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Hindustan Construction Company
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« Mar 13
Auditor's Report (Hindustan Construction Company) Year End : Mar '14
We have audited the accompanying financial statements of Hindustan
 Construction Company Limited. (''the Company''), which comprise the
 Balance Sheet as at March 31, 2014 , the Statement of Profit and Loss
 and the Cash Flow Statement for the year then ended, and a summary of
 significant accounting policies and other explanatory information
 
 Management''s Responsibility for the Financial Statements
 
 Management is responsible for the preparation of these financial
 statements that give a true and fair view of the financial position,
 financial performance and cash flows of the Company in accordance with
 the Accounting Standards referred to in sub-section (3C) of section 211
 of the Companies Act, 1956 (''the Act'') which shall continue to apply in
 respect of section 133 of the Companies Act, 2013 in terms of General
 Circular 15/2013 dated September 13, 2013 issued by the Ministry of
 Corporate Affairs. This responsibility includes the design,
 implementation and maintenance of internal control 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.
 
 Auditor''s Responsibility
 
 Our responsibility is to express an opinion on these financial
 statements based on our audit. We conducted our audit in accordance
 with the Standards on Auditing issued by the Institute of Chartered
 Accountants of India. Those Standards require that we comply with
 ethical requirements and plan and perform the audit to obtain
 reasonable assurance about whether the financial statements are free
 from material misstatement.
 
 An audit involves performing procedures to obtain audit evidence about
 the amounts and disclosures in the financial statements. The procedures
 selected depend on the auditor''s judgment, including the assessment of
 the risks of material misstatement of the financial statements, whether
 due to fraud or error. In making those risk assessments, the auditor
 considers internal control relevant to the Company''s preparation and
 fair presentation of the financial statements in order to design audit
 procedures that are appropriate in the circumstances, but not for the
 purpose of expressing an opinion on the effectiveness of the entities
 internal control. An audit also includes evaluating the appropriateness
 of accounting policies used and the reasonableness of the accounting
 estimates made by management, as well as evaluating the overall
 presentation of the financial statements.
 
 We believe that the audit evidence we have obtained is sufficient and
 appropriate to provide a basis for our audit opinion.
 
 Opinion
 
 1) In our opinion and to the best of our information and according to
 the explanations given to us, the financial statements give the
 information required by the Act in the manner so required and give a
 true and fair view in conformity with the accounting principles
 generally accepted in India:
 
 (i) in the case of the Balance Sheet, of the state of affairs of the
 Company as at March 31, 2014;
 
 (ii) in the case of the Statement of Profit and Loss, of the profit for
 the year ended on that date; and
 
 (iii) in the case of the Cash Flow Statement, of the cash flows for the
 year ended on that date.
 
 2) We did not audit the financial statements of certain Integrated
 Joint Ventures reflecting Company''s share in Profit of Rs. 1.58 crore in
 these financial statements. These financial statements have been
 audited by other auditors whose reports have been furnished to us by
 the Management, and our opinion, in so far as it relates to the amounts
 included in respect of the said audited Joint Ventures, is based solely
 on the Reports of the other auditors. Our opinion is not qualified in
 respect of this matter.
 
 Emphasis of Matter
 
 3) We draw attention to:
 
 (a) Note No. 35 and 36 of the Notes to financial statements regarding
 Company''s exposure in the nature of long-term investments and loans
 advances of Rs. 866.13 crore and Rs. 843.01 crore in its subsidiaries
 namely HCC Real Estate Ltd.  and HCC Infrastructure Ltd. On the basis
 of the book value of these companies, there is a diminution in the
 value of these investments and advances, which in the opinion of the
 Management is of temporary in nature.
 
 (b) Note No. 37 of the Notes to financial statements regarding
 Company''s claims of Rs. 518.36 crore outstanding for more than 5 years
 under ''Uncompleted Contracts and Value of Work Done'', ''Long Term Trade
 Receivables'' and ''Short Term Loans and Advances'' amounting to Rs. 445.53
 crore, Rs. 34.33 crore and Rs. 38.50 crore respectively. Considering the
 contractual tenability, progress of negotiation with clients and based
 on its past experience, management is reasonably confident of the
 recovery of the same.
 
 (c) Note No. 38 of the Notes to financial statements regarding ''Long
 Term Trade Receivables'' and ''Uncompleted Contracts and Value of Work
 Done'' as at March 31, 2014 of Rs. 1,056.57 crore and Rs. 243.11 crore
 respectively, representing favorable arbitration awards (including
 interest thereon) which have subsequently been challenged by the
 clients in courts. Of the above, awards amounting to Rs. 105.44 crore
 have been set aside by District/High Courts against which the Company
 has preferred appeals at High Courts/Supreme Court and is legally
 advised that it has a good case on merit. The recoverability of these
 amounts is dependent upon the final outcome of the appeals getting
 resolved in the favour of the Company.
 
