annual-report-FY2021

288 COMPANY OVERVIEW BOARD’S REPORT MANAGEMENT DISCUSSION AND ANALYSIS CORPORATE GOVERNANCE BUSINESS RESPONSIBILITY REPORT STANDALONE ACCOUNTS CONSOLIDATED ACCOUNTS 1. Bankruptcy filing by a material subsidiary (contd.) The key audit matter How the matter was addressed in our audit On de-consolidation of the subsidiary, the Company has de-recognised its net liability relating to the subsidiary. The Company recognised operating losses and an impairment/provision aggregating to Rs 3,252 crores in relation to this erstwhile subsidiary. Further, the Company has recorded a gain on de-consolidation of the subsidiary of Rs 1,063 crore. The impairment/ provision has been determined based on best estimate assumptions of the erstwhile subsidiary’s valuation and considering the uncertainty of the rehabilitation process. These amounts have been reported as results of discontinued operations in the consolidated financial statements. Refer note 2(u) – significant accounting policy for discontinued operation. • Evaluated the impact of the auditors’ opinion of the erstwhile subsidiary on our audit opinion on the consolidated financial statements; • Inquired with management on the implications of events after the date of financial statements to corroborate the impact of the developments with respect to bankruptcy proceedings with the assessment of degree of control/significant influence and assessment of recoverable value of the Company’s assets; and • Assessed the appropriateness and adequacy of the disclosures in the financial statements, including those relating to discontinued operations. 2. Impairment assessment of tangible assets, goodwill and development expenditure capitalised and currently under development The key audit matter How the matter was addressed in our audit The Group has aggregate tangible assets of Rs 22,089 crores, which includes property, plant and equipment of Rs 17,612 crores and Rs 4,477 crores of capital-work-in-progress as at 31 March 2021. Further, the Group has Rs 1,305 crores of goodwill, Rs 2,158 crores of other development expenditure capitalised and Rs 3,395 crores of intangible assets under development (collectively “the intangible assets”). Changes in business environment, including the economic uncertainty created by the novel corona virus (COVID-19), could have a significant impact on the valuation of the tangible and intangible assets. The tangible and intangible assets are tested for impairment periodically. The Group assesses the carrying amounts of the tangible and intangible assets to determine indicators of impairment loss as the recoverable values rely on certain assumptions and estimates of future performance which impact the valuation. If any such indicators exists, the recoverable amount, which is the higher of Value In Use (VIU) or fair value less cost to sell, of the asset or Cash Generating Unit (CGU) is estimated and the impairment loss, if any, is recognised in the statement of profit and loss and carrying amount of tangible and intangible assets is reduced to its recoverable amount. Refer note 2(h) – significant accounting policy for impairment of assets Our audit procedures include: • Assessed the design, implementation and operating effectiveness of key controls in respect of the Group’s impairment assessment process, including the approval of forecasts and valuation models; • Obtained an understanding of the identification of the CGU process including businesses which benefit from Group synergies; • Tested the key VIU assumptions used in estimating future cash flows such as revenue 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 valuation specialists, as applicable, to evaluate the assumptions including the discount rates used in VIU assumptions through reference to reports of industry analysts; • Evaluated past performance where relevant, and assessed historical accuracy of the forecast used in VIU calculations; and • Evaluated the stage of development of the intangible assets, judgments used for expected probable economic benefits and associated expenditures, and their assessment of feasibility and • Assessed the adequacy of disclosures on key judgements, assumptions and quantitative data with respect to impairment losses. 3. Impairment loss allowance in the financial services business The key audit matter How the matter was addressed in our audit Within the financial services business, the Group has recorded an impairment loss allowance of Rs 5,181 crores as at 31 March 2021 and has recognized a charge of Rs 3,999 crores for the year ended 31 March 2021 in its statement of profit and loss. Our audit procedures include: • Performed end to end process walkthroughs to identify the key systems, applications and controls used in the impairment loss allowance processes. We tested the relevant manual (including spreadsheet controls), general IT and application controls over key systems used in the impairment loss allowance process;