials with sub-contractors, confirmation have been generally received and reconciled with the book records. However, in case of such items for which no confirmations have been received, which are not significant, the company has dealt with the same by making adequate provision in the books of accounts.

iii) According to the information and explanations given to us, the Company has granted unsecured loans to subsidiary company covered in the register maintained under section 189 of the Companies Act, 2013 ("Act"). The company has not granted loans to firms or other parties covered in the register maintained under section 189 of the Act.

a) According to the information and explanation given to us and based on the audit procedures conducted by us, we are of the opinion that the terms and conditions of loans granted by the company to its subsidiary covered in the register maintained under section 189 of the Companies Act, 2013 are not, prima facie, prejudicial to the companys interest.

b) According to the information and explanation given to us, the schedule of repayment of principal and payment of interest has been stipulated and repayments are regular.

c) There are no overdue amounts in respect of the loan granted to the subsidiary company listed in the register maintained under section 189 of the Act.

iv) The Company being a Government Company, the provisions of section 185 and 186 of the Companies Act, 2013 in respect of loans, investments, guarantees, and security, are not applicable.

v) According to the information and explanations given to us, the company has not accepted any deposit from public in the current year as per the directives issued by the Reserve Bank of India and the provisions of sections 73 to 76 or any other relevant provisions of the Companies Act and the rules framed there under. We were informed that no order has been passed by Company Law Board or National Company Law Tribunal or Reserve Bank of India or any Court or any other Tribunal.

All deposits have matured and settled except for Rs 36.95 lakhs, out of which Rs 36.50 lakhs is retained as per Garnishee Order of Lokayukta, Bengaluru and the balance of Rs 0.45 lakhs though matured is unpaid due to legal issues.

vi) We have broadly reviewed the books of account relating to materials, labour and other items of cost maintained by the Company pursuant to the Companies (Cost Records and Audit) Rules, 2014 prescribed by the Central Government for the maintenance of cost records under section 148 (1) (d) of the Companies Act, 2013 and we are of the opinion that prima facie, the prescribed cost accounts and records have been made and maintained. However, we have not carried out any detailed examination of the cost records with a view to determine whether they are accurate or complete.

vii) a) Based on our examination of books of account and according to the information and explanations given to us, in our opinion, the company is regular in depositing undisputed statutory dues including Provident Fund, Income tax, Goods and Services Tax, Service Tax, duty of customs and other statutory dues applicable to the appropriate authority. No undisputed statutory dues were outstanding as at 31 March 2020 for a period of more than six months from the date they became payable.

b) According to the information and explanation given and records provided to us, income tax, sales tax, service tax and other taxes which have not been deposited as at 31 March, 2020, on account of dispute are as under:-

