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To the Unitholders' of Embassy Office Parks REIT
Report on the Audit of the Standalone IndAS Financial StatementsOpinion
We have audited the accompanying standalone Ind AS financial statements of Embassy Office Parks REIT (hereinafter referred to as "the REIT”), comprising of the Balance Sheet as at March 31, 2023, the Statement of Profit and Loss, including the statement of Other Comprehensive Income, the Cash Flow Statement and the Statement of Changes in Unitholders' equity for the year then ended and the Statement of Net Assets at fair value as at March 31, 2023 and the Statement of Total Returns at fair value and the Statement of Net Distributable Cash Flows of the REIT for the year then ended and notes to the standalone Ind AS financial statements, including a summary of significant accounting policies and other explanatory information (hereinafter referred to as "standalone Ind AS financial statements”).
In our opinion and to the best of our information and according to the explanations given to us, the aforesaid standalone Ind AS financial statements give the information required by the Securities and Exchange Board of India (Real Estate Investment Trusts) Regulations, 2014 as amended from time to time including any guidelines and circulars issued thereunder read with SEBI Circular No. CIR/IMD/ DF/146/2016 dated December 29, 2016 (the "REIT regulations”) in the manner so required and give a true and fair view in conformity with the accounting principles generally accepted in India, to the extent not inconsistent with REIT regulations, of the state of affairs of the REIT as at March 31, 2023, its profit including other comprehensive income, its cash flows, its statement of changes in Unitholders' equity for the year ended on that date, its net assets at fair value as at March 31, 2023, its total returns at fair value and the Net Distributable Cash Flows of the REIT for the year ended March 31, 2023.
Basis for Opinion
We conducted our audit of the standalone Ind AS financial statements in accordance with the Standards on Auditing (SAs), issued by the Institute of Chartered Accountants of India. Our responsibilities under those Standards are further described in the 'Auditor's Responsibilities for the Audit of the Standalone Ind AS Financial Statements' section of our report. We are independent of the REIT in accordance with the 'Code of Ethics' issued by the Institute of Chartered Accountants of India and we have fulfilled our other ethical responsibilities in accordance with the Code of Ethics. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion on the standalone Ind AS financial statements.
Key Audit Matters
Key audit matters are those matters that, in our professional Judgement, were of most significance in our audit of the standalone Ind AS financial statements for the financial year ended March 31, 2023. These matters were addressed in the context of our audit of the standalone Ind AS financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. For each matter below, our description of how our audit addressed the matter is provided in that context.
We have determined the matters described below to be the key audit matters to be communicated in our report. We have fulfilled the responsibilities described in the Auditor's responsibilities for the audit of the standalone Ind AS financial statements section of our report, including in relation to these matters. Accordingly, our audit included the performance of procedures designed to respond to our assessment of the risks of material misstatement of the standalone Ind AS financial statements. The results of audit procedures performed by us, including those procedures performed to address the matters below, provide the basis for our audit opinion on the accompanying standalone Ind AS financial statements.
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Key audit matters
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How our audit addressed the key audit matter
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Assessing impairment of Investments and loans made by the REIT in subsidiaries and joint venture entity
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(as described in note 2.2 (c)
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, 3, 4 and 7 of the standalone Ind AS financial statements)
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As at March 31, 2023, the
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carrying values of REIT's Our audit procedures included, among others, the
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investment in subsidiaries
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and joint venture entity following:
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amounted to '246,260.89 million. Further the REIT
- We assessed the REIT s valuation methodology
has granted loans to its subsidiaries amounting to
applied in determining the recoverable amount.
'93,860.84 million.
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- We involved valuation specialists to:
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Key audit matters
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How our audit addressed the key audit matter
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Management reviews regularly whether there are
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(a)Assess the valuation reports issued by the
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any indicators of impairment of such investments/
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independent valuer engaged by the management
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loans by reference to the requirements under Ind AS.
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and compared key property related data used as
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Management performs its impairment assessment by
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input with actual data.
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comparing the carrying value of these investments/ loans made to their recoverable amount to determine whether an impairment needs to be recognised.
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(b)Assess the key assumptions included in the cash flow forecasts by management and independent valuer.
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For the purpose of the above impairment testing, value in use has been determined by forecasting and discounting future cash flows. Significant judgements are required to determine the key assumptions used in determination of value in use.
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(c) Discussed changes in key drivers as compared to actual performance with management in order to evaluate whether the inputs and assumptions used in the valuation models by management and independent valuer were reasonable.
