Siti Networks Ltd Directors Report.

To the Members of SITI Networks Limited

REPORT ON THE AUDIT OF THE STANDALONE FINANCIAL STATEMENTS

OPINION

1. We have audited the accompanying standalone financial statements of SITI Networks Limited (‘the Company), which comprise the Balance Sheet as at 31 March 2019, the Statement of Profit and Loss (including Other Comprehensive Income), the Cash Flow Statement and the Statement of Changes in Equity for the year then ended, and a summary of the significant accounting policies and other explanatory information.

2. In our opinion and to the best of our information and according to the explanations given to us, the aforesaid standalone financial statements give the information required by the Companies Act, 2013 (‘Act) in the manner so required and give a true and fair view in conformity with the accounting principles generally accepted in India including Indian Accounting Standards (‘Ind AS) specified under section 133 of the Act, of the state of affairs (financial position) of the Company as at 31 March 2019, its loss (financial performance including other comprehensive income), its cash flows and the changes in equity for the year ended on that date.

BASIS FORO PINION

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

MATERIAL UNCERTAINTY RELATED TO GOING CONCERN

We draw attention to Note 3(a) to the accompanying standalone financial statements, which indicate that the Company has incurred a net loss (including other comprehensive income) of र3,725.78 million during the year ended 31 March 2019, and as of that date, the Companys accumulated losses amount to र 16,712.36 million and the Companys current liabilities have exceeded its current assets by र7,458.18 million which have resulted in negative working capital. These conditions along with other matters as set forth in Note 3(a), indicate the existence of material uncertainty, that may cast significant doubt about the Companys ability to continue as a going concern. However, based on the expected impact of Tariff Order 2017 and other factors mentioned in aforesaid note to the accompanying standalone financial statements, management is of the view that going concern basis of accounting is appropriate. Our opinion is not modified in respect of this matter.

The above assessment of the Companys ability to continue as going concern is by its nature considered as key audit matter in accordance with SA 701. In relation to the above key audit matter, our audit work included, but was not limited to, the following procedures:

• We obtained an understanding of the managements process for identification of events or conditions that may cast significant doubt over the Companys ability to continue as a going concern and the process to assess the corresponding mitigating factors existing against each such event or condition.

• Evaluated the design and tested the operating effectiveness of key controls around aforesaid identification of events or conditions and mitigating factors, and controls around cash flow projections prepared by the management.

• We obtained from the management, its projected cash flows for the next twelve months basis their future business plans and considering the impact of implementation of Tariff Order, 2017.

• We held discussions with the management personnel to understand the assumptions used and estimates made by them for determining the future cash flow projections.

• The key assumptions such as revenue growth rate, reduction in administrative expenses, and capital expenditure outflows, were assessed for reasonableness by reference to historical data, future market trends, existing market conditions, business plans and our understanding of the business and the industry in which the Company operates.

• We tested mathematical accuracy of the projections and applied independent sensitivity analysis to the key assumptions mentioned above to determine inputs leading to high estimation uncertainty of the cash flow projections.

We obtained copy of the referred to the letter of financial support given by the Stakeholder.

In terms with the provisions of Ind AS 1 Presentation of

Financial Statements and Standards on Auditing (SA) 570 (Revised), we referred to the disclosures made by the Company with respect to the above mentioned events and conditions.

KEY AUDIT MATTERS

4. 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 financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

5. In addition to the matters described in the Material Uncertainty Related to Going Concern section, we have determined the matters described below to be the key audit matters to be communicated in our report.

Key audit matter How our audit addressed the key audit matter
Adoption of Ind AS 115 ‘Revenue from Contracts with Customers Our audit procedures included, but were not limited to the following:
We refer to summary of significant accounting policies and note 3(c) of the financial statements of the Company for the year ended 31 March 2019 disclosures related to first time application of Ind AS 115 and impact of transition from previous standards to the new one. • We obtained an understanding of managements processes and internal controls around adoption of Ind AS 115. We sought explanations from the management for areas involving complex judgements or interpretations to assess their appropriateness.
The Company has adopted the new Ind AS 115 ‘Revenue from contracts with Customers applicable from 1 April 2018 replacing the existing Ind AS 18 ‘Revenue. • We tested the operating effectiveness of internal controls established by management to ensure completeness, accuracy and timing of revenue (point in time or over time, as applicable) recognised during the year as well as for adjustments made on transition.
Under Ind AS 18, activation and set top boxes pairing charges were recognised as revenue to the extent the upfront obligation is discharged and if the part of the revenues collected at the time of activation related to future services, it was deferred and recognised over the expected customer life. • We reviewed the underlying contractual arrangements entered into by the Company with its customers, held discussions with the management and assessed its impact on the recognition of revenue from operations.
Pursuant to notification of Ind AS 115 and its adoption by the Company, the activation and set-top box pairing service is recognised as revenue over the initial contract period. • We evaluated the managements judgement for recognition of activation revenue over the period of initial contract. For this, among other things, we considered customer relationship period, subscriptions from customers, market conditions, business plans and our understanding of the business and the industry in which the Company operates.
The determination of accounting treatment under Ind AS 115 required analysis of the historical revenues from activation and subscription, and also required estimation of customer relationship period, forecast of number of activations and subscribers and revenue expected from such activation and subscription. • We evaluated the completeness and mathematical accuracy of the cumulative adjustments on transition to Ind AS 115 by assessing whether the schedule of adjustments is complete and reflects appropriate consideration for the changes in the revenue accounting under Ind AS 115;
Further, the Telecom Regulatory Authority of India ("TRAI") has implemented a new regulatory framework for the television broadcasting industry in India herein referred as Tariff Order, 2017. Among other things, Tariff Order, 2017 mandated that the customers pay only for the channels they choose to view and it sets out the inter-play between the broadcasters and distribution platform providers. This tariff order has changed the pack price of channels as per the MRP fixed and extensive managements efforts were involved in analysing the impact of the same in the IT system for the mapping of pack price. • We held detailed discussion with the management to assess the impact of the new tariff order on the operations of the Company, revenue recognition policy of the Company,

