Sunteck Realty Limited
REPORT ON THE AUDIT OF THE STANDALONE FINANCIAL STATEMENTS
Opinion
1. We have audited the accompanying standalone financial statements of Sunteck Realty Limited ('the Company'), which comprise the Balance Sheet as at 31 March 2023, the Statement of Profit and Loss (including Other Comprehensive Income), the Statement of Cash Flow and the Statement of Changes in Equity for the year then ended, and notes to the standalone financial statements, including a summary of the significant accounting policies and other explanatory information.
2. 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 ('Ind AS') specified under section 133 of the Act read with the Companies (Indian Accounting Standards) Rules, 2015 and other accounting principles generally accepted in India, of the state of affairs of the Company as at 31 March 2023, and its loss (including other comprehensive income), its cash flows and the changes in equity for the year ended on that date.
Basis for Opinion
3. We conducted our audit in accordance with the Standards on Auditing 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 ('ICAI') together with the ethical requirements that are relevant to our audit of the financial statements under the provisions of the Act and the rules thereunder, and we have fulfilled our other ethical responsibilities in accordance with these requirements and the Code of Ethics. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Emphasis of Matter
4. We draw attention to Note 58 to the accompanying standalone financial statements, which describes the uncertainties relating to recoverability of ' 1,402.73 lakhs as at 31 March 2023, from a partnership firm ('firm'), included in other non-current financial assets, in which the Company was associated as a partner till 6 October 2020. On account of certain disputes with the other partner of the firm, the Company had initiated arbitration proceedings against the other partner which was decided in favour of the Company on 4 May 2018 but has been challenged by the other partner before the Hon'ble Bombay High Court. Further, as described in the said note, the financial statements of the firm are not available with the Company and therefore, the Company's share of profit/ (loss) for the period from 2015 till 6 October 2020 has not been accounted by the management for preparation of the accompanying Statement, however the management is of the view that the impact of such share of profit/ (loss) would not be material to the accompanying Statement since there were no operations in the firm during the aforesaid period. Basis the favourable arbitration award and the legal opinion obtained, the management believes that the aforesaid balances are fully recoverable and hence, no provision for impairment is required to be recognised in respect of such balances as at 31 March 2023. Our opinion is not modified in respect of this matter.
Key Audit Matters
5. 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 financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
|
6. We have determined the matters described below to be the key audit matters to be communicated in our report.
|
|
Key audit matters
|
How our audit addressed the key audit matters
|
|
(i) Revenue recognition for real estate development contracts
|
|
The accounting policies relating to revenue recognition
|
Our audit procedures on revenue recognised from real
|
|
is set out in Note 2(d) to the standalone financial
|
estate development contracts included, but were not
|
|
statements.
|
limited to the following:
|
|
As per the principles of Ind AS 115-'Revenue from
|
• Evaluated the appropriateness of the Company's
|
|
Contracts with Customers' (Ind AS 115), revenue
|
accounting policy for revenue recognition from real
|
|
from sale of residential/ commercial properties is
|
estate development contracts in accordance with
|
|
recognized when the performance obligations are
|
Ind AS 115;
|
|
essentially complete and it is probable that the
|
• Obtained an understanding of the systems,
|
|
economic benefits will flow to the Company.
|
processes and controls implemented by the
|
|
Revenue from real-estate contracts for some projects
|
management for recording and calculating revenue;
|
|
is recognised over a period of time (using percentage
|
• Assessed the design and implementation of key
|
|
of completion method), if the necessary conditions/
|
controls over the recognition of contract revenue,
|
|
obligations as mentioned in the Ind AS 115 are
|
completeness and accuracy of cost and revenue
|
|
satisfied, in all other cases, revenue is recognized at
|
reports generated from the system and tested the
|
|
the point in time when the control over the property
|
operating effectiveness of these controls;
|
|
has been transferred to the buyer. Significant level
|
• On a sample basis inspected the underlying
|
|
of judgement is required in identifying contract
|
customer contracts to understand the contractual
|
|
obligations and whether these obligations are satisfied
|
terms whereby ownership rights will be transferred
|
|
over a period of time or at the point in time. Further, for
|
to the unitholders and assessed appropriateness of
|
|
determining revenue using percentage of completion
|
management's evaluation of determining revenue
|
|
method, budgeted project cost is a critical estimate,
|
recognition from sale of real estate property at a
|
|
which is subject to inherent uncertainty as it requires
|
point in time or over time in accordance with the
|
|
ascertainment of progress of the project, cost incurred
|
requirements under Ind AS 115;
|
|
till date and balance cost to be incurred to complete
|
• Reviewed the management's budgeting system and
|
|
the project.
