Satyam Computer Services Ltd Merged Auditor Reports

SATYAM COMPUTER SERVICES LIMITED ANNUAL REPORT 2011-2012 AUDITORS REPORT TO THE MEMBERS OF SATYAM COMPUTER SERVICES LIMITED Report on the Financial Statements: 1. We have audited the attached Balance Sheet of SATYAM COMPUTER SERVICES LIMITED (the Company) as at March 31, 2012, the Statement of Profit and Loss and the Cash Flow Statement of the Company for the year ended on that date, both annexed thereto. Managements Responsibility for the Financial Statements 2. 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. Auditors Responsibility 3. Subject to the matters discussed in this report, 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 misstatements. An audit includes examining, on a test basis, evidence supporting the amounts and the disclosures in the financial statements. An audit also includes assessing the accounting principles used and the significant estimates made by the Management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. Companies (Auditors Report) Order, 2003 (CARO) 4. As required by the Companies (Auditors Report) Order, 2003 (CARO) issued by the Central Government in terms of Section 227(4A) of the Companies Act, 1956 (the Act) we give in the Annexure a statement on the matters specified in paragraphs 4 and 5 of the said Order, which is subject to the matters discussed in this report. Basis for Opinion 5. Attention is invited to the following matters: a. As stated in Note 25: i. In respect of the financial irregularities relating to prior years identified consequent to the letter dated January 7, 2009 of the erstwhile Chairman, various regulators / investigating agencies initiated their investigations and legal proceedings, which are ongoing. ii. The forensic accountants had expressed certain reservations and limitations in their investigation process. iii. The Management is of the view that since matters relating to several of the financial irregularities are sub judice and various investigations / proceedings are ongoing, any further adjustments / disclosures to the financial statements, if required, would be made in the financial statements of the Company as and when the outcome of the above uncertainties is known and the consequential adjustments / disclosures are identified. In view of the above, we are unable to comment on the adjustments / disclosures which may become necessary as a result of further findings of the ongoing investigations / legal proceedings and the consequential impact, if any, on these financial statements. b. As stated in Note 25.2, the Company had, based on the forensic investigation, accounted for the differences aggregating Rs.11,394 Million (net debit) as at March 31, 2009 under Unexplained differences suspense account (net) (Refer Note 19) due to non-availability of complete information. These net debit amounts aggregating Rs.11,394 Million had been fully provided for on grounds of prudence in the financial statements for the year ended March 31, 2009. In the absence of complete / required information, we are unable to comment on the accounting treatment / disclosure of the aforesaid unexplained amounts aggregating Rs.11,394 Million accounted under Unexplained differences suspense account (net) in these financial statements. c. As stated in Note 25.3, the alleged advances amounting to Rs.12,304 Million (net) relating to prior years has been presented separately under Amounts pending investigation suspense account (net) in the Balance Sheet. The details of these claims and the related developments are more fully described in the said Note. The Management has represented that since the matter is sub judice and the investigations by various Government agencies are in progress, the Management, at this point of time is not in a position to predict the ultimate outcome of the legal proceedings. In view of the above, we are unable to determine whether any adjustments / disclosures will be required in respect of the aforesaid alleged advances amounting to Rs.12,304 Million (net) and in respect of the non-accounting of any damages / compensation / interest in these financial statements. 6. Attention is invited to the following matters: a. As stated in Note 31.1, a trustee of two trusts that are assignees of the claims of twenty investors who had invested in the Companys ADS and common stock filed a lawsuit (the Aberdeen Action) in the Court in United States of America (USA) and, subsequently, an amended complaint was filed in the Action (Aberdeen Amended Complaint). Based on the legal advice obtained by the Company, the Company is contesting the above lawsuit. Since the matter is sub judice, the outcome of which is not determinable at this stage, we are unable to comment on the consequential impact, if any, on these financial statements. b. As stated in Note 31.2, Aberdeen Asset Management PLC on behalf of 23 claimants representing 30 funds who had invested in the Companys common stock filed a claim against the Company (the Aberdeen (UK) Complaint) in the Commercial Court in London, United Kingdom (UK). Based on the legal advice obtained by the Company, the Company is contesting the above lawsuit. Since the matter is sub judice,the outcome of which is not determinable at this stage, we are unable to comment on the consequential impact, if any, on these financial statements. 