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Ircon International | Auditor's Report > Engineering - Heavy > Auditor's Report from Ircon International - BSE: 541956, NSE: IRCON
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Ircon International

BSE: 541956|NSE: IRCON|ISIN: INE962Y01013|SECTOR: Engineering - Heavy
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Auditor's Report (Ircon International ) Year End : Mar '18

1. Report on the Standalone Ind AS Financial Statements

We have audited the accompanying standalone Ind AS financial statements of IRCON INTERNATIONAL LIMITED (“the Company”) which comprise the Balance Sheet as at 31st March, 2018, the Statement of Profit & Loss (including Other Comprehensive Income), the Cash Flow statement & the statement of changes in equity for the year then ended, and a summary of significant accounting policies and other explanatory information in which are incorporated the Returns for the year ended on that date audited by branch auditors of the company’s branches at Northern Region, J&K region, Eastern Region, Patna Region, Mumbai Region ,South Africa, Algeria, Bangladesh, Sri-Lanka & Malaysia Region.

2. Management’s Responsibility for the Standalone Ind AS Financial Statements

The Company’s Board of Directors is responsible for the matters stated in Section 134(5) of the Companies Act, 2013 (“the Act”) with respect to the preparation of these standalone Ind AS 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), cash flows and changes in equity of the Company in accordance with the accounting principles generally accepted in India, including the Indian Accounting Standards (Ind AS) prescribed 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 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 standalone Ind AS financial statements that give a true and fair view and are free from material misstatement, whether due to fraud or error.

3. Auditor’s Responsibility

Our responsibility is to express an opinion on these standalone Ind AS financial statements based on our audit.

We have taken into account the provisions of the Act, the accounting and auditing standards and matters which are required to be included in the audit report under the provisions of the Act and the Rules made thereunder.

We conducted our audit of the standalone Ind AS financial statements in accordance with the Standards on Auditing specified under Section 143(10) of the Act. Those Standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the standalone Ind AS financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and the disclosures in the standalone Ind AS financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the standalone Ind AS financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal financial control relevant to the Company’s preparation of the standalone Ind AS financial statements that give a true and fair view in order to design audit procedures that are appropriate in the circumstances. An audit also includes evaluating the appropriateness of the accounting policies used and the reasonableness of the accounting estimates made by the Company’s Directors, as well as evaluating the overall presentation of the standalone Ind AS financial statements.

We believe that the audit evidence obtained by us & other auditors in terms of their reports referred to in others matter paragraph below, is sufficient and appropriate to provide a basis for our audit opinion on the standalone Ind AS financial statements.

4. Opinion

In our opinion and to the best of our information and according to the explanations given to us, the aforesaid Standalone Ind AS 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 including the Ind AS, of the state of affairs (financial position) of the Company as at March 31, 2018, and its Profit (financial performance including other comprehensive income), its Cash Flow and the changes in equity for the year ended on that date.

5. Emphasis of Matters

i) We draw attention to Note No. 33 to the standalone Ind AS financial statements

a. The Company has made provision for tax without considering the deduction under Section 80-IA of Income Tax Act, 1961. However, the ITAT has disposed pending appeal for FY 2000-01 allowing deduction u/s 80IA and subsequently CIT(A) has allowed deduction for AY 2004-05, 2005-06, 2007-08, 2012-13, 2013-14 and 2014-15. The matters for other assessment years are contested by the company with the concerned authorities.

b. The company is offering global income for tax in India after excluding the income earned by its permanent establishments in foreign countries having Double Taxation Avoidance Agreements (DTAA) with India. CIT (A) denied the treatment of excluding such foreign income. Accordingly, the company has subsequently paid taxes, however the matter is contested by the company with the concerned authorities.

ii) We draw attention to Note No. 48 to the standalone Ind AS financial statements regarding non-provision of Rs. 4.96 crores towards foreign agency commission/ consultancy charges in respect of projects in three foreign countries pending assessment of the performance.

Our report is not qualified in respect of the above matters.

