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To the members of Sundaram Finance Limited, Chennai for the year ended 31st March, 2019
To the members of Sundaram Finance Limited, Chennai
Report on Standalone Financial Statements
We have audited the accompanying standalone financial statements of Sundaram Finance Limited ("the Company"), which comprise the Balance Sheet as at 31st March 2019, the Statement of Profit and Loss, (including other comprehensive income) the Statement of Changes in Equity and Statement of Cash Flows for the year then ended and notes to the financial statements, including a summary of significant accounting policies and other explanatory information.
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 ("The Act") in the manner so required and give a true and fair view in conformity with the Indian Accounting Standards prescribed under section 133 of the Act, read with the Companies (Indian Accounting Standards) Rules, 2015 as amended ("Ind AS") and other accounting principles generally accepted in India, of the state of affairs of the Company as at 31st March 2019, and its profit and total comprehensive income, 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 ("SA") 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 made there under and 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.
Key Audit Matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the 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.
|Key Audit Matter||How our audit addressed the key audit matter|
|Adoption of New Accounting framework (Ind AS)|
|Effective 1st April 2018, the Company adopted the Indian Accounting Standards (Ind AS") notified by the Ministry of Corporate Affairs with the transition date of 1st April 2017.||We confirmed the approvals of Audit Committee for the choices and exemptions made by the Company for compliance/acceptability under IND AS 101.|
|The following are the major impact areas for the Company upon transition: - Classification and measurement of Financial Assets and Financial Liabilities - Measurement of Loan losses (expected credit losses) - Accounting for Securitization and Assignment||Evaluated managements transition date choices and exemptions for compliance/ acceptability under Ind AS 101.|
|- Accounting for Loan Fees and Costs||Understood, the methodology implemented by management to give impact on the transition and assessed the accuracy of the computations.|
|- Accounting for Employee stock options|
|- Accounting for Derivative instruments|
|The migration to the new accounting framework (Ind AS) is a process involving multiple decision points upon transition. Ind AS 101, First Time Adoption prescribes choices and exemptions for first time application of Ind AS principles at the transition date. We identified transition date accounting as a Key Audit Matter because of significant degree of management judgment and application on the areas noted above.||We confirm the accuracy of accounting and adequacy of disclosures in the Financial statements.|
|Impairment Loss Allowance|
|Managements judgements in the calculation of impairment allowances have significant impact on the financial statements. The estimates regarding impairment allowances are complex and require a significant degree of judgement, which increased with implementation of Expected Credit Loss ("ECL") approach starting from 1st April 2017 as required by Ind AS 109 relating to "Financial instruments." Management is required to determine the expected credit loss that may occur over either a 12-month period or the remaining life of an asset, depending on the categorisation of the individual asset.||We obtained an understanding of managements assessment of impairment of loans and advances including the Ind AS 109 implementation process, internal rating model, impairment allowance policy and ECL modelling methodology.|
|We assessed the design and implementation, and tested the operating effectiveness of controls over the modelling process including governance over monitoring of the model and approval of key assumptions|
|The key areas of judgement include:|
|1. Categorisation of loans in Stage 1, 2 and 3 based on identification of:|
|(a) exposures with significant increase in credit risk since their origination and|
|(b) Individually impaired / default exposures.||We also assessed the approach of the Company for categorisation of the loans in various stages reflecting the inherent risk in the respective loans.|
|2. Techniques used to determine Loss Given Default (LGD) and Probability of Default (PD) to calculate an ECL based on past experience.|
|3. The impact of different future macroeconomic conditions in the determination of ECL.|
|These judgements required new models to be built and implemented to measure the expected credit losses on certain financial assets measured at amortised cost. Management has made a number of interpretations and assumptions when designing and implementing models that are compliant with the new standard. The accuracy of data flows and the implementation of related controls is critical for the integrity of the estimated impairment provisions. Given the significance of judgements and the high complexity related particularly to the calculation of ECL we considered this area as a Key Audit Matter.||For a sample of financial assets, we tested the correctness of Staging, reasonableness of PD, accuracy of LGD and ECL computation. As a result of the above audit procedures no material differences were noted.|
|We confirm the adequacy of disclosures made in the Financial statements.|
|Divestment of shares|