 (d) Note No. 39 of the Notes to financial statements regarding ''Trade
 receivables'' and ''Uncompleted Contracts and Value of Work Done (net of
 client advances)'' of Rs. 20.96 crore and Rs. 48.19 crore respectively which
 have been outstanding for projects where work has been suspended by the
 client or has been projects have handed over to clients. Based on the
 continuous dialogue with the Clients, management is reasonably
 confident of the recovery of these amounts.
 
 (e) Note No. 28.1 of the financial statement regarding managerial
 remuneration paid to Chairman and Managing Director which is in excess
 by Rs. 10.18 crore per annum in respect of financial year 2012-13 and
 2013-14 for which Company has made an application to the Central
 Government; approvals in this regard are under consideration / pending
 till date.
 
 Report on Other Legal and Regulatory Requirements
 
 4) As required by the Companies (Auditor''s Report) Order, 2003 (as
 amended) (''the Order'') issued by the Central Government of India in
 terms of sub-section (4A) of Section 227 of the Act, we enclose in the
 annexure a statement on the matters specified in paragraphs 4 and 5 of
 the said Order.
 
 5) As required by section 227(3) of the Act, 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 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 appears from our examination of those
 books;
 
 c) The Balance Sheet, Statement of Profit and Loss and Cash Flow
 Statement dealt with by this report are in agreement with the books of
 account;
 
 d) In our opinion, the Balance Sheet, Statement of Profit and Loss and
 Cash Flow Statement comply with the Accounting Standards referred to in
 subsection (3C) of section 211 of the Companies Act, 1956 which shall
 continue to apply in respect of section 133 of the Companies Act, 2013
 in terms of General Circular 15/2013 dated September 13, 2013 issued by
 the Ministry of Corporate Affairs.
 
 e) On the basis of the written representations received from the
 directors, as on March 31, 2014, and taken on record by the Board of
 Directors, none of the directors of the Company is disqualified as on
 March 31, 2014 from being appointed as a director, in terms of clause
 (g) of sub-section (1) of Section 2 74 of the Companies Act, 1956;
 
 (Referred to in paragraph 1 under the heading ''Report on Other Legal
 and Regulatory Requirements'' of our Report of even date on the
 financial statements for the year ended on March 31, 2014 of Hindustan
 Construction Company Limited.)
 
 (i) (a) The Company has maintained proper records showing full
 particulars including quantitative details and situation of fixed
 assets.
 
 (b) A substantial portion of the fixed assets have been physically
 verified by the management during the year.  In our opinion the
 frequency of verification is reasonable having regard to the size of
 the Company and the nature of its assets. No material discrepancies
 were noticed on such verification.
 
 (c) Fixed assets disposed off during the year were not substantial.
 According to the information and explanations given to us, we are of
 the opinion that the disposal of fixed assets has not affected the
 going concern status of the Company.
 
 (ii) (a) The inventories have been physically verified by the
 management at reasonable intervals during the year. In our opinion, the
 frequency of verification is reasonable.
 
 (b) The procedure of physical verification of inventories followed by
 the management is reasonable and adequate in relation to the size of
 the Company and the nature of its business.
 
 (c) In our opinion and according to the information and explanation
 given to us, the Company is maintaining proper records of inventory.
 The discrepancies noticed on verification between physical stocks and
 the book records were not material and have been properly dealt with in
 the books of account.
 
 (iii) (a) The company has not granted unsecured loans and
 
 Inter-Corporate Deposits to companies covered in the Register
 maintained under Section 301 of the Act. Hence the provisions of clause
 (iii) (a), (b), (c), (d) of paragraph 4 are not applicable to the
 company.
 
 (b) The company has taken an unsecured loan from two companies covered
 in the Register maintained under Section 301 of the Companies Act,
 1956. The maximum amount involved in the current year amounted to Rs. 64
 crore and the year-end balance of loans taken from such parties are Rs.
 48 crore.
 
 (c) Based on the information and explanations given to us, we are of
 the opinion that the rate of interest and other terms and conditions of
 loans taken from such parties covered in the Register maintained under
 Section 301 are not prima facie prejudicial to the interests of the
 company.
 
 (d) According to the information and explanations given to us,
 repayments of the principal and interest have been regularly made as
 stipulated.
 
 (iv) 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, for
 purchase of inventory and fixed assets and for the Work Done. However
 the internal controls over accounting of consumption, wastages,
 material reconciliation, need further strengthening.
 
 (v) (a) The company has taken unsecured loans from two companies which
 are covered in the Register maintained under Section 301 of the
 Companies Act, 1956. The same has been entered in the register. The
 maximum amount involved in the current year amounted to Rs. 64 crore and
 the balance at the year end is Rs. 48 crore.
 
 (b) In our opinion and according to the information and explanation
 given to us, the transactions made in pursuance of contracts or
 arrangements entered in the register maintained under Sec 301 of the
 Companies Act,1956 have been made at prices which are reasonable having
 regard to prevailing market prices at the relevant time.
 
 (vi) The Company has not accepted any deposits from the public within
 the meaning of Sections 58A and 58AA of the Act and the rules framed
 there under. Therefore, the provisions of Section 58A, 58AA and any
 other relevant provisions of the Companies Act, 1956 and the rules
 framed there under with regard to deposits accepted from the public are
 not applicable to the Company.
 