Name of the Statute Nature of dues Financial year to which amount relates Amount ( Rs in Lakhs) Forum where dispute is pending
Income Tax Act Disallowances as per Assessment orders 2008-09, 2009-10, 201112 to 2013-14, 2015-16 and 2016-17 2566.21 Commissioner of Income Tax (Appeals)
Chapter V of Finance Act, 1994 Service Tax 2005-06 to 2008-09, 2011-12, 2014-15 and 2015-16 1149.40 Customs, Excise and Service Tax Appellate Tribunal (CESTAT)
Chapter V of Finance Act, 1994 Service Tax 2010-11 to 2017-18 565.05 Customs, Excise and Service Tax Appellate Tribunal (CESTAT)
Customs Act Customs Duty 2015-16 427.80 Customs, Excise and Service Tax Appellate Tribunal (CESTAT)
Central Excise Act MODVAT credit and Excise duty 1991-92 29.69 Commissioner Appeals
Central Excise Act Interest on Excise Duty 2011-12 & 2012-13 243.87 Customs, Excise and Service Tax Appellate Tribunal (CESTAT)
Customs Act Customs Duty 2012-13 25.45 Commissioner of Customs
Sales Tax Act, Bihar Disputed Tax under Bihar Sales Tax 1995-96 to 1997-98 66.44 Commissioner of Commercial Taxes (Appeals), Chirkunda, Bihar
Finance Act 1994 Goods and Service Tax Till 30th June, 2017 60.93 Superintendent Range 34, Division VII, Ghaziabad, U.P.
Andhra Pradesh State VAT Act Sales Tax 2009-10 21.66 Commercial Tax officer, Nampally, Hyderabad
Tamil Nadu General Sales Tax Act Sales Tax 2007-08 to 2009-10 48.00 Tamil Nadu Sales Tax Appellate Tribunal
Vacant Land Tax Vacant land Tax 1998-99 to 2003-04 10.35 Director, Directorate of Town Panchayat, Chennai
Urban Land Tax Urban Land Tax 1984-85 to 2002-03 41.44 Principal commissioner and commissioner of land Reforms
ESI Act, 1948 ESI Contribution, Interest & Cost of Recovery 1992-1993, 1998-2001 30.43 Honble High Court of Andhra Pradesh
ESI Act,1948 Interest & Damages towards late deposit 2000-01 3.52 Honble High Court of Punjab & Haryana, Chandigarh
Uttarakhand value Added Tax Act, 2005 Trade Tax and Interest 2001-02 220.08 Honble High Court of Uttarakhand, Nainital
Local body Tax Local body tax 2016-17 41.43 Assistant commissioner of Panvel Municipal corporation
Sales Tax Sales tax 2008-09 58.85 Rajasthan Tax Board
Total disputed amount 5610.60
Total amount paid under protest pending final orders 634.36

viii) Based on our examination of books of account and according to the information and explanations given to us, the Company has not defaulted in repayment of dues to financial institution or Bank or Government. The company has not issued any debentures during the year.

ix) To the best of our knowledge and according to the information and explanation given to us, term loans availed by the Company were prima facie applied by the Company during the year for the purpose for which the loans were obtained and the Company did not raise any money by way of Initial Public Offer or further public offer (including debt instruments) during the year.

x) As informed to us by the management, during the year, a fraud on the company by way of misappropriation of companys funds by its employees amounting to Rs 999.72 lakhs has been detected during the routine internal audit. The fraud was committed during the period from December 2013 to July 2019. Out of the said amount Rs 63.23 lakhs has been recovered. The company has recognised the balance amount of Rs 936.49 lakhs ( 999.72 lakhs - Rs 63.23 lakhs) as receivable and pending recovery the same has been provided for as doubtful in the statement of profit and loss. The company has initiated appropriate actions and the investigation is in progress. Refer to Note 30(21) to the accompanying standalone financial statements.

xi) The company being a Government company, the provisions in relation to disbursement of managerial remuneration as mandated by section 197 read with schedule V to the Companies Act, 2013 is not applicable to the company.

xii) The Company is not a Nidhi Company. Accordingly, paragraph 3(xii) of the order is not applicable.

xiii) On the basis of examination of records of the Company and information and explanations given to us, all transactions with the related parties are in compliance with sections 177 and 188 of Companies Act, 2013 where applicable and the details of such transactions have been disclosed in the standalone financial statements as required by the applicable Indian accounting standards.

xiv) According to the information and explanations given to us and based on our examination of the records of the company, the company has not made any preferential allotment or private placement of shares or fully or partly convertible debentures during the period under review and hence reporting under clause 3 (xiv) of the Order is not applicable to the company.

xv) According to the information and explanations given to us and based on our examination of the records, the Company has not entered into any non-cash transactions with directors or persons connected with him and hence reporting under clause 3 (xv) of the Order is not applicable to the company.

xvi) The company is not required to be registered under section 45-IA of Reserve Bank of India Act, 1934.