|During the year the Company has divested 25.90% of its share in Royal Sundaram General Insurance Company Limited. We considered the accounting treatment in the financial statements of this event as a Key Audit Matter because of its size and the judgment required in calculating some of the amounts included in the profit on divestment of shares||We verified the Profit on disposal by reconciling the consideration to the Share Purchase Agreement (SPA), bank accounts and by verifying the investments disposed to underlying accounting records.|
|In addition we verified whether the Profit on disposal was calculated in accordance with the relevant clauses of the SPA. We confirm the accuracy of accounting and adequacy of disclosures in the Financial statements.|
|Fair Value of Unquoted Equity Investments (Other than Investments in Subsidiaries and Joint Ventures)|
|Investment in Unquoted equity shares are measured at Fair value.||We discussed with management the basis used in determining the fair value and evaluated the appropriateness of the valuation methodologies used by management and compared it to industry norms and the requirements in Ind AS. We confirm the adequacy of the disclosures made in the Financial statements.|
|The Fair value of these financial assets involved managements judgement because these securities are not traded in an active market. As per Ind AS 109, Cost has been considered as the best estimate of Fair value by the Management.|
|Since this valuation is a Level 3 type of valuation in accordance with Ind AS 113 Fair Value Measurement where one or more significant inputs to the fair value measurement is unobservable .|
|Accordingly this item is considered to be a Key Audit Matter due to significant judgments associated with estimating the fair value of investment.|
|Impairment testing of investments in Subsidiaries /Joint Ventures:|
|Impairment testing of investments in Subsidiaries/Joint venture is considered as a Key Audit Matter since impairment of these investments may have an impact on the equity of the Company.||We compared the book value of the investments in the year under review with their prorata share of the respective companys equity based on their financials, evaluated the internal sources and external sources of information to identify impairment indications, if any.|
|Testing for impairment depends on the future results of the companies concerned. In addition, there is significant scope for judgement in determining the assumptions underlying forecast results of the entities.||Where indicators of impairment have been identified, assessing the reasonableness of the recoverable amount of each of the relevant subsidiaries and joint ventures, obtained an understanding from management of their financial position and future prospects.|
|The same has been evaluated and appropriately dealt in the books of accounts. Based on the audit procedures performed, we found the key judgements and assumptions used in the impairment identification and assessments were duly supported by the available evidence.|
|IT Systems and Controls|
|The Companys key financial accounting and reporting processes are highly dependent on the automated controls in information systems, We have considered this as Key Audit Matter as any control lapses, Validation failures, incorrect input data and wrong extraction of data may result in the financial accounting and reporting records being misstated.||We tested a sample of key controls operating over the information technology in relation to financial accounting and reporting systems, including system access and system change management, program development and computer operations.|
|We have focused on user access management, change management, segregation of duties, system reconciliation controls and system application controls over key financial accounting and reporting systems.||We tested the design and operating effectiveness of key controls over user access management which includes granting access right, new user creation, removal of user rights and preventative controls designed to enforce segregation of duties.|
|Reliance was also placed on the System Audit report of the Company.|
|Based on our review no weakness was found in the IT Systems and Controls.|
Information Other than the Financial Statements and Auditors Report Thereon
The Companys Board of Directors is responsible for other information. The other information comprises the information included in the financial highlights, boards report, corporate governance report but does not include the financial statements and our auditors report thereon.
Our opinion on the 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 financial statements, our responsibility is to read the other information 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. If, based on the work we 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 Act with respect to the preparation of these standalone financial statements that give a true and fair view of the financial position, 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 accounting Standards specified under section 133 of the Act read with the Companies (Indian Accounting Standards) Rules, 2015. 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.
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 the Board of Directors 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 Responsibilities for the Audit of the Financial Statements
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 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 financial statements.
As part of an audit in accordance with SAs, we exercise professional judgment and maintain professional skepticism throughout the audit.
