TO THE MEMBERS OF DEN NETWORKS LIMITED
Report on the Audit of Consolidated Financial Statements
We have audited the accompanying consolidated financial statements of DEN NETWORKSLimited (hereinafter referred to as the Holding Company") and its subsidiaries(Holding Company and its subsidiaries together referred to as "the Group") andits associates which comprise the consolidated Balance Sheet as at 31st March2019 and the consolidated statement of Profit and Loss the consolidated statement ofchanges in equity and the consolidated cash flows Statement for the year then ended andnotes to the consolidated financial statements including a summary of significantaccounting policies (hereinafter referred to as "the consolidated financialstatements") In our opinion and to the best of our information and according to theexplanations given to us the aforesaid consolidated financial statements give theinformation required by the Act in the manner so required and give a true and fair view inconformity with the accounting principles generally accepted in India of the consolidatedstate of affairs of the Company as at 31st March 2019 of consolidated lossconsolidated changes in equity and its consolidated cash flows for the year then ended.
Basis for Opinion
We conducted our audit in accordance with the Standards on Auditing (SAs) specifiedunder section 143(10) of the Companies act 2013 ("the Act"). Ourresponsibilities under those Standards are further described in the Auditor'sResponsibilities for the Audit of the Consolidated Financial Statements section of ourreport. We are independent of the Group in accordance with the Code of Ethics issued byICAI together with the ethical requirements that are relevant to our audit of thefinancial statements under the provision of the act and rules thereunder and we havefulfilled our other ethical responsibilities in accordance with the provisions of the Act.We believe that the audit evidence we have obtained is sufficient and appropriate toprovide a basis for our opinion on the consolidated financial statements.
Key Audit Matters
Key audit matters are those matters that in our professional judgment were of mostsignificance in our audit of the consolidated financial statements for the year ended 31stMarch 2019. These matters were addressed in the context of our audit of the consolidatedfinancial statements as a whole and in forming our opinion thereon and we do not providea separate opinion on these matters
|Key Audit Matters ||How our audit addressed the key audit matter |
|(i) Impairment of Property Plant & Equipment || |
|As at 31st March 2019 value of property plant and equipment is Rs.7588.83 million. Management's assessment of the valuation of property plant and equipment and usability is significant to our audit because this process is complex and requires significant management judgment. Accordingly the management identified impairment indications and management's assessment results a one-time impairment loss of Rs. 1040.80 million which has been accounted as exceptional item (Refer note no. 27). ||We carried out procedures to understand management's process for identifying impairment triggers and considered management's assessment of impairment in the above mentioned areas. Our audit procedures included the following: |
| || Assessing internal controls designed for identification of impairment indicators. |
|Accordingly it has been determined as a key audit matter. || Evaluating the appropriateness of the Group's judgment regarding identification of assets which may be impaired. |
| || Considered the completeness and accuracy of the disclosures which are included in notes 27 of the consolidated financial statements. |
| || Read the Independent Chartered Accountants firm's report on Company's interim financial statements. |
| || Performed inquiry procedures as per SA 600 Using the work of another auditor' on the above matters |
|(ii) Goodwill || |
|The Group's balance sheet includes Rs1623.80 million of goodwill representing 4% of total Group assets. Goodwill is tested annually for impairment using discounted cash-flow models of each CGU's recoverable value compared to the carrying value of the assets. A deficit would result in impairment. ||Our audit procedures included the following: |
| || Assessed the appropriateness of the Group's methodology applied in determining the CGUs to which goodwill is allocated. |
|The inputs to the impairment testing model which have the most significant impact on CGU recoverable value include: || Assessed the assumptions around the key drivers of the recoverable value including average revenue per user expected growth rates and used. |
| Projected revenue growth average revenue per user operating margins; and || Discussed potential changes in key drivers as compared to previous year / actual performance with management in order to evaluate whether the inputs and assumptions used in the cash flow forecasts were reasonable. |
| Discount rates used. || Tested the arithmetical accuracy of the model. |
|The annual impairment testing is considered a significant accounting judgment and estimate (Note 36) and a key audit matter because the assumptions on which the tests are based are highly judgmental and are affected by future market and economic conditions which are inherently uncertain. || Considered the completeness and accuracy of the disclosures which are included in notes 36 of the consolidated financial statements. |
|(iii) Carrying value of trade receivables and advances from customers/parties || |
|As mentioned in note no. 10 to the consolidated financial statements trade receivable were aggregating to Rs. 5741.87 million as on 31st March 2019. ||Our audit procedures included the following: |
|The collectability of the trade receivables and the valuation of allowance for impairment of trade receivables require a significant management judgment. Specific factors management considers including the age of the balance existence of disputes recent historical payment patterns new tariff order by TRAI increase in competition on account of rates parity in the market and any other available information concerning the creditworthiness of counterparties. Management uses this information to determine whether a provision for impairment is required either for a specific transaction or for a customer's balance overall. || We selected a sample of the larger trade receivable balances where a provision for impairment of trade receivables and advances was recognized. |
