We have audited the Standalone Financial Statements of NHPC Limited ("the Company"), which comprise the Balance Sheet as at March 31, 2024, the Statement of Profit and Loss (including Other Comprehensive Income), Statement of Changes in Equity and Statement of Cash Flows for the year then ended, and Notes to the Standalone Financial Statements, including a summary of material accounting policies and other explanatory Information for the year ended on that date (hereinafter referred to as "Standalone Financial Statements").
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 prescribed under section 133 of the Act read with the Companies (Indian Accounting Standards) Rules, 2015, as amended, ("Ind AS") and the accounting principles generally accepted in India, of the state of affairs of the Company as at March 31,2024, and its profit and total comprehensive income , changes in equity and its cash flows for the year ended on that date.
Basis for Opinion
We conducted our audit in accordance with the Standards on Auditing (SAs) specified under section 143(10) of the Act. Our responsibilities under those Standards are further described in the "Auditors' 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 ("the ICAI") together with the ethical requirements that are relevant to our audit of the Standalone 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
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 standalone financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. We have determined the matters described below to be the Key Audit Matters to be communicated in our Report.
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Key Audit Matters
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Addressing the Key Audit Matters
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1.
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Regulatory Deferral Account Debit Balances and accruals of revenue pending tariff Notifications.
The operating activities of the Company are subject to cost-of-service regulations whereby the tariff charged for electricity generated is based on allowable capital, other cost, expenses and stipulated return there against. The Company invoices its customers on the basis of preapproved/ provisional tariff which is subject to truing up.
The Company recognizes revenue as the amount invoiced to customers based on pre-approved/ provisional tariff rates agreed with the regulator. As the Company is entitled to a fixed return on equity, the difference between the revenue recognized and entitlement as per the regulations is recognized as regulatory assets / liabilities.
This has been assessed as Key Audit Matter because Regulatory Deferral Accounts Debit Balances are determined based on tariff regulations and past tariff orders and are subject to verification and approval by the regulators.
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Our audit procedures based on which we arrived at the conclusion regarding reasonableness of the carrying value of Regulatory Deferral Account Debit Balances include the following:
• Understanding and testing the design and operating effectiveness of controls as established by the management for accrual of income and determination of the amounts recoverable there against.
• Obtaining and understanding of the amount recoverable in terms of CERC Regulations and assessing, testing and evaluating the reasonableness thereof keeping in view the significant judgements applied by the management for such assessments.
• The above includes the evaluation of the CERC guidelines and acceptance of the claim made by the Company in the past and the trend of disallowances on various count and adherences and compliances thereof by the management and rationale for assumptions taken under the given situation and business environment.
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Key Audit Matters
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The Regulatory Deferral Accounts Debit Balances are recognized on undiscounted basis based on the estimates and assumptions with respect to the probability that future economic benefit will flow to the entity as a result of actual or expected action of regulator under applicable regulatory framework and therefore recoverability thereof is dependent upon Tariff Regulations and related approvals and notifications.
The accruals made as above are vital and proprietary to the business in which the Company is operating. In absence of rate fixation, these are based on the management's assumptions and estimates which are subject to finalization of tariff by CERC and commencement of operations of the Projects.
Refer Note no 14.1, 34 (22) of the Standalone Financial Statements.
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• Assessing the application of provisions of Ind AS 114, Guidance Note on Accounting of Rate Regulated Activities issued by ICAI for recognition of regulatory deferral balances.
• Reviewing the adequacy and reasonableness of amounts recognised and measurement policies followed by the Company in this respect and adequacy of the disclosure made with respect to the same in the Standalone Financial Statements of the Company.
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2.
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Impairment Assessment of carrying amount of Property, Plant and Equipment (PPE) and Capital Work in Progress (CWIP)
Each of the Power Station/ Project has been considered as Cash Generating Units (CGU) of the Company and impairment indicators and requirements thereof have been assessed with respect to the Property, Plant and Equipment (PPE) and Capital Work in Progress (CWIP).
