1. We have audited the accompanying standalone financial statements of Cipla Limited ('the Company'), which comprise the Balance Sheet as at 31 March 2024, the Statement of Profit and Loss (including Other Comprehensive Income), the Statement of Cash Flow and the Statement of Changes in Equity for the year then ended and notes to the standalone financial statements, including material accounting policy information and other explanatory information.
2. 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 ('the Act') in the manner so required and give a true and fair view in conformity with the Indian Accounting Standards ('Ind AS') specified under section 133 of the Act read with the Companies (Indian Accounting Standards) Rules, 2015 and other accounting principles generally accepted in India, of the state of affairs of the Company as at 31 March 2024 and its profit (including other comprehensive income), its cash flows and the changes in equity for the year ended on that date.
Basis for Opinion
3. We conducted our audit in accordance with the Standards on Auditing 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 ('ICAI') 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 opinion.
Key Audit Matters
4. Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the standalone financial statements of the current period. These matters were addressed in the context of our audit of the financial statements as a whole and in forming our opinion thereon and we do not provide a separate opinion on these matters.
5. We have determined the matters described below to the key audit matters to be communicated in our report
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Key audit matters
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How our audit addressed the key audit matters
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DPCO matters:
The Company has received various notices of demand from the National Pharmaceutical Pricing Authority (NPPA), Government of India, on account of alleged overcharging in respect of certain drugs under the Drugs (Prices Control) Orders (DPCO) in various years. The total demand against the Company as stated in NPPA public disclosure amounts to Rs. 3707 crores, as disclosed in note 38B to the standalone financial statements, of which there are :
a) Matters pending at Honourable Bombay High Court, wherein the Holding Company has deposited H 175.08 crore being 50% of the total demand of H 350.15 crore as at 1 August 2003 under protest pursuant to direction of Honourable Supreme Court of India; and
b) Other matters wherein based on facts and legal advice, the Company has recorded a charge of H 19.90 crores (including interest) during the year ended 31 March 2024 and carries a total provision of H 80.78 crores (including interest) as at 31 March 2024.
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Our audit of DPCO matters included, but was not limited to, the
following procedures:
a) Obtained an understanding of the management's process for updating the status of the matters, assessment of accounting treatment in accordance with Ind AS 37 and for measurement of amounts involved;
b) Evaluated the design and tested the operating effectiveness of key controls around above process;
c) Inspected correspondence with the Company's external legal counsel in order to corroborate our understanding of these matters, accompanied by discussions with both internal and external legal counsels. Tested the objectivity and competence of such management experts involved;
d) Obtained direct confirmation from the external legal counsel handling DPCO matters with respect to the legal determination of the liability arising from such matters, conclusion of the matters in accordance with the requirements of Ind AS 37 and disclosures to be made in the financial statements. Evaluated the response received from the external legal counsel to ensure that the conclusions reached are supported by sufficient legal rationale;
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Key audit matters
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How our audit addressed the key audit matters
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The amounts involved are material and the application of
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e) Assessed the appropriateness of methods used and the reliability
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accounting principles as given under Ind AS 37, Provisions,
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of underlying data for the calculations made for quantifying
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Contingent Liabilities and Contingent Assets ('Ind AS 37'),
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the amounts involved. Tested the arithmetical accuracy of such
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in order to determine the amounts to be recognised as
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calculations; and
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liability or to be disclosed as a contingent liability or not,
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f) Evaluated the adequacy of disclosures given in the standalone
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is inherently subjective and needs careful evaluation and
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financial statements, including disclosure of the significant litigations
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significant judgement to be applied by the management
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of the Company, in accordance with applicable accounting
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Considering the materiality and the inherent subjectivity
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standards.
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which involves significant management judgment in
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Based on the audit procedures performed, the judgements made by
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predicting the outcome of the matter,
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the management were reasonable and disclosures made in respect
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DPCO matters have been considered to be a key audit
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of these matters were appropriate in the context of the standalone
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matter for the current period audit
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financial statements taken as a whole.