For Suri & Co.
Chartered Accountants
Firm Registration No. 004283S
Natarajan V
Partner
Bengaluru Membership No.223118
19 August 2020 UDIN: 20223118AAAACZ9108

ANNEXURE B TO THE INDEPENDENT AUDITORS REPORT

(Referred to in our report of even date)

Report on the Internal Financial Controls over financial reporting under Clause (i) of Sub-section 3 of Section 143 of the Companies Act, 2013 ("the Act")

We have audited the internal financial controls over financial reporting of BHARAT ELECTRONICS LIMITED, ("the Company") as of 31 March, 2020 in conjunction with our audit of the standalone financial statements of the Company for the year ended on that date.

Managements Responsibility for Internal Financial Controls

The Companys management is responsible for establishing and maintaining internal financial controls based on the internal control over financial reporting criteria established by the Company considering the essential components of internal controls stated in the Guidance Note on Audit of Internal Financial Controls over Financial Reporting issued by the Institute of Chartered Accountants of India (ICAI). These responsibilities include the design, implementation and maintenance of adequate internal financial controls that were operating effectively for ensuring the orderly and efficient conduct of its business, including adherence to companys policies, the safeguarding of its assets, the prevention and detection of frauds and errors, the accuracy and completeness of the accounting records, and the timely preparation of reliable financial information, as required under the Companies Act, 2013.

Auditors Responsibility

Our responsibility is to express an opinion on the Companys internal financial controls over financial reporting based on our audit. We conducted our audit in accordance with the Guidance Note on Audit of Internal Financial Controls Over Financial Reporting (the "Guidance Note") and the Standards on Auditing, issued by ICAI and deemed to be prescribed under section 143(10) of the Companies Act, 2013, to the extent applicable to an audit of internal financial controls, both applicable to an audit of Internal Financial Controls and both issued by the Institute of Chartered Accountants of India. Those Standards and the Guidance Note require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether adequate internal financial controls over financial reporting was established and maintained and if such controls operated effectively in all material respects.

Our audit involves performing procedures to obtain audit evidence about the adequacy of the internal financial controls system over financial reporting and their operating effectiveness. Our audit of internal financial controls over financial reporting included obtaining an understanding of internal financial controls over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. The procedures selected depend on the auditors judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion on the Companys internal financial controls system over financial reporting.

Meaning of Internal Financial Controls over Financial Reporting

A companys internal financial control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of Ind AS financial statements for external purposes in accordance with generally accepted accounting principles. A companys internal financial control over financial reporting includes those policies and procedures that:

(1) Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;

(2) Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generallyaccepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and

(3) Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the companys assets that could have a material effect on the financial statements.

Inherent Limitations of Internal Financial Controls over Financial Reporting

Because of the inherent limitations of internal financial controls over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may occur and not be detected. Also, projections of any evaluation of the internal financial controls over financial reporting to future periods are subject to the risk that the internal financial control over financial reporting may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Opinion

During the year, a fraud on the company by its employees has been detected during the routine internal audit (Refer note 30(21) to the financial statements) and pursuant to which additional financial controls have been established by the company.

In our opinion, to the best of our information and according to the explanations given to us, the Company has, in all material respects, an adequate internal financial controls system over financial reporting and such internal financial controls over financial reporting (including the additional financial controls established by the company as mentioned in above para) were operating effectively as at 31 March, 2020, based on the internal control over financial reporting criteria established by the Company considering the essential components of internal control stated in the Guidance Note on Audit of Internal Financial Controls Over Financial Reporting issued by the Institute of Chartered Accountants of India.

For Suri & Co.
Chartered Accountants
Firm Registration No. 004283S
Natarajan V
Partner
Bengaluru Membership No.223118
19 August 2020 UDIN: 20223118AAAACZ9108

ANNEXURE C TO THE INDEPENDENT AUDITORS REPORT

(Referred to in our report of even date)

Directions indicating the areas to be examined by the Statutory Auditors during the course of audit of annual accounts of Bharat Electronics Limited, for the year 2019-20 issued by the Comptroller & Auditor General of India under Section 143(5)

of the Companies Act, 2013.

