Consolidated Financial Statements ` ` Integrated Annual Report 2020-21 Independent Auditors’ Report To the Members of Tata Chemicals Limited income, consolidated changes in equity and consolidated cash flows for the year then ended. Report on the Audit of Consolidated Financial Statements Basis for Opinion Opinion We conducted our audit in accordance with the Standards on Auditing (SAs) specified under section 143(10) of the Act. Our We have audited the Consolidated Financial Statements of responsibilities under those SAs are further described in the Tata Chemicals Limited (hereinafter referred to as the ‘Holding Auditor’s Responsibilities for the Audit of the Consolidated Financial Company”) and its subsidiaries (Holding Company and its Statements section of our report. We are independent of the Group subsidiaries together referred to as “the Group”) and its joint and its joint ventures in accordance with the ethical requirements ventures, which comprise the Consolidated Balance Sheet as at that are relevant to our audit of the Consolidated Financial March 31, 2021, and the consolidated statement of profit and loss Statements in terms of the Code of Ethics issued by the Institute (including other comprehensive income), consolidated statement of Chartered Accountants of India and the relevant provisions of of changes in equity and consolidated statement of cash flows the Act, and we have fulfilled our other ethical responsibilities in for the year then ended, and notes to the Consolidated Financial accordance with these requirements. We believe that the audit Statements, including a summary of significant accounting policies evidence obtained by us along with the consideration of audit and other explanatory information (hereinafter referred to as “the reports of the other auditors referred to in sub paragraph (a) of Consolidated Financial Statements”). the “Other Matters” paragraph below, is sufficient and appropriate In our opinion and to the best of our information and according to provide a basis for our opinion on the Consolidated Financial to the explanations given to us, and based on the consideration Statements. of reports of other auditors on separate Financial Statements of such subsidiaries and joint ventures as were audited by the other Key Audit Matters auditors, the aforesaid Consolidated Financial Statements give the Key audit matters are those matters that, in our professional information required by the Companies Act, 2013 (“Act”) in the judgment, were of most significance in our audit of the Consolidated manner so required and give a true and fair view in conformity Financial Statements of the current period. These matters were with the accounting principles generally accepted in India, of the addressed in the context of our audit of the Consolidated Financial consolidated state of affairs of the Group and its joint ventures as at Statements as a whole, and in forming our opinion thereon, and we March 31, 2021, of its consolidated profit and other comprehensive do not provide a separate opinion on these matters. 216 Integrated Report Statutory Reports Financial Statements 1-59 60-146 Consolidated Description of Key Audit Matter Revenue recognition (refer notes 2.18 and 27 to the Consolidated Financial Statements) The Key Audit Matter How the matter was addressed in our audit Revenue is recognised when the control of the underlying Our audit procedures included: products has been transferred to the customer. Assessing the revenue recognition policies of the Group Revenue is measured based on transaction price, which is the including accounting for sales returns and discounts for consideration, after deduction of estimated accruals for sales compliance with Ind AS; returns and discounts (including rebates and incentives). The Group has manual and automated (information Due to the Group’s sales under various contractual terms and technology – IT) controls on recording revenue and across geographies, delivery to customers in different regions accruals for sales returns and discounts. We tested the might take different time periods and may result in undelivered design, implementation and operating effectiveness of goods at the period end. We consider there to be a risk of these controls. We involved our IT specialists for IT testing. misstatement of the Financial Statements related to transactions In respect of cut-off and fraud risk, we focussed on controls occurring close to the year end, as transactions could be recorded around the timely and accurate recording of year end sales in the wrong financial period (cut-off risk). transactions. For auditing assumptions of discounts and There is also a risk of revenue being overstated due to fraud estimates of sales returns, we focussed on controls around resulting from pressure on the Group to achieve performance the accurate recording of accruals for sales returns and targets at the reporting period end. discounts. The recognition and measurement of discounts involves Fraud and cut-off risk significant assumptions and estimates, particularly the expected Performing testing on selected statistical samples of revenue level of claims of each customer. transactions recorded during the year end. Estimation of sales returns also involves significant judgement and We verified contractual terms of the invoice and tested the estimates. These factors include, for example, climatic conditions transit time to deliver the goods; and the length of time between sales and sales returns, some of Assessing high risk manual journals posted to revenue to which are beyond the control of the Group. identify unusual items. Accordingly, fraud and cut-off risks in revenue recognition Accrual for sales returns and discounts including accruals for sales returns and discounts is a key audit Selecting samples of revenue transactions and verifying matter. accruals for discounts in accordance with the eligibility criteria mentioned in the marketing circulars; Evaluating the Group’s ability to accurately estimate the accrual for sales returns and discounts. Comparing historically recorded accruals to the actual amount of sales returns and discounts. 217 Integrated Annual Report 2020-21 Litigations and claims (refer notes 2.3.5, 2.27, 21 and 47.1 to the Consolidated Financial Statements) The Key Audit Matter How the matter was addressed in our audit The Group operates in various countries exposing it to a variety Our audit procedures included: of different laws, regulations and interpretations thereof. The Obtaining an understanding of actual and potential provisions and contingent liabilities relate to ongoing litigations outstanding litigations and claims against the Group from and claims with various authorities. Litigations and claims may the respective entity’s in-house Legal Counsel and other arise from direct and indirect tax proceedings, legal proceedings, senior personnel of the Group and assessing their responses; including regulatory and other government/department proceedings, as well as investigations by authorities and Assessing status of the litigations and claims based on commercial claims. correspondence between the Group and the various tax/ legal authorities and legal opinions obtained by the Group; Resolution of litigations and claims proceedings may span over multiple years beyond March 31, 2021 due to the complexity Testing completeness of litigations and claims recorded by and magnitude of the legal matters involved and may involve assessing the Group’s legal expenses and the minutes of the protracted negotiation or litigation. Board meetings; The computation of a provision or contingent liability requires Assessing and challenging the Group’s estimate of the significant judgement by the Group because of the inherent possible outcome of litigations and claims. This is based on complexity in estimating future costs. The amount recognised as the applicable tax laws and legal precedence by involving a provision is the best estimate of the expenditure. The provisions our tax specialists in taxation related matters and internal/ and contingent liabilities are subject to changes in the outcomes external legal counsel; of litigations and claims over time as new facts emerge as each Evaluating the Company’s internal control and judgements legal case progresses and positions taken by the Group. made by comparing the estimates of prior year to the actual There is inherent complexity and magnitude of potential outcome; exposures is significant across the Group. Significant judgment is Assessing and testing the adequacy and completeness of necessary to estimate the likelihood, timing and amount of the the Group’s disclosures in respect of litigations and claims. cash outflows, interpretations of the legal aspects, legislations and judgements previously made by the authorities. Accordingly, this is identified as a key audit matter. 218 Integrated Report Statutory Reports Financial Statements 1-59 60-146 Consolidated Impairment evaluation of goodwill and mining rights (refer notes 2.3.1, 2.16, 7 and 8 to the Consolidated Financial Statements) The Key Audit Matter How the matter was addressed in our audit The carrying amount of goodwill and mining rights represents Our audit procedures included the following: 33% of the Group’s total assets. Assessing the identification of relevant Cash Generating The Group tests goodwill for impairment annually, or more Units (CGU) to which goodwill is allocated and to which frequently when there is an indication that the cash generating