 

Key audit matter How our audit addressed the key audit matter
Introduction of Ind AS 115, coupled with the regulatory update on tariff order required detailed analysis under the standards, which is complex and involves a certain degree of judgement and estimates, due to which, this matter has been considered as a key audit matter. • In view of the new tariff order, which is in the process of being fully implemented, we have considered the prevailing arrangements with the broadcasters and analysed the contracts entered into between the Company and the customers to ensure that revenue has been appropriately recorded in the books of accounts.
• We have assessed the appropriateness of revenue recognition policy of the Company, its measurement and adequacy of disclosures made in the financial statements in terms with Ind AS 115.
Impairment assessment of non-current investments Our audit procedures included, but were not limited to the following:
As described in Note 6 to the standalone financial statements, the Company has investments of INR 3,520.73 million in its subsidiaries, associates and joint venture entities, as at 31 March 2019 (hereinafter together referred to as ‘Component entities). • We obtained understanding of the management process for identification of possible impairment indicators and process performed by the management for impairment testing.
Certain Component entities have been incurring losses and have negative cash flows from operations during the current as well as previous years, thus resulting in possible impairment indicators. • We have performed detailed discussions with the management throughout the year to understand the impairment assessment process, assumptions used and estimates made by management to the assess the reasonableness of the recoverable amount and tested the operating effectiveness of controls implemented by management.
In view of the above, management, during the year ended 31 March 2019, has carried out impairment test for such investments, whereby the carrying amount of the investments was compared with the fair value of the business of respective component entity. To determine the fair value, management of the Company has prepared detailed cash flow projections, based on business plans of the respective component entity, expected growth rates of the business and other market related factors including the discount rates, etc. • We obtained from the management of the Company, the approved future business plans of the subsidiary and held detailed discussions with the management to understand the assumptions used and estimates made by them for determining the cash flow projections
Based on the result of the aforesaid impairment tests, no impairment has been noted. • We referred to the economic conditions prevalent in the jurisdiction in which the subsidiary company operates and understood from the management about the future business plans.
Considering the materiality of the amount involved and significant degree of judgement and subjectivity involved in the estimates and key assumptions used in determining the cash flows used in the impairment evaluation, we have determined impairment of such investments as a key audit matter. • We assessed the reasonableness of the assumptions used and appropriateness of the valuation methodology applied.
• Working with our valuation specialists, we have assessed the reasonableness of assumptions around discount rate, beta, etc, used and valuation methodology applied for valuation of certain investment in optionally convertible debentures of the Component entities, etc.

 

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Key audit matter How our audit addressed the key audit matter
Provision for expected credit losses (ECL) Our audit procedures included, but were not limited to the following:
Refer note 3(i) for significant accounting policy and note 36 for credit risk disclosures. • We obtained an understanding of the management process for segregating receivables into appropriate groups, compute average historical loss rate by age- band and adjustments made to historical loss rates (if any).
As described in note 10, trade receivables comprise a significant portion of the current financial assets of the Company. As at 31 March 2019 trade receivables aggregate to INR 2,843.25 million (net of allowance for expected credit losses of INR 4,443.12 million). • We assessed and tested the design and operating effectiveness of controls around managements assessment of the recoverability of trade receivables and corresponding provisioning for ECL. Also, evaluated the controls over the modelling process, validation of data and related approvals.
In accordance with Ind AS 109, the Company applies expected credit loss (ECL) model for measurement and recognition of impairment loss for financial assets. The Company has analysed the trend of trade receivables under different ageing bracket for last three years and calculated credit loss rate basis such ageing. The complexity in calculation of ECL is mainly related to calculations performed for different type of revenue streams in which the Company operates and the different recovery period for different categories of customers. Additional provision is recognised for the receivables which are specifically identified as doubtful or non-recoverable. • We obtained from the management of the Company, detailed assessment, including computation, of the ECL.
• We audited the underlying data and assessed reasonableness of the assumptions used for each age-band of trade receivables.
Further, the management regularly assess each class of trade receivables for recoverability. Provision for ECL is adjusted considering the recovery trends noted for the respective class, adjusted for forward looking estimates. Additional provision is created for the receivables specifically identified as doubtful or non-recoverable. The onset of the Tariff Order, 2017 resulted into changes in pricing mechanism and the terms of certain customer arrangements, and basis managements assessment certain trade receivables and advances aggregating to र 1,840.00 million have been identified as doubtful and provided for as exceptional items. • We analyzed the methodology used by the management and considered the credit and payment history of specific parties to determine the trend used for arriving at the expected credit loss provision.
• We obtained the details of receivables specifically identified by the management for provisioning, over and above the ECL, and corroborated them from the ageing schedule and held discussions with management on their recoverability.
Estimation of provisions and assessment of recoverability of amounts involves significant degree of judgement and evaluation basis the ongoing communications with the respective parties and is therefore considered as a key audit matter. • We assessed the appropriateness of disclosures made by the management f or the ECL recognized in accordance with applicable accounting standards.