Direction/Sub-direction Action Taken Impact on Financial Statement
1 Whether the company has system in place to process all the accounting transactions through IT system? If yes, the implications of processing of accounting transactions outside IT system on the integrity of the accounts along with the financial implications, if any, may be stated. Yes. The company process all the accounting transactions on a day to day basis through IT system. Nil
2 Whether there is any restructuring of an existing loan or cases of waiver/write off of debts/loans/interest etc. made by a lender to the company due to companys inability to repay the loan? If yes, the financial impact may be stated. Based on the verification of records and according to the information and explanations provided to us, there are no restructuring of an existing loan (or) waiver/write off of debts/loans/interest etc, made by the lender due to companys inability to pay. Nil
3 Whether funds received/receivable for specific schemes from central/state agencies were properly accounted for/utilized as per terms and conditions? List the cases of deviation. Yes. According to the information and explanations provided to us and based on the verification of records, the funds received towards the specific schemes from central/state agencies have been appropriately accounted and utilized for the purpose for which it is received. Nil

Addendum to Boards Report

C&AG Comments Companys Reply
COMMENTS OF THE COMPTROLLER AND AUDITOR GENERAL OF INDIA UNDER SECTION 143(6) (b) OF THE COMPANIES ACT, 2013 ON THE STANDALONE FINANCIAL STATEMENTS OF M/s BHARAT ELECTRONICS LIMITED, BENGALURU FOR THE YEAR ENDED 31 MARCH 2020.
The preparation of financial statements of M/s. Bharat Electronics Limited, Bengaluru for the year ended 31 March 2020 in accordance with the financial reporting framework prescribed under the Companies Act, 2013 (Act) is the responsibility of the management of the company. The statutory auditors appointed by the Comptroller and Auditor General of India under section 139(5) of the Act are responsible for expressing opinion on the financial statements under section 143 of the Act based on independent audit in accordance with the standards on auditing prescribed under section 143(10) of the Act. This is stated to have been done by them vide their revised Audit Report dated 19 August 2020 which supersedes their earlier Audit Report dated 29 June 2020.
I, on behalf of the Comptroller and Auditor General of India have conducted a supplementary audit under section 143(6) (a) of the Companies Act, 2013 of the financial statements of M/s. Bharat Electronics Limited, Bengaluru for the year ended 31 March 2020. This supplementary audit has been carried out independently without access to the working papers of the statutory auditors and is limited primarily to inquiries of the statutory auditors and Company personnel and a selective examination of some of the accounting records.
Based on my supplementary audit, I would like to highlight the following significant matters under section 143(6)(b) of the Companies Act, 2013 which have come to my attention and which in my view are necessary for enabling a better understanding of the financial statements and the related Audit Report:
Comments on Profitability
Statement of Profit & Loss
Revenue from operations
Note no. 23 - Rs 12,921.11 crore
Comment No. I - The Revenue from operations of the Company includes Rs 225.121 crore accounted as Bill and Hold sales in respect of three overseas deliveries based on customers letters to postpone delivery in view of the COVID 19 logistic problems. This is not in line with Ind AS 115 (Para 38) as Performance Obligations at a point in time was not satisfied, as on 31 March 2020 due to the following: The Revenue of Rs 225.12 crore has been recognised under the criteria of "Performance obligation being satisfied at a Point in Time". The principal criteria specified in Para 38 (read with Para 33) of Ind AS 115 for determination of the point in time when performance obligation is satisfied is determination of the time when the "Customer obtaining control of the Asset". Further as per Para 38(e) read with Para B81 to B83 of Ind AS 115, customer acceptance of the item is a criteria for determination of "Customer having obtained control".
> BEL did not have a present right to payment,
> Customer does not have legal title to the goods, In respect of all the three deliveries, the customer has accepted these items after Inspection, (as per contractual terms) and the items have been unconditionally appropriated to the contract as on 31 March 2020.
> Significant risks and rewards of ownership was not passed on to customers due to contractual terms of delivery at site.
Also, the items have been made as per customer specifications and on unconditional appropriation to the contract the customer only has the ability to direct the use of and obtain substantially all the remaining benefits of the Asset.
