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Hindustan Construction Company
BSE: 500185|NSE: HCC|ISIN: INE549A01026|SECTOR: Construction & Contracting - Civil
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« Mar 12
Auditor's Report (Hindustan Construction Company) Year End : Mar '13
We have audited the accompanying financial statements of Hindustan
 Construction Company Limited.('the Company'), which comprise the
 Balance Sheet as at March 31, 2013, 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'). 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. 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 Company Act, 1956, 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, 2013;

(ii) in the case of the Statement of Profit and Loss, of the loss 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 Loss of Rs. 6.54 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.

Emphasis of Matter

3) We draw attention to:

(a) Note No. 14.1 and 14.2 of the Notes to Accounts regarding Company's exposure in the nature of long-term investments and loans and advances of Rs. 821.65 crore and Rs. 736.33 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. 16.1 of the Notes to Accounts regarding litigations amounting to Rs. 35.50 crore, which are more than one year old as on 31.03.2013, where claims favourably awarded in arbitration have been subsequently rejected by Courts of Law. The recoverability is dependent upon the final outcome of the appeals getting resolved in favor of the Company.

(c) Company's claims of Rs. 189.46 crore, Rs. 21.28 crore and Rs. 418.06 crore being included under Long Term Trade Receivables Short Term Loans and Advances and Uncompleted Contracts and Value of Work Done respectively, which have been outstanding for over 5 years. The Company has assessed the recoverability of these claims based on favourable arbitration awards, court orders and legal opinion. Considering the contractual tenability and legal advice from Company's counsel in the matter, the management is confident of recovery of the same.

(d) Note No. 27.1 of the Notes to Accounts regarding application seeking approval from Central Government for the excess remuneration paid to managerial personnel.

Our opinion is not qualified in respect of these matters.

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.

e) On the basis of the written representations received from the directors, as on March 31, 2013, and taken on record by the Board of Directors, none of the directors of the Company is disqualified as on March 31, 2013 from being appointed as a director, in terms of clause (g) of sub- section (1) of Section 274 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, 2013 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. 32 crore and the year-end balance of loans taken from such parties are Rs. 32 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) Based on the audit procedures applied by us and according to the information and explanations provided by the management, we are of the opinion that the particulars of contracts or arrangements that need to be entered into the register maintained under section 301 of the Companies Act, 1956 have so been entered.

(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, 2013 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 Tax 1997-98 to 5.97 Taxation Tribunal VAT 2002-03 to 18.17 AC/DC/Add. 2008-09 Commissioners & ACTO

2005-06 0.31 Central Excise Appeal/ Service Service Tax Commissioner

Tax June 04 to 2.97 Central Excise and Service March 06 Tax Appellate Tribunal

(x) The Company does not have any accumulated losses at the end of the financial year. The Company has incurred cash loss during the financial year covered by our audit.

(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 (Rs. in crore) (in Days)

44.68 0 to 90

8.88 91 to 180

11.84 181 to 365

Amount of Interest Period of Delays (Rs. in crore) (in Days)

132.70 1 to 30

0.79 31 to 60

0.94 61 to 90

These dues have been paid by the end of the year and there is no overdue as of March 31, 2013.

(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 nidhi / 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)According to the information and explanations given to us, the Company has not made any preferential allotment of shares to parties and companies covered in the register maintained under Section 301 of the Companies Act, 1956.

(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) To the best of our knowledge and belief and according to the information and explanations given to us, we report that no fraud on or by the Company has been noticed or reported during the year except for frauds on the Company for an amount of Rs. 62.19 Lacs by employees of the Company, out of which Rs. 3.40 Lacs have been recovered. The matter has been investigated by management and action for recovery of balance amount of Rs. 58.79 Lacs is being continued. We are informed that internal controls have been further strengthened to avoid recurrence of such cases.

For K.S. Aiyar & Co,

Chartered Accountants

Registration No: 100186W

Raghuvir M. Aiyar

Place: Mumbai Partner

Date: May 3, 2013 Membership No.: 38128

Source : Dion Global Solutions Limited
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