TO THE MEMBERS OF EXPLEO SOLUTIONS LIMITED (FORMERLY KNOWN AS SQS INDIA BFSI LIMITED)
Report on the Audit of the Standalone Ind AS Financial Statements Opinion
We have audited the accompanying standalone Ind AS financial statements of ExpleoSolutions Limited (formerly known as SQS India BFSI Limited) ("theCompany") which comprise the Balance Sheet as at March 31 2019 the Statement ofProfit and Loss (including Other Comprehensive Income) the Statement of Changes inEquity the Statement of Cash Flows for the year then ended and notes to the standaloneInd AS financial statements including a summary of significant accounting policies andother explanatory information.
In our opinion and to the best of our information and according to the explanationsgiven to us the aforesaid standalone Ind AS financial statements give the informationrequired by the Companies Act 2013 ("the Act") in the manner so required andgive a true and fair view in conformity with the accounting principles generally acceptedin India of the state of affairs of the Company as at March 31 2019 it's profitchanges in equity and its cash flows for the year ended on that date.
Basis for Opinion
We conducted our audit in accordance with the Standards on Auditing (SAs) specifiedunder Section 143(10) of the Act. Our responsibilities under those Standards are furtherdescribed in the Auditor's Responsibilities for the Audit of the Standalone Ind ASFinancial Statements section of our report. We are independent of the Company inaccordance with the Code of Ethics issued by the Institute of Chartered Accountants ofIndia ("the ICAI") together with the ethical requirements that are relevant toour audit of the standalone financial statements under the provisions of the Act and theRules thereunder and we have fulfilled our other ethical responsibilities in accordancewith these requirements and the Code of Ethics. We believe that the audit evidence we haveobtained is sufficient and appropriate to provide a basis for our opinion.
Key Audit Matters
Key audit matters are those matters that in our professional judgment were of mostsignificance in our audit of the standalone Ind AS financial statements of the currentperiod. These matters were addressed in the context of our audit of the standalonefinancial statements as a whole and in forming our opinion thereon and we do not providea separate opinion on these matters.
We have determined the matters described below to be the key audit matters to becommunicated in our report.
|Key Audit Matter Description ||Our Response |
|1. Revenue Recognition - Accuracy of recognition of revenue for fixed-bid contracts on percentage of completion method involving critical estimates. |
|The Company derives revenue from software ||Our procedures included: |
|services which involve primarily delivering software validation and verification services to the banking financial services and insurance industry worldwide. Arrangements with customers include fixed-bid contracts revenue ||Assessment of the appropriateness of the Company's revenue recognition policy for fixed-bid contracts to ensure that it meets the recognition and measurement principles enumerated in Ind AS 115 including disclosures in the financial statements. |
|whereof is recognised on proportionate completion method on the basis of the work completed. ||Obtained an understanding of the process and related controls for appropriate recognition of revenue. Evaluating the design and implementation and testing the operating effectiveness of such controls over the revenue recognition and measurement criteria. |
|Key Audit Matter Description ||Our Response |
|The use of proportionate completion method requires the Company to estimate the efforts or costs expended to date as a proportion to total efforts or costs to be expended. ||Tested fixed bid contracts to assess whether the revenues recognised to date we re appropriate; this work included reviewing stage of completion by reference to post year end data and understanding budget versus actual variances where applicable and the impact on revenue to be recognised by reference to the stage of completion. |
|These estimates of efforts or costs to be expended has a high inherent uncertainty which is based on the judgements made by the Management in ascertaining the costs and the efforts required to complete the remaining contractual performance obligations. In view of the same there is a risk of revenue for the year being misstated due to incorrect recognition of accrued or deferred revenue as a result of using overstated / understated estimates of the costs and efforts to complete the remaining contractual performance obligations. || |
| ||We performed cut-off testing for a sample of revenue transactions around the period end date to check that they were recognised in the appropriate period. |
| ||Evaluated the judgements made through discussions with project staff. |
| ||Assessing the adequacy of the Company's disclosures about the degree of estimation involved in revenue recognition. |
|(Refer Note 2(b)(i) and Note 2(c) to the standalone Ind AS financial statements) || |
|2. Direct Tax Provisions - Uncertain Tax Positions || |