 (vii) In our opinion, the Company has an internal audit system
 commensurate with the size and nature of its business.  However the
 scope needs to be enlarged to cover project related cost-to-complete
 workings and certain areas of head office accounting.
 
 (viii) We have broadly reviewed the books of account maintained by the
 Company pursuant to the rules made by the Central Government of India,
 regarding the maintenance of cost records under clause (d) of
 subsection (1) of Section 209 of the Act and are of the opinion that
 prima facie, the prescribed accounts and records have been maintained.
 We have, however not made a detailed examination of the records with a
 view to determine whether they are accurate or complete.
 
 (ix) (a) According to the records of the Company, Provident Fund,
 Investor Education and Protection Fund, Employees'' State Insurance,
 Income Tax, Sales Tax, Wealth Tax, Service Tax, Customs Duty, Excise
 Duty, Cess and other material statutory dues applicable to it have been
 generally regularly deposited during the year with the appropriate
 authorities. According to the information and explanations given to us,
 no undisputed amounts payable in respect of above were in arrears, as
 at March 31, 2014 for a period of more than six months from the date on
 which they became payable.
 
 (b) According to the records of the Company, sales tax, income tax,
 customs duty, wealth tax, service tax, excise duty or cess which have
 not been deposited on account of dispute are given below:
 
 
 Nature    Year        Amount      Forum where dispute is
 of                    (Rs.in        pending
 dues                  crore)
 
           1996-97 &   1.35        High Courts
           1998-99
 
 Sales
           1997-98 to  5.97        Taxation Tribunal
 Tax/
           2000-01
 VAT
           2002-03 to  63.27       AC/DC/Add.
           2009-10                 Commissioners & ACTO
 
           2004-07 &    0.31       Central Excise Appeal/
           2005-06                 Service Tax Commissioner
 
 Service
 Tax       2005 to 
           2006         2.97       Central Excise and Service
 
           2004-05 to 741.51       Tax Appellate Tribunal
           2011-12
 
 
 
 (x) The Company does not have any accumulated losses at the end of the
 financial year. The Company has not incurred cash losses during the
 financial year covered by our audit but has incurred cash losses in the
 immediately preceding financial year.
 
 (xi) The details of principal and interest not paid on due dates i.e.
 the last dates specified in loan documents or debenture trust deed, to
 the Financial Institutions and Banks during the year are as follows
 
 
 Amount of Principal         Period of Delays
    (fin crore)                  (in Days)
 
       41.54                      0 to 30
 
 Amount of Interest          Period of Delays
    (fin crore)                  (in Days)
 
      157.39                      1 to 30
 
       50.97                     31 to 60
 
 
 These dues have been paid by the end of the year and there is no
 overdue as of 31st March, 2014
 
 (xii) Based on our examination of the records and the information and
 explanations given to us, the Company has not granted any loans and
 advances on the basis of security by way of pledge of shares,
 debentures and other securities
 
 (xiii) In our opinion the Company is not a chit fund or a nidh / mutual
 benefit fund / society. Therefore the provisions of clause 4(xiii) of
 the Companies (Auditor''s Report) (Amendment) Order, 2004 are not
 applicable to the Company
 
 (xiv) In our opinion, the Company is not dealing in or trading in
 shares, securities, debentures and other investments.  Accordingly, the
 provisions of clause 4(xiv) of the Order are not applicable to the
 Company.
 
 (xv) In our opinion, the terms and conditions on which the Company has
 given guarantees for loans taken by others from banks or financial
 institutions are not prejudicial to the interest of the Company.
 
 (xvi) In our opinion the term loans have been applied for the purpose
 for which they were raised.
 
 (xvii) According to the information and explanations given to us and on
 an overall examination of the Balance Sheet of the Company, we report
 that funds raised on short-term basis have not been used for long-term
 investment.
 
 (xviii) During the year under audit the Company has not made
 preferential allotment of equity shares. However the Company has made
 preferential allotment of warrants to companies covered in the register
 maintained under Section 301 of the Companies Act, 1956. The price at
 which the warrants have been issued has been determined as per the
 Securities and Exchange Board of India (Issue of Capital and Disclosure
 Requirement) Regulations, 2009, which in our opinion is not prejudicial
 to the interest of the Company.
 
 (xix) According to the information and explanations given to us, no
 debentures were issued during the period.
 
 (xx) The Company has not raised any money by way of public issue during
 the year.
 
 (xxi) According to the information and explanations given to us, no
 fraud on or by the company has been noticed or reported during the
 course of our audit.
 
 
 
                                                For K.S. Aiyar & Co,
 
                                               Chartered Accountants
 
                                  ICAI Firm Registration No: 100186W
 
 
 
                                                   Raghuvir M. Aiyar 
  
 Place: Mumbai                                               Partner
 
 Date: 2nd May, 2014                           Membership No.: 38128
Source : Dion Global Solutions Limited
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