Page 151 - Tata_Chemicals_yearly-reports-2020-2021

Integrated Report Statutory Reports Financial Statements
1-59 60-146 Standalone

Description of Key Audit Matter
Revenue recognition (refer notes 2.14 and 25 to the Standalone Financial Statements)
The Key Audit Matter How the matter was addressed in our audit
Revenue is recognised when the control over the underlying Our audit procedures included:
products has been transferred to the customer. • Assessing the Company’s revenue recognition for
Due to the Company’s sales under various contractual terms and compliance with Ind AS;
across the country, delivery to customers in different regions • Testing the design, implementation and operating
might take different time periods and may result in undelivered effectiveness of the Company’s manual and automated
goods at the period end. We consider a risk of misstatement of (Information Technology - IT) controls on recording revenue.
the Financial Statements related to transactions occurring close We involved our IT specialists for IT testing. We focussed on
to the year end, as these transactions could be recorded in the controls around the timely and accurate recording of sales
incorrect financial period (cut-off risk). transactions which included evaluating the Company’s lead
There is also a risk of revenue being overstated due to fraud time assessment and quantification of any sales reversals for
resulting from pressure on the Company to achieve performance undelivered goods based on the terms and conditions set
targets at the reporting period end. Accordingly, fraud and cut-off out in the sales contracts and the transit time required to
risks in revenue recognition are considered as a key audit matter. deliver the goods;
• Performing testing on selected statistical samples of revenue
transactions recorded during the year end;
• Assessing high risk manual journals posted to revenue to
identify any unusual items.
Impairment evaluation of Investments in unlisted subsidiaries (refer notes 2.3.5, 2.12 and 8 to the Standalone Financial
Statements)
The Key Audit Matter How the matter was addressed in our audit
The carrying amount of the investments in unlisted subsidiaries Our audit procedures included:
(held at cost less impairment) represents 32% of the Company’s • Evaluating design and implementation and testing
total assets. operating effectiveness of controls over the Company’s
The investments are assessed for impairment when an indicator process of impairment assessment and approval of forecasts;
of impairment exists. With the spread of COVID-19 in India and • Assessing the indicators for impairment of the unlisted
globally, demand loss is expected for the products of unlisted subsidiaries and understanding the Company’s assessment
subsidiaries. of those indicators;
The impairment assessment involves use of estimates and • Assessing the valuation methods used for determining
judgements. The identification of an impairment event and the recoverable amount, financial position of the unlisted
determination of impairment charge also requires the application subsidiaries and assessing historical financial performance
of significant judgement by the Company. The judgement, in of those subsidiaries;
particular, is with respect to the timing, quantity and estimation • Understanding the basis and assumptions used for the
of future discounted cash flows of the underlying entities. It financial forecasts;
involves significant estimates and judgment, due to the inherent
uncertainty involved in forecasting and discounting future cash • Testing the key assumptions associated with significant
flows. estimation uncertainty and subjectivity used in the
discounted cash flow forecast analysis based on our
In view of the significance of these investments and estimates knowledge of the Company and the markets in which
and judgments involved, we consider impairment evaluation of the unlisted subsidiaries operate. We challenged these
investments in unlisted subsidiaries to be a key audit matter.
assumptions including applying sensitivity analysis, with the
assistance of our valuations team;
• Comparing the carrying amount of investments with
recoverable amount based on discounted cash flow analysis.

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