|
process of calculating the cost to be incurred for
|
|
Considering the significance of management
|
completing the remaining performance obligations,
|
|
judgement involved as mentioned above, and the
|
which has been reviewed periodically and approved
|
|
materiality of amounts involved, revenue recognition
|
by appropriate levels of management;
|
|
was identified as a key audit matter for the current year
|
• Compared the aggregate project cost (including
|
|
audit.
|
costs incurred) with costs of similar projects;
• Verified the possession letters issued on sample basis along with the proof of deliveries;
• Verified of the collection from customers for the units sold from the statement of accounts on a sample basis to ensure receipt of substantial sales consideration;
• Performed a retrospective review of costs incurred with budgeted costs to identify significant variations and verify whether those variations have been considered in estimating the remaining costs to complete the project;
• Tested revenue recognition for cut-off transactions on sample basis to assess whether the timing of revenue recognition is appropriate; and
• Assessed the adequacy of disclosures included in financial statements, as specified in Ind AS 115.
|
|
Key audit matters
|
How our audit addressed the key audit matters
|
|
(ii) Carrying values of inventories
|
|
The accounting policies for Inventories are set out in Note 2(j) to the standalone financial statements.
Inventory of the Company comprise of completed real estate units and construction work in progress of ongoing projects. Inventory is valued at cost and net realisable value (NRV), whichever is less.
NRV is the estimated selling price in the ordinary course of business, less estimated costs necessary to make the sale and estimated costs of completion (in case of construction work-in- progress). The inventory of finished goods and construction work-in- progress is not written down below cost when completed flats/ under-construction flats /properties are expected to be sold at or above cost.
The cost includes direct and indirect expenditure relating or incidental to construction activity. Various estimates such as prevailing market conditions, stage of completion of the projects, future selling price, selling costs and cost to complete projects are necessary to derive NRV. Refer Note 11 in respect of construction work-in-progress of ' 57,646.91 lakhs, land and development rights of ' 1,328.60 lakhs and completed units of ' 2,590.38 lakhs to the standalone financial statements.
Considering the significance of management judgement involved as mentioned above, and the materiality of amounts involved, impairment of inventories was identified as a key audit matter for the current year audit.
|
Our audit included, but was not limited to, the following
procedures:
• Obtained an understanding of the management process for identification of possible impairment indicators and process performed by the management for impairment testing and the management process of determining the Net Realisable Value (NRV);
• Enquired of the management and inspected the internal controls related to inventory valuation along with the process followed to recover/adjust these and assessed whether impairment is required;
• Tested the operating effectiveness of controls for the review of estimates involved for the expected cost of completion of projects including construction cost incurred construction budgets and net realisable value. We carried out a combination of procedures involving enquiry and observation, and inspection of evidence in respect of operation of these controls;
• Where the management involved specialists to perform valuations, evaluated the objectivity and independence of those specialists;
• Compared NRV with recent sales or estimated selling price and also checked the general selling costs;
• Compared the estimated construction costs to complete each project with the Company's updated budgets. Re-computing the NRV, on a sample basis, to test inventory units are held at the lower of cost and NRV; and
• Assessed the appropriateness and adequacy of the disclosures made by the management for the impairment losses in accordance with applicable accounting standards.
|
|
(iii) Recoverability of carrying value of investment in/ loan to subsidiaries and joint ventures
|
|
The accounting policies for carrying value of investment in subsidiaries and joint ventures are set out in Note 2(aa) to the standalone financial statements.
The Company's investment portfolio represents a significant portion of the Company's total assets, which primarily consists of investments in equity instruments of subsidiaries and joint ventures.
