To The Members of AUROBINDO PHARMA LIMITED Report on the Audit of the Standalone Financial Statements
OPINION
We have audited the accompanying standalone financial statements of AUROBINDO PHARMA LIMITED (“the Company”), which comprise the Balance Sheet as at March 31, 2023, and the Statement of Profit and Loss (including Other Comprehensive Income), the Statement of Cash Flows and the Statement of Changes in Equity for the year then ended, and a summary of significant accounting policies and other explanatory information (hereinafter referred to as the “standalone financial statements”).
In our opinion and to the best of our information and according to the explanations given to us, the aforesaid standalone financial statements give the information required by the Companies Act, 2013 (“the Act”) in the manner so required and give a true and fair view in conformity with the Indian Accounting Standards prescribed under section 133 of the Act read with the Companies (Indian Accounting Standards) Rules, 2015, as amended, (“Ind AS”) and other accounting principles generally accepted in India, of the state of affairs of the Company as at March 31,2023, and its profit, total comprehensive income, its cash flows and the changes in equity for the year ended on that date.
BASIS FOR OPINION
We conducted our audit of the standalone financial statements in accordance with the Standards on Auditing (SAs) specified under section 143(10) of the Act. Our responsibilities under those Standards are further described in the Auditor’s Responsibility for the Audit of the Standalone Financial Statements section of our report. We are independent of the Company in accordance with the Code of Ethics issued by the Institute of Chartered Accountants of India (ICAI) together with the ethical requirements that are relevant to our audit of the standalone financial statements under the provisions of the Act and the Rules made thereunder, and we have fulfilled our other ethical responsibilities in accordance with these requirements and the ICAI’s Code of Ethics. We believe that the audit evidence obtained by us is sufficient and appropriate to provide a basis for our audit opinion on the standalone financial statements.
KEY AUDIT MATTERS
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the standalone financial statements of the current period. These matters were addressed in the context of our audit of the standalone financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. We have determined the matters described below to be the key audit matters to be communicated in our report.
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Sr.
No.
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Key Audit Matter
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Auditor’s Response
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2
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Inventory Existence and Valuation — Refer to Note 11 of the
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Principal audit procedures performed:
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Standalone financial statements:
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• Evaluated the Company’s inventory accounting policies and
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Refer to Note 2.2(g) of the summary of significant accounting policies.
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assessing compliance with the relevant accounting standards.
• Evaluated the design and testing the implementation and
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The carrying value of inventories as at March 31, 2023 is '41,252.6 million.
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operating effectiveness of the Company’s internal controls
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over physical verification of inventory, inventory valuation
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Inventories are located at multiple locations including factories, warehouses and third party locations.
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and accounting.
• Evaluated the design, implementation and operating effectiveness
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Inventories are valued at lower of cost, determined on weighted average basis and net realisable value. Raw material costs
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of general IT controls and key application controls over the
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include cost of purchase and other costs incurred in bringing the
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Company’s IT systems including those relating to recording of
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inventories to their present location and condition.
Finished goods and work-in-progress costs include direct
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inventory quantities on occurrence of each transaction, including access controls, controls over program changes.
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material, labour and a proportion of manufacturing overheads
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• For the selected locations, observed the physical verification
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based on the normal operating capacity.
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conducted by management near to the year end and tested
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Inventory valuation is carried out across the units in excel
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the roll forward procedures performed by management on a
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spreadsheets based on the quantitative inputs extracted from
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sample basis.
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the books of accounts.
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• Tested the costs as calculated by the management on a
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Existence and Valuation of Inventory has been considered as a
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sample basis by verifying underlying records such as purchase
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key audit matter due to:
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invoices, cost sheets, overhead allocations and capacity
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a. Significance of the inventory balance to the total assets as
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utilization certificates.
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per standalone financial statements.
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• Compared the cost of the Raw material, Finished goods and Work
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b. Multiple locations that inventory is held at.
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In Progress with the estimated net realizable value and checked
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c. Valuation of inventory in a non-automated environment, and
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if those inventories were recorded at net realizable value where
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the resultant likelihood of material misstatement resulting from errors in computation.
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the cost was higher than the net realizable value.