This has been assessed as Key Audit Matter because the useful life of Property, Plant and Equipment (PPE) and Capital Work in Progress are based on a number of factors including the effect of obsolescence, demand and other economic factors. Further, evaluation of the impairment involves assessment of value in use of the Cash Generating Units (CGUs) of the Company and requires significant judgements and assumptions about the future cash flow forecasts, forecast production, forecast volumes, prices and discount rate.
Refer Note 34(18) of the Standalone Financial Statements.
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Our audit procedures based on which we arrived at the conclusion regarding reasonableness of the impairment assessment of carrying amount of PPE and CWIP include the following:
• Critical evaluation of internal and external factors impacting the entity and indicators of impairment (or reversal thereof) in line with Ind AS 36.
• Review of impairment valuation models used in relation to CGU to determine the recoverable amount by analysing the key assumptions used by management in this respect including:
- Consistency with respect to forecast for arriving at the valuation and assessing the potential impact of any variances;
- Price assumptions used in the models;
- Factoring of risk inherent to the CGUs in the Cash Flow projections or the discount rate;
- The assumption/estimation for the weighted average cost of capital and rate of discount for arriving at the value in use.
• Reviewed the Government policy and approval for setting up the Projects, decision of the Board of Directors and the efforts and steps being undertaken in this respect.
• Reliance has been placed on management projections for completion timeline, volume of generation and resultant revenue based on expected tariff there against.
• Evaluation of adequacy and appropriateness of disclosures made in the Standalone Financial Statements.
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Key Audit Matters
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Addressing the Key Audit Matters
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3.
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Contingent Liabilities - against claim from Contractors
There are number of litigations/claims/arbitration cases pending before various forums against the Company in which the management's judgement is required for estimating the amount to be disclosed as contingent.
We have identified this as a key audit matter because claims made against the Company are significant and these are pending for decision before arbitration, or other judicial forums and consequential and possible impact and disclosures involve a significant degree of management judgement in interpreting the cases and it may be subject to management bias.
Refer Note 34(1 )(a)(i) of Standalone Financial Statements.
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Our audit procedures based on which we arrived
at the conclusion regarding reasonableness of the
Contingent Liabilities include the following:
• Obtained the status of the cases from the legal department and their view on the matter.
• Evaluated the contractual terms and conditions and management's rationale for the adequacy of the provision so far made and the amount remaining unprovided against the demands made against the Company.
• Discussion with management and perusing/ reviewing the correspondences, Memos and Notes on related matters.
• Reliance has been placed on the legal views and decisions on similar matters and probability of the liability arising therefrom and provision made by the Management pending final judgement/ decisions.
• Reviewed the appropriateness and adequacy of the disclosure and provision by the management as required in terms of the requirement of Ind AS 37 "Provisions, Contingent Liabilities and Contingent Assets".
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4.
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Recognition of MAT Credit and Regulatory Deferral (Credit) balances
During the current Financial Year, the Company has assessed the recoverability of unrecognised MAT Credit available to it.
The company has recognised deferred tax asset relating to MAT credit entitlement. Utilisation of MAT credit will result in lower outflow of Income Tax in future years and accordingly Regulatory Deferral Liability attributable to the said MAT credit entitlement has also been recognised, payable to the beneficiaries in subsequent periods as per CERC Tariff Regulations. The recoverability of this deferred tax asset relating to MAT credit entitlement is dependent upon the generation of sufficient future taxable profits to utilise such entitlement within the stipulated period prescribed under the Income Tax Act,1961.
We identified this as a key audit matter because of its materiality and requirement of judgement in forecasting future taxable profits for recognition of MAT credit entitlement considering the recoverability of such tax credits within allowed time frame as per the provisions of the Income Tax Act, 1961.
Refer Note No. 14.2, 18, 30.1, 31, 34(22) (E) read with Material Accounting Policy No. 20.0(b) of the Standalone Financial Statements.