6. Other Matters

i) We did not audit the financial statements/information of Ten branches included in the standalone Ind AS financial statement of the company whose financial statements/financial information reflect Total Assets of Rs. 6,302.80 Crores as at 31st March 2018, Total Revenues of Rs. 3,793.35 Crores for the year ended on that date, as considered in the standalone Ind AS financial statements. The financial statements/ information of these branches have been audited by the branch auditors whose reports have been furnished to us, and our opinion in so far as it relates to the amounts and disclosure included in respect of these branches, is based solely on the reports of such branch auditors.

ii) The financial statements include the company’s share in Profit/Loss of unincorporated Joint Venture (JVs) accounts out of which four JVs accounts have been certified by other firms of Chartered Accountants and one JV (IRCON-SPSCPL) has been certified by the management.

Our opinion is not modified in respect of these matters.

7. Report on Other Legal and Regulatory Requirements

(1) As required by the Companies (Auditor’s 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 A” a statement on the matters specified in paragraphs 3 and 4 of the Order.

(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 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 and proper returns adequate for the purpose of our Audit has been received from branches not visited by us.

c) The reports on the accounts of branch offices of the Company audited under section 143(8) of the Act by branch auditors have been sent to us and have been properly dealt with by us in preparing this report.

d) The Balance Sheet, the Statement of Profit & Loss including Other Comprehensive Income, the statement of cash flows and Statement of Changes in Equity dealt with by this report are in agreement with the books of account.

e) In our opinion, the aforesaid Standalone Ind AS financial Statements comply with the Indian Accounting Standard (Ind AS) specified under section 133 of the Act, read with relevant rules issued thereunder.

f) Being a government company, provision of section 164(2) of the Act are not applicable pursuant to the notification No. G.S.R.463(E) dated 5th June, 2015, issued by the Central Government of India.

g) 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”.

h) With respect to the other matters to be included in the Auditor’s 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 explanation given to us:

i. The Company has disclosed the impact of pending litigations on its financial position in its standalone Ind AS financial statements-Refer Note No.29 of the standalone Ind AS financial statements.

ii. The Company has made provision, as required under the applicable law or accounting standards, for material foreseeable losses, if any, on long-term contracts -Refer Note No.16.3 to the standalone Ind AS financial statements. The Company did not have any derivative contracts for which there were any material foreseeable losses.

iii. There were no amounts which were required to be transferred to the Investor Education and Protection Fund by the Company.

(3) As required by Section 143(5) of the Act and as per directions issued by comptroller and Auditor General of India, we report that:

Sl. No.

Directions

Auditor’s Replies

(i)

Whether the company has clear title/ lease deeds for freehold and leasehold land respectively? If not please state the area of freehold and leasehold land for which title/lease deeds are not available.

Yes, the Company has clear title/ lease deed for freehold and leasehold land respectively except as reported in Mumbai region i.e. one lease hold building on railway land for 30 years in Pali hill Mumbai for which agreement is yet to be finalized.

(ii)

Whether there are any cases of waiver/write off of debts/loans/interest etc., if yes, the reasons thereof and the amount involved.

The Company has written-off bad assets of Rs. 0.29 Crores during the Financial Year 2017-18. (Refer Note: 22 of Financial Statement).

(iii)

Whether proper records are maintained for inventories lying with third parties & assets received as gift/ grants(s) from Govt. or other authorities.

Yes, proper records are being maintained for the inventories lying with third parties.

No assets have been received as gift /grants(s) from Govt. or other authorities during the Financial Year 2017-18.