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3
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Assessment of impairment of investments in and unsecured
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Principal audit procedures performed:
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loans given to subsidiaries and joint ventures — Refer to Note 4 of the standalone financial statements
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• Evaluated the design, tested the implementation and operating effectiveness of the internal controls over impairment assessment
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Refer to note 2.1(d)(v) of the summary of significant accounting
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process, including those over the forecasts made and the
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policies.
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selection of the appropriate discount rate.
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The carrying value of investments in and unsecured loans given to certain subsidiaries and joint ventures is '50,462 million.
The Company performs annual assessment of investments to
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• Evaluated the impairment indicator assessment performed by the Company considering quantitative and qualitative factors.
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identify any indicators of impairment. Based on internal and
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• Evaluated the reasonableness of the Management’s estimates
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external factors considered, where such evidence exists,
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and judgements through discussion with management and by
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impairment loss is determined and recognised in accordance
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comparing the forecasts to historical revenues, margins, growth
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with note 2.1(d)(v) of accounting policies to the standalone
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rate etc.
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financial statements.
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• With the assistance of our internal fair value specialists, evaluated
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The Company’s evaluation of impairment of its investments
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the reasonableness of the valuation methodology, discount rate
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involves comparison of their recoverable value to their corresponding carrying values. The Company used the
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and other key business assumptions used in the assessment.
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discounted cash flow model to estimate recoverable values,
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• Tested the mathematical accuracy of the model to conclude that
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which requires management to make estimates and assumptions
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the model is accurately calculating the value in use.
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related to forecasts of future Revenues, operating margins, and
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• Performed sensitivity analysis around these key estimates to
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discount rates. Changes in these assumptions could have a
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ascertain the extent of change in those assumptions that either
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significant impact on either the recoverable value, the amount of
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individually or collectively would be required for the investments
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any impairment charge, or both.
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and loans tested were to be impaired.
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We considered this as a Key Audit Matter due to the materiality of the investments, and because the Company’s assessment of
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• Evaluated the adequacy of disclosures made in the standalone
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the recoverable values involves judgements around the future results of the business and the discount rates applied to future cash flow forecasts.
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financial statements.
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Sr.
No.
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Key Audit Matter
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Auditor’s Response
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1
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Revenue recognition — Refer to note 20 of the Standalone financial statements:
Refer to Note 2.2(c) of the summary of significant accounting policies.
The Company recognises revenue from sale of API, Intermediates and Formulations based on the terms and conditions of transactions which varies with different customers which define the timing of the transfer of control to the customer. For revenue recognized during the period near to the Balance Sheet date, it is essential to ensure that the control of goods have transferred to the customers.
Dispatch of goods to the customer’s location happens from multiple locations including factories, warehouses and third-party locations.
Revenue recognition being subject to the manual exercise of tracking the evidence of delivery and ascertaining the revenue recognition date against each invoice, we identified the Cut-off of revenue as a key audit matter
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Principal audit procedures performed:
• Evaluated the Company’s revenue recognition policy and assessed compliance with the Indian Accounting Standard (Ind AS).
• Obtained an understanding of the revenue recognition process and tested the company’s controls around the timely and accurate recording of sales transactions including controls around the identification and reversal of cut-off sales.
• Tested the access and change management controls of the relevant information technology system in which shipments are recorded.
• Basis of the sales recorded during the year, performed a lead time analysis to arrive at the average lead time taken for transfer of control to the customers from the date of dispatch, against the various INCOTERMS
• We selected samples from invoices recorded during such lead sales time immediately before the balance sheet date and obtained evidence of delivery to support the revenue recognition / reversal of revenue as the case may be.
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Sr.
No.
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Key Audit Matter
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Auditor’s Response
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4
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Litigation, Claims and Contingent Liabilities - Refer to note 30 of the standalone financials statements.
Refer to Note 2.2(m) of the summary of significant accounting policies.
The Company is involved in various legal proceedings including, product liability, contracts, investigations, disputed taxes and other regulatory matters relating to conduct of its business.
Most of the claims involve complex legal and regulatory issues. The Company, assisted by their external legal counsel assesses the need to make provision or disclose a contingency on a case-to-case basis considering the underlying facts of each litigation. The Company’s conclusions may result in an incorrect Provision or disclosure in the Standalone financial statements considering the aforesaid assessment involves significant judgement to be exercised by the Company based on current developments. Further, unexpected adverse outcomes could also significantly impact the Company’s reported results.