7. As stated in Note 31.3.viii, the Company is carrying a total amount of Rs.5,228 Million (net of payments) as at March 31, 2012 [As at March 31, 2011: Rs.3,803 Million (net of payments)] towards provision for taxation including for prior years. Considering the effects of financial irregularities, status of disputed tax demands, appeals / claims pending before the various authorities, the consequent significant uncertainties regarding the outcome of these matters and the significant uncertainties in determining the tax liability, the Company has been professionally advised that it is not appropriate to make adjustments to the tax provisions pertaining to prior years at this stage. In view of the above, we are unable to comment on the adequacy or otherwise of the provision for taxation pertaining to prior years and the consequential impact, if any, on these financial statements. 8. Without qualifying our opinion, we invite attention to the following matters included under commitments and contingencies which continue to exist as at March 31, 2012: a. Various demands / disputes raised in respect of the past years by the indirect tax authorities in India (Refer Note 31.4). b. Matters relating to non-compliance with Foreign Exchange Management Act (FEMA), 1999 in respect of realisation and repatriation of export proceeds relating to earlier years (Refer Note 31.5). As stated in Note 31.13, the provision for contingencies as at March 31, 2012, in the opinion of the Managements adequate to cover any probable losses in respect of the litigations and claims disclosed under commitments and contingencies. 9. Without qualifying our opinion, we invite attention to the Note 32.1 regarding non-compliances and breaches in the prior years under the erstwhile Management relating to certain provisions of the Companies Act, 1956 and certain employee stock option guidelines issued by the Securities Exchange Board of India and Note 32.2 regarding certain matters requiring compliance under the provisions of FEMA. The Management has represented that the Company has made / is proposing to make an application to the appropriate authorities, where applicable, for condoning non-compliances and breaches relatable to the Company. Any adjustments, if required, in the financial statements of the Company would be made as and when the outcomes of the above matters are concluded. Opinion 10. Further to our comments in the Annexure referred to in paragraph 4 above and paragraphs 8 and 9 above and subject to our comments in paragraphs 5 to 7above, we report that: a. 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, proper books of account as required by law have been kept by the Company so far as it appears from our examination of those books; c. the Balance Sheet, the Statement of Profit and Loss and the Cash Flow Statement dealt with by this report are in agreement with the books of account; d. in our opinion, the Balance Sheet, the Statement of Profit and Loss and the Cash Flow Statement dealt with by this report are in compliance with the Accounting Standards referred to in Section 211(3C) of the Act; e. in our opinion, and to the best of our information and according to the explanations given to us, the said Accounts, read together with the notes thereon, give the information required by the Act in the manner so required and, subject to the consequential effects, if any, of our comments in paragraphs 5 to 7 above which are not quantifiable, 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 March 31, 2012; (ii) in the case of the Statement of Profit and Loss, of the profit of the Company for the year ended on that date and (iii) in the case of the Cash Flow Statement, of the cash flows of the Company for the year ended on that date. Reporting Requirements relating to Section 274(1)(g) 11. On the basis of written representations received from the directors as on March 31, 2012,where applicable,and taken on record by the Board of Directors, none of the directors is disqualified as on March 31, 2012 from being appointed as a director in terms of Section 274 (1) (g) of the Companies Act, 1956. For DELOITTE HASKINS & SELLS Chartered Accountants (Registration No.008072S) K. Sai Ram Partner (Membership No.022360) HYDERABAD, May 17, 2012 ANNEXURE TO THE AUDITORS REPORT (Referred to in paragraph 4 of our report of even date) i. Having regard to the nature of the Companys business / activities / results / transactions, etc., clauses (viii), (xii), (xiii), (xiv), (xv), (xix) and (xx) of CARO are not applicable. ii. In respect of its fixed assets: a. The Company has generally maintained records of fixed assets showing particulars, including quantitative details and situation of the fixed assets. b. Some of the fixed assets were physically verified during the year by the Management in accordance with a programme of verification, which in our opinion, provides for physical verification of all the fixed assets at reasonable intervals. According to the information and explanations given to us, the net discrepancies (which were not material) noticed on such verification, have been properly dealt with in the books of account. c. The fixed assets disposed off during the year, in our opinion, do not constitute a substantial part of the fixed assets of the Company and such disposal has, in our opinion, not affected the going concern status of the Company. iii. In respect of its inventory: a. As explained to us, the inventories were physically verified during the year by the Management at reasonable