Page 197 - Tata Chemical Annual Report_2022-2023

Integrated Annual Report 2022-23 01-83 84-192 193-365
Integrated Report Statutory Reports Financial Statements
Standalone

Description of Key Audit Matter Impairment of Property, Plant and Equipment and Goodwill (See Note 2.3.5, 2.12 , 4 and 7(b) to Standalone
Revenue Recognition (See Note 2.14 and 23 to Standalone Financial Statements) Financial Statements)
The Key Audit Matter How the matter was addressed in our audit The Key Audit Matter How the matter was addressed in our audit
Revenue is recognised when the performance obligation is satisfied at a Our audit procedures included: The Company periodically assesses if there are any triggers for recognising Our audit procedures included:
point in time by the Company by transferring the underlying products • Assessing the Company’s revenue recognition accounting policies impairment loss in respect of Property, plant and equipment (PPE) relating • Analysing the indicators of impairment of PPE including
to the customer. for compliance with Ind AS; to its Silica and Nutraceutical Cash Generating Units (CGU). understanding of Company’s own assessment of those indicators;
Revenue is measured based on transaction price, which is consideration, • Testing the design, implementation and operating effectiveness of In making this determination, the Company considers both internal and • Evaluating the design and implementation and testing the
after deduction of discounts. the Company’s manual and automated (Information Technology - external sources of information to determine whether there is an indicator operating effectiveness of key controls over the impairment
Due to the Company’s sales under various contractual terms and across IT) controls on recording revenue. We also involved IT specialists of impairment and, accordingly, whether the recoverable amount of the assessment process. This included the estimation and approval of
CGU needs to be estimated. Further, Goodwill is required to be assessed
locations, delivery to customers in different regions might take different for testing of IT general and application controls. for impairment annually. forecasts, determination of key assumptions and valuation models;
time periods and may result in undelivered goods at the period end. We • Testing the controls around the timely and accurate recording • Assessing the valuation methodology used for determining
consider there to be a risk of misstatement of the financial statements of sales transactions. We also tested the Company’s lead An impairment loss is recognised if the recoverable amount is lower than recoverable amount and testing the arithmetical accuracy of the
related to transactions occurring close to the year end, as transactions time assessment and quantification of any sales reversals the carrying value. The recoverable amount is determined based on the impairment models, with the assistance of valuations specialists;
could be recorded in the incorrect financial period (cut-off risk). for undelivered goods. In addition, we tested the terms and higher of value in use (VIU) and fair value less costs to sell (FVLCS). • Assessing the identification of relevant Cash Generating Units
There is also a risk of revenue being overstated due to fraud through conditions set out in the sales contracts and management’s As at March 31, 2023, carrying Value of PPE of these CGUs were ` 350 crore (CGU) to which goodwill is allocated and to which PPE belong
booking fictitious sales resulting from pressure on the Company to estimate of transit time required to deliver the goods; and ` 46 crore for Goodwill. that are being tested;
achieve performance targets during the year as well as at the reporting • Performing testing on selected statistical samples of revenue The assessment of indicators of impairment and recoverable value is • Understanding from the Company the basis of the assumptions
period end. transactions recorded throughout the year and at the year end considered to be a key audit matter due to the significant judgment used for the projected future cash flows;
Accordingly, revenue recognition is a key audit matter. and checking delivery documents and customer purchase orders required to assess the internal and external sources of information. The • Verifying the inputs used in projecting future cash flows. We
(as applicable); judgement, in particular, is with respect to estimation of future discounted challenged the business assumptions used, such as sales
cash flows (DCF) of the underlying CGUs due to the inherent uncertainty
• Assessing high risk manual journals posted to revenue to identify and subjectivity involved in forecasting and discounting future cash flows. growth, Earnings before Interest Depreciation and Tax (EBIDTA)
any unusual items. and discount rate which included comparing these inputs with
The DCF uses several key assumptions, including estimates of future sales
• Assessing and testing the adequacy and completeness of the prices, EBIDTA, terminal value growth rates and the weighted average cost externally derived data as well as our own assessment based
Company’s disclosures in respect of revenue from operations. of capital (discount rate). on our knowledge of the client and the industry. In addition