Given the different views possible, basis the interpretations, complexity and the magnitude of the potential exposures, and the judgement necessary to determine required disclosures, this is a key audit matter.
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Principal audit procedures performed:
• Understood the process, evaluated the design and implementation of controls and tested the operating effectiveness of the Company’s controls over the recording and assessment of uncertain legal positions, claims & contingent liabilities.
• Held discussions with management including the person responsible for legal & compliance to obtain an understanding of the factors considered by management in classification of the matter as probable, possible and remote.
• Examined the Company’s legal expenses on sample basis and read the minutes of the board meetings in order to ensure completeness.
• Circulated, obtained and read legal confirmations from Company’s external legal counsels in respect of material litigations and considered probability assessment of the outcomes.
• Examined documents in the Company’s possession concerning litigation and claims, legal advice/opinion received by the company. Obtained corroborative evidence to confirm the status & existence of the litigation.
• Evaluated the adequacy of disclosures made in the standalone financial statements.
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INFORMATION OTHER THAN THE FINANCIAL STATEMENTS AND AUDITOR’S REPORT THEREON
• The Company’s Board of Directors is responsible for the other information. The other information comprises the information included in the Management Discussion & Analysis, Board’s Report, Business Responsibility and Sustainability Report and Report on Corporate Governance, including Annexures, but does not include the consolidated financial statements, standalone financial statements and our auditor’s report thereon.
• Our opinion on the standalone financial statements does not cover the other information and we do not express any form of assurance conclusion thereon
• In connection with our audit of the standalone financial statements, our responsibility is to read the other information identified above and, in doing so, consider whether the other information is materially inconsistent with the standalone financial statements or our knowledge obtained during the course of our audit or otherwise appears to be materially misstated.
• If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.
RESPONSIBILITIES OF MANAGEMENT AND THOSE CHARGED WITH GOVERNANCE FOR THE STANDALONE FINANCIAL STATEMENTS
The Company’s Board of Directors is responsible for the matters stated in section 134(5) of the Act with respect to the preparation of these standalone financial statements that give a true and fair view of the financial position, financial performance including other comprehensive income, cash flows and changes in equity of the Company in accordance with the Ind AS and other accounting principles generally accepted in India. This responsibility also includes maintenance of adequate accounting records in accordance with the provisions of the Act for safeguarding the assets of the Company and for preventing and detecting frauds and other irregularities; selection and application of appropriate accounting policies; making judgments and estimates that are reasonable and prudent; and design, implementation and maintenance of adequate internal financial controls, that were operating effectively for ensuring the accuracy and completeness of the accounting records, relevant to the preparation and presentation of the standalone financial statement that give a true and fair view and are free from material misstatement, whether due to fraud or error.
In preparing the standalone financial statements, management is responsible for assessing the Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless
the Board of Directors either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so.
The Company’s Board of Directors are also responsible for overseeing the Company’s financial reporting process.
AUDITOR’S RESPONSIBILITY FOR THE AUDIT OF THE STANDALONE FINANCIAL STATEMENTS
Our objectives are to obtain reasonable assurance about whether the standalone financial statements as a whole are free from material misstatement, whether 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 audit conducted in accordance with SAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these standalone financial statements.
As part of an audit in accordance with SAs, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:
• Identify and assess the risks of material misstatement of the standalone financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
• Obtain an understanding of internal financial control relevant to the audit in order to design 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 has adequate internal financial controls with reference to standalone financial statements in place and the operating effectiveness of such controls.
• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the management.
• Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists
related to events or conditions that may cast significant doubt on the Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the standalone 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’s report. However, future events or conditions may cause the Company to cease to continue as a going concern.
• Evaluate the overall presentation, structure and content of the standalone financial statements, including the disclosures, and whether the standalone financial statements represent the underlying transactions and events in a manner that achieves fair presentation.
Materiality is the magnitude of misstatements in the standalone financial statements that, individually or in aggregate, makes it probable that the economic decisions of a reasonably knowledgeable user of the standalone financial statements may be influenced. We consider quantitative materiality and qualitative factors in (i) planning the scope of our audit work and in evaluating the results of our work; and (ii) to evaluate the effect of any identified misstatements in the standalone financial statements.
