Persistent Systems Limited
Report on the Audit of the Standalone Financial Statements
Opinion
1\ We have audited the accompanying standalone financial statements of Persistent Systems 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 be the key audit matters to be communicated in our report.
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Sr. No. Key audit matter
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How our audit addressed the key audit matter
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1\ Accuracy of revenues and onerous obligations in respect
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Our audit procedures relating to accuracy of revenues and
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of fixed-price contracts
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onerous obligations in respect of fixed-price contracts included
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Refer Note 3.2 (a) to notes forming part of the standalone
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but were not limited to the following:
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financial statements.
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\ Obtained an understanding of the systems, processes and
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The Company has entered into various fixed-price software development contracts, for which revenue is recognized by the Company using the percentage of completion computed as per the Input method prescribed under Ind AS 115 ‘Revenue from Contracts with Customers' (‘Ind AS 115'). Revenue recognition in such contracts involves exercise of significant judgement by the management and the following factors requiring significant auditor attention:
\ High inherent risk around accuracy of revenue, given the customized and complex nature of these contracts and significant involvement of information technology (IT) systems.
\ High estimation uncertainty relating to determination of the progress of each contract, costs incurred till date and additional costs required to complete the remaining contract.
\ Identification and determination of onerous contracts and related obligations.
\ Determination of unbilled revenue receivables and
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controls implemented by management for calculating and recording revenue, and the associated unbilled revenue, unearned and deferred revenue balances, and onerous contract obligations;
\ Evaluated the design and tested operating effectiveness of related internal financial manual controls and involved auditor's experts to-:
- Test key IT controls over IT environment in which the business systems operate, including access controls, segregation of duties, program change controls, program development controls and IT operation controls;
- Test the IT controls over the completeness and accuracy of cost/efforts and revenue reports generated by the system; and
- Test the access and application controls pertaining to allocation of resources and budgeting systems which prevents the unauthorized changes to recording of efforts incurred and controls relating to the estimation of contract efforts required to complete the project;
\ Selected a sample of contracts and performed a retrospective review of efforts incurred with estimated efforts to identify
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unearned revenue related to these contracts as at end of
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reporting period.
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significant variations and verify whether those variations
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Considering the materiality of the amounts involved,
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have been considered in estimating the remaining efforts to
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and significant degree of judgement and subjectivity
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complete the contract;
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involved in the estimates as mentioned above, we have
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\ Reviewed a sample of contracts with unbilled revenues
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identified revenue recognition for fixed price contracts and
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to identify possible delays in achieving milestones, which
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determination of onerous contracts and related provisions,
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require change in estimated efforts to complete the
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as a key audit matter for the current year audit.
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remaining performance obligations;
\ Performed analytical procedures for reasonableness of
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incurred and estimated efforts;
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\ Evaluated management's identification of onerous contracts
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based on estimates tested as above; and
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\ Evaluated the appropriateness of disclosures made in the
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standalone financial statements with respect to revenue recognized during the year as required by applicable Indian Accounting Standards.
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Sr. No. Key audit matter
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How our audit addressed the key audit matter
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2\ Valuation of Employee Stock Option Plan (‘ESOP’)
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Our audit procedures relating to valuation of ESOP included
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Refer note 3.3 (q) and note 34 to the standalone financial
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but were not limited to the following:
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statements.
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\ Obtained an understanding of the terms and arrangements
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The Company has framed various ESOP schemes for its
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of Employee Stock Option Plans;
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employees under which the Company pays remuneration
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\ Evaluated the design and tested operating effectiveness of
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to its employees for services received in the form of equity-
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internal financial controls over the methodology, models
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settled share-based payment transactions.
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and assumptions used by the management to determine
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In accordance with the principles of Ind AS 102 ‘Share
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the fair value of options granted during the year;
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Based Payments’ (‘Ind AS 102’), the fair value of aforesaid
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\ Evaluated competency and objectivity of valuation
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employee stock options determined as at the date of their
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specialist hired by the management;
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grant is recognised as employee compensation cost by the Company over the vesting period of such options.
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\ Reviewed the report from management’s valuation specialist considered for valuation of options granted during
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The fair valuation of options granted to employees for
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the year;
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the services rendered is performed by external valuation specialists using Black-Scholes valuation model which
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\ Assessed the reasonableness of the management
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requires the management to make certain key estimates and assumptions including expected volatility, dividend
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assumptions and estimates and verified the accuracy of inputs used for the valuation purpose on a sample basis;
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yield, risk-free interest rate, performance factor, attrition
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\ Involved auditor’s valuation expert to assist in validating
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rate and non-acceptance factors.
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the valuation assumptions, methodology and approach
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Considering significant management judgment and materiality of amounts involved, valuation of ESOP reserve
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considered by the management’s expert; and ascertained arithmetical accuracy of computation of share-based
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and expense is considered as a key audit matter for the
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payment expense; and
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current year audit.
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\ Evaluated the appropriateness of disclosures made in the
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Standalone financial statements with respect to share based payments as required by applicable Indian Accounting Standards
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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. Other information 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.
The Annual Report is not made available to us at the date of this auditor’s report. 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 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 the Board of Directors either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so.
9\ Those Board of Directors is 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;
\ 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 A 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 A, 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 except for the matters stated in paragraph 17(g)(vi) below on reporting under Rule 11(g) of the Companies (Audit and Auditors) Rules, 2014 (as amended). Further, the back-up of the books of accounts and other books and papers of the Company maintained in electronic mode has been maintained on servers physically located in India, on a daily basis.
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 adequacy of the internal financial controls with reference to financial statements of the Company as on 31 March 2023 and the operating effectiveness of such controls, refer to our separate Report in Annexure B wherein we have expressed an unmodified opinion; and
g. 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 35 to the standalone financial statements, has disclosed the impact of pending litigations on its financial position as at 31 March 2024;
ii. 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 47 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, other than as disclosed in note 48 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 The interim dividend declared and paid by the Company during the year ended 31 March 2024 and until the date of this audit report is in compliance with section 123 of the Act.
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.
vi As stated in Note 53 of the accompanying standalone financial statements and based on our examination which included test checks, except for instance mentioned below, 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 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 audit trail feature being tampered with, other than the consequential impact of the exception
given below:
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Sr. No. Nature of exception noted
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Details of Exception
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1\ Instances of accounting software maintained by a third party where we are unable to comment on the audit trail feature
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The accounting software (Oracle Fusion ERP) used for maintenance of books of accounts of the Company is operated by a third-party software service provider. In the absence of any information on existence of audit trail (edit logs) for any direct changes made at the database level in the ‘Independent Service Auditor’s Assurance Report on the Description of Controls, their Design and Operating Effectiveness’ (‘Type 2 report’ issued in accordance with ISAE 3402, Assurance Reports on Controls at a Service Organisation), we are unable to comment on whether audit trail feature with respect to the database of the said software was enabled and operated throughout the year.
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The As proviso to Rule 3(1) of the Companies (Accounts) Rules, 2014 is applicable from April 1, 2023, reporting under Rule 11(g) of the Companies (Audit and Auditors) Rules, 2014 on preservation of audit trail as per the statutory requirements for record retention is not applicable for the financial year ended March 31, 2024.
For Walker Chandiok & Co LLP
Chartered Accountants
Firm’s Registration No. 001076N/N500013
Shashi Tadwalkar
Partner
Membership No. 101797 UDIN: 24101797BKCPBF9008
Place: Pune Date: 21 April, 2024
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