Page 253 - Tata_Chemicals_yearly-reports-2021-22

01 INTEGRATED 73 STATUTORY 178 FINANCIAL
STATEMENTS
REPORTS
REPORT
Consolidated

Description of Key Audit Matter
Revenue recognition (refer notes 2.18 and 27 to the Consolidated Financial Statements)
The Key Audit Matter (KAM) How the matter was addressed in our audit
Revenue is recognised when the control of the underlying Our audit procedures included:
products has been transferred to the customer. • Assessing the revenue recognition accounting policies
Revenue is measured based on transaction price, which is the of the Group including accounting for sales returns and
consideration, after deduction of estimated accruals for sales discounts for compliance with Ind AS;
returns and discounts (including rebates and incentives). • The Group has manual and automated (information
Due to the Group’s sales under various contractual terms and technology – IT) controls on recording revenue and
across geographies, delivery to customers in different regions accruals for sales returns and discounts. We tested the
might take different time periods and may result in undelivered design, implementation and operating effectiveness of
goods at the period end. We consider there to be a risk of these controls. We involved IT specialists for IT general and
misstatement of the financial statements related to transactions application controls.
occurring close to the year end, as transactions could be recorded • We tested on controls around the timely and accurate
in the wrong financial period (cut-off risk). recording of sales transactions. We also the Company’s lead
There is also a risk of revenue being overstated due to fraud time assessment and quantification of any sales reversals
through booking fictitious sales resulting from pressure on the for undelivered goods. In addition, we tested terms and
Group to achieve performance targets during the year as well as conditions set out in the sales contracts and the transit time
at the reporting period end. required to deliver the goods. For auditing assumptions of
The recognition and measurement of discounts involves discounts and estimates of sales returns, we focused on
significant assumptions and estimates, particularly the expected controls around the accurate recording of accruals for sales
level of claims of each customer. returns and discounts.
Estimation of sales returns also involves significant judgement and Fraud and cut-off risk
estimates. These factors include, for example, climatic conditions • Performing testing on selected statistical samples of revenue
and the length of time between sales and sales returns, some of transactions recorded throughout the year and at the
which are beyond the control of the Group. year end and checking delivery documents and customer
Accordingly, revenue recognition including accruals for sales purchase orders (as applicable);
returns and discounts is a key audit matter. • Assessing high risk manual journals posted to revenue to
identify unusual items.
Accrual for sales returns and discounts
• Selecting samples of revenue transactions and verifying
accruals for discounts in accordance with the eligibility
criteria mentioned in the marketing circulars;
• Evaluating the Group’s ability to accurately estimate
the accrual for sales returns and discounts. Comparing
historically recorded accruals to the actual amount of sales
returns and discounts.

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