“Annexure A” to the Independent Auditors’ Report of even date on the Standalone Ind AS Financial Statements of Company for the year ended 31st March, 2018

i. a) The Company has maintained proper records showing full particulars including quantitative details and situation of fixed assets. In Mumbai Region, Tagging/ Numbering to be done on certain assets and assets with third parties needs to be confirmed from third party.

b) The fixed assets were physically verified by the management during the year. There is a regular program of verification, which in our opinion, is reasonable having regard to the size of the Company and nature of its business. No material discrepancies were noticed on such verifications.

c) The title deeds of immovable properties are held in the name of the Company, except one lease hold building at Pall Hill, documents for the same are yet to be executed in Mumbai Region.

ii. The inventory has been physically verified by the management at reasonable intervals during the year. In our opinion, the frequency of verification is reasonable. The discrepancies noticed on comparison of physical verification with book records were not material and have been properly dealt with in the books of account.

iii. According to the information and explanation given to us by the management and records produced, the Company has not granted any loans, secured or unsecured to companies, firms, limited liability partnerships or other parties covered in the register maintained under section 189 of the Companies Act, 2013. Therefore, paragraph 3(iii) of the Order is not applicable to the Company.

iv. In our opinion and according to the information and explanations given to us, in respect of loans, investments, guarantees and security; the provisions of section 185 and 186 of the Companies Act, 2013 have been complied with.

v. According to the information and explanations given to us, and as per our examination of records, the Company has not accepted any deposits from public and therefore, the directives issued by the Reserve Bank of India and the provisions of Section 73 to 76 or any other relevant provision of the Companies Act, 2013, and rules framed there under, are not applicable.

vi. The Company has maintained cost records as required under section 148(1) of the Companies Act, 2013. However, we are neither required to carry out, nor have carried Out any detailed examination of such accounts and records.

vii. a. The Company is generally regular in depositing undisputed statutory dues including provident fund, income tax, goods and service tax, sales tax, service-tax, duty of customs, duty of excise, value added tax, cess and any other statutory dues applicable with the appropriate authorities. Employees’ State Insurance is not applicable to the Company. According to the information and explanation given to us, there are no undisputed statutory dues which were outstanding as on 31.03.2018 for a period of more than six months from the date the same become payable.

b. According to information and explanation given to us, and as per our examination of records of the Company, following are the particulars of dues on account of sales tax, service tax, entry tax, trade tax, income tax, duty of customs, royalty, provident fund, duty of excise and cess matters that have not been deposited on account of dispute as on 31.3.2018.

Name of the statute

Nature of disputed Dues

Amount outstanding (in Rs. Crores)

Period to which the amount relates

Forum where dispute is pending

Customs Act 1962

Customs Duty levied on machinery import from Algeria/Iraq

5.81

1989-90

Dy Commissioner (Custom), Mumbai

Central Excise Act 1944

Levy of Excise Duty on Bracket/Cantilever Assemblies

0.66

1998-99

CESTAT (Dept. Appeal)

West Bengal State Sales Tax Act

Sales Tax

0.26

1998-99

Sr. Jt. Comm. (Appeals) Sales Tax, West Bengal

Income Tax Act, 1961

Disallowance of deduction u/s 80-IA, taxing of foreign income & provision for maintenance etc.