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Considering the impairment assessment involves significant assumptions and judgement, we regard this as a key audit matter.
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- We compared the recoverable amount of the investment to the carrying value in books as at March 31, 2023.
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- As regards loans granted, we obtained and
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considered management evaluation of recoverability of loans and advances granted to its subsidiaries and joint venture entity.
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- We read/assessed the disclosures in the standalone
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Ind AS financial statements for compliance with the relevant accounting standards requirements.
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Key audit matters
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How our audit addressed the key audit matter
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Classification of Unitholders' funds as equity
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(as described in note 10(a) of the standalone Ind AS financial statements)
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The REIT is required to distribute to its Unitholders not
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Our audit procedures included evaluating the
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less than ninety percent of its net distributable cash
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requirements for classification of financial liability and
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flows for each financial year. Accordingly, a portion of
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equity under Ind AS 32 and evaluating the provisions
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the Unitholders' funds contains a contractual obligation
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of SEBI Circulars for classification/ presentation of
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of the REIT to pay cash distributions to its Unitholders.
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Unitholders' funds in the standalone Ind AS financial
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The Unitholders' funds could have been classified as
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statements of the REIT.
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compound financial instrument which contains both equity and liability components in accordance with Ind AS 32 - Financial Instruments: Presentation. However, in accordance with SEBI Circulars No. CIR/IMD/ DF/141/2016 dated December 26, 2016 and No. CIR/ IMD/DF/146/2016 dated December 29, 2016 ("SEBI Circulars") issued under the REIT Regulations, the Unitholders' funds have been classified as equity in order to comply with the mandatory requirements of Section H of Annexure A to the SEBI Circular dated December 26, 2016 dealing with the minimum disclosures for key financial statements.
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We assessed the disclosures in the standalone Ind AS financial statements for compliance with the relevant requirements of REIT regulations.
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Based on the above, the classification of Unitholders' funds as equity involved considerable management judgement. Accordingly, it is considered as a key audit matter.
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Key audit matters
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How our audit addressed the key audit matter
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Computation and disclosures of Net Assets and Total Returns at Fair Value
(as described in note 2.2(c) and in Statement of Net assets at fair value and Statement of total returns at fair
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value of the standalone Ind AS financial statements)
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As per the provisions of REIT Regulations, the REIT is
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Our audit procedures include, among others, the
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required to disclose Statement of Net Assets at Fair following-
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Value and Statement of Total Returns at Fair Value which requires fair valuation of assets. For this purpose, fair value is determined by forecasting and discounting future cash flows. The determination of fair value involves judgement due to inherent uncertainty in the
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- Read the requirements of SEBI REIT regulations for disclosures relating to Statement of Net Assets at Fair Value and Statement of Total Returns at Fair Value.
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underlying assumptions and it is highly sensitive to
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- Assessed the appropriateness of independent
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changes in some of the inputs used e.g. the discounting
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valuer's and management's valuation methodology
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rate (WACC), capitalisation rates, rental growth rates
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applied in determining the fair values.
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etc.
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- Tested controls implemented by management
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Accordingly, the aforementioned computation and
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to determine inputs for fair valuation as well as
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disclosures are determined to be a key audit matter in
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assumptions used in the fair valuation.
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our audit of the standalone Ind AS financial statements.
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- We involved valuation specialists to:
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(a) Assess the valuation reports issued by
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the independent valuer engaged by the management and compared key property related data used as input with actual data.
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(b) Assess the key assumptions included in the
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cash flow forecasts by management and independent valuer.
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(c) Discussed changes in key drivers as compared
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to actual performance with management in order to evaluate whether the inputs and assumptions used in the valuation models by management and independent valuer were reasonable.
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- Tested the arithmetical accuracy of computation in
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the Statement of Net Assets and Total Returns at Fair Value.
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- Read/Assessed the disclosures in the standalone
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Ind AS financial statements for compliance with the relevant requirements of REIT Regulations.
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Key audit matters
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How our audit addressed the key audit matter
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Related party transactions and disclosures
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(as described in note 26 of the standalone Ind AS financial statements)
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The REIT has undertaken transactions with its related
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Our audit procedures included, among others, the
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parties in the normal course of business. These include following:
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making new or additional investments; lending of loans to SPVs, interest and dividend income on such loans/ investments, fees for services provided by related parties to REIT etc as disclosed in Note 26 of the standalone Ind AS financial statements.