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Recoverability of investments in subsidiaries (Refer note 5):
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Our audit included, but was not limited to, the following procedures:
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The Company has investments of H 9,264.31 crores in
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a) Obtained an understanding of the management's process for
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subsidiaries being carried at cost in accordance with
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identification of impairment indicators and tested the design and
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Ind AS 27, Separate Financial Statements. The Company
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operating effectiveness of internal controls over such identification
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assesses the recoverable amounts of each investment
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and impairment measurement through fair valuation of identified
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when impairment indicators exist by comparing the fair
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investments;
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value (less costs of disposal) and carrying amount of that
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b) Involved auditor's experts to assess the appropriateness of the
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investment as on the reporting date.
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valuation methodologies used by the management;
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Management's assessment of whether there are
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c) Reconciled the cash flows to the business plans approved by the
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impairment indications and estimate of the recoverable amounts of the identified investments determined through discounted cash flow valuation method requires significant
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respective Board of Directors of the identified investee companies; d) Evaluated and challenged management's assumptions such as implied growth rates during explicit period, terminal growth rate,
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judgment in carrying out the impairment assessment. The key assumptions used in management's assessment of the recoverable amounts include, but are not limited to,
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targeting savings and discount rate for their appropriateness based on our understanding of the business of the respective investee companies, past results and external factors such as
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projections of future cash flows, growth rates, discount rates, estimated future operating and capital expenditure.
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industry trends and forecasts;
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Changes to these assumptions could lead to material
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e) Obtained and evaluated sensitivity analysis performed by the
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changes in estimated recoverable amounts, resulting in
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management on key assumptions of implied growth rates during
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either impairment or reversals of impairment taken in prior
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explicit period, terminal growth rates and discount rates;
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years.
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f) Tested the mathematical accuracy of the management
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Considering the materiality and the inherent subjectivity
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computations with regard to cash flows and sensitivity analysis;
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which involves significant management judgment in
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g) Performed independent sensitivity analysis of aforesaid key
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predicting future cash flow projections, recoverability of
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assumptions to assess the effect of reasonably possible variations
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investments in subsidiaries has been considered to be a
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on the current estimated recoverable amount for each of the
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key audit matter for the current period audit
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identified investments to evaluate sufficiency of headroom between recoverable value and carrying amount; and
h) Evaluated the adequacy of disclosures given in the standalone financial statements, including disclosure of significant assumptions, judgements and sensitivity analysis performed, in accordance with applicable accounting standards.
Based on the audit procedures performed, we determined that the management's assertion on the recoverability of investments in subsidiaries is appropriate in the context of the standalone financial statements taken as a whole.
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Key audit matters
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How our audit addressed the key audit matters
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Revenue from operations: (refer note 1.3.9 and 26 to the
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Our audit included, but was not limited to, the following procedures:
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Standalone financial statements)
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a)
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Obtained an understanding of the management's process
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The Company recognizes revenue from the sales of
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for revenue recognition (from sale to customers, out-licensing
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pharmaceutical products to resellers or distributors,
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arrangements and service fee), judgments in estimation and
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service fee and out-licensing arrangements. The Company
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accounting treatment of discount, the right to returns, rebates,
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records product sales net of estimated discounts, the right
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other price adjustments and regulatory compliance requirements;
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to returns, rebates and other price adjustments. The actual
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b)
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Evaluated the design and tested the operating effectiveness of
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point in time when revenue is recognised varies depending
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the Company's internal controls, including general IT controls,
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on the specific terms and conditions of the sales contracts
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key IT application controls exercised by the management, over
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entered with customers.
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recognition of revenue and measurement of various discount, the
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Further, the Company has a large number of customers
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right to returns, rebates and other price adjustments;
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operating in various geographies and sales contracts with
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c)
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Evaluated the terms of the licensing arrangements to determine
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customers have different terms relating to the recognition
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satisfaction of performance obligations under the contracts
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of revenue leading to material deductions from gross sales
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for appropriate revenue recognition and tested allocation of
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which includes discounts, the right to return, rebates and
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consideration between performance obligations to verify deferral
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other price adjustments.