| || We assessed the ageing of trade receivables and advances the customer's historical payment patterns. |
| || We also obtained corroborative evidence of any disputes between the parties involved attempts by management to recover the amounts outstanding and on the credit status of significant counterparties wherever available. |
|Accordingly the management identified such factors and it's assessment results into impairment of trade receivables and advances of Rs. 1229.54 million which has been accounted as exceptional item. (Refer note no. 27) || In assessing the appropriateness of the overall provision for impairment we considered the management's application of policy for recognizing provisions. |
|Accordingly it has been determined as a key audit matter. || Further in addition to the above process a forward-looking expected loss impairment model as prescribed in IND AS 109 "Financial Instruments" was also applied by the Company. This involves judgment as the expected credit losses must reflect information about past events current conditions and forecasts of future conditions. |
| || W the assessed the provisioning policy which included assessing whether the calculation was in accordance with expected credit loss impairment model as prescribed in IND AS 109 and comparing the provisioning rates against historical collection data. |
| || Read the Independent Chartered Accountants firm's report on Company's interim financial statements.. |
| || Performed inquiry procedures as per SA 600 Using the work of another auditor' on the above matters |
| || Considered the completeness and accuracy of the disclosures |
|(iv) Litigations & Contingent liabilities || |
|The Group is subject to number of significant litigations. Major risks identified by the Holding Company in that area relate to VAT liability on account of transfer of setup boxes entertainment tax and license fees liability from DOT on account of dispute to consider non-business for AGR calculation and dispute in duty assessment with custom department. ||Our audit procedures included the following |
| || Assessing the procedures implemented by the holding Company to identify and gather the risks it is exposed to. |
| || Discussion with the management on the development in theses litigations during the year ended 31st March 2019. |
|The amounts of litigations may be significant and estimates of the amounts of provisions or contingent liabilities are subject to significant management judgment. (Refer note no. 29 and 50) || Obtaining an understanding of the risk analysis performed by the holding Company with the relating supporting documentation and studying written statements from internal/- external legal experts when applicable. |
|Due to complexity involved in these litigation matters management's judgment regarding recognition and measurement of provisions for these legal proceedings is inherently uncertain and might change over time as the outcomes of the legal cases are determined and it has been considered as a key audit matter. Accordingly the management identified such factors and it's assessment results into provision of Rs. 107.51 million which has been accounted as exceptional item. (Refer note no. 27). || Opinion from the holding Company's legal counsel (internal/-external) and studying the same. |
| || Verification that accounting and /or disclosure as the case may be in the consolidated financial statements is in accordance with the assessment of legal counsel/management. |
| || Obtaining representation letter from the management on the assessment of those matters as per SA 580 (revised) - written representations. |
The Holding Company's Board of Directors is responsible for the other information. Theother information comprises the management discussion & analysis and director's reportincluded in the annual report but does not include the financial statements and ourauditor's report thereon.
Our opinion on the financial statements does not cover the other information and we donot express any form of assurance conclusion thereon.
In connection with our audit of the financial statements our responsibility is to readthe other information and in doing so consider whether the other information ismaterially inconsistent with the financial statements or our knowledge obtained in theaudit or otherwise appears to be materially misstated. If based on the work we haveperformed we conclude that there is a material misstatement of this other information weare required to report that fact. We have nothing to report in this regard.
Responsibilities of Management and Those Charged with Governance for the ConsolidatedFinancial Statements
The Holding Company's Board of Directors is responsible for the preparation andpresentation of these consolidated financial statements in term of the requirements of theActthat give a true and fair view of the consolidated financial position consolidatedfinancial performance and consolidated cash flows of the Group including its Associates inaccordance with the accounting principles generally accepted in India including theAccounting Standards specified under section 133 of the Act. The respective Board ofDirectors of the companies included in the Group and of its associates are responsible formaintenance of adequate accounting records in accordance with the provisions of the Actfor safeguarding the assets of the Group and for preventing and detecting frauds and otherirregularities; selection and application of appropriate accounting policies; makingjudgments and estimates that are reasonable and prudent; and the design implementationand maintenance of adequate internal financial controls that were operating effectivelyfor ensuring accuracy and completeness of the accounting records relevant to thepreparation and presentation of the financial statements that give a true and fair viewand are free from material misstatement whether due to fraud or error which have beenused for the purpose of preparation of the consolidated financial statements by theDirectors of the Holding Company as aforesaid. In preparing the consolidated financialstatements the respective Board of Directors of the companies included in the Group andof its associates are responsible for assessing the ability of the Group and of itsassociates to continue as a going concern disclosing as applicable matters related togoing concern and using the going concern basis of accounting unless management eitherintends to liquidate the Group or to cease operations or has no realistic alternative butto do so.
