Page 269 - Tata Chemical Annual Report_2022-2023

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

Description of Key Audit Matter Litigations and claims (See Note 2.3.5, 2.26, 21 and 47 to Consolidated Financial Statements)
Revenue recognition (See Note 2.18 and 27 to Consolidated 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 The Group operates in various countries exposing it to a variety Our and other auditors' (referred hereafter as "We") audit
Revenue is recognised when performance obligation is satisfied Our and other auditors' (referred hereafter as "We") audit of different laws, regulations and interpretations thereof. procedures included :
at a point in time by transferring the underlying products to procedures included : The provisions and contingent liabilities relate to ongoing
the customer. litigations with and claims from various authorities. Litigations • Obtaining an understanding of actual and potential
• Assessing the revenue recognition accounting policies and claims may arise from direct and indirect tax proceedings, outstanding litigations and claims against the Group
of the Group including accounting for sales returns and legal proceedings, including regulatory and other government/ from the respective entity’s in-house Legal Counsel
Revenue is measured based on transaction price, which is the discounts for compliance with Ind AS;
consideration, after deduction of estimated accruals for sales department proceedings, as well as investigations by authorities and other senior personnel of the Group and assessing
returns and discounts (including rebates and incentives mainly • The Group has manual and automated (information and commercial claims. their responses;
relating to one of the component (Rallis India Limited)).
technology – IT) controls on recording revenue and Resolution of litigations and claims proceedings may span over • Testing the design, implementation and operating
accruals for sales returns and discounts. We tested the multiple years beyond March 31, 2023 due to the complexity effectiveness of the Company’s controls on evaluating
Due to the Group’s sales under various contractual terms and design, implementation and operating effectiveness of
across geographies, delivery to customers in different regions these controls. We involved IT specialists for IT general and and magnitude of the legal matters involved and may involve litigations and claims.
might take different time periods and may result in undelivered application controls. protracted negotiation or litigation.
goods at the period end. We consider there to be a risk of • Assessing status of the litigations and claims based on
misstatement of the Consolidated Financial Statements related • We tested controls around the timely and accurate The determination of contingent liability requires significant correspondence between the Group and the various tax/
to transactions occurring close to the year end, as transactions recording of sales transactions. We also verified the judgement by the Group because of the inherent complexity in legal authorities and legal opinions obtained by the Group;
could be recorded in the incorrect financial period (cut-off risk). estimating future costs. The amount recognised as a provision
management’s estimate of lead time assessment and is the best estimate of the expenditure. The provisions and • Testing completeness of litigations and claims recorded
quantification of any sales reversals for undelivered contingent liabilities are subject to changes in the outcomes by assessing the Group’s legal expenses and the minutes
There is also a risk of revenue being overstated due to fraud
through booking fictitious sales resulting from pressure on the goods. In addition, we tested terms and conditions set of litigations and claims over time as new facts emerge as each of the Board meetings;
Group to achieve performance targets during the year as well out in the sales contracts and the transit time required to legal case progresses and positions taken by the Group. • Assessing and challenging the Group’s estimate of the
as at the reporting period end. deliver the goods. For auditing assumptions of discounts
and estimates of sales returns, we focused on controls There is inherent complexity and magnitude of potential possible outcome of litigations and claims. This is based on
around the accurate recording of accruals for sales returns exposures is significant across the Group. Significant judgment the applicable tax laws and legal precedence by involving
The recognition and measurement of discounts involves our tax specialists in taxation related matters and internal/
significant assumptions and estimates, particularly the expected and discounts. is necessary to estimate the likelihood, timing and amount external legal counsel;
level of claims of each customer. of the cash outflows, interpretations of the legal aspects,
Fraud and cut-off risk legislations and judgements previously made by the authorities.
Estimation of sales returns also involves significant judgement • Performing testing on selected statistical samples of Accordingly, this is identified as a key audit matter. • Evaluating the Company’s internal control and judgements
and estimates. These factors include, for example, climatic revenue transactions recorded throughout the year and made by comparing the estimates of prior year to the
conditions and the length of time between sales and sales at the year end and checking delivery documents and actual outcome;
returns, some of which are beyond the control of the Group. customer purchase orders (as applicable);
• Assessing and testing the adequacy and completeness of
Accordingly, revenue recognition including accruals for sales • Assessing high risk manual journals posted to revenue to the Group’s disclosures in respect of litigations and claims.
returns and discounts is a key audit matter. 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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