13.52

2015-16

Commissioner of Income Tax (Appeals), New Delhi

West Bengal VAT Act, 2003

VAT

0.71

2004-05

Asst. Comm. of Sales Tax College St Charge, Kolkata

Odisha Vat Act, 2004

VAT

1.09

2002-03

Comm. of Sales Tax, Odisha

Bihar Sales Tax Act-1981

Sales Tax

1.75

1987-88 and 1994-95

Bihar Sales Tax Tribunal, Khalgoan

West Bengal VAT Act, 2003

VAT

0.54

2006-07

Joint Commissioner, Commercial Taxes, Dharamtala Circle

West Bengal VAT Act, 2003

VAT

0.28

2005-06

WB Commercial Taxes Appellate & Revisional Board

Service Tax

Service Tax on agency Fees

12.91

2010-11 to 2014-15

CESTAT

Service Tax

Service Tax on agency Fees

5.6

2009-10 to 2013-14

CESTAT

VAT

VAT TDS

5.98

2005-06 & 2006-07

Bihar VAT Department, West Circle Patna

VAT

VAT

0.07

2010-11

Bihar VAT Department, West Circle Patna

VAT

VAT

29.2

2012-13

Bihar VAT Department, West Circle Patna

Jammu and Kashmir GST Act, 1962

Sales Tax

19.33

1999-00 to 2005-06

J&K High Court, Jammu and Deputy Comm. Sales Tax (Appeals), Srinagar

Sales Tax

Sales Tax-AGRP

2.28

2007-08 to 2012-13

The Additional Commissioner, Commercial Taxes, Ghaziabad

Sales Tax

Entry Tax-AGRP

0.027

2009-10 to 2012-13

The Additional Commissioner, Commercial Taxes, Ghaziabad

Sales Tax

Entry Tax-AGRP

0.015

2013-14

The Additional Commissioner, Commercial Taxes, Ghaziabad

Sales Tax

UP TRADE TAX - UP 01

0.15

2004-05 (Entry Tax)

The Assessing Authority

Sales Tax

UP TRADE TAX - UP 01

3.74

2004-05 to 2007-08

The Assessing Authority

Sales Tax

UPTT-UP-01( Entry Tax)

0.16

2007-08

The Assessing Authority

Sales Tax

UPVAT ACT-UP-01

1.36

2007 - 08 (1.01.2008 - 31-03-2008)

The Assessing Authority

Sales Tax

UPVAT ACT-UP-01 (Entry Tax)

0.15

2008 - 09

The Appellate Authority

Sales Tax

UPVAT ACT-UP-01 (Entry Tax)

0.005

2009 - 10

The Appellate Authority

Sales Tax

UPVAT ACT-UP-01

0.011

2010 - 11

The Deputy Commissioner

Sales Tax

Sales Tax-BE-08

1.17

2008-09 to 2009-10

The Additional Commissioner, Appeal Noida

Sales Tax

Sales Tax-BE-08 Entry Tax

0.004

2008 - 09

The Additional Commissioner, Appeal Noida

Sales Tax

UPTT-UP-05

0.01

2005-06

High Court Allahabad

Sales Tax

UPTT-UP-05

1.31

2006-07 to 2007-08 (9 months)

Tribunal Jhansi Bench

Sales Tax

UPVAT-UP-05

3.26

2007-08 to 2009-10

Tribunal Jhansi Bench

Sales Tax

UPVAT-UP-05

1.55

2013-14

Dy. Commissioner Sales Tax authority, Orai

Sales Tax

UPVAT-UP-05

0.76

2014-15

Dy. Commissioner Sales Tax authority, Orai

Sales Tax

Sales Tax 2005-06-Godhra

5.47

2003-04 to 2005-06

Dy. Commissioner Sales Tax authority Vadodara

Sales Tax

Sales Tax 2010-11-GED

0.05

2010-11

Asst Commercial Tax Officer, Margo

Uttar Pradesh VAT Act, 2008

Demand Raised for Sales Tax

0.08

1982-83 & 1989-90

Appellate Authority, Jhansi

Rewari -Ajmer Project

Works contract Tax

1.84

2006-07 to 2010 - 11

High Court Rajasthan

Sales Tax

Sales Tax 1996-97 MRO

3.51

1995-96 to 1996-97

Bombay High Court

Karnataka Vat

Difference in rate of tax and levy of Interest thereon

0.5

2009-10

Deputy Commissioner (Appeals ), Trivndrum

Sales Tax

Sales tax 2010-11 MRO

0.29

2010-11

Sales Tax Office, Mumbai

Sales Tax

Sales tax 2011-12 MRO

3.68

2011-12

Sales Tax Office, Mumbai

Kerala VAT

Kerala VAT

0.33

2013-14

Asst. Commissioner, Commercial Tax

Sales Tax

UP- VAT

0.62

2010-11

Addl. Comm./ Sales Tax/Lucknow

viii. The Company has not defaulted in the repayment of loans or borrowings to any financial institution, banks, Government during the year. The company did not issue any debenture during the year.

ix. The Company has not made any public offer (including debts instruments) during the year. The term loan taken during the year was applied for the purpose for which it was taken.

x. According to the information and explanations given to us, no fraud by the Company or any fraud on the Company by its officers or employees has been noticed or reported during the course of our audit.