intervals. b. In our opinion and according to the information and explanations given to us, the procedures of physical verification of inventories followed by the Management were reasonable and adequate in relation to the size of the Company and nature of its business. c. In our opinion and according to the information and explanations given to us, the Company has maintained proper records of its inventories and no material discrepancies were noticed on physical verification. iv. The Company has neither granted nor taken any loan, secured or unsecured, to / from companies, firms or other parties listed in the Register maintained under Section 301 of the Act. v. In 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 with regard to purchases of inventory and fixed assets and the sale of goods and services. During the course of our audit, we have not observed any major weakness in such internal control system. vi. According to the information and explanations given to us, the Company has not entered into any contract or arrangement with other parties, which needs to be entered in the Register maintained under Section 301 of the Act. vii. According to the information and explanations given to us, the Company has not accepted any deposit from the public during the year. viii. In our opinion, the internal audit system and functions carried out during the year by an external agency appointed by the Management have generally been commensurate with the size of the Company and nature of its business. ix. According to the information and explanations given to us in respect of statutory dues: a. Whilst the Company has been generally regular in depositing undisputed dues relating to Provident Fund, Employees State Insurance, Investor Education and Protection Fund, Wealth Tax, Service Tax, Cess and other material statutory dues applicable to it with appropriate authorities,there were some delays in depositing undisputed dues in respect of Income Tax, Sales Tax / VAT and Works Contract Tax. b. There were no undisputed amounts payable in respect of Provident Fund, Investor Education and Protection Fund,Employees State Insurance, Wealth Tax, Sales Tax / VAT, Service Tax, Cess and other material statutory dues in arrears as at March 31, 2012 for a period of more than six months from the date they became payable. As regards Income Tax, we are unable to comment on the dues in arrears as at March 31, 2012 for a period of more than six months from the date they became payable in view of the matters described under paragraph 7 of the Auditors Report. c. Details of dues of Income Tax, Sales Tax, Service Tax and Cess which have not been deposited as on March 31, 2012 on account of disputes are given below: Statute & Nature Forum where Dispute A B of Dues (See Note is pending below) Income-tax Act, 1961: Income Tax High Court of Andhra 6,166 2002-08 Pradesh Income-tax Act, 1961: Income Tax Commissioner of 8 2001-02 Income Tax (Appeals) Revenue and Taxation Code, USA: California State Franchise Tax Board, 62 2003-05 Income Tax California Revenue & Taxation Code, USA Pennsylvania Commonwealth 4 1998-2005 State of Pennsylvania- Income Tax Department of Revenue Andhra Pradesh VAT Act, 2005/ CST Act, 1956 Sales Tax High Court of Andhra 114 2007-10 (including Pradesh penalty) Karnataka Sales Tax Act, 1957/ CST Act 1956 Sales Tax Joint Commissioner 17 2007-08 (including of Commercial Taxes penalty) (Appeals) Finance Act, 1994: Service Tax Central Excise and 160 2004-05 to 2008-09 (including Service Tax Appellate penalty) Tribunal A = Amount involved (Rs. in Million) (See Note below) B = Period to which the amount relates Note: The above excludes the Income Tax Draft Notices of Demands amounting to Rs.7,960 Million and Rs.10,757 Million for financial years 2001-02 and 2006-07, respectively, issued by the Additional Commissioner of Income Tax under Section 143(3) read with section 147 of the Income-tax Act, 1961, against which the Company has filed its objections with the Dispute Resolution Panel. x. Subject to the consequential effects, if any, of our comments in paragraphs 5 to 7 of the Auditors Report which are not quantifiable, the accumulated losses of the Company are not more than fifty per cent of its net worth and it has not incurred cash losses during the financial year covered by our audit and in the immediately preceding financial year. xi. In our opinion and according to the explanations given to us, the Company has not defaulted in the repayment of dues to banks. The Company does not have any dues to financial institutions and has not issued any debentures. xii. In our opinion and according to the information and explanations given to us, the existing term loans have been applied for the purposes for which they were obtained. xiii. In our opinion and according to the information and explanations given to us and on an overall examination of the Balance Sheet, funds raised on short-term basis have not been used during the year for long-term investment. xiv. 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. xv. To the best of our knowledge and according to the information and explanations given to us, no fraud by the Company and no material fraud on the Company has been noticed or reported during the year. Refer to paragraph 5(a) of the Auditors Report also. For DELOITTE HASKINS & SELLS Chartered Accountants (Registration No.008072S) K. Sai Ram Partner (Membership No.022360) HYDERABAD, May 17, 2012