We have audited the accompanying standalone financial statements of Northern Arc Capital Limited Limited (“the Company”), which comprise the Balance Sheet as at March 31 2024, the Statement of Profit and Loss, including the statement of Other Comprehensive Income, the Cash Flow Statement and the Statement of Changes in Equity for the year then ended, and notes to the standalone financial statements, including a summary of material accounting policies and other explanatory information.
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, as amended (“the Act”) in the manner so required and give a true and fair view in conformity with the accounting principles generally accepted in India, of the state of affairs of the Company as at March 31, 2024, its profit including other comprehensive income, its cash flows and the changes in equity for the year ended on that date.
Basis for Opinion
We conducted our audit of the standalone financial statements in accordance with the Standards on Auditing (SAs), as 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 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 audit opinion on the standalone financial statements.
Key Audit Matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the standalone financial statements for the financial year ended March 31, 2024. These matters were addressed in the context of our audit of the standalone financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. For each matter below, our description of how our audit addressed the matter is provided in that context.
We have determined the matters described below to be the key audit matters to be communicated in our report. We have fulfilled the responsibilities described in the Auditor's responsibilities for the audit of the standalone financial statements section of our report, including in relation to these matters. Accordingly, our audit included the performance of procedures designed to respond to our assessment of the risks of material misstatement of the standalone financial statements. The results of our audit procedures, including the procedures performed to address the matters below, provide the basis for our audit opinion on the accompanying standalone financial statements.
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1 Key audit matters
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How our audit addressed the key audit matter
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Impairment loss allowance for financial instruments (loan and
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investments) based on expected credit loss model -
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refer notes 3.e, 3.f, 7, 8, 18, 28 and 37 to the standalone financial statements
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Financial instruments, which include Loans and Investments,
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Our audit procedures included the following:
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represents a significant portion of the total assets of the Company. The Company has loans aggregating INR 9,30,987.15 lakh and investments aggregating INR 1,65,268.61 lakh as at March 31, 2024.
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•
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Read and assessed the Company's accounting policies for impairment of financial assets considering the requirements of Ind AS 109 and the governance framework approved by the Board of Directors pursuant
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As per the expected credit loss model of the Company
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to Reserve Bank of India guidelines.
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developed in accordance with the principles set out in Ind-AS 109 on Financial Instruments, the Company is required to estimate the probability of loss and expected loss based on past experience and future considerations. This involves a significant degree of estimation and judgement, including determination of staging of financial assets; estimation of probability of defaults, loss given defaults, exposure at defaults; and forward-looking, micro and macro-economic factors, in estimating the expected credit losses.
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•
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For provision of expected credit loss- (ECL) against outstanding exposures classified across various stages, we obtained an understanding of the Company's provisioning methodology (including factors that affect the probability of default, loss given defaults and exposure at default; various forward looking micro- and macro-economic factors), the underlying assumptions and the sufficiency of the data used by management and tested the same on a sample basis.
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1 Key audit matters
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How our audit addressed the key audit matter
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In view of the high degree of management's judgement
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Evaluated the management estimates by understanding
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involved in estimation of expected credit loss and the overall
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the process of ECL estimation and related assumptions
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significance of the impairment loss allowance to the financial
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and tested the controls around data extraction, validation
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statements, it is considered as a key audit matter.
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and computation.
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Assessed the criteria for staging of loans based on their past due status as per the requirements of Ind AS 109. Tested a sample of performing loans to assess whether any SICR or loss indicators were present requiring them to be classified under higher stages.
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Performed tests of controls and details on a sample basis in respect of the staging of outstanding exposure and implementation of Company policy.
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Involved internal experts for testing of the ECL model and computation, including factors that affect the PD, LGD and EAD considering various forward looking, micro and macro-economic factors.
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Tested assumptions used by the management in determining the overlay for macro-economic and other factors.
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Assessed disclosures included in the standalone financial statements in respect of expected credit losses.
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Fair valuation of financial assets held at fair value through other comprehensive income (“FVTOCI”) or fair value through profit and loss (“FVTPL”) (collectively “fair value”) - refer notes 3.g, 7, 8, 24 and 35 to the standalone financial statements
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The Company has classified loans aggregating to
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In
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view of the significance of the matter, we applied the
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INR 2,61,483.91 lakh and investments aggregating to
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following key audit procedures, among others to obtain
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INR 1,30,417.23 lakh as held at fair value through OCI
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sufficient appropriate audit evidence:
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(FVTOCI) and investments aggregating to INR 18,993.49 lakh as held at fair value through profit and loss (FVTPL) in accordance with Ind AS 109. Additionally, the Company is also required to disclose fair value of its financial assets
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Evaluated and tested the design and operating effectiveness of the Company's control over the assessment of classification and valuation of investments.
