ORIENT ABRASIVES LIMITED
Report on the Audit of the Standalone Financial Statements
Opinion
We have audited the accompanying standalone financial statements of Orient Abrasives Limited (“the Company”) which comprise the balance sheet as at 31st March 2023, the statement of profit and loss including other comprehensive income, the statement of changes in equity and the statement of cash flows for the year then ended and notes to the standalone financial statements, including a summary of the 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 the other accounting principles generally accepted in India, of the state of affairs of the Company as at 31st March 2023, its profit and total comprehensive income, changes in equity and its cash flows 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 Responsibilities 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 (“the 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 we have obtained is sufficient and appropriate to provide a basis for our opinion on the standalone financial statements.
Key Audit Matters
Key audit matters are those matters which, 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 our forming our opinion thereon, and we do not provide a separate opinion on these matters. We have the matters described below to be the key audit matters to be communicated in our report:
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Key audit matters
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How our audit addressed the key audit matter
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1. Overdue statutory payables - Royalty, contribution to District Mineral Fund (DMF) and Contribution to
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National Mineral Exploration Trust (NMET)
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The Company is liable to pay royalty liability on dispatch of extracted material from its mines. The Company is also required to make contribution to District Mineral Fund (DMF) and National Mineral Exploration Trust (NMET) as per various government notification in this regard.
The Company has received demand letter dated August 16, 2018 from the Office of DMF and the Geology and Mining Department (District Mineral Foundation (Cell)) against the unpaid contribution and interest thereof with respect to the dispatch of bauxite ores from mines. The Company has filed petition against such demand which is pending in the Honorable Gujarat High Court and the management believes that the decision will come in favor of the Company.
The Company has also received orders from department of Udyog and Khan, Gandhinagar up to March, 2018 with respect to LME based royalty refund (net of payable) of Rs. 129 lakhs. The refund is not yet received by the Company.
As at year end, the Company is carrying liability in its books of Rs. 216.26 lakhs in respect of royalty and other contributions against which there is an advance payment ofRs. 128.21 lakhs as at March 31,2023. The liability amount includes contribution payable for past 1-5 years as per the books.
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• We have verified the relevant records of the Company's obligation with respect of Royalty, NMET and DMF;
• We have discussed the Company's policy regarding deposit of Royalty, NMET and DMF dues and as per management representation, the royalty is deposited in advance at the rate prescribed by Commissioner of Geology and Mining (CGM), whereas the royalty payable in the books of accounts is on account of difference between the rates prescribed by CGM and Indian Bureau of Mines (IBM).
• The management informed that the Company has also filed petition with honorable High Court of Gujarat against the demand letter from the Office of District Mineral Foundation and the Geology and Mining Department (District Mineral Foundation (Cell)) as the Company is of the view that the contribution is on production of bauxite ores after applicability of law w.e.f. September 16, 2015 instead of dispatch of bauxite ores from mines which were extracted before September 16, 2015.
• With respect to net refund orders received from department of Udyog and Khan, Gandhinagar, the Company will account for the same on receipt of such amount on the principles of prudence.
• We have ensured completeness of liabilities and relied on management representation as regards compliance of the Acts/notifications.
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2. Advance given to mining contractors pending adjustment
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The Company extracts raw bauxite from its mines which are taken on lease. The company get the raw bauxite extracted through various sub-contractors which includes extraction, sizing, sorting, truck loading activities, etc. at various mines.
The Company accounts for the inventories of raw bauxite in the books when all the activities of the subcontractors get completed and material is readily usable.
As at March 31, 2023, the extracted stock of raw bauxite which remain to be sorted and weighment thereof is not recorded in the books.
Against the contracted activities which are currently in progress, the Company has outstanding advance of Rs. 897.07 lakhs as at reporting date paid to subcontractors towards various activities at mines.
Treatment of amount paid to sub-contractor as an advance pending adjustment, was determined to be key matter in our audit of the standalone financial statements.
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• We have reviewed the Company's internal control as regards accounting of advance to sub-contractors and accounting of purchase of material.
• As per contractors' confirmation and management representation, at the reporting year end, as mining activities are in progress and hence, the amount paid to the contractors are treated as advances since the mining services obligations are not yet completed.
• We have also verified the amount of advance settled during the year based on receipt of raw bauxite and details of additional advance paid during the year
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3. Impairment of manufacturing plant at Porbandar
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The Company's operations have been affected by nonavailability of core raw material - specialized grade raw bauxite.