we performed sensitivity analysis, with the assistance of
Litigations and claims (See Note 2.3.4, 2.22 and 18 and 41.1 to Standalone Financial Statements) valuation specialists;
• Evaluating the past performance of the CGUs with actual
The Key Audit Matter How the matter was addressed in our audit
performance where relevant and assessing historical accuracy of
The Company operates in various States within India, exposing it to a Our audit procedures included: the forecast produced by the Company;
variety of different Central and State laws, regulations and interpretations • Obtaining an understanding of actual and potential outstanding
thereof. The provisions and contingent liabilities relate to ongoing litigations and claims against the Company from the Company’s • Assessing the adequacy of the Company’s disclosures of
litigations with and claims from various authorities. Litigations and claims in-house Legal Counsel and other senior personnel of the key assumptions, judgments and sensitivities in respect of
may arise from direct and indirect tax proceedings, legal proceedings, Company and assessing their responses; Goodwill impairment.
including regulatory and other government/department proceedings,
as well as investigations by authorities and commercial claims. • Testing the design, implementation and operating effectiveness Information Other than the Financial Statements we conclude that there is a material misstatement of this other
of the Company’s controls on evaluating litigations and claims.
Resolution of litigations and claims proceedings may span over multiple and Auditor’s Report Thereon information, we are required to report that fact. We have nothing
years beyond March 31, 2023 due to the complexity and magnitude • Assessing status of the litigations and claims based on The Company’s Management and Board of Directors are to report in this regard.
of the legal matters involved and may involve protracted negotiation correspondence between the Company and the various tax/legal responsible for the other information. The other information
or litigation. authorities and legal opinions obtained by the Company; comprises the information included in the Company’s annual Management's and Board of Directors' Responsibilities
• Testing completeness of litigations and claims recorded by
The determination of a provision or contingent liability requires verifying the Company’s legal expenses and the minutes of the report, but does not include the financial statements and for the Standalone Financial Statements
significant judgement by the Company because of the inherent board meetings; auditor’s report thereon. The Company’s Management and Board of Directors are
complexity in estimating whether it is probable that there will be an responsible for the matters stated in Section 134(5) of the Act
outflow of economic resources. The amount recognised as a provision • Assessing and challenging the Company’s estimate of the possible Our opinion on the Standalone Financial Statements does not with respect to the preparation of these Standalone Financial
is the best estimate of the probable expenditure. The provisions and outcome of litigations and claims. This is based on applicable cover the other information and we do not express any form of Statements that give a true and fair view of the State of affairs,
contingent liabilities are subject to changes due to the outcomes of tax laws and legal precedence by involving our tax specialists Profit/Loss and Other Comprehensive Income, Changes in
litigations and claims over time as new facts emerge as each legal in taxation related matters and discussing with the Company’s assurance conclusion thereon.
case progresses. internal legal counsel including obtaining independent Equity and Cash Flows of the Company in accordance with the
legal confirmation; In connection with our audit of the Standalone Financial accounting principles generally accepted in India, including the
There is an inherent complexity; and magnitude of potential exposures Indian Accounting Standards (Ind AS) specified under Section
is significant across the Company. Significant judgment is necessary • Evaluating the Company’s judgements made by comparing the Statements, our responsibility is to read the other information
to estimate the likelihood, timing and amount of the cash outflows, estimates of prior year to the actual outcome; and, in doing so, consider whether the other information is 133 of the Act. This responsibility also includes maintenance of
interpretations of the legal aspects, legislations and judgements previously • Assessing and testing the adequacy and completeness of the materially inconsistent with the Standalone Financial Statements adequate accounting records in accordance with the provisions
made by the authorities. Accordingly, this is identified as a key audit matter. Company’s disclosures in respect of litigations and claims. or our knowledge obtained in the audit or otherwise appears to of the Act for safeguarding of the assets of the Company and
be materially misstated. If, based on the work we have performed, for preventing and detecting frauds and other irregularities;

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