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Our audit procedures based on which we arrived at
the conclusion regarding appropriateness of MAT
Credit recognized and Regulatory Deferral (Credit)
balances created there against include the following:
• Understanding and testing the operating effectiveness of the Company's control relating to taxation and assessment of carrying amount of deferred tax assets/ liabilities.
• Review of the Company's accounting policy in respect of deferred tax assets on unutilized MAT credit and current year developments, if any, requiring change in such policy and management contention on the same.
• Evaluation of tax credit entitlement as legally available to the Company based on internal forecasts prepared by the Company and probability of future taxable income.
• Review of underlying assumptions for consistency and uncertainty involved and principle of prudence for arriving at a reasonable degree of probability of utilisation of MAT Credit recognized.
• Review of implication pertaining to regulatory regime under which the Company operates and estimations prepared by the Company regarding MAT Credit arising out of generation activity to be passed on to beneficiaries and impact thereof on the Standalone Financial Statements under the given current Regulatory provisions and period of applicability thereof.
• Evaluation of adequacy and appropriateness of disclosures made in the Standalone Financial Statements.
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Information Other than the Standalone Financial Statements and Auditors' Report Thereon
The Company's Board of Directors is responsible for the other information. The other information comprises the information included in the Directors' Report and its annexures, Report on Corporate Governance, Business Responsibility and Sustainability Report included in the Annual Report but does not include the Standalone Financial Statements and our auditors' report thereon. The other information as stated above is expected to be made available to us after the date of this auditors' 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 identified above when it becomes available, and, in doing so, consider whether the other information is materially inconsistent with the Standalone Financial Statements or our knowledge obtained during the course of our audit or otherwise appears to be materially misstated.
When we read the other information as stated above, and if we conclude that there is a material misstatement therein, we are required to communicate the matter to those charged with governance and describe necessary actions required as per applicable laws and regulations.
Management Responsibility 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, total comprehensive income, changes in equity and cash flows of the Company in accordance with the accounting principles generally accepted in India, including the Indian Accounting Standards specified under section 133 of the Act.
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 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 Board of Directors are also responsible for overseeing the Company's financial reporting process.
Auditors' 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 auditors' 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 scepticism 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 system with reference to Standalone 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 auditors' report to the related disclosures in the Standalone 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 auditors' 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 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 of the current period and are therefore the key audit matters. We describe these matters in our auditors' 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
i. As required by the Companies (Auditor's Report) Order, 2020 ("the Order"), issued by the Central Government of India in terms of sub-section (11) of section 143 of the Act, we give in the "Annexure A" a statement on the matters specified in paragraphs 3 and 4 of the Order, to the extent applicable.
ii. Based on the verification of books of account of the Company and according to information and explanations given to us, we give below a report on the Directions issued by the Comptroller and Auditor General of India in terms of Section 143 (5) of the Act:
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Directions
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Reply
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1
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Whether the Company has system in place to process all the accounting transactions through IT system? If yes, the implications of processing of accounting transactions outside IT system on the integrity of the accounts along with the financial implications, if any, may be stated.
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According to the information and explanations given to us and based on our audit, all accounting transactions are routed through ERP system implemented by the Company. Period end Standalone Financial Statements are compiled offline based on balances and transactions generated from ERP system.
We have neither been informed nor have we come across during the course of our audit any accounting transactions having impact on the integrity of the accounts along with the financial implications which have been processed outside the IT system.
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Directions
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Reply
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2
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Whether there is any restructuring of an existing loan or cases of waiver/write off of debts/loans/ interest etc. made by a lender to the Company due to the Company's inability to repay the loan? If yes, the financial impact may be stated. Whether such cases are properly accounted for? (In case, lender is a government company, then this direction is also applicable for statutory auditor of lender company)
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According to information and explanations given to us and based on our audit, there is no case of restructuring of an existing loan or cases of waiver/write off of debts / loans / interest etc. made by lender to the Company.