I n all the three Orders, the conditions for the customers having obtained control of the products have not been met, which is the prerequisite in a Bill and Hold arrangement (Para B81 of Ind AS 115). Even the clarification of ICAI2 on such sales states that control is not passed on to the customer if the seller is paying for the cost of storage and insurance on the goods during the period the goods are held by it. It also states that in situations where control is transferred only when the product is delivered to the customers site, it would not be appropriate to recognize revenue on the Bill and Hold basis.
Since the items had been accepted by the customer but could not be dispatched, due to pandemic situation (COVID-19), the revenue was recognized on Bill and Hold basis based on "Retention letters" issued by the customer for holding the items till the pandemic situation improves. This is in line with ICAI clarification that "where goods are ready but could not be dispatched due to lockdown conditions imposed by the government, revenue can be recognized if conditions of Bill and Hold Criteria are met".
The aforesaid sales is not in line with ICAI clarifications as the cost of insurance and storage is borne by BEL till the goods are delivered at the port of destination.
Thus the aforesaid sales are not in line with Ind AS 115 and ICAI clarifications. This has resulted in overstatement of revenue by Rs 225.12 crore with consequent overstatement of profit to the extent of Rs 90.06 crore and understatement of finished goods to the extent of Rs 135.06 crore. In respect of the sales recognized, the criteria laid down in Para B81 for "Bill and Hold Sales" has been satisfied as elaborated below:
Criteria How met
The reason for bill-and- hold arrangement must be substantive. The items were retained by BEL based on the customer request for retention of goods due to COVID-19.
The product must be identified separately as belonging to the customer. The items were inspected and accepted by the customer and were unconditionally appropriated to the contract as belonging to the customer.
The product must be ready for physical transfer to the customer. The items inspected and accepted by the customer were ready for dispatch but were retained based on the customer request.
The entity cannot have the ability to use the product or to direct it to another customer. The company does not have the ability to use or direct the product to another customer, as the items were manufactured as per the customer specifications and unconditionally appropriated to the contract.
Para 38(a) to 38(e) specifies various indicators for ascertaining "transfer of control" and it is not mandatory that all of them should be met as long as the primary criteria, that is transfer of control is met.
No separate Insurance or storage cost is incurred by the company (or requested by customer) due to Bill and Hold sales arrangement.
Further, Para 38(c) of Ind AS 115 recognizes that in Bill and Hold arrangements the company may have physical possession of the Asset that the customer controls.
In all the three cases the sale is recognized against firm orders and there is no uncertainty in taking delivery by the customer or realization of the sales post easing of restrictions imposed under COVID-19 pandemic.
In view of the above facts sales recognized is in line with the provisions of Ind AS and companys Accounting Policy.
Comment No. 11 - The Revenue from operations of the Company includes Rs 140.36 crore being the revenue recognised by the Company in respect of three contracts pertaining to Mazagaon Dock Shipbuilders Limited (MDL). The contractual terms for the above contract are FOR Destination - MDL, Mumbai. The materials relating to the above sales are yet to be despatched. The Company accounted for the sale based on retention letter issued by MDL on 23 March 2020 and inspection notes issued by the Inspection authorities. The Revenue of Rs 140.36 crore has been recognised under the criteria of "Performance obligation being satisfied at a Point in Time". The principal criteria specified in Para 38 (read with Para 33) of Ind AS 115 for determination of the point in time when performance obligation is satisfied is determination of the time when the "Customer obtaining control of the Asset". Further as per Para 38(e) read with Para B81 to B83 of Ind AS 115, customer acceptance of the item is a criteria for determination of "Customer having obtained control".
The customer has accepted these items after Inspection, (as per contractual terms) and the items have been unconditionally appropriated to the contract as on 31 March 2020. The relevant items have been made as per customer specifications and on unconditional appropriation to the contract the customer only has the ability to direct the use of and obtain substantially all the remaining benefits of the Asset.