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of revenue in respect of unsatisfied performance obligations;
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We identified recognition of revenue from operations as a
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d)
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Performed substantive testing by selecting samples of revenue
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key audit matter because:
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transactions pertaining to sale of products during the year and
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a) Accrual towards discounts, the right to returns, rebates
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during specific periods before and after the year-end. For the
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and other price adjustments is complex and requires
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samples selected, verified the underlying supporting documents
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significant judgments and estimates in relation to
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including contracts, agreements, sales invoices and dispatch/
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contractual agreements/ commercial terms across
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shipping documents to ensure that the correct amount of revenue
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various geographies. Any change in these estimates
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is recorded in the correct period;
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can have a significant financial impact
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e)
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Obtained management workings for amounts recognised towards
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b) The nature of out-licensing contracts are often
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discount schemes, the right to returns and rebates and other price
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inherently complex and unusual, requiring significant
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adjustments during the year and as at year end. On a sample
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management judgment to be applied in respect of
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basis, tested the underlying calculations for amounts recorded as
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revenue recognition.
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accruals and provisions towards the aforementioned obligations,
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c) The Company considers revenue as key benchmark
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as per the terms of related schemes, contracts and regulations and
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for evaluating performances and hence, there is risk of
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traced the underlying data to source documents;
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revenue being overstated due to pressure to achieve
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f)
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Evaluated historical accuracy of the Company's estimates of year-
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targets, earning expectations or incentive schemes
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end accruals pertaining to aforesaid arrangements made in the
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linked to performance for a reporting period.
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g)
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previous years to identify any management bias;
Tested unusual non-standard journal entries based on certain criteria's which impacts revenue recognized during the year;
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h)
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Tested all the manual sales-related adjustments made to revenue comprising of variable consideration under Ind AS 115 to ensure the appropriateness of revenue recognition during the year; and
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i)
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Evaluated the adequacy of disclosures given in the standalone financial statements in accordance with applicable accounting standards.
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Based on audit procedures performed, we determined that the revenue recognition and measurement is appropriate in the context of the standalone financial statements taken as a whole.
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Information other than the Financial Statements and Auditor's Report thereon
6. The Company's Board of Directors are responsible for the other information. The other information comprises the information included in the Annual Report, but does not include the standalone financial statements and our auditor's report thereon.
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 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.
Responsibilities of Management and Those Charged with Governance for the Standalone Financial Statements
7 The accompanying standalone financial statements have been approved by the Company's Board of Directors. The Company's Board of Directors are responsible for the matters stated in section 134(5) of the Act with respect to the preparation and presentation of these standalone financial statements that give a true and fair view of the financial position, financial performance including other comprehensive income, changes in equity and cash flows of the Company in accordance with the Ind AS specified under section 133 of the Act and other accounting principles generally accepted in India. 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 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 financial statements that give a true and fair view and are free from material misstatement, whether due to fraud or error.
8. In preparing the financial statements, the Board of Directors are 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 the Board of Directors either intend to liquidate the Company or to cease operations, or has no realistic alternative but to do so.
9. Those Board of Directors are also responsible for overseeing the Company's financial reporting process.
Auditor's Responsibilities for the Audit of the Standalone Financial Statements
10. Our objectives are to obtain reasonable assurance about whether the 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 Standards on Auditing 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 financial statements.
11. As part of an audit in accordance with Standards on Auditing, specified under section 143(10) of the Act we exercise professional judgment and maintain professional skepticism throughout the audit We also:
• Identify and assess the risks of material misstatement of the 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 Board of Directors' 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; and
• Evaluate the overall presentation, structure and content of the financial statements, including the disclosures and whether the financial statements represent the
underlying transactions and events in a manner that achieves fair presentation.
12. 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
13. 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.
14. From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the financial statements of the current period 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
15. As required by section 197(16) of the Act based on our audit, we report that the Company has paid remuneration to its directors during the year in accordance with the provisions of and limits laid down under section 197 read with Schedule V to the Act
16. As required by the Companies (Auditor's Report) Order, 2020 ('the Order') issued by the Central Government of India in terms of section 143(11) of the Act we give in the Annexure I, a statement on the matters specified in paragraphs 3 and 4 of the Order, to the extent applicable.