The respective Board of Directors of the companies included in the Group and of itsassociates is responsible for overseeing the financial reporting process of the Group andof its associates.
Auditor's Responsibilities for the Audit of the Consolidated Financial Statements
Our objectives are to obtain reasonable assurance about whether the consolidatedfinancial statements as a whole are free from material misstatement whether due to fraudor error and to issue an auditor's report that includes our opinion. Reasonable assuranceis a high level of assurance but is not a guarantee that an audit conducted in accordancewith SAs will always detect a material misstatement when it exists. Misstatements canarise from fraud or error and are considered material if individually or in theaggregate they could reasonably be expected to influence the economic decisions of userstaken on the basis of these consolidated financial statements.
As part of an audit in accordance with SAs we exercise professional judgment andmaintain professional skepticism throughout the audit. We also:
Identify and assess the risks of material misstatement consolidated financialstatements whether due to fraud or error design and perform audit procedures responsiveto those risks and obtain audit evidence that is sufficient and appropriate to provide abasis for our opinion. The risk of not detecting a material misstatement resulting fromfraud is higher than for one resulting from error as fraud may involve collusionforgery intentional omissions misrepresentations or the override of internal control.
Obtain an understanding of internal control relevant to the audit in order todesign audit procedures that are appropriate in the circumstances. Under section 143(3)(i) of the Companies Act 2013 we are also responsible for expressing our opinion onwhether the Company has adequate internal financial controls system in place and theoperating effectiveness of such controls.
Evaluate the appropriateness of accounting policies used and the reasonablenessof accounting estimates and related disclosures made by management.
Conclude on the appropriateness of management's use of the going concern basis ofaccounting and based on the audit evidence obtained whether a material uncertaintyexists related to events or conditions that may cast significant doubt on the ability ofthe Group and its associates to continue as a going concern. If we conclude that amaterial uncertainty exists we are required to draw attention in our auditor's report tothe related disclosures in the consolidated financial statements or if such disclosuresare inadequate to modify our opinion. Our conclusions are based on the audit evidenceobtained up to the date of our auditor's report. However future events or conditions maycause the Group and its associates to cease to continue as a going concern.
Evaluate the overall presentation structure and content of the consolidatedfinancial statements including the disclosures and whether the consolidated financialstatements represent the underlying transactions and events in a manner that achieves fairpresentation.
Obtain sufficient appropriate audit evidence regarding the financial informationof the entities or business activities within the Group and its associates of which we arethe independent auditors and whose financial information we have audited to express anopinion on the consolidated financial statements. We are responsible for the directionsupervision and performance of the audit of the financial statements of such entitiesincluded in the consolidated financial statements of which we are the independentauditors. For the other entities included in the consolidated financial statements whichhave been audited by other auditors such other auditors remain responsible for thedirection supervision and performance of the audits carried out by them. We remain solelyresponsible for our audit opinion.
We communicate with those charged with governance of the Holding Company and such otherentities included in the consolidated financial statements of which we are the independentof the auditors regarding among other matters the planned scope and timing of the auditand significant audit findings including any significant defficiencies in internalcontrol that we identify during our audit We also provide those charged with governancewith a statement that we have complied with relevant ethical requirements regardingindependence and to communicate with them all relationships and other matters that mayreasonably be thought to bear on our independence and where applicable relatedsafeguards.
From the matters communicated with those charged with governance we determine thosematters that were of most significance in the audit of the consolidated financialstatements for the year ended 31st March 2019 and are therefore the key auditmatters. We describe these matters in our auditor's report unless law or regulationprecludes public disclosure about the matter or when in extremely rare circumstances wedetermine that a matter should not be communicated in our report because the adverseconsequences of doing so would reasonably be expected to outweigh the public interestbenefits of such communication
(a) We did not audit the financial statements/financial information of 101subsidiaries whose financial statements/financial information reflect total assets of Rs.6270.57 million as at 31st March 2019 total revenues of Rs. 4567.71 millionand net cash outflows amounting to Rs. (16.30) million for the year ended on that date asconsidered in the consolidated financial statements and financial statements of 3associates which reflects the Group's share of net (loss) including total othercomprehensive income of Rs. (42.53) million for the year ended 31st March 2019as considered in the consolidated financial statements These financialstatements/financial information have not been audited by us. These financialstatements/financial information have been audited by other auditors whose reports havebeen furnished to us by the Management and our opinion on the consolidated financialstatements in so far as it relates to the amounts and disclosures included in respect ofthese subsidiaries and associates and our report in terms of subsection (3) of Section143 of the Act in so far as it relates to the aforesaid subsidiaries and associates isbased solely on the reports of the other auditors.