The aforesaid investments are valued at cost less accumulated impairment losses, if any. The investments are assessed for impairment at each reporting date.
|
Our audit included, but was not limited to, the following
procedures:
• Obtained an understanding of the management process for identification of impairment indicators for assessing the recoverability of the carrying value of investment in/loan to subsidiaries and joint ventures;
• Assessed the appropriateness of the relevant accounting policies of the Company, including those relating to recognition and measurement of investments by comparing with the applicable accounting standards;
• Evaluated the design and implementation and tested the operating effectiveness of controls over the Company's process of impairment assessment and approval of forecasts;
|
|
Key audit matters
|
How our audit addressed the key audit matters
|
|
The Company's non-current investments include
|
•
|
Assessed the valuation methods used, financial
|
|
investments in Sunteck Lifestyle International Private
|
|
position of the subsidiaries, joint ventures and an
|
|
Limited (SLIPL), a subsidiary, of ' 26,097.78 lakhs.
|
|
associate to identify excess of their net assets over
|
|
SLIPL, which had further acquired 50% share in joint
|
|
their carrying amount of investment by the Company
|
|
venture (JV) company, GGICO Sunteck Limited
|
|
and assessing profit history of those subsidiaries and
|
|
(GGICO), through its wholly owned subsidiary,
|
|
joint ventures;
|
|
Sunteck Lifestyle Limited (SLL), for development of real-estate project in Dubai. Further, the Company's other non-current financial assets include receivables
|
•
|
For the investments where the carrying amount exceeded the net asset value, understanding from
|
|
from SLL aggregating ' 584.49 lakhs. SLL has incurred losses and net-worth has been partially eroded due to delay in development of projects by the GGICO on account of certain disputes with other JV partner. SLL
|
•
|
the Company regarding the basis and assumptions used for the projected profitability;
Verified the inputs used in the projected profitability;
Tested the assumptions and understanding the
|
|
has initiated arbitration against the other JV partner
|
•
|
|
before London Court of International Arbitration
|
|
forecasted cash flows of subsidiaries and joint
|
|
(LCIA) for which a partial award has been passed by LCIA in favour of SLL. Further, the other JV partner has also initiated the arbitration proceedings before LCIA against the Company and SLL, which is currently pending before LCIA, as further explained in Note 60
|
•
|
ventures based on our knowledge of the Company and the markets in which they operate;
Assessed the comparability of the forecasts with historical information;
Analysed the possible indications of impairment
|
|
to the standalone financial statements.
|
•
|
|
and understanding Company's assessment of those
|
|
The assessment of recoverable amount of the
|
|
indications;
|
|
Company's investment from subsidiaries and joint ventures is considered as significant risk area in
|
•
|
Read and evaluated the litigation related documents
|
|
view of the materiality of the amounts involved,
|
|
and obtained an understanding of the current status
|
|
judgements involved in determining of impairment/
|
|
of the disputed case; and
|
|
recoverability of the carrying value of the investment
|
•
|
Assessed the appropriateness of the Company's
|
|
from subsidiaries and joint ventures, which includes
|
|
description of the accounting policy and disclosures
|
|
assessment of conditions and financial indicators of
|
|
in respect of the investment in subsidiaries and joint
|
|
the investee, such as current projects, expected sales,
|
|
ventures (including interest accrued) and whether
|
|
future business plan, upcoming projects and the
|
|
these are adequately presented in the standalone
|
|
recoverability of certain investments.
|
|
financial statements.
|
|
We focused on this area as a key audit matter due to significant risk and judgement involved in forecasting future cash flows and the selection of assumptions.
|
|
|
|
Considering this matter is fundamental to the understanding of the user of standalone financial statement, we draw attention to Note 60 of the standalone financial statements, regarding the Company's non-current investment in a subsidiary company, Sunteck Lifestyle International Private Limited.
|
|
|
Information other than the Financial Statements and Auditor's Report thereon
7. The Company's Board of Directors are responsible for the other information. The other information comprises the information included in the Annual Report, but does not include the standalone financial statements and our auditor's report thereon. The Annual Report is 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 and, in doing so, consider whether the other information is materially inconsistent with the standalone financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated.
When we read the Annual Report, if we conclude that there is a material misstatement therein, we are required to communicate the matter to those charged with governance.
Responsibilities of Management and Those Charged with Governance for the Standalone Financial Statements
8. The accompanying standalone financial statements have been approved by the Company's Board of Directors. The Company's Board of Directors are responsible for the matters stated in section 134(5) of the Act with respect to the preparation and presentation 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 specified under section 133 of the Act 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 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 financial statements that give a true and fair view and are free from material misstatement, whether due to fraud or error.
9. In preparing the financial statements, the Board of Directors are 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 intend to liquidate the Company or to cease operations, or has no realistic alternative but to do so.
