To The Members of
The Shipping Corporation of India Limited
Report on the Audit of the Standalone Financial Statements
Opinion
We have audited the accompanying Standalone Financial Statements of The Shipping Corporation of India Limited (“the Company”), which comprise the Balance Sheet as at 31.03.2024, the Statement of Profit and Loss (including Other Comprehensive Income), the Statement of Changes in Equity and the Statement of Cash Flows for the year then ended, and notes to the Standalone Financial Statements including a summary of significant accounting policies and other explanatory information (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 and other accounting principles generally accepted in India, of the state of affairs of the Company as at 31.03.2024, its proft(including other comprehensive income), changes in equity and its cash flows for the year ended on that date.
Basis for Opinion
We conducted our audit of the Standalone Financial Statements in accordance with Standards on Auditing (SAs) 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 Standalone Financial Statements under the provisions of the Act and Rules made thereunder, and we have fulfilled our other ethical responsibilities in accordance with these requirements and the ICAI’s Code of Ethics. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion on the Standalone Financial Statements.
Key Audit Matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the Standalone Financial Statements of the current year. 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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Sr. No.
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Key Audit Matter
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Auditor’s Response
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1
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Accuracy of recognition, measurement, presentation and disclosures of revenues and other related balances in view of adoption of Ind AS 115 “Revenue from Contracts
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Our audit approach consisted testing of the design and operating
effectiveness of the internal controls and substantive testing as
follows:
• Evaluated the design of internal controls relating to Implementation of the revenue accounting standard.
• Selected sample of continuing and new contracts, and tested the operating effectiveness of the internal control, relating to identification of the distinct performance obligations and determination of transaction price.
• Selected sample of continuing and new contracts and performed the following procedures.
• Read, analyzed and identified the distinct performance obligations in these contracts.
• Compared these performance obligations with that identified and recorded by the Company.
• Considered the terms of the contracts to determine the transaction price including any variable consideration to verify the transaction price used to compute revenue.
• In respect of samples relating to fixed price contracts, progress towards satisfaction of performance obligation used to compute recorded revenue was verified.
• Samples of revenue disaggregated by type and service offerings was tested with the performance obligations specified in the underlying contracts.
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with Customers” (revenue accounting standard):
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The application of the revenue accounting standard involves certain key judgments relating to identification of distinct performance obligations, determination of transaction price of the identified performance obligations, the appropriateness of the basis used to measure revenue recognized over a period. Additionally, revenue accounting standard contains disclosures which involves collation of information in respect of disaggregated revenue and periods over which the remaining performance obligations will be satisfied subsequent to the balance sheet date. In view of these reasons, this matter is identified as a Key Audit Matter. (Refer Note no.32 to the Standalone Financial Statements)
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Sr. No.
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Key Audit Matter
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Auditor’s Resnonse
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2.
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Imoairment testina of Fleets in line with the Ind AS 36:
The Company at every reporting period, assesses market conditions and other specific risks to determine if there are any triggering events that may be indicators of an impairment of the fleets.
The impairment loss, if any, is recognized in the Statement of Profit and Loss in the period in which impairment takes place.
The provision for impairment of fleets is identified as a Key Audit Matter as it involves significant management assumptions and judgment to assess the market conditions and other associated risks in assessment of provisions.
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We have obtained the management’s view to gain an overview of the triggering events, market conditions (present & future) operational factors and other key assumptions supporting the impairment assessment.
We have performed the following procedures for verification of impairment testing of Fleets:
• Understanding the process of FMV (Fair Market Value) obtained by management.
• Understanding the process for collecting the inputs into the valuation models to evaluate the design of the Company’s controls over its impairment assessment and challenged the appropriateness of the inputs and significant assumptions, including the cash flow projections, discount rate, costs and expenses.
• Assessing the reasonableness of fair value of vessel considered by the management by comparing the same with the valuations provided by external professional valuers.
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3.