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 financial controls 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.
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 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
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 Act, we give in "Annexure A" to this Report, a statement on the matters specified in paragraphs 3 and 4 of the said 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.
(c) The Balance Sheet, the Statement of Profit and Loss, the Statement of Changes in Equity and the Statement of Cash Flow dealt with by this Report are in agreement with the books of account.
(d) In our opinion, the aforesaid financial statements comply with the Accounting Standards specified under Section 133 of the Act read with the Companies (Indian Accounting Standards) Rules, 2015.
(e) On the basis of the written representations received from the directors as on 31st March, 2019 taken on record by the Board of Directors, none of the directors is disqualified as on 31st March, 2019 from being appointed as a director in terms of Section 164(2) of the Act.
(f) 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".
(g) As regards Managerial Remuneration paid to Directors, refer to note no. xi of "Annexure A" to this Report.
(h) 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 financial statements refer note no. 39.04 to the financial statements.
ii. based on the current assessment of the long term contracts, in the ordinary course of business, the company has made adequate provision for losses where required, as explained in note no. 39.11 of the Notes to Accounts. The derivative contracts being in the nature of the hedge contracts, the company does not anticipate any material losses from the same.
iii. During the year, there has been no delay in transferring the amounts required to be transferred to the Investor Education and Protection Fund.
|For Sundaram & Srinivasan|
|Firm Registration. No. 004207S|
|Date : 30th May 2019||Membership Number : 005809|
ANNEXURE - A TO THE INDEPENDENT AUDITORS REPORT OF EVEN DATE ON THE STANDALONE FINANCIAL STATEMENTS OF SUNDARAM FINANCE LIMITED, CHENNAI
Annexure A referred to in our report under "Report on Other Legal and Regulatory Requirements Para 1" of even date on the accounts for the year ended 31st March 2019
i. (a) The Company is maintaining proper records showing full particulars, including quantitative details and situation of fixed assets.
(b) Fixed assets have been physically verified by the Management during the year, in accordance with an annual plan of verification, which in our opinion is reasonable having regard to the size of the Company and nature of the fixed assets. The discrepancies noticed on such verification were not material and have been properly dealt with in the books of account.
(c) The title deeds of immovable properties are held in the name of the company.
ii. The Company does not have any inventory and hence reporting under this clause 3(ii) is not applicable.
iii. The Company has granted secured loans to two parties and unsecured loan to one party covered in the register maintained under section 189 of the Act.
(a) The terms and conditions of the grant of the loan are not prejudicial to the Companys interest;
(b) The repayment of principal and payment of interest has been stipulated and the repayment and receipts are regular;
(c) The amounts are not overdue.
iv. In our opinion and according to the information and explanations given to us, the company has complied with the provisions of section 185 and 186 in respect of loans granted, investments made, guarantees given and securities provided, wherever applicable.
v. In our opinion and according to the information and explanations given to us, the company has complied with the directions issued by the Reserve Bank of India and the provisions of section 73 to 76 of the Act, and any other relevant provisions of the Act and the rules framed thereunder with regard to deposits accepted from the public.
vi. The Central Government has not prescribed the maintenance of cost records for the Company u/s. 148(1) of the Companies Act, 2013.
vii. (a) In our opinion and according to the information and explanation given to us, undisputed statutory dues including Provident Fund, Employees State Insurance, Income Tax, Goods and Service Tax, Duty of Customs, Cess and other material statutory dues have been regularly deposited during the year with appropriate authorities. According to the information and explanations given to us, there are no arrears of statutory dues which are outstanding as at 31st March 2019 for a period of more than six months from the date they become payable.