(b) We did not audit the financial information of 3 subsidiaries whose financialstatements/ financial information reflect total assets of Rs. 138.83 million as at 31stMarch 2019 total revenues of Rs. 106.15 million and net cash inflows amounting to Rs.(0.50) million for the year ended on that date as considered in the consolidatedfinancial statements. The consolidated financial statements also include the Group's shareof net loss including total other comprehensive income of Rs. (11.42) million for the yearended 31st March 2019 as considered in the consolidated financial statementsin respect of 3 associate. These financial statements / financial information have notbeen audited by us. These financial statements / financial information are unaudited andhave been furnished to us by the Management and our opinion on the consolidated financialstatements in so far as it relates to the amounts and disclosures included in respect ofthese subsidiaries and associate is based solely on such unaudited financial statements/financial information. In our opinion and according to the information and explanationsgiven to us by the Management these financial statements/ financial information are notmaterial to the Group.
Our opinion on the consolidated financial statements above and our report on OtherLegal and Regulatory Requirements below is not modified in respect of the above matterswith respect to our reliance on the work done and the reports of the other auditors andthe financial statements/financial information certified by the Management.
(c ) The comparative financial information of the Company for the year ended 31stMarch 2018 prepared in accordance with Indian Accounting Standards included in theseconsolidated financial statements have been audited by the predecessor auditors. Thereport of the predecessor auditors on the comparative financial information dated 18thMay 2018 expressed an unmodified opinion. Our opinion is not modified in respect of saidmatter.
Report on Other Legal and Regulatory Requirements
As required by Section 143(3) of the Act based on our audit and on the considerationof the report of the other auditors on separate financial statements and the otherfinancial information of subsidiaries and associates companies incorporated in Indiareferred in the Other Matters paragraph above we report to the extent applicable that:
(a) We have sought and obtained all the information and explanations which to the bestof our knowledge and belief were necessary for the purposes of our audit of the aforesaidconsolidated financial statements.
(b) In our opinion proper books of account as required by law relating to preparationof the aforesaid consolidated financial statements have been kept so far as it appearsfrom our examination of those books and the reports of the other auditors.
(c) The Consolidated Balance Sheet the Consolidated Statement of Profit and Loss(including Other Comprehensive Income) the Consolidated Cash Flow Statement andConsolidated Statement of Changes in Equity dealt with by this Report are in agreementwith the relevant books of account maintained for the purpose of preparation of theconsolidated financial statements.
(d) In our opinion the aforesaid consolidated financial statements comply with theIndian Accounting Standards prescribed under Section 133 of the Act.
(e) On the basis of the written representations received from the directors of theParent as on 31st March 2019 taken on record by the Board of Directors of theParent the reports of the statutory auditors of its subsidiaries and associatescompanies incorporated in India none of the directors of the Group companies and itsassociates companies incorporated in India is disqualified as on 31st March2019 from being appointed as a director in terms of Section 164 (2) of the Act.
(f) With respect to the adequacy of the internal financial controls over financialreporting and the operating effectiveness of such controls refer to our separate Reportin "ANNEXURE A" which is based on the auditor's reports of the Parentsubsidiaries and associates companies incorporated in India to whom internal financialcontrols over financial reporting is applicable. Our report expresses an unmodifiedopinion on the adequacy and operating effectiveness of internal financial controls overfinancial reporting of those companies for the reasons stated therein.
(g) With respect to the other matters to be included
Auditor's Report in accordance with the requirements of section 197(16) of the Act asamended: In our opinion and to the best of our information according to the explanationsgiven to us the remuneration paid by the holding Company to its directors during the yearis in accordance with the provisions of section 197 of the Act. (h) With respect to theother matters to be included
Auditor's Report in accordance with Rule 11 of the Companies (Audit and Auditor's)Rules 2014 as amended in our opinion and to the best of our information and accordingto the explanations given to us:
i. The consolidated financial statements disclose the impact of pending litigations onthe consolidated financial position of the Group and its associates. Refer Note 29 to theconsolidated financial statements.
ii. The Group and its associates did not have any material foreseeable losses onlong-term contracts including derivative contracts.
iii. There were no amounts which were required to be transferred to the InvestorEducation and Protection Fund by the Parent its subsidiaries and its associatescompanies incorporated in India.
|For Chaturvedi& Shah LLP |
|Chartered Accountants |
|(Firm's Registration No. 101720W/W100355) |
|Vijay Napawaliya |
|(Membership No. 109859) |
|Place : New Delhi |
|Date : 16th April 2019 |