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The direct access of certain overseas foreian aaents to fund collected on account of freiaht and other charaes:
Liner division of the Company has been carrying out its vessels operations and container marketing activities at various ports in India and abroad through its agency network. Agents perform various activities such as marketing, booking, clearing of cargo, port calls of vessels & also collection of freight on behalf of the Company.
The Company depends on its agents for operation of Liner segment business.
Since all the activities are performed by the agents, there is requirement of funds.Collection of income is done directly by agents and subsequently remitted to the Company. Therefore, it involves a risk on the part of the Company and hence is identified as a Key Audit Matter.
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We assessed the Company’s process to evaluate Agents on timely basis to identify the impact on the revenue and collection of funds.
• The Company has obtained bank guarantee from major agents & also reviewed the same periodically to confirm its validity and completeness with respect to risk exposure on revenue due to direct access to agents.
• The Company has provided Statement of Account (SOA) obtained from these foreign agents for confirmation of transactions and closing balance.
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4.
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Evaluation of Dry Dockina Cost. Renair Exoenses and remainina useful life of Vessels:
As per Ind AS 16 ‘Property, Plant and Equipment’, subsequent costs like expenditure on major maintenance, refits or repairs including planned dry-dock are included in the asset’s carrying amount or recognized as a separate asset, as appropriate, when they meet the recognition criteria, i.e., only when it is probable thatfuture economic benefits associated with the item will flow to the Company and the cost of the item can be measured reliably.
A shipping company on periodic basis is required to bring all ships into dry dock for major inspection and overhaul. Overhaul expenditure might at first sight seem to be a repair to the ships but it is actually a cost incurred in getting the ship back into seaworthy condition.
The dry-docking cost and repairs expenses of vessels are considered as Key Audit Matter as it requires management judgment to assess future economic benefits from the expenditure incurred and the measurement of the cost.
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To assess the recognition of dry docking cost, its useful life &
repair cost, we performed the following procedure:
• Evaluated the design of internal controls relating to the major cost like repairs & dry-docking which are of two types i.e. planned dry-dock & emergency dry-dock.
• Selected samples to verify the operating effectiveness of the internal control, relating to identification of the distinction between the two cost i.e. repair & dry-dock cost.
• Tested the relevant information technology systems’ relating to the dry-dock & Fleet related expenses.
• Tested the useful life of dry-docking of vessels based on the assessment by management and statutory requirement on dry docking.
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Sr. No.
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Key Audit Matter
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Auditor’s Response
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5.
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Provisions for taxes and Continaent Liabilities:
The Company is involved in various taxes and other disputes for which final outcomes cannot be easily predicted and which could potentially result in significant liabilities. The assessment of the risks associated with the litigations is based on complex assumptions, which require the use of judgment and such judgment relates, primarily, to the assessment of the uncertainties connected to the prediction of the outcome of the proceedings and to the adequacy of the disclosures in the financial statements. Because of the judgment required, the materiality of such litigations and the complexity of the assessment process, this is identified as a Key Audit Matter. (Refer Note no 27 to the Standalone Financial Statements regarding disclosure of contingent liabilities)
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Our audit procedure in response to this key Audit Matter inter-alia
included:
• Assessment of the process and relevant controls implemented to identify legal and tax litigations, and pending administrative proceedings.
• Assessment of assumptions used in the evaluation of potential legal and tax risks performed by the legal and tax department of the Company considering the legal precedence and other rulings in similar cases.
• Inquiry with the legal and tax departments personnel regarding the status of the most significant disputes and perusal of the key relevant documentation.
• Analysis of opinion obtained by the Company from external experts, wherever available.
• Review of the adequacy of the disclosures in the notes to the financial statements.
• We have observed that the provision for tax estimated as above including the deferred tax, has not resulted in material deviation from the applicable rate of tax after considering the exemptions, deductions and disallowances as per the provisions of the Income Tax Act.
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Emphasis of Matter
We draw attention to the following matters in the notes to the Standalone Financial Statements:
1. Note 40 on the matter continued since FY 2014-15 regarding payment of Performance Related Pay (PRP) of ' 1,103 lakhs vis-a-vis DPE guidelines with respect to computation of profits from core activities and non-observance of "Bell Curve”. The Company is pursuing the matter with the Ministry of Ports, Shipping and Waterways for resolution and final decision.