|The Company has extensive international operations and in the normal course of the business the Management makes significant judgements and estimates in relation to transfer pricing tax issues and in assessing tax exposures in each jurisdiction many of which require interpretation of local laws including amount expected to be paid/ recovered for uncertain tax positions. ||Our procedures included: |
| ||An understanding of: |
| || the Company's tax strategy and transfer pricing policy; |
| || the methodology for the calculation of the tax charge particularly in relation to any changes implemented during the current financial year; and |
|Where the amount of tax payable is uncertain the Company establishes provisions based on management's judgement of the probable amount of liability. This is a key judgement on account of the Company operating in a number of varying tax jurisdictions the complexity of transfer pricing and other international tax legislations. || management's controls over tax reporting. |
| ||We assessed the appropriateness of the tax provisions created by the Company and their use of estimates and judgements by involving our in-house tax specialist team having discussions with the Company's management assessed recent pronouncements affecting the methodology for calculation of tax charge and copies of external tax advice reports related to tax treatments applied and the corresponding provisions recorded. |
|Given this judgement there is a risk that tax provisions are misstated. || |
| ||We have also evaluated whether the liabilities and potential exposures were appropriately disclosed in the Financial Statements. |
The Company's Board of Directors is responsible for the other information. The otherinformation comprises the information included in the Annual Report namely the Chairman'sOverview the Performance Highlights - Decade at a Glance (on a consolidated basis) theDirector's Report including annexures to the Director's Report and the ManagementDiscussion and Analysis but does not include the standalone financial statements and ourauditor's report thereon.
Our opinion on the standalone financial statements does not cover the other informationand we will not express any form of assurance conclusion thereon.
In connection with our audit of the standalone Ind AS financial statements ourresponsibility is to read the other information and in doing so consider whether theother information is materially inconsistent with the standalone financial statements orour knowledge obtained in the audit or otherwise appears to be materially misstated.
If based on the work we have performed we conclude that there is a materialmisstatement of this other information we are required to report that fact. We havenothing to report in this regard.
Management's Responsibility for the Standalone Ind AS Financial Statements
The Company's Board of Directors is responsible for the matters stated in Section134(5) of the Act with respect to the preparation of these standalone Ind AS financialstatements that give a true and fair view of the financial position financial performance(including other comprehensive income) changes in equity and cash flows of the Company inaccordance with the accounting principles generally accepted in India including theIndian Accounting Standards (Ind AS) specified under Section 133 of the Act. Thisresponsibility also includes maintenance of adequate accounting records in accordance withthe provisions of the Act for safeguarding of the assets of the Company and for preventingand detecting frauds and other irregularities; selection and application of appropriateaccounting policies; making judgments and estimates that are reasonable and prudent; anddesign implementation and maintenance of adequate internal financial controls that wereoperating effectively for ensuring accuracy and completeness of the accounting recordsrelevant to the preparation and presentation of the standalone Ind AS financial statementsthat give a true and fair view and are free from material misstatement whether due tofraud or error.
In preparing the standalone Ind AS financial statements management is responsible forassessing the Company's ability to continue as a going concern disclosing as applicablematters related to going concern and using the going concern basis of accounting unlessmanagement either intends to liquidate the Company or to cease operations or has norealistic alternative but to do so.
Those Board of Directors are responsible for overseeing the Company's financialreporting process. Auditor's Responsibilities for the Audit of the Standalone Ind ASFinancial Statements Our objectives are to obtain reasonable assurance about whetherthe standalone Ind AS financial statements as a whole are free from material misstatementwhether due to fraud or error and to issue an auditor's report that includes our opinion.Reasonable assurance is a high level of assurance but is not a guarantee that an auditconducted in accordance with SAs will always detect a material misstatement when itexists. Misstatements can arise from fraud or error and are considered material ifindividually or in the aggregate they could reasonably be expected to influence theeconomic decisions of users taken on the basis of these standalone Ind AS financialstatements.
