annual-report-FY2020

230 COMPANY OVERVIEW BOARD’S REPORT MANAGEMENT DISCUSSION AND ANALYSIS CORPORATE GOVERNANCE BUSINESS RESPONSIBILITY REPORT STANDALONE ACCOUNTS CONSOLIDATED ACCOUNTS 2. Impairment assessment of tangible assets and development expenditure capitalised and currently under development The key audit matter How the matter was addressed in our audit The Company has aggregate tangible assets of Rs. 9,178 crores, which includes property, plant and equipment of Rs. 7,981 crores and Rs. 1,197 crores of capital-work-in-progress as at 31 March 2020. Further, the Company has Rs. 2,223 crores of development expenditure capitalised and Rs. 2,813 crores of intangible assets under development (collectively “the intangible assets”). Changes in business environment, including the economic uncertainty created by COVID-19, could have a significant impact on the valuation of the tangible and intangible assets. As such, tangible and intangible assets are tested for any triggers for impairment. If triggers are identified, the recoverable amounts of the tangible and intangible assets are determined and if the amount is lower than the carrying value of the assets, impairment loss is recognised in the statement of profit and loss. The recoverable amount is determined as higher of value in use (VIU) or fair value less cost to sell of the asset or the cash generating unit (CGU) to which the asset belongs. Refer note 2(g) – significant accounting policy for impairment of tangible and intangible assets. Our audit procedures included: • Assessed the design, implementation and operating effectiveness of key controls in respect of the Company’s impairment assessment process, including the approval of forecasts and valuation models; • Obtained an understanding of the identification of CGU process; • Tested the key VIU assumptions used in estimating future cash flows such as sales volumes and prices, operating costs, inflation and growth rates by comparing these inputs with externally derived data, past performances, consistency with the Board approved investment plans and knowledge of the industry; • Involved our valuation specialists to evaluate the assumptions including the discount rates used in VIU calculation, through external market data; • Evaluated past performances where relevant, and assessed historical accuracy of the forecast used in VIU calculations; • Evaluated the stage of development of the intangible assets, judgments used for expected probable economic benefits and associated expenditures, and their assessment of feasibility of the projects; and • Assessed the adequacy of disclosures in the financial statements on key judgements, assumptions and quantitative data with respect to impairment losses. 3. Taxes including provision for current tax, valuation of uncertain tax positions and recognition of deferred taxes The key audit matter How the matter was addressed in our audit The Company has recorded Rs. 1,785 crores of tax expense for the year ended 31 March 2020. The Company is subject to periodic tax challenges by tax authorities leading to protracted litigations. As such, accounting for taxes involves judgment in developing estimates of tax exposures and contingencies in order to assess the adequacy of tax provision. Further, during the year, the Company elected to apply the concessional tax regime which resulted in foregoing certain specified tax deductions including Minimum Alternate Tax (MAT) credit and restatement of the deferred tax liabilities on account of change in tax rates. The Company has unused tax losses on which it assesses recognition of deferred tax assets. This involves significant judgment, including assessment of future taxable profits. Refer note 2(p) – significant accounting policy for income tax. Our audit procedures included: • Assessed the design, implementation and operating effectiveness of key controls in respect of the Company’s process for recognition of tax expense, including uncertain tax positions and deferred taxes; • Inquired and assessed the completeness of uncertain tax positions in conjunction with our tax specialists by considering changes to business and tax legislation through inquiries with the Company and reading of correspondence with authorities relevant recent judicial pronouncements and judgments in similar matters and outcome of past litigations; • Challenged the Company’s judgements on the recognition and recoverability of the deferred tax assets including the deferred taxes arising on unused tax losses; and • Assessed the adequacy of the disclosures in the financial statements relating to impact on income taxes and deferred taxes.  Other Information The Company’s management and Board of Directors are responsible for the other information. The other information comprises the information included in the Company’s annual report, but does not include the financial statements and our auditors’ report thereon. Our opinion on the standalone financial statements does not cover the other information and we do not express any form of assurance 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. 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.