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- Obtained, read and assessed the REIT's policies, processes and procedures in respect of identifying related parties, evaluation of arm's length, obtaining necessary approvals, recording and disclosure of related party transactions, including compliance
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We identified the recording of all possible related party
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of transactions and disclosures in accordance with
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transactions and its disclosure as set out in respective
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REIT regulations.
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notes to the standalone Ind AS financial statements as a key audit matter due to the significance of transactions with related parties during the year ended March 31, 2023 and regulatory compliance thereon.
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- We tested, on a sample basis, related party transactions with the underlying contracts and other supporting documents for appropriate authorisation and approval for such transactions.
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- We read minutes of Unitholder meetings, Board
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and its relevant committee meetings and minutes of meetings of those charged with governance of the Manager in connection with transactions with related parties effected during the year and REIT's assessment of related party transactions being in the ordinary course of business at arm's length and in accordance with the REIT regulations.
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- Assessed and tested the disclosures made in
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accordance with the requirements of Ind AS and REIT regulations.
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Other Information
The Management of Embassy Office Parks Management Services Private Limited ("the Manager”), acting in its capacity as the manager of Embassy Office Parks REIT is responsible for the other information. The other information comprises the information included in the Annual report, but does not include the standalone Ind AS financial statements and our auditor's report thereon.
Our opinion on the standalone Ind AS 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 Ind AS financial statements, our responsibility is to read the other information and, in doing so, consider whether such other information is materially inconsistent with the standalone Ind AS financial statements or our 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 material misstatement of this other information, we are
required to report that fact. We have nothing to report in this regard.
Responsibilities of Management for the Standalone Ind AS Financial Statements
The Management of the Manager ('the Management') is responsible for the preparation and presentation of these standalone Ind AS financial statements that give a true and fair view of the financial position as at March 31, 2023, financial performance including other comprehensive income, cash flows, statement of changes in Unitholders' equity for the year ended March 31, 2023, its net assets at fair value as at March 31, 2023, its total returns at fair value and the net distributable cash flows of the REIT for the year ended March 31, 2023, in accordance with the requirements of the REIT regulations; Indian Accounting Standards as defined in Rule 2(1)(a) of the Companies (Indian Accounting Standards) Rules, 2015 (as amended), and other accounting principles generally accepted in India, to the extent not inconsistent with REIT regulations. This responsibility also includes the design, implementation
and maintenance of adequate controls for ensuring the accuracy and completeness of the accounting records, relevant to the preparation and presentation of the standalone Ind AS financial statements that give a true and fair view and are free from material misstatement, whether due to fraud or error.
In preparing the standalone Ind AS financial statements, the Management is responsible for assessing the ability of the REIT to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless Management either intends to liquidate the REIT or to cease operations, or has no realistic alternative but to do so.
The Management is also responsible for overseeing the financial reporting process of the REIT.
Auditor’s Responsibilities for the Audit of the Standalone Ind AS Financial Statements
Our objectives are to obtain reasonable assurance about whether the standalone Ind AS 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 Ind AS financial statements.
As part of an audit in accordance with SAs, we exercise professional Judgement and maintain professional skepticism throughout the audit. We also:
• Identify and assess the risks of material misstatement of the standalone Ind AS 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 control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not
Report on Other Legal and Regulatory Requirements
Based on our audit and as required by the REIT Regulations, 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) The Balance Sheet and the Statement of Profit and Loss including the Statement of Other Comprehensive Income dealt with by this Report are in agreement with the books of account of the REIT; and
for the purpose of expressing an opinion on the effectiveness of the entity's internal control.
• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by 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 ability of the REIT 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 Ind AS 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 REIT to cease to continue as a going concern.
• Evaluate the overall presentation, structure and content of the standalone Ind AS financial statements, including the disclosures, and whether the standalone Ind AS financial statements represent the underlying transactions and events in a manner that achieves fair presentation.
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 Ind AS financial statements for the financial year ended March 31, 2023 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.
(c) In our opinion, the aforesaid standalone Ind AS financial statements comply with the Indian Accounting Standards as defined in Rule 2(1)(a) of the Companies (Indian Accounting Standards) Rules, 2015 (as amended), to the extent not inconsistent with REIT regulations.
for S R Batliboi & Associates LLP
Chartered Accountants ICAI Firm Registration Number: 101049W/E300004
per Adarsh Ranka
Partner
Membership number: 209567 UDIN: 23209567BGXVYF8769 Place: Bengaluru, India Date: April 27, 2023
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