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3
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Whether funds (grants / subsidy etc.) received/ receivable for specific schemes from Central/ State Government or its agencies were properly accounted for / utilized as per its terms and conditions? List the cases of deviation.
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According to information and explanations given to us and based on our audit, the Company has accounted for and utilized the funds received for specific schemes from Central / State agencies as per the terms and conditions of the schemes.
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iii. 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) 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.
c) the Balance Sheet, the Statement of Profit and Loss (including Other Comprehensive Income), the Statement of Changes in Equity and the Statement of Cash Flows dealt with by this Report are in agreement with the books of account.
d) in our opinion, the aforesaid Standalone Financial Statements comply with the Indian Accounting Standards specified under Section 133 of the Act.
e) in terms of Notification no. G.S.R. 463 (E) dated 05th June 2015 issued by the Ministry of Corporate Affairs, provisions of Section 164(2) of the Act regarding disqualifications of the Directors, are not applicable as it is a Government Company.
f) With respect to the adequacy of the internal financial controls with reference to Standalone Financial Statements of the Company and the operating effectiveness of such controls, refer to our separate Report in "Annexure B".
g) As per notification number G.S.R. 463 (E) dated 5th June, 2015 issued by Ministry of Corporate Affairs, section 197 of the Act as regards the managerial remuneration is not applicable to the Company, since it is a Government Company.
h) With respect to the other matters to be included in the Auditors' 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 34(1) to the Standalone Financial Statements.
ii. The Company did not have any material foreseeable losses against long-term contracts including derivative contracts and thereby the requirement for making provision in this respect is not applicable to the Company.
iii. There has been no delay in transferring amounts which were required to be transferred to the Investor Education and Protection Fund by the Company.
a. The management has represented that, to the best of its knowledge and belief, 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 persons or entities, including foreign entities ("Intermediaries"), with the understanding, whether recorded in writing or otherwise, that the Intermediary shall, 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 to or on behalf of the Ultimate Beneficiaries.
b. The management has represented, that, to the best of its knowledge and belief, no funds have been received by the Company from any persons or entities, including foreign entities ("Funding Parties"), with the understanding, whether recorded in writing or otherwise, that the Company shall, 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 from or on behalf of the Ultimate Beneficiaries; and
c. Based on the 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 sub clause (i) and (ii) of Rule 11 (e) contain any material mis-statement.
v. a. The final dividend proposed for the previous year, declared and paid by the Company during the
year is in accordance with Section 123 of the Act, as applicable.
b. Interim dividend declared and paid by the Company during the year is in accordance with Section 123 of the Act.
c. As stated in note 33(3)(c) to the financial statements, the Board of Directors of the Company has proposed final dividend for the year which is subject to the approval of the members at the ensuing Annual General Meeting. The amount of dividend proposed is in accordance with Section 123 of the Act to the extent it applies to declaration of dividend.
vi. Based on our examination which included test checks, the Company has used an accounting software for maintaining its books of account for the financial year ended March 31,2024 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 software. Further, during the course of our audit we did not come across any instance of audit trail feature being tampered with.
As proviso to Rule 3(1) of the Companies (Accounts) Rules, 2014, as amended is applicable to the Company only w.e.f. 1 April 2023, therefore, reporting under Rule 11(g) of the Companies (Audit and Auditors) Rules, 2014, as amended, on preservation of audit trail as per the statutory requirements for record retention is not applicable for financial year ended 31 March 2024.
For Chaturvedi & CO. For P C Bindal and CO. For S. N. Dhawan & CO LLP
Chartered Accountants Chartered Accountants Chartered Accountants
FRN: 302137E FRN:003824N FRN: 000050N / N500045
(S C Chaturvedi) (Manushree Bindal) (Mukesh Bansal)
Partner Partner Partner
M. No. 012705 M. No. 517316 M. No. 505269
UDIN: 24012705BKFYMX3327 UDIN: 24517316BKHHST6993 UDIN: 24505269BKCZPB9383
Place: Faridabad
Date: 17th May 2024
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