As the customer has not amended the provisions of the contract relating to transfer of risk & rewards and not accepted the billing by the Company, accounting of the same under Bill and Hold is not correct and is in contravention of Ind AS 115 requirement. The Company has also not satisfied all the conditions of the Accounting Policy No. 5(A) (iii) (b) relating to Revenue (Performance Obligation at a point of time). The conditions for the customer having obtained control of the products have not been met, which is a prerequisite in a Bill and Hold arrangement (Ind AS 115 Para B81).
Since the item had been accepted by the customer but could not be dispatched, due to pandemic situation (COVID-19), the revenue was recognized on Bill and Hold basis based on "Retention letters" issued by the customer for holding the items till the pandemic situation improves. This is in line with ICAI clarification that "where goods are ready but could not be dispatched due to lockdown conditions imposed by the government, revenue can be recognized if conditions of Bill and Hold Criteria are met".
Further, the clarification issued by ICAI (FAQ 28) considering COVID pandemic on such sales states that
the control is not passed on to the customer if the seller is paying for the cost of storage and insurance on the goods during the period the goods are held by it. It also states that in situations where control is transferred only when the product is delivered to the customers site, it would not be appropriate to recognize revenue on the Bill and Hold basis. I n respect of the sale recognized, the criteria laid down in Para B81 for "Bill and Hold Sales" has been satisfied as elaborated below:
In all the three contracts with MDL, the cost of insurance and storage is borne by BEL till the goods are delivered at the port of destination and the control was not transferred since the goods were not delivered to the customers site.
Criteria How met
The reason for bill-and- hold arrangement must be substantive. The items were retained by BEL based on the customer request for retention of goods due to COVID-19.
The product must be identified separately as belonging to the customer. The items were inspected and accepted by the customer and were unconditionally appropriated to the contract as belonging to the customer.
The product must be ready for physical transfer to the customer. The items inspected and accepted by the customer were ready for dispatch but were retained based on the customer request.
The entity cannot have the ability to use the product or to direct it to another customer. The company does not have the ability to use or direct the product to another customer, as the items were manufactured as per the customer specifications and unconditionally appropriated to the contract.
Thus the aforesaid sales are not in line with Ind AS 115 and ICAI clarifications. This has resulted in overstatement of revenue of Rs 140.36 crore with consequent overstatement of profit to the extent of Rs 92.64 crore and understatement of finished goods to the extent of Rs 47.72 crore.
Para 38(a) to 38(e) specifies various indicators for ascertaining "transfer of control" and it is not mandatory that all of them should be met as long as the primary criteria, that is transfer of control is met.
No separate Insurance or storage cost is incurred by the company (or requested by customer) due to Bill and Hold sales arrangement.
Further, Para 38(c) of Ind AS 115 recognizes that in Bill and Hold arrangements the company may have physical possession of the Asset that the customer controls.
The sale is recognized against firm order and there is no uncertainty in taking delivery by the customer or realization of the sales post easing of restrictions imposed under COVID-19 pandemic.
In view of the above facts sales recognized is in line with the provisions of Ind AS and companys Accounting Policy.
Comment No. III - The Revenue from operations of the Company includes Rs 68.66 crore of revenue recognised and accounted by the Company against two contracts entered with the Ministry of Defence (the customer). The contractual terms for the above specify FOR Bengaluru with the consignee as "The Project Director, Ship Building Centre, Visakhapatnam" after completion of Inspection by the customer authorised agencies. The agreed price is inclusive of Installation, The Revenue of Rs 68.66 crore has been recognised under the criteria of "Performance obligation being satisfied at a Point in Time". The principal criteria specified in Para 38 (read with Para 33) of Ind AS 115 for determination of the point in time when performance obligation is satisfied is determination of the time when the "Customer obtaining control of the Asset". Further as per Para 38(e) read with Para B81 to B83 of Ind AS 115, customer acceptance of the item is a criteria for determination of "Customer having obtained control".