INFORMATION OTHER THAN THE FINANCIAL STATEMENTS AND AUDITORS REPORT THEREON

6. The Companys Board of Directors is responsible for the other information. The other information comprises the information included in the Annual Report, but does not include the financial statements and our auditors report thereon. The Annual Report is expected to be made available to us after the date of this auditors report.

Our opinion on the financial statements does not cover the other information and we will not express any form of assurance conclusion thereon.

In connection with our audit of the financial statements, our responsibility is to read the other information identified above when it becomes available and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated.

When we read the Annual Report, if we conclude that there is a material misstatement therein, we are required to communicate the matter to those charged with governance.

RESPONSIBILITIES OF MANAGEMENT AND THOSE CHARGED WITH GOVERNANCE FOR THE STANDALONE FINANCIALS TATEMENTS

7. The Companys Board of Directors is responsible for the matters stated in section 134(5) of the Act with respect to the preparation of these standalone financial statements that give a true and fair view of the state of affairs (financial position), profit or loss (financial performance including other comprehensive income), changes in equity and cash flows of the Company in accordance with the accounting principles generally accepted in India, including the Ind AS 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 of the assets of the Company and for preventing and detecting frauds and other irregularities; selection and application of appropriate accounting policies; making judgments and estimates that are reasonable and prudent; and design, implementation and maintenance of adequate internal financial controls, that were operating effectively for ensuring the accuracy and completeness of the accounting records, relevant to the preparation and presentation of the financial statements that give a true and fair view and are free from material misstatement, whether due to fraud or error.

8. In preparing the 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.

9. Those Board of Directors are also responsible for overseeing the Companys financial reporting process.

AUDITORS RESPONSIBILITIES FOR THE AUDIT OF THE FINANCIALS TATEMENTS

10. Our objectives are to obtain reasonable assurance about whether the 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 Standards on Auditing 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 financial statements.

11. As part of an audit in accordance with Standards on Auditing, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:

Identify and assess the risks of material misstatement of the 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 Act, 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 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 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 financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

12. 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.

13. 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.

14. From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the 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.

REPORT ON OTHER LEGAL AND REGULATORY REQUIREMENTS

15. As required by section 197(16) of the Act, we report that the Company has paid remuneration to its directors during the year in accordance with the provisions of and limits laid down under section 197 read with Schedule V to the Act.

16. As required by the Companies (Auditors Report) Order, 2016 (‘the Order) issued by the Central Government of India in terms of section 143(11) of the Act, we give in the Annexure 1 a statement on the matters specified in paragraphs 3 and 4 of the Order.

17. Further to our comments in Annexure I, as required by section 143(3) of the Act, we report that:

a) we have sought and obtained all the information and explanations which to the best of our knowledge and belief were necessary for the purpose of 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 standalone financial statements dealt with by this report are in agreement with the books of account;

d) in our opinion, the aforesaid standalone financial statements comply with Ind AS specified under section 133 of the Act;

e) on the basis of the written representations received from the directors and taken on record by the Board of Directors, none of the directors is disqualified as on 31 March 2019 from being appointed as a director in terms of section 164(2) of the Act;

f) we have also audited the internal financial controls over financial reporting (IFCoFR) of the Company as on 31 March 2019 in conjunction with our audit of the standalone financial statements of the Company for the year ended on that date and our report dated 30 May 2019 as per Annexure 2 expressed unmodified opinion;

g) 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 (as amended), in our opinion and to the best of our information and according to the explanations given to us:

.i the Company, as detailed in note 40 to the standalone financial statements, has disclosed the impact of pending litigations on its financial position as at 31 March 2019;

ii. the Company did not have any long-term contracts including derivative contracts for which there were any material foreseeable losses as at 31 March 2019; iii. there were no amounts which were required to be transferred to the Investor Education and Protection Fund by the Company during the year ended 31 March 2019;

iv. the disclosure requirements relating to holdings as well as dealings in specified bank notes were applicable for the period from 8 November 2016 to 30 December 2016, which are not relevant to these standalone financial statements. Hence, reporting under this clause is not applicable.

For Walker Chandiok & Co LLP
Chartered Accountants
Firms Registration No.: 001076N/N500013
Sumit Mahajan
Place: Gurugram Partner
Date: May 30, 2019 Membership No.: 504822