The Company has partially suspended the plant operations in respect of products manufactured from specialized grade raw bauxite at its Porbandar manufacturing plant.
The management is taking care of plant equipment health through periodic maintenance activities to keep the plant in working condition.
The net block of the property, plant and equipment at Porbandar plant is Rs. 6,694.68 lakhs as at March 31, 2023.
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Our audit procedures in relation to evaluation of impairment testing of the manufacturing plant at Porbandar included the following:
• Performing test of controls over key financial controls related to accounting, valuation and recoverability of assets through inspection of evidence.
• Performing substantive audit procedures including:
- Obtaining the management's impairment
assessment;
- Evaluating the key assumptions including projected revenue, weighted average cost of capital by comparing them with external data, where available;
- Obtaining and evaluating the sensitivity analysis.
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Information Other than the Standalone Financial Statements and Auditor's Report Thereon
The Company's Board of Directors is responsible for the preparation of the other information. The other information comprises the information included in the Board's Report including Annexures to Board's Report, Management Discussion and Analysis, Corporate Governance Report, Shareholder's Information, but does not include the standalone financial statements and auditor's report thereon. The Board's Report and other information are expected to be made available to us after the date of this auditor's report.
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 when it becomes available 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.
When we read the aforesaid reports and information, if we conclude that there is material misstatement therein, we are required to communicate the matter to those charged with governance.
Management's Responsibility 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, changes in equity and cash flows of the Company in accordance with the Ind AS and 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 of 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 statements 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 concerns and using the going concern basis of
accounting unless management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so.
The Board of Directors is also responsible for overseeing the Company's financial reporting process.
Auditors' 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 high level of assurance, but is not a guarantee that 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 misstatements of the 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 ofthe internal control.
• Obtain an understanding of internal financial controls 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 system 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 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 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 financial statements, including the disclosure, and whether the 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 ofthe standalone financial statements ofthe 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.
Report on Other Legal and Regulatory Requirements
1 As required by the Companies (Auditor's Report) Order, 2020 ("the Order") issued by the Central Government of
India terms of sub-section (11) of section 143 of the Act, we give in the Annexure - A, a statement on the matters
specified in clause 3 and 4 of the Order, to the extent applicable.
2. As required by section 143(3) ofthe Act, 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 purpose 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 ofthose books;
c) The balance sheet, the statement of profit and loss including other comprehensive income, statement of changes in equity and the cash flow statement dealt with by this Report are in agreement with the books of account;
d) In our opinion, the aforesaid financial statements comply with the Accounting Standards specified under section 133 ofthe Act, read with Rule 7 ofthe Companies (Accounts) Rules, 2015;
e) On the basis of written representations received from the directors as on 31st March 2023, and taken on record by the Board of Directors, none of the directors is disqualified as on 31st March 2023, from being appointed as a director in terms section 164(2) ofthe Act;
f) With respect to the adequacy of internal financial controls over financial reporting of the Company and operating effectiveness of such controls, our separate report in annexure - B may be referred;
g) In our opinion and to the best of our information and according to the explanations given to us, remuneration paid by the Company to its directors during the year is in accordance with the provisions of section 197 ofthe Act read with Schedule V ofthe 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, in our opinion and to the best of our information and according to the explanation given to us:
i. The Company has disclosed the impact of pending litigations on its financial position in its standalone financial statements;
ii. The Company did not have any long-term contracts including derivatives contracts for which there were any material foreseeable losses;
iii. There has been no delay in transferring the 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, as disclosed in
the note no, 40(h) to the accounts, 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 or entity, including foreign entities (“Intermediaries”), with the understanding, whether recorded in writing or otherwise, that the Intermediary shall, whether, 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 ofthe Ultimate Beneficiaries;
b. The Management has represented, that, to the best of its knowledge and belief, as disclosed in
the note no. 40(i) to the accounts, no funds have been received by the Company from any person or entity, including foreign entities (“Funding Parties”), with the understanding,
whether recorded in writing or otherwise, that the Company shall, whether, 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 such audit procedures 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 (a) and (b) above, contain any material misstatement.
v. The dividend declared or paid during the year by the Company is in compliance with section 123 ofthe Act.
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 with effect from 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.
For SANGHAVI & COMPANY Chartered Accountants FRN: 109099WMumbai MANOJ GANATRA
May 22, 2023 Partner
Membership No. 043485 UDIN: 23043485BGVZJS3842
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