We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.
We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.
From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the standalone financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.
directly or indirectly, lend or invest in other persons or entities identified in any manner whatsoever by or on behalf of the Funding Party (“Ultimate Beneficiaries”) or provide any guarantee, security or the like on behalf of the Ultimate Beneficiaries.
c) Based on the audit procedures performed that have been considered reasonable and appropriate in the circumstances, nothing has come to our notice that has caused us to believe that the representations under sub-clause (i) and (ii) of Rule 11(e), as provided under (a) and (b) above, contain any material misstatement.
v. a. The final dividend proposed in the previous year, declared and paid by the Company during the year is in accordance with section 123 of the Act, as applicable.
b. The interim dividend declared and paid by the Company during the year and until the date of this report is in accordance with section 123 of the Companies Act 2013.
REPORT ON OTHER LEGAL AND REGULATORY REQUIREMENTS
1. As required by Section 143(3) of the Act, based on our audit
we report that:
a) We have sought and obtained all the information and explanations which to the best of 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 the Company so far as it appears from our examination of those books.
c) The Balance Sheet, the Statement of Profit and Loss including Other Comprehensive Income, the Statement of Cash Flows and Statement of Changes in Equity dealt with by this Report are in agreement with the books of account.
d) I n our opinion, the aforesaid standalone financial statements comply with the Ind AS specified under Section 133 of the Act.
e) On the basis of the written representations received from the directors as on March 31, 2023 taken on record by the Board of Directors, none of the directors is disqualified as on March 31, 2023 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 with reference to standalone financial statements of the Company and the operating effectiveness of such controls, refer to our separate Report in “Annexure A”. Our report expresses an unmodified opinion on the adequacy and operating effectiveness of the Company’s internal financial controls with reference to standalone financial statements.
g) With respect to the other matters to be included in the Auditor’s Report in accordance 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 explanations given to us, the remuneration paid by the Company to its directors during the year 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 in accordance with Rule 11 of the Companies (Audit and Auditors) Rules, 2014, as amended in our opinion and 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 its financial position in its standalone financial statements (Refer note 30(c) to the standalone financial statements).
ii. The Company did not have any long-term contracts including derivative contracts for which there were any material foreseeable losses.
iii. There has been no delay in transferring amounts, required to be transferred, to the Investor Education and Protection Fund by the Company.
iv. a) The Management has represented that,
to the best of its knowledge and belief, other than as disclosed in the note 51 (v) to the standalone financial statements, no funds have been advanced or loaned or invested (either from borrowed funds or share premium or any other sources or kind of funds) by the Company to or in any other person(s) or entity(ies), including foreign entities (“Intermediaries”), with the understanding, whether recorded in writing or otherwise, that the Intermediary shall, directly or indirectly lend or invest in other persons or entities identified in any manner whatsoever by or on behalf of the Company (“Ultimate Beneficiaries”) or provide any guarantee, security or the like on behalf of the Ultimate Beneficiaries.
b) The Management has represented, that, to the best of its knowledge and belief, other than as disclosed in the note 51 (vi) to the standalone financial statements, no funds have been received by the Company from any person(s) or entity(ies), including foreign entities (“Funding Parties”), with the understanding, whether recorded in writing or otherwise, that the Company shall,
vi. Proviso to Rule 3(1) of the Companies (Accounts) Rules, 2014 for maintaining books of account using accounting software which has a feature of recording audit trail (edit log) facility is applicable to the Company w.e.f. April 1, 2023, and accordingly, reporting under Rule 11(g) of Companies (Audit and Auditors) Rules, 2014 is not applicable for the financial year ended March 31, 2023.
2. As required by the Companies (Auditor’s Report) Order, 2020 (“the Order”) issued by the Central Government in terms of Section 143(11) of the Act, we give in “Annexure B” a statement on the matters specified in paragraphs 3 and 4 of the Order.
For Deloitte Haskins & Sells
Chartered Accountants
(Firm’s Registration No. 008072S)
C Manish Muralidhar
(Partner)
(Membership No. 213649)
Place: Hyderabad
Date: May 27, 2023
UDIN: 23213649BGVBYS5552
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