xi. In view of the Government Notification No. GSR 463 (E) dated 5th June, 2015, government companies are exempt from the applicability of section 197 of the Companies Act,2013. Accordingly, clause 3(xi) of the order is not applicable to the Company.

xii. The Company is not a Nidhi Company as specified in the Nidhi Rules, 2014. Thus, the requirements under para 3(xii) of the Companies (Auditor’s Report) Order 2016 are not applicable to the Company.

xiii. According to the information and explanations given to us, all transactions with related parties are in compliance with section 177 and 188 of the Companies Act, 2013 where applicable and the details have been disclosed in the financial statements etc., as required by the applicable accounting standards.

xiv. According to the information and explanations given to us, the Company has not made any preferential allotment or private placement of shares or fully or partly convertible debentures during the year under review.

xv. According to the information and explanations given to us, the Company has not entered into non-cash transactions with the directors or persons connected with him, within the provisions of section 192 of the Companies Act, 2013.

xvi. The Company is not a Non-banking finance company, hence registration under section 45-IA of the Reserve Bank of India Act, 1934 does not arise.

“Annexure B” to the Independent Auditors’ Report of even date on the Standalone Ind AS Financial Statements of Ircon International Limited for the year ended 31st March, 2018

Report on the Internal Financial Controls 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 Ircon International Limited “the Company” as of March 31, 2018 in conjunction with our audit of the standalone Ind AS financial statements of the Company for the year ended on that date.

Management’s Responsibility for Internal Financial Controls

The Company’s management is responsible for establishing and maintaining internal financial controls 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 that were operating effectively for ensuring the orderly and efficient conduct of its business, including adherence to company’s 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.

Auditor’s Responsibility

Our responsibility is to express an opinion on the Company’s internal financial controls over financial reporting 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 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 was 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 over financial reporting and their operating effectiveness. Our audit of internal financial controls over financial reporting included obtaining an understanding of internal financial controls over financial reporting, 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 auditor’s judgment, 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 Company’s internal financial controls system over financial reporting.

Meaning of Internal Financial Controls Over Financial Reporting

A company’s internal financial control 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 company’s internal financial control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) 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 authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Inherent Limitations of Internal Financial Controls Over Financial Reporting

Because of the inherent limitations of internal financial controls over financial reporting, 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 over financial reporting may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Qualified Opinion

According to the information and explanations given to us and based on our audit and branch auditor’s audit report, the following material weaknesses have been identified as at March 31, 2018.

(a) The Company has an integrated ERP system which was not used at its full potential. In the foreign projects the company has not used ERP system for the preparation of financial accounts instead software “Tally” was used for the same. In the Mumbai region the branch auditor has reported that integrated ERP system is not used to its fullest potential and in one project software tally was used for preparation of Financial Statement. The ERP system should have been used at its full potential to have more effective financial control.

(b) The Inventory records at some units is maintained manually and the inventory manual in SAP is under consideration. Further continuous identification system of surplus/obsolete/broken assets and material/stores is inadequate and needs to be strengthened.

A material weakness’ is a deficiency, or a combination of deficiencies in internal financial control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis.

In our opinion, except for the effects/ possible effects of the material weaknesses described above on the achievement of the objectives of the control criteria, the Company has, in all material respects, an adequate internal financial controls system over financial reporting and such internal financial controls over financial reporting were operating effectively as at March 31, 2018, “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”.

Emphasis of Matter

Few cases of reduction of bills by the client and accepted by the project without noting therein full reasons/ justifications have been observed for which follow up with client needs to be improved.

Other Matters

Our aforesaid report under section 143(3)(i) of the Act on the adequacy and operating effectiveness of the internal financial controls over financial reporting insofar as it relates to a branches/Region, is based on the corresponding report of other auditors.

For K.G SOMANI & CO.

Chartered Accountants

FRN 006591N

(Ashish Kumar Batta)

Partner

Membership No.095597

Place of Signature: New Delhi

Date: 03rd August 2018

Source : Dion Global Solutions Limited
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