2. Note 42 regarding selection of the Company for Strategic Disinvestment process by the Government of India. The disinvestment process and the procedural aspects in relation to the same are in progress.
3. Note No. 43 regarding MCA’s approval in FY 22-23 for demerger between The Shipping Corporation of India Limited (“Demerged Company”) and The Shipping corporation of India Limited Land and Assets Limited (“Resulting Company”) and consequently, transfer of non-core assets to SCI LAL and leaseback of the same to SCI and management’s assessment of treating the same as short term lease pending execution of formal lease agreement and disinvestment process.
4 a) Note 44 (a) regarding the practice of seeking balance confirmations in respect of Trade receivables, Trade payables and Deposits, the process of reconciliation and the management's assertion that it would not have any material difference affecting the fnancial statements. b) Note no 44 (b) regarding reconciliation of agent / vendor/ customer balances and its consequential impact on foreign exchange gain/loss including the accuracy of the exchange gain / loss accounted on revaluation of balances. As stated in the referred note by management, the impact of the same would not be material.
Our opinion is not modified in respect of above matters.
Other Matter
The Standalone financial statements of the Company for the year ended March 31, 2023 were audited by M/s V.Sankar Aiyer & Co. and M/s Chokshi & Chokshi LLP (Joint Auditors) whose report dated May 9, 2023, expressed an unmodified opinion on those standalone financial statements.
Our opinion is not modified in respect of these matter.
Other Information
The Company’s Board of Directors are responsible for the other information. The other information comprises the information included in the Director’s Report including Annexures to Director’s Report, Business Responsibility Report, Corporate Governance and Shareholder’s Information, but does not include the Standalone Financial Statements, and our auditor’s report thereon.The Annual report/Board’s report is expected to be made available to us after the date of this auditor’s report.
Our opinion on the Standalone Financial Statements does not cover the other information and we do not express any form of assurance conclusion thereon.
In connection with our audit of the Standalone Financial Statements, our responsibility is to read the other information and, in doing so, consider whether 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.
When we read the other information, If we conclude that there is a material misstatement therein, we are required to communicate the matters to those charged with governance and determine the actions under the applicable laws and regulations.
Responsibilities of Management and Those Charged with Governance for the Standalone Financial Statements The Company’s Management and Board of Directors are 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,fnancial performance(including other comprehensive income), changes in equity and cash flows of the Company in accordance with the Ind AS 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 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.
Auditor’s Responsibilities for the Audit of the Standalone Financial Statements
Our objectives are to obtain reasonable assurance about whether the Standalone Financial Statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with SAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of this Standalone Financial Statements.
As part of an audit in accordance with SAs, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:
• Identify and assess the risks of material misstatement of the Standalone Financial Statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances. Under section 143(3)(i) of the Act, we are also responsible for expressing our opinion on whether the Company has adequate internal financial controls with reference to financial statements in place and the operating effectiveness of such controls.
• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.
• Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the 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 auditor’s report. However, future events or conditions may cause the Company to cease to continue as a going concern.
• Evaluate the overall presentation, structure and content of the Standalone Financial Statements, including the disclosures, and whether the Standalone Financial Statements represent the underlying transactions and events in a manner that achieves fair presentation.
Materiality is the magnitude of misstatements in the Standalone Financial Statements that, individually or in aggregate, makes it probable that the economic decisions of a reasonably knowledgeable user of the Standalone Financial Statements may be influenced. We consider quantitative materiality and qualitative factors in (i) planning the scope of our audit work and in evaluating the results of our work; and (ii) to evaluate the effect of any identified misstatements in the Standalone Financial Statements.
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 year and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.