17 Further to our comments in Annexure I, as required by section 143(3) of the Act based on our audit, 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 purpose of our audit of the accompanying standalone financial statements;
b) In 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, including the manner prescribed in Rule 3(1) of Companies (Accounts) Rules, 2014, except that the audit trail feature was not enabled at the database level as further stated in paragraph 17(h) (vi) below on reporting under Rule 11(g) of the Companies (Audit and Auditors) Rules, 2014 (as amended).
c) The standalone financial statements dealt with by this report are in agreement with the books of account;
d) In our opinion, the aforesaid standalone financial statements comply with Ind AS specified under section 133 of the Act;
e) On the basis of the written representations received from the directors and taken on record by the Board of Directors, none of the directors is disqualified as on 31 March 2024 from being appointed as a director in terms of section 164(2) of the Act;
f) With respect to the maintenance of accounts and other matters connected therewith refer to our comments in paragraph 17(b) above on reporting under Section 143(3)(b) of the Act and paragraph 17(h)(vi) below on reporting under rule 11(g) of the of the Companies (Audit and Auditors) Rules, 2014 (as amended).
g) With respect to the adequacy of the internal financial controls with reference to financial statements of the Company as on 31 March 2024 and the operating effectiveness of such controls, refer to our separate Report in Annexure II wherein we have expressed an unmodified opinion; and
h) 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, as detailed in note 38 to the standalone financial statements, has disclosed the impact of pending litigations on its financial position as at 31 March 2024;
ii. As detailed in note 52, the Company did not have any long-term contracts including derivative contracts for which there were any material foreseeable losses as at 31 March 2024;
iii. There has been no delay in transferring amounts, required to be transferred, to the Investor Education and Protection Fund by the Company during the year ended 31 March 2024;
iv a. The management has represented that, to the best of its knowledge and belief, other than as disclosed in note 44(j) and note 44(k) to the standalone financial statements, no funds have been advanced or loaned or invested (either from borrowed funds or securities premium or any other sources or kind of funds) by the Company to or in any person(s) or entity(ies), including foreign entities ('the 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 ('the Ultimate Beneficiaries') or
provide any guarantee, security or the like on behalf the Ultimate Beneficiaries;
b. The management has represented that, to the best of its knowledge and belief, as disclosed in note 44(f) to the standalone financial statements, no funds have been received by the Company from any person(s) or entity(ies), including foreign entities ('the 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 as considered reasonable and appropriate in the circumstances, nothing has come to our notice that has caused us to believe that the management representations under sub-clauses (a) and (b) above contain any material misstatement.
v. a. The final dividend paid by the Company during the year ended 31 March 2024 in respect of such dividend declared for the previous year is in accordance with section 123 of the Act to the extent it applies to payment of dividend.
b. As stated in note 47 B(b) to the accompanying standalone financial statements, the Board of Directors of the Company have proposed final dividend for the year ended 31 March
2024 which is subject to the approval of the members at the ensuing Annual General Meeting. The dividend declared is in accordance with section 123 of the Act to the extent it applies to declaration of dividend.
vi. Based on examination which included test checks, the Company in respect of financial year commencing on 1 April 2023, has used an accounting software for maintaining its books of account which has a feature of recording audit trail (edit log) facility at the application level of the accounting software and the same has been operated throughout the year for all relevant transactions recorded in the software. Further, during the course of our audit we did not come across any instance of such audit trail features being tampered with. The Audit trail feature (edit log) at the database level for the direct changes was not enabled, however, the Company had adequate controls in the accounting software such as strict user rights and access of administrator log in through the application layer.
For Walker Chandiok & Co LLP
Chartered Accountants
Firm's Registration No.: 001076N/N500013
Gautam Wadhera
Partner
Membership No.: 508835
UDIN: 24508835BKFFCO6403
Place: Mumbai
Date: 10 May 2024
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