(b) According to records of the Company and the information and explanation given to us, the details of disputed Value Added Tax, Service Tax and Income Tax not deposited are as follows:
|Nature of dues||Amount in lakhs||Period to which the amount relates||Forum where the dispute is pending|
|Value Added Tax||1,30.09||1993-94 to 2013-14||Assistant / Deputy / Joint Commissioner (Appeals)|
|32.02||1995-96 to 2011-12||Tribunal|
|6,42.29||1998-99 to 2004-05||High Court|
|Service Tax||31,96.37||2014-15 to June 2017||CESTAT|
|16,77.00||2005-06 to 2013-14||Supreme Court|
|Income Tax||45,43.20||2016-2017||Commissioner of Income Tax (Appeals)|
viii. The Company has not defaulted in the repayment of dues to financial institution, banks, Government or debenture holders.
ix. (a) The Company has not raised any money by the way of initial public offer or further public offer (including debt instruments) during the year. Hence reporting on utilization of such money does not arise; and
(b) The term loans were applied for the purposes for which the loans were obtained.
x. To the best of our knowledge and belief and according to the information and explanations given to us, during the year, no fraud by the Company or material fraud on the Company by its employees or officers were noticed during the course of our audit.
xi. The Company has paid / provided for managerial remuneration within limits of section 197 read with schedule V to the Companies Act, 2013.
xii. The Company is not a Nidhi Company and hence reporting under clause 3(xii) of the Order is not applicable.
xiii. According to the information and explanations furnished to us and based on our examination of the records of the Company, all transactions with the related parties are in compliance with sections 177 and 188 of the Companies Act, 2013.
The details of such transactions have been disclosed in the financial statements as required by the applicable accounting standards.
xiv. During the year, the Company has not made any preferential allotment or private placement of shares or fully or partly convertible debentures under section 42 of the Companies Act, 2013.
xv. In our opinion and according to the information and explanations given to us and based on our examination of the records of the Company, the Company has not entered into any non-cash transactions with Directors or persons connected with them.
xvi. The Company is required to be registered under section 45-IA of the Reserve Bank of India Act, 1934 and has obtained registration.
|For Sundaram & Srinivasan|
|Firm Registration. No. 004207S|
|Date : 30th May 2019||Membership Number : 005809|
ANNEXURE - B TO THE INDEPENDENT AUDITORS REPORT OF EVEN DATE ON THE STANDALONE FINANCIAL STATEMENTS OF SUNDARAM FINANCE LIMITED, CHENNAI
Report on the Internal Financial Controls with reference to Financial Statements 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 Sundaram Finance Limited, Chennai ("the Company") as at 31st March, 2019 in conjunction with our audit of the standalone financial statements of the Company for the period ended on that date.
Managements Responsibility for Internal Financial Controls with reference to Financial Statements
The Companys Management is responsible for establishing and maintaining internal financial controls with reference to financial statements 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 (ICAI). These responsibilities include the design, implementation and maintenance of adequate internal financial controls with reference to financial statements that were operating effectively for ensuring the orderly and efficient conduct of its business, including adherence to the respective 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.
Our responsibility is to express an opinion on the Companys internal financial controls over financial reporting with reference to financial statements 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 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 with reference to financial statements were 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 with reference to financial statements over financial reporting and their operating effectiveness. Our audit of internal financial controls over financial reporting with reference to financial statements included obtaining an understanding of internal financial controls over financial reporting with reference to financial statements, 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 judgement, 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 with reference to financial statements over financial reporting with reference to financial statements.
Meaning of Internal Financial Controls over Financial Reporting
A Companys internal financial control with reference to financial statements over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A Companys internal financial control with reference to financial statements over financial reporting includes those policies and procedures that;
(i) pertain to the maintenance of records, that in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company;
(ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorisations of management and directors of the Company; and
(iii) provide reasonable assurance regarding prevention or timely detection of unauthorised 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 with reference to Financial Statements
Because of the inherent limitations of internal financial controls over financial reporting with reference to financial statements, 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 with reference to financial statements over financial reporting may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the Company has, in all material respects, an adequate internal financial controls system with reference to financial statements over financial reporting and such internal financial controls over financial reporting were operating effectively as at 31st March, 2019, based on the internal control over financial reporting with reference to financial statements 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 Sundaram & Srinivasan|
|Firm Registration. No. 004207S|
|Date : 30.05.2019||Membership Number : 005809|