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and liabilities held at amortised cost in accordance with Ind
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Involved the internal expert to assess the reasonableness
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AS 107.
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of the valuation methodology and underlying
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The determination of the fair value of financial assets is
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assumptions used by the management to estimate the
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considered to be a significant area in view of the materiality
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fair value.
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of amounts involved, judgements involved in selecting the valuation basis, and use of market data.
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Assessed the appropriateness of the valuation methodology and challenged the valuation model
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Given the degree of complexity involved in valuation of
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considered for fair value computation.
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financial instruments, relative significance of these financial instruments to the financial statements and the nature and extent of audit procedures involved, we determined this to be a key audit matter.
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Validated the source data and the arithmetical accuracy of the calculation of valuation of investments on a test check basis.
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Assessed the adequacy of disclosure in the standalone financial statements.
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Information Technology (IT) systems and controls
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Financial accounting and reporting processes, especially in
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Our audit procedures assisted by specialised IT auditors,
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the financial services sector, are fundamentally reliant on IT
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focused on the IT infrastructure and applications relevant to
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systems and IT controls to process significant transaction.
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financial reporting of the Company:
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Automated accounting procedures and IT environment
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The aspects covered in the assessment of IT General
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controls, which include IT governance, general IT controls
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Controls (ITGCs) comprised: (i) User Access Management;
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over program development and changes, access to programs
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(ii) Program Change Management; (iii) Other related
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and data and IT operations, are required to be designed and
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ITGCs - to understand the design and test the operating
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to operate effectively to ensure reliable financial reporting.
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effectiveness of such controls in respect of information
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Further, the extant regulations require the Company to
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systems that are important to financial reporting ("in-
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maintain a daily back-up of its books of account and to
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scope applications”).
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use accounting software which has an audit trail (edit log) feature.
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Tested the changes that were made to the in-scope applications during the audit period to assess changes that have impact on financial reporting.
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1 Key audit matters
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How our audit addressed the key audit matter
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Any gaps in the IT control environment could result in
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Tested the periodic review of access rights, inspected
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a material misstatement of the financial accounting and
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requests of changes to systems for appropriate approval
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reporting records or non-compliance with regulatory
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and authorisation.
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requirements.
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Performed tests of controls (including other
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Therefore, due to the pervasive nature and complexity of
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compensatory controls, wherever applicable) on the IT
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the IT environment and enhanced reporting requirements,
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application controls and IT dependent manual controls
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the assessment of relevant system configuration, general
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in the system.
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IT controls and the application controls specific to the accounting and preparation of the financial information is considered to be a key audit matter.
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Tested the design and operating effectiveness of compensating controls. Where deficiencies were identified and, where necessary, extended the scope of our substantive audit procedures.
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Tested the configuration of the audit trail feature in the accounting software and maintenance of back-up as per extant regulatory requirements.
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We have determined that there are no other key audit matters to communicate in our report.
Other Information
The Company's Board of Directors is responsible for the other information. The other information comprises the information included in the Annual report, but does not include the standalone and consolidated financial statements and our auditor's report thereon. The Other information 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 such 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 other information, 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
The Company's Board of Directors is responsible for the matters stated in section 134(5) of the Act with respect to the preparation of these standalone financial statements that give a true and fair view of the financial position, financial performance including other comprehensive income, cash flows and changes in equity of the Company in accordance with the accounting principles generally accepted in India, including the Indian Accounting Standards
(Ind AS) specified under section 133 of the Act read with the Companies (Indian Accounting Standards) Rules, 2015, as amended. 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 the 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 standalone financial statements that give a true and fair view and are free from material misstatement, whether due to fraud or error.
In preparing the standalone financial statements, management is 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 management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so.
Those Charged with Governance are also responsible for overseeing the Company's financial reporting process.
Auditor’s Responsibilities for the Audit of the Standalone Financial Statements
Our objectives are to obtain reasonable assurance about whether the standalone 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 SAs 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 standalone financial statements.
As part of an audit in accordance with SAs, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:
• Identify and assess the risks of material misstatement of the standalone 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 management's 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 standalone financial statements, including the disclosures, and whether the standalone financial statements represent the
underlying transactions and events in a manner that achieves fair presentation.