Report on Other Legal and Regulatory Requirements
(1) As required by the Companies (Auditor’s Report) Order, 2020 (“the Order”) issued by the Central Government of India in terms of section 143(11) of the Act, we give in “Annexure 1”, a statement on the matters specified in paragraphs 3 and 4 of the Order, to the extent applicable.
(2) (A) As required by section 143(3) of the Act, we reportthat:
a. We have sought and obtained all the information and explanations, which to the best of our knowledge and belief were necessary forthe purposes of ouraudit;
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 matters as stated in paragraph 2(B)(vi) below on reporting under Rule 11(g) of Companies (Audit & Auditors) Rules, 2014;
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 Ind AS specified under section 133 of the Act;
e. In our opinion and to the best of our information and according to the explanations given to us, the Company being a Government Company, section 164(2) related to disqualifications for appointment of directors is not applicable to it in accordance with exceptions, modifications and adaptations provided vide Notification No. G.S.R. 463 (E) dated June 5,2015 issued by Ministry of Corporate Affairs (the “Notification”).
f. The modifications relating to the maintenance of accounts and other matters connected therewith are as stated in the paragraph 2(A)(b) above on reporting under Rule 11(g) of the Companies (Audit & Auditors) Rules, 2014;
g. 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, referto ourseparate reportin “Annexure 2”.
(B) With respectto the other matters to be included in the Auditor’s Report in accordance with Rule 11 of the Companies (Audit and
Auditors) Rules, 2014, as amended, in our opinion and to the best of our information and according to the explanations given to us:
i. The Company has disclosed the impact of pending litigations on its financial position in its Standalone Financial Statements - Refer Note 27 to the Standalone Financial Statements;
ii. The Company has made provision, as required under the applicable law or accounting standards, for material foreseeable losses, if any, on long-term contracts including derivative contracts;
iii. There were no amounts, which were required to be transferred to the Investor Education and Protection Fund by the Company.
iv. (a) The management has represented that, to the best
of its knowledge and belief, no funds have been advanced or loaned or invested (either from borrowed funds or share premium or any other sources or kind of funds) by the company to or in any other person or entity, including foreign entity ("Intermediaries"), with the understanding, whether recorded in writing or otherwise, that the Intermediary shall, whether, directly or indirectly lend or invest in other persons or entities identified in any manner whatsoever by or on behalf of the Company ("Ultimate Beneficiaries") or provide any guarantee, security or the like on behalf of the Ultimate Beneficiaries;
(b) The management has represented, that, to the best of its knowledge and belief, no funds have been received by the Company from any person or entity, including foreign entity ("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) In our opinion and based on the audit procedures, we have 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 (a) and (b) contain any material misstatement.
v. As stated in Note 45 to the standalone financial statements - The dividend declared or paid during the year by the Company is in compliance with section 123 of the Companies Act, 2013.
vi. Proviso to Rule 3(1) of the Companies (Accounts) Rules, 2014 for maintaining books of accounts using accounting software which has a feature of recording audit trail (edit log) facility is applicable to the Company with effect from April 1, 2023, and accordingly, reporting under Rule 11(g) of Companies (Audit and Auditors) Rules, 2014 is applicable for the financial year ended 31st March, 2024. Based on the test checks, except for the interfacing functional software (Danaos and Afsys) which do not give in some instances full edit log report,the company 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 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 is applicable from April 1,2023, reporting under Rule 11 (g) of the said Rule on preservation of audit trail as per the statutory requirements for record retention is not applicable for the financial year 2023-24 (C) With respect to the other matter to be included in the Auditor’s Report in accordance with the requirements of section 197(16) of the Act:
In our opinion and to the best of our information and according to the explanations given to us, the Company being a Government Company, section 197 of the Act related to the managerial remuneration is not applicable to it in accordance with exceptions, modifications and adaptations provided vide the Notification referred earlier under clause 2(A)(e) above.
(3) Pursuant to the requirement under Section 143(5) of the Act, applicable in case of a Government Company, we give in the “Annexure 3” a statement containing our comments on the matters specified in the directions and additional directions issued by office of the Comptroller and Auditor General of India to be reported in respect of the Company.
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