10. Those Board of Directors are also responsible for overseeing the Company's financial reporting process.
Auditor's Responsibilities for the Audit of the Standalone Financial Statements
11. Our objectives are to obtain reasonable assurance about whether the 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 Standards on Auditing 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 financial statements.
12. As part of an audit in accordance with Standards on Auditing, specified under section 143(10) of the Act we exercise professional judgment and maintain professional skepticism throughout the audit. We also:
• Identify and assess the risks of material misstatement 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 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. 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 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 management;
• Conclude on the appropriateness of Board of Directors' 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 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 disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation;
13. 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.
14. 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.
15. From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the 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.
Report on Other Legal and Regulatory Requirements
16. As required by section 197(16) of the Act based on our audit, we report that the Company has paid remuneration to its directors during the year in accordance with the provisions of and limits laid down under section 197 read with Schedule V to the Act.
17. As required by the Companies (Auditor's Report) Order, 2020 ('the Order') issued by the Central Government of India in terms of section 143(11) of the Act we give in the Annexure I a statement on the matters specified in paragraphs 3 and 4 of the Order, to the extent applicable.
18. Further to our comments in Annexure I, as required by section 143(3) of the Act based on our audit, we report, to the extent applicable, 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 of the accompanying standalone financial statements;
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 standalone financial statements dealt with by this report are in agreement with the books of account;
d) In our opinion, the aforesaid standalone financial statements comply with Ind AS specified under section 133 of the Act;
e) The matter described in paragraph 4 under the Emphasis of Matter and paragraph 6(iii) under Key Audit Matters in our opinion, may have an adverse effect on the functioning of the Company;
f) On the basis of the written representations received from the directors and taken on record by the Board of Directors, none of the directors is disqualified as on 31 March 2023 from being appointed as a director in terms of section 164(2) of the Act;
g) With respect to the adequacy of the internal financial controls with reference to financial statements of the Company as on 31 March 2023 and the operating effectiveness of such controls, refer to our separate Report in Annexure II wherein we have expressed an unmodified opinion; and
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, as detailed in Notes 37.1,38(ii), (iii), 58 and 60 to the standalone financial statements, has disclosed the impact of pending litigations on its financial position as at 31 March 2023;
ii. the Company did not have any long-term contracts including derivative contracts for which there were any material foreseeable losses as at 31 March 2023.
iii. There has been no delay in transferring amounts, required to be transferred, to the Investor Education and Protection Fund by the Company during the year ended 31 March 2023;
iv. a. The management has represented that, to the best of its knowledge and belief, as disclosed in
Note 55(i)(I) to the standalone financial statements, no funds have been advanced or loaned or invested (either from borrowed funds or securities premium or any other sources or kind of funds) by the Company to or in any persons or entities, including foreign entities ('the 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 ('the Ultimate Beneficiaries') or provide any guarantee, security or the like on behalf the Ultimate Beneficiaries;
b. The management has represented that, to the best of its knowledge and belief, as disclosed in Note 55(i)(II) to the standalone financial statements, no funds have been received by the Company from any persons or entities, including foreign entities ('the 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; and
c. Based on such audit procedures performed as considered reasonable and appropriate in the circumstances, nothing has come to our notice that has caused us to believe that the management representations under sub-clauses (a) and (b) above contain any material misstatement.
v. a. The final dividend paid by the Company during the year ended 31 March 2023 in respect of such
dividend declared for the previous year is in accordance with section 123 of the Act to the extent it applies to payment of dividend,
b. As stated in Note 46(b) to the accompanying standalone financial statements, the Board of Directors of the Company have proposed final dividend for the year ended 31 March 2023 which is subject to the approval of the members at the ensuing Annual General Meeting. The dividend declared is in accordance with section 123 of the Act to the extent it applies to declaration of dividend.
c. Proviso to Rule 3(1) of the Companies (Accounts) Rules, 2014 requires all companies which use accounting software for maintaining their books of account, to use such an accounting software which has a feature of audit trail, with effect from the financial year beginning on 1 April 2023 and accordingly, reporting under Rule 11(g) of Companies (Audit and Auditors) Rules, 2014 (as amended) is not applicable for the current financial year.
For Walker Chandiok & Co LLP
Chartered Accountants
Firm's Registration No.: 001076N/N500013
Rakesh R. Agarwal
Partner
Membership No.: 109632
UDIN: 23109632BGXEBM2163
Place: Mumbai
Date: 26 May 2023
|