Harbour Acceptance Trial (HAT) & Sea Acceptance Trial (SAT) from Inspection, Packing and Insurance upto Consignee site. The Company has accounted for revenue based on an email dated 9 April 2020 issued by the customer representative indicating completion of Factory Acceptance Tests (FAT). However, the Inspection Notes containing the material description pertaining to the above revenue was issued by the Inspection Agency on 16 June 2020 which indicated conduct of inspection from 11 March 2020 to 16 June 2020. As the inspection and acceptance of the equipment relating to the above contracts was not completed as at 31 March 2020, accounting of revenue to the extent of Rs 68.66 crore is not in order and against accounting policy No. 5(A) (iii) (b) of the Company. The condition for the customer having obtained the control of the product has also not been met which is the prerequisite in a Bill and Hold arrangement (Ind AS 115 Para B81). The customer has accepted these items after Inspection, (as per contractual terms) and the items have been unconditionally appropriated to the contract as on 31 March 2020.
The customer acceptance is evidenced by the fact that the customer nominated third party Inspection Agency, i.e., Chief Quality Assurance Establishment (Warship Equipment), Bangalore completed their inspection on 29 February 2020, and promulgated Factory Acceptance Test (FAT) by the Customer. FAT was completed by the customer on 24 March 2020.
The relevant items have been made as per customer specifications and on unconditional appropriation to the contract the customer only has the ability to direct the use of and obtain substantially all the remaining benefits of the Asset.
The items have been retained at the company as a Reference System as per the directions of the Customer.
The clarification by ICAI on such sales states that control is not passed on to the customer if the seller is paying for the cost of storage and insurance on the goods during the period the goods are held by it. It also states that in situations where control is transferred only when the product is delivered to the customers site, it would not be appropriate to recognise revenue on a Bill and Hold basis. I n respect of the sale recognized, the criteria laid down in Para B81 for "Bill and Hold Sales" has been satisfied as elaborated below:
In both the cases mentioned above, the cost of insurance and storage is borne by BEL till the goods are delivered at the port of destination (consignee site) and the control was not transferred since the goods were not delivered to the customers site.
Thus the aforesaid sales are not in line with Ind AS 115 and ICAI clarifications. This has resulted in overstatement of sales to the extent of Rs 68.66 crore with consequent overstatement of profit to the extent of Rs 36.51 crore and understatement of finished goods to the extent of Rs 32.15 crore.
Criteria How met
The reason for bill-and- hold arrangement must be substantive. The items were retained by BEL as a Reference System based on the customer request.
The product must be identified separately as belonging to the customer. The items were inspected and accepted by the customer and were unconditionally appropriated to the contract as belonging to the customer.
The product must be ready for physical transfer to the customer. The items inspected and accepted by the customer were ready for dispatch but were retained based on the customer request.
The entity cannot have the ability to use the product or to direct it to another customer. The company does not have the ability to use or direct the product to another customer, as the items were manufactured as per the customer specifications and unconditionally appropriated to the contract.
C&AG Comments Companys Reply
Para 38(a) to 38(e) specifies various indicators for ascertaining "transfer of control" and it is not mandatory that all of them should be met as long as the primary criteria, that is transfer of control is met.
No separate Insurance or storage cost is incurred by the company (or requested by customer) due to Bill and Hold sales arrangement.
Further, Para 38(c) of Ind AS 115 recognizes that in Bill and Hold arrangements the company may have physical possession of the Asset that the customer controls.
The sale is recognized against firm order and there is no uncertainty in taking delivery by the customer or realization of the sales post easing of restrictions imposed under COVID-19 pandemic.
In view of the above facts sales recognized is in line with the provisions of Ind AS and companys Accounting Policy.

 

For and on behalf of the For and on behalf of the
Comptroller & Auditor General of India Board of Directors
Santosh Kumar M V Gowtama
Principal Director of Commercial Audit Chairman & Managing Director
Bengaluru Bengaluru
28 August 2020 7 September 2020