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.
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.
From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the standalone financial statements for the financial year ended March 31, 2024 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
1. As required by the Companies (Auditor's Report) Order, 2020 (“the Order"), issued by the Central Government of India in terms of subsection (11) of section 143 of the Act, we give in the “Annexure 1" a statement on the matters specified in paragraphs 3 and 4 of the Order.
2. As required by Section 143(3) of the Act, 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 purposes of our audit;
(b) I n 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, except for the matters stated in the paragraph (f) below on reporting under Rule 11(g);
(c) The Balance Sheet, the Statement of Profit and Loss including the Statement of Other Comprehensive Income, the Cash Flow Statement and Statement of Changes in
Equity dealt with by this Report are in agreement with the books of account;
(d) I n our opinion, the aforesaid standalone financial statements comply with the Accounting Standards specified under Section 133 of the Act, read with Companies (Indian Accounting Standards) Rules, 2015, as amended;
(e) On the basis of the written representations received from the directors as on March 31, 2024 taken on record by the Board of Directors, none of the directors is disqualified as on March 31, 2024 from being appointed as a director in terms of Section 164 (2) of the Act;
(f) The modification relating to the maintenance of accounts and other matters connected therewith are as stated in paragraph (b) above on reporting under Section 143(3)(b) and paragraph (i) (vi) below on reporting under Rule 11(g);
(g) With respect to the adequacy of the internal financial controls with reference to these standalone financial statements and the operating effectiveness of such controls, refer to our separate Report in “Annexure 2” to this report;
(h) In our opinion, the managerial remuneration for the year ended March 31, 2024 has been paid/provided by the Company to its directors in accordance with the provisions of section 197 read with Schedule V to the Act;
(i) 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 has disclosed the impact of pending litigations on its financial position in its standalone financial statements - Refer Note 38 to the standalone financial statements;
ii. The Company has made provision, as required under the applicable law or accounting standards, for material foreseeable losses, if any, on long-term contracts including derivative contracts - Refer Note 12 to the standalone financial statements;
iii. There were no amounts which were
required to be transferred to the
Investor Education and Protection Fund
by the Company.
iv. a) The management has represented
that, to the best of its knowledge and belief, other than as disclosed in the note 84C(v) to the standalone financial statements, no funds have been advanced or loaned or invested (either from borrowed funds or share premium or any other sources or kind of funds) by the Company to or in any other person(s) or entity(ies), including foreign entities (“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 (“Ultimate Beneficiaries") or provide any guarantee, security or the like on behalf of the Ultimate Beneficiaries;
b) The management has represented that, to the best of its knowledge and belief, other than as disclosed in the note 84C(vi) to the standalone financial statements, no funds have been received by the Company from any person(s) or entity(ies), including foreign entities (“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 that have been considered reasonable and appropriate in the circumstances, nothing has come to our notice that has caused us to believe that the representations under subclause (a) and (b) contain any material misstatement.
v. No dividend has been declared or paid during the year by the Company.
vi. Based on our examination, which included test checks and as explained in note 85, the Company has used accounting software for maintaining its books of account which has a feature of recording audit trail (edit log) facility and the same has operated throughout the year for all relevant transactions recorded in the accounting software. During the course of our audit we have not noted any instances of the audit trail feature being tampered at the application level. However, in the absence of service organisation controls (SOC) report covering the audit trail feature at a database level, we are unable to comment on whether audit trail feature of the said software was enabled and operated throughout the year or whether there were any instances of the audit trail feature being tampered with at a database level.
Further, the Company uses various loan management system software for recording transactions relating to respective loan products. These loan management systems have a feature of recording audit trail (edit log) facility. However, such applications either
have limitation in those applications in obtaining relevant information with regard to audit trail due to which we are unable to perform testing of audit trail feature, or for third party managed loan management systems, the service organisation controls (SOC) report covering the audit trail feature was not available as mentioned in Note 85 to the standalone financial statements. Accordingly, we are unable to comment on whether audit trail feature of the said loan management systems was enabled and operated throughout the year or whether there were any instances of the audit trail feature being tampered with in this regard
For S.R. Batliboi & Associates LLP
Chartered Accountants ICAI Firm Registration Number: 101049W/E300004
per Bharath N S
Partner
ICAI Membership Number: 210934 UDIN: 24210934BKFUNL4103
Place of Signature: Chennai Date: May 29, 2024
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