As part of an audit in accordance with SAs we exercise professional judgment andmaintain professional skepticism throughout the audit. We also:
(a) Identify and assess the risks of material misstatement of the standalone Ind ASfinancial statements whether due to fraud or error design and perform audit proceduresresponsive to those risks and obtain audit evidence that is sufficient and appropriate toprovide a basis for our opinion. The risk of not detecting a material misstatementresulting from fraud is higher than for one resulting from error as fraud may involvecollusion forgery intentional omissions misrepresentations or the override of internalcontrol.
(b) 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 Act we are also responsible for expressing our opinion on whether the Company hasadequate internal financial controls system with reference to financial statements inplace and the operating effectiveness of such controls.
(c) Evaluate the appropriateness of accounting policies used and the reasonableness ofaccounting estimates and related disclosures made by management.
(d) 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 Company'sability to continue as a going concern. If we conclude that a material uncertainty existswe are required to draw attention in our auditor's report to the related disclosures inthe financial statements or if such disclosures are inadequate to modify our opinion.Our conclusions are based on the audit evidence obtained up to the date of our auditor'sreport. However future events or conditions may cause the Company to cease to continue asa going concern.
(e) Evaluate the overall presentation structure and content of the financialstatements including the disclosures and whether the standalone Ind AS financialstatements represent the underlying transactions and events in a manner that achieves fairpresentation.
Materiality is the magnitude of misstatements in the financial statements thatindividually or in aggregate makes it probable that the economic decisions of the usersof the financial statements may be influenced. We consider quantitative materiality andqualitative factors in (i) planning the scope of our audit work and in evaluating theresults of our work; and (ii) to evaluate the effect of any identified misstatements inthe financial statements.
We communicate with those charged with governance regarding among other matters theplanned scope and timing of the audit and significant audit findings including anysignificant deficiencies in internal control that we identify during our audit.
We also provide those charged with governance with a statement that we have compliedwith relevant ethical requirements regarding independence and to communicate with themall relationships and other matters that may reasonably be thought to bear on ourindependence and where applicable related safeguards.
From the matters communicated with those charged with governance we determine thosematters that were of most significance in the audit of the financial statements of thecurrent period and are therefore the key audit matters. We describe these matters in ourauditor's report unless law or regulation precludes public disclosure about the matter orwhen in extremely rare circumstances we determine that a matter should not becommunicated in our report because the adverse consequences of doing so would reasonablybe expected to outweigh the public interest benefits of such communication.
Report on Other Legal and Regulatory Requirements
(1) As required by the Companies (Auditor's Report) Order 2016 ("theOrder") issued by the Central Government of India in terms of sub-section (11) ofSection 143 of the Companies Act 2013 we give in "Annexure A" a statement onthe matters specified in paragraphs 3 and 4 of the Order to the extent applicable.
(2) As required by Section 143(3) of the Act we report 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.
(b) In our opinion proper books of account as required by law have been kept by theCompany so far as it appears from our examination of those books.
(c) The Balance Sheet the Statement of Profit and Loss (including Other ComprehensiveIncome) the Statement of Changes in Equity and the Statement of Cash Flows dealt with bythis Report are in agreement with the books of account.
(d) In our opinion the aforesaid standalone Ind AS financial statements comply withthe Indian Accounting Standards (Ind AS) specified under Section 133 of the Act read withRule 7 of the Companies (Accounts) Rules 2014.
(e) On the basis of the written representations received from the directors of theCompany as on March 31 2019 taken on record by the Board of Directors none of thedirectors are disqualified as on March 31 2019 from being appointed as a director interms of Section 164(2) of the Act.
(f) With respect to the adequacy of internal financial controls with reference tofinancial statements of the Company and the operating effectiveness of such controlsrefer to our separate Report in "Annexure B".
