Page 181 - Tata_Chemicals_yearly-reports-2021-22

01 INTEGRATED 73 STATUTORY 178 FINANCIAL
STATEMENTS
REPORTS
REPORT
Standalone

Description of Key Audit Matter
Revenue recognition (refer notes 2.14 and 23 to the Standalone Financial Statements)
The Key Audit Matter How the matter was addressed in our audit
Revenue is recognized when the control over the underlying Our audit procedures included:
products has been transferred to the customer. • Assessing the Company’s revenue recognition accounting
Due to the Company’s sales under various contractual terms and policies for compliance with Ind AS;
across locations, delivery to customers in different regions might • Testing the design, implementation and operating
take different time periods and may result in undelivered goods effectiveness of the Company’s manual and automated
at the period end. We consider there to be a risk of misstatement (Information Technology - IT) controls on recording revenue.
of the financial statements related to transactions occurring close We also involved IT specialists for testing of IT general and
to the year end, as transactions could be recorded in the wrong application controls.
financial period (cut-off risk).
• Testing the controls around the timely and accurate
There is also a risk of revenue being fraudulently overstated recording of sales transactions. We also tested the
through booking fictitious sales due to pressure on the Company Company’s lead time assessment and quantification of any
to achieve performance targets. sales reversals for undelivered goods. In addition, we tested
Accordingly, revenue recognition is a key audit matter. the terms and conditions set out in the sales contracts and
the transit time required to deliver the goods;
• Performing testing on selected statistical samples of revenue
transactions recorded throughout the year and at the
year end and checking delivery documents and customer
purchase orders (as applicable);
• 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(a)(i) and 8(a)(ii) 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 25% of the Company’s • Assessing the indicators for impairment of the unlisted
total assets. subsidiaries and understanding the Company’s assessment
The investments are assessed for impairment when indicators of of those indicators;
impairment exists. • Evaluating design and implementation and testing
The impairment assessment involves use of estimates and operating effectiveness of controls over the Company’s
judgements. The identification of an impairment event and the process of impairment assessment and approval of forecasts;
determination of impairment charge also requires the application • Assessing the valuation methods and testing the arithmetical
of significant judgement by the Company. The judgement, in accuracy of the impairment models used for determining
particular, is with respect to the timing, quantity and estimation recoverable amount, financial position of the unlisted
of future discounted Cash Flows of the underlying entities. It subsidiaries and assessing historical financial performance
involves significant estimates and judgment, due to the inherent of those subsidiaries;
uncertainty involved in forecasting and discounting future • Understanding the basis and assumptions used for the
Cash Flows. The discounted cash flow models use several key financial forecasts ;
assumptions, including estimates of terminal value growth rates • Testing the key assumptions associated with significant
and the weighted-average cost of capital (discount rate).
estimation uncertainty and subjectivity used in the
In view of the significance of these investments and estimates discounted cash flow forecast analysis by comparing
and judgments involved, we consider impairment evaluation of these inputs with externally derived data and based on
investments in unlisted subsidiaries to be a key audit matter. our knowledge of the Company and the markets in which
the unlisted subsidiaries operate. We challenged these
assumptions including applying sensitivity analysis, with the
assistance of valuation specialists;
• Comparing the carrying amount of investments with
recoverable amount based on discounted cash flow analysis.

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