Independent Auditors' Report accepted in India, of the consolidated state of affairs of Consolidated the Group as at 31 March 2020, of its consolidated profit To the Members of and other comprehensive income, consolidated changes in equity and consolidated cash flows for the year then Tata Consultancy Services Limited Financial ended. Report on the Audit of the Consolidated Financial Basis for Opinion Statements Statements We conducted our audit in accordance with the Standards Opinion on Auditing (SAs) specified under Section 143(10) of the Act. Our responsibilities under those SAs are further We have audited the consolidated financial statements of described in the Auditor’s Responsibilities for the Audit Tata Consultancy Services Limited (hereinafter referred of the Consolidated Financial Statements section of our to as “the Holding Company”) and its subsidiaries listed report. We are independent of the Group in accordance in Annexure I (Holding Company and its subsidiaries with the Code of Ethics issued by the Institute of Chartered together referred to as “the Group”), which comprise Accountants of India (‘ICAI’), and we have fulfilled our the consolidated balance sheet as at 31 March 2020, and other ethical responsibilities in accordance with the the consolidated statement of profit and loss (including provisions of the Act. We believe that the audit evidence other comprehensive income), consolidated statement we have obtained is sufficient and appropriate to provide a of changes in equity and consolidated statement of basis for our opinion. cash flows for the year then ended, and notes to the consolidated financial statements, including a summary of significant accounting policies and other explanatory Key Audit Matters information (hereinafter referred to as “the consolidated financial statements”). Key audit matters (‘KAM’) are those matters that, in our professional judgment, were of most significance In our opinion and to the best of our information and in our audit of the consolidated financial statements of according to the explanations given to us, the aforesaid the current period. These matters were addressed in consolidated financial statements give the information the context of our audit of the consolidated financial required by the Companies Act, 2013 (‘the Act’) in the statements as a whole, and in forming our opinion thereon, manner so required and give a true and fair view in and we do not provide a separate opinion on these conformity with the accounting principles generally matters. TCS Annual Report 2019-20 Consolidated Financial Statements I 165 Description of Key Audit Matters Key audit matters How our audit addressed the key audit matter • at year-end, significant amount of work in • On selected specific/ statistical samples Key audit matters How our audit addressed the key audit matter progress (Contract assets), related to these of contracts, we tested that the revenue Revenue recognition – Fixed price contracts contracts are recognised on the balance recognized is in accordance with the revenue The Group inter alia engages in Fixed-price Our audit procedures on revenue recognized sheet. recognition accounting standard – contracts, wherein, revenue is recognized using from fixed price contracts included: the percentage of completion computed as per Evaluated the identification of • Obtained an understanding of the systems, the input method based on the Group’s estimate performance obligations and the processes and controls implemented by the of contract costs (Refer Note 5(a) and Note 12 to ascribed transaction price; Group for recording and computing revenue the consolidated financial statements). Tested the Group’s computation of the and the associated contract assets, unearned estimation of contract costs and onerous and deferred revenue balances. obligations, if any. We: We identified revenue recognition of fixed price • Involved our Information technology (‘IT’) contracts as a Key Audit Matter since – specialists: assessed that the estimates of costs • there is an inherent risk and presumed fraud risk to complete were reviewed and Assessed the IT environment in which around the accuracy and existence of revenues approved by appropriate designated the business systems operate and tested management personnel; recognised considering the customised system controls over computation of and complex nature of these contracts and performed a retrospective analysis of revenue recognised; significant inputs of IT systems; costs incurred with estimated costs Tested the IT controls over to identify significant variations and • application of revenue recognition accounting appropriateness of cost and revenue challenged whether those variations standard (Ind AS 115 Revenue from Contracts reports generated by the system; and are required to be considered in with customers) is complex and involves a estimating the remaining costs to number of key judgments and estimates in Tested the controls pertaining to complete the contract; mainly identifying performance obligations, allocation of resources and budgeting assessed the appropriateness of related transaction price and estimating the systems which prevent the unauthorized work in progress (contract assets) on future cost-to-completion of these contracts, recording/changes to costs incurred and balance sheet date by evaluating the which is used to determine the percentage controls relating to the estimation of underlying documentation to identify of completion of the relevant performance contract costs required to complete the possible changes in estimated obligation; respective projects. costs to complete the remaining • these contracts may involve onerous performance obligations; and obligations which requires critical assessment inspected underlying documents and of foreseeable losses to be made by the performed analytics to determine Group; and reasonableness of contract costs. TCS Annual Report 2019-20 Consolidated Financial Statements I 166 Key audit matters How our audit addressed the key audit matter Key audit matters How our audit addressed the key audit matter Evaluation of key tax matters Ind AS 116 introduces a new lease accounting • Assessed the Group’s evaluation on the The Group operates in multiple jurisdictions Our audit procedures include the following model, wherein lessees are required to recognise identification of leases based on the and is subject to periodic challenges by local substantive procedures: a right-of-use (ROU) asset and a lease liability contractual agreements and our knowledge tax authorities on a range of tax matters • Obtained an understanding of key tax arising from a lease on the balance sheet. of the business; during the normal course of business including matters; and The lease liabilities are initially measured by • Involved our specialists to evaluate the transfer pricing and indirect tax matters. These discounting future lease payments during the • The audit team, along with our internal tax reasonableness of the discount rates applied involve significant judgment by the Group to lease term as per the contract/ arrangement. in determining the lease liabilities; determine the possible outcome of the uncertain experts - Adoption of the standard involves significant tax positions, consequently having an impact read and analysed select key judgements and estimates including, • Upon transition as at 1 April 2019: on related accounting and disclosures in the correspondences, external legal opinions/ determination of the discount rates and the lease Evaluated the method of transition and consolidated financial statements. consultations obtained by the Group for term. related adjustments; key tax matters; Refer Note 5(e) and Note 20 to the consolidated Additionally, the standard mandates detailed Tested completeness of the lease data by financial statements. evaluated and challenged key disclosures in respect of transition. reconciling the Group’s operating lease assumptions made by the Group in Refer Note 5(h) and Note 9 to the consolidated commitments to data used in computing estimating the current and deferred tax financial statements. ROU asset and the lease liabilities. balances; • On a statistical sample, we performed the assessed and challenged the Group’s following procedures: estimate of the possible outcome of the disputed cases by considering legal assessed the key terms and conditions precedence and other judicial rulings; and of each lease with the underlying lease contracts; and Assessed and tested the presentation and disclosures relating to taxes. evaluated computation of lease liabilities Adoption of Ind AS 116 Leases and challenged the key estimates such as, As described in Note 9 to the consolidated Our audit procedures on adoption of Ind AS 116 discount rates and the lease term. financial statements, the Group has adopted include: • Assessed and tested the presentation and Ind AS 116 Leases (Ind AS 116) in the current year. • Assessed and tested new processes and disclosures relating to Ind AS 116 including, The application and transition to this accounting controls in respect of the lease accounting disclosures relating to transition. standard is complex and is an area of focus in standard (Ind AS 116); our audit since the Group has a large number of leases with different contractual terms. TCS Annual Report 2019-20 Consolidated Financial Statements I 167 Other Information profit/loss and other comprehensive income, consolidated intends to liquidate the entity or to cease operations,