(g) With respect to the other matters to be included in the Auditor's Report inaccordance with the requirements of Section 197(16) of the Act as amended:
In our opinion and to the best of our information and according to the explanationsgiven to us the remuneration paid/ provided by the Company to its directors during theyear is in accordance with the provisions of Section 197 of the Act.
(h) With respect to the other matters to be included in the Auditor's Report inaccordance with Rule 11 of the Companies (Audit and Auditors) Rules 2014 in our opinionand to the best of our information and according to the explanations given to us:
i) The Company has disclosed the impact of pending litigations on it's financialposition in its standalone Ind AS financial statements - Refer Note 36 to the standaloneInd AS financial statements.
ii) The Company did not have any long-term contracts including derivative contractsduring the year for which there were any material foreseeable losses.
iii) There has been no delay in transferring amounts required to be transferred tothe Investor Education and Protection Fund by the Company.
For KALYANIWALLA & MISTRY LLP
Firm Regn. No. 104607W/W100166
FARHAD M. BHESANIA
Membership Number 127355
Place : Chennai
Date : May 06 2019
ANNEXURE A TO THE INDEPENDENT AUDITOR'S REPORT
The Annexure referred to in paragraph 1 'Report on Other Legal and RegulatoryRequirements' in our Independent Auditors' Report to the members of the Company on theStandalone Ind AS Financial
Statements for the year ended March 31 2019.
Statement on Matters specified in paragraphs 3 & 4 of the Companies (Auditor'sReport) Order 2016:
i) (a) The Company has maintained proper records showing full particulars includingquantitative details and situation of fixed assets.
(b) As explained to us the Company has a programme for physical verification of fixedassets at periodic intervals. In our opinion the period of verification is reasonablehaving regard to the size of the Company and nature of its assets. The discrepanciesnoticed on such verification are not material and have been properly dealt with in thebooks of account.
(c) According to the information and explanations given to us and on the basis of ourexamination of the records of the Company the title deeds of immovable properties areheld in the name of the Company.
ii) The Company is in the business of rendering software testing service and does nothave any inventory and hence the provisions of paragraph 3 (ii) of the Order are notapplicable.
iii) The Company has not granted any loans secured or unsecured to companies firmsLimited Liability Partnerships or other parties covered in the register maintained underSection 189 of the Act. Therefore the provisions of sub-clauses (a) (b) and (c) ofparagraph 3(iii) of the Order are not applicable.
iv) In our opinion and according to the information and explanations given to us theprovisions of Section 186 of the Act in respect of investments made have been compliedwith by the Company. In our opinion and according to the information and explanationsgiven to us the Company has not advanced any loans to the persons covered under Section185 and 186 of the Act or given guarantees or granted securities as per the provisions ofSection 186 of the Act.
v) In our opinion and according to the information and explanations given to us theCompany has not accepted any Deposits from the public and hence the directives issues bythe Reserve Bank of India and the provisions of Section 73 to 76 or any other relevantprovisions of the Act and the rules framed thereunder are not applicable.
vi) According to the information and explanations given to us the maintenance of costrecords under sub-section (1) of Section 148 of the Act is not applicable to the Companyunder the Companies (Cost Records and Audit) Rules 2014.
vii) (a) According to the information and explanations given to us and on the basis ofthe records examined by us the Company is generally regular in depositing undisputedstatutory dues including Provident Fund Employees' State Insurance Income Tax SalesTax Service Tax Duty of Customs Duty of Excise Value Added Tax Cess Goods andService Tax (GST) and any other statutory dues with the appropriate authorities whereverapplicable. We have been informed that there are no undisputed dues which have remainedoutstanding as at March 31 2019 for a period of more than six months from the date theybecame payable.
