2. Material accounting policies
a) Basis of accounting
Prepared on the historical cost basis, except for fair values or at amortized cost at the end of each
reporting period, as explained in the accounting policies.
Fair value is the price that would be received on sale of an asset or paid to transfer a liability in an
orderly transaction between market participants at the measurement date. Fair value measurements
are categorized as below, based on the degree to which the inputs to the fair value measurements are
observable and the significance of the inputs to the fair value measurement in its entirety:
• Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities that the
Company can access at measurement date;
• Level 2: inputs other than quoted prices included in level 1, that are observable for the asset or
liability, either directly or indirectly; and
• Level 3: inputs for the asset or liability that are not based on observable market data (unobservable
inputs).
Above levels of fair value hierarchy are applied consistently and generally, there are no transfers
between the levels of the fair value hierarchy unless the circumstances change.
Accounting policies have been consistently applied except where a new accounting standard is
initially adopted or a revision to an existing accounting standard requires a change in the accounting
policy.
An asset is classified as current when it is:
• Expected to be realized or intended to be sold or consumed in normal operating cycle;
• Held primarily for the purpose of trading;
• Expected to be realized within twelve months after the reporting period; or
• Cash or cash equivalent unless restricted from being exchanged or used to settle a liability for at least
twelve months after the reporting period.
A liability is classified as current when:
• It is expected to be settled in normal operating cycle;
• It is held primarily for the purpose of trading;
• It is due to be settled within twelve months after the reporting period; or
• There is no unconditional right to defer the settlement of the liability for at least twelve months after the
reporting period. Terms of a liability that could, at the option of the counterparty, result in its settlement
by the issue of equity instruments do not affect its classification.
The operating cycle is the time between the acquisition of assets for processing and their realization in
cash and cash equivalents.
b) Statement of compliance and basis of preparation
Prepared in accordance with the provisions of the Companies Act, 2013 ("the Act") and the Indian
Accounting Standards ("Ind AS") notified under the Companies (Indian Accounting Standards)
Rules, 2015 and amendments thereof issued by Ministry of Corporate Affairs. Accounting policies,
methods and principles adopted are consistent with those followed in the previous financial year. All
accounting pronouncements issued by the Institute of Chartered Accountants of India (ICAI) are
also applied except where compliance with other statutory promulgations require different treatment.
The financial statements have been approved for issue by the Board of Directors.
The standalone statement of profit and loss are prepared in the format prescribed in schedule III to
the Act. The cash flow statement has been prepared under indirect method and presented as per the
requirements of Ind AS 7.
The disclosure requirements with respect to items in the balance sheet and statement of profit and
loss, as prescribed in schedule III to the Act, are presented by way of notes forming part of accounts
along with the other notes required to be disclosed under the notified Ind AS and the SEBI
regulations. All amounts in the financial statements are presented in Indian Rupees in million [1
million = 10 lacs] except per share data and as otherwise stated.
c) Use of estimates and judgements
The preparation of these standalone financial statements in conformity with the recognition and
measurement principles of Ind AS requires the management of the Company to make estimates and
assumptions that affect the reported balances of assets and liabilities, disclosures relating to
contingent liabilities as at the date of the financial statements and the reported amounts of income
and expense for the periods presented. Uncertainty about these assumptions and estimates could
result in outcomes that require a material adjustment to the carrying amount of assets or liabilities
affected in future periods.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting
estimates are recognized in the period in which the estimates are revised and future periods are
affected.
Key sources of estimation of uncertainty at the date of the financial statements, which may cause a
material adjustment to the carrying amounts of assets and liabilities within the next financial year, are
in respect of useful lives of property, plant and equipment, valuation of deferred tax assets, provisions
and contingent liabilities, impairment testing, revenue recognition and employee benefits.
The areas involving critical judgments are as follows:
i) Revenue recognition: The Company applies judgement to determine whether each service
promised to a customer is capable of being distinct, and is distinct in the context of the
contract, if not, the promised services are combined and accounted as one performance
obligation. The Company uses the percentage of completion method using the input (cost
expended) method to measure progress towards completion in respect of fixed price
contracts. Percentage of completion method accounting relies on estimates of total expected
contract revenue and costs. This method is followed when reasonably dependable estimates
of the revenues and costs applicable to various elements of the contract can be made. Key
factors that are reviewed in estimating the future costs to complete include estimates of
future labor costs and productivity efficiencies. Because the financial reporting of these
contracts depends on estimates that are assessed continually during the term of these
contracts, revenue recognized, profit and timing of revenue for remaining performance
obligations are subject to revisions as the contract progresses to completion. When estimates
indicate that a loss will be incurred, the loss is provided for in the period in which the loss
becomes probable. Volume discounts are recorded as a reduction of revenue. When the
amount of discount varies with the levels of revenue, volume discount is recorded based on
estimate of future revenue from the customer.
ii) Income taxes: The major tax jurisdictions for the Company are India and the United States
of America. Significant judgments are involved in determining the provision for income
taxes including judgment on whether tax positions are probable of being sustained in tax
assessments. A tax assessment can involve complex issues, which can only be resolved over
extended time periods.
iii) Defined benefit plans: The cost of the defined benefit plans and the present value of the
defined benefit obligation are based on actuarial valuation using the projected unit credit
method. An actuarial valuation involves making various assumptions that may differ