(b) According to the information and explanations given to us there are no duesoutstanding of Income Tax Sales Tax Service Tax Duty of Customs Duty of Excise ValueAdded Tax and Goods and Service Tax on account of any dispute other than the following:
|Sr. No. Name of the statute ||Amount (Rs. in million) ||Financial Year (F.Y.) to which the amount relates ||Forum where Dispute is Pending |
|1 Income Tax Act 1961 ||24.33 ||2008-09 ||Income Tax Appellate Tribunal |
|2 Income Tax Act 1961 ||68.00 ||2009-10 ||Commissioner of Income Tax (Appeals) |
|3 Income Tax Act 1961 ||5.04 ||2011-12 ||Income Tax Appellate Tribunal |
|4 Income Tax Act 1961 ||1.57 ||2012-13 ||Income Tax Appellate Tribunal |
|5 Income Tax Act 1961 ||5.70 ||2013-14 ||Deputy Commissioner Income Tax |
|6 Income Tax Act 1961 ||10.09 ||2014-15 ||Commissioner of Income Tax (Appeals) |
|7 Income Tax Act 1961 ||2.01 ||2015-16 ||Commissioner of Income Tax (Appeals) |
|8 The Finance Act 1994 ||633.58 ||2011-12 to 2015-16 ||The Customs Excise and Service Tax Appellate Tribunal (CESTAT) |
|9 The Finance Act 1994 ||118.50 ||April 2016 to June 2017 ||The Customs Excise and Service Tax Appellate Tribunal (CESTAT) |
viii) According to the information and explanations given to us and based on thedocuments and records produced to us the Company does not have loans or borrowings fromfinancial institutions banks government or debenture holders.
ix) According to the information and explanations given to us the Company has neitherraised money by way of initial public offer or further public offer (including debtinstruments) nor taken any term loans during the year.
x) During the course of our examination of the books of account and records of theCompany and according to the information and explanations given to us and representationsmade by the Management no material fraud by or on the Company by its officers oremployees has been noticed or reported during the year.
xi) According to the information and explanations given to us and based on ourexamination of the records examined by us the Company has paid/ provided managerialremuneration in accordance with the requisite approvals mandated by the provisions ofSection 197 read with Schedule V to the Act.
xii) In our opinion and according to the information and explanations given to us theCompany is not a Nidhi Company hence the provisions of paragraph 3 (xii) of the Order arenot applicable.
xiii) According to the information and explanations given to us and based on ourexamination of the records of the Company transactions with related parties are incompliance with Sections 177 and 188 of the Act where applicable and details of suchtransactions have been disclosed in the standalone Ind AS financial statements as requiredby the applicable accounting standards.
xiv) According to the information and explanations given to us and based on ourexamination of the records of the Company the Company has not made any preferentialallotment or private placement of shares or fully or partly convertible debentures duringthe year.
xv) According to the information and explanations given to us and based on ourexamination of the records of the Company the Company has not entered into non-cashtransactions with the directors or persons connected with them. Hence the provisions ofSection 192 of the Act are not applicable.
xvi) The Company is not required to be registered under Section 45-IA of the ReserveBank of India Act 1934. Hence the provisions of paragraph 3 (xvi) of the Order are notapplicable.
For KALYANIWALLA & MISTRY LLP
Firm Regn. No. 104607W/W100166
FARHAD M. BHESANIA
Membership Number 127355
Place : Chennai
Date : May 06 2019
ANNEXURE B TO THE INDEPENDENT AUDITOR'S REPORT
Referred to in Para 2 (f) Report on Other Legal and Regulatory Requirements' inour Independent Auditor's Report to the members of the Company on the standalone Ind ASfinancial statements for the year ended March 31 2019.
Report on the Internal Financial Controls with reference to financial statements underClause (i) of Subsection 3 of Section 143 of the Companies Act 2013 ("the Act")
We have audited the internal financial controls with reference to financial statementsof EXPLEO SOLUTIONS LIMITED (formerly known as SQS India BFSI Limited) ("theCompany") as at March 31 2019 in conjunction with our audit of the standalone Ind ASfinancial statements of the Company for the year ended on that date.
Management's Responsibility for Internal Financial Controls
The Company's management is responsible for establishing and maintaining internalfinancial controls based on the internal control over financial reporting criteriaestablished by the Company considering the essential components of internal control statedin the Guidance Note on Audit of Internal Financial Controls over Financial Reporting (the"Guidance Note") issued by the Institute of Chartered Accountants of India(ICAI). These responsibilities include the design implementation and maintenance ofadequate internal financial controls that were operating effectively for ensuring theorderly and efficient conduct of its business including adherence to company's policiesthe safeguarding of its assets the prevention and detection of frauds and errors theaccuracy and completeness of the accounting records and the timely preparation ofreliable financial information as required under the Act.
Our responsibility is to express an opinion on the Company's internal financialcontrols with reference to financial statements based on our audit. We conducted our auditin accordance with the Guidance Note and the Standards on Auditing issued by ICAI anddeemed to be prescribed under Section 143(10) of the Act to the extent applicable to anaudit of internal financial controls both applicable to an audit of Internal FinancialControls and both issued by the ICAI. Those Standards and the Guidance Note require thatwe comply with ethical requirements and plan and perform the audit to obtain reasonableassurance about whether adequate internal financial controls with reference to financialstatements were established and maintained and if such controls operated effectively inall material respects.
Our audit involves performing procedures to obtain audit evidence about the adequacy ofthe internal financial controls system with reference to financial statements and theiroperating effectiveness. Our audit of internal financial controls with reference tofinancial statements included obtaining an understanding of internal financial controlswith reference to financial statements assessing the risk that a material weaknessexists and testing and evaluating the design and operating effectiveness of internalcontrols based on the assessed risk. The procedures selected depend on the auditor'sjudgment including the assessment of the risks of material misstatement of the standaloneInd AS financial statements whether due to fraud or error.
We believe that the audit evidence we have obtained is sufficient and appropriate toprovide a basis for our audit opinion on the Company's internal financial controls systemwith reference to financial statements.
Meaning of Internal Financial Controls with reference to Financial Statements
A Company's internal financial control with reference to financial statements is aprocess designed to provide reasonable assurance regarding the reliability of financialreporting and the preparation of the standalone Ind AS financial statements for externalpurposes in accordance with generally accepted accounting principles. A company's internalfinancial controls with reference to financial statements includes those policies andprocedures that (1) pertain to the maintenance of records that in reasonable detailaccurately and fairly reflect the transactions and dispositions of the assets of thecompany; (2) provide reasonable assurance that transactions are recorded as necessary topermit preparation of standalone Ind AS financial statements in accordance with generallyaccepted accounting principles and that receipts and expenditures of the company arebeing made only in accordance with authorizations of management and directors of thecompany; and (3) provide reasonable assurance regarding prevention or timely detection ofunauthorized acquisition use or disposition of the company's assets that could have amaterial effect on the standalone Ind AS financial statements.
Inherent Limitations of Internal Financial Controls with reference to FinancialStatements
Because of the inherent limitations of internal financial controls with reference tofinancial statements including the possibility of collusion or improper managementoverride of controls material misstatements due to error or fraud may occur and not bedetected. Also projections of any evaluation of the internal fi nancial controls withreference to fi nancial statements to future periods are subject to the risk that theinternal financial control with reference to financial statements may become inadequatebecause of changes in conditions or that the degree of compliance with the policies orprocedures may deteriorate.
In our opinion the Company has in all material respects an adequate internalfinancial controls system with reference to financial statements and such internalfinancial controls with reference to financial statements was operating effectively as atMarch 31 2019 based on the internal control over financial reporting criteriaestablished by the Company considering the essential components of internal control statedin the "Guidance Note on Audit of Internal Financial Controls Over FinancialReporting" issued by the Institute of Chartered Accountants of India.
For KALYANIWALLA & MISTRY LLP
Firm Registration Number 104607W/W100166
FARHAD M. BHESANIA
Membership Number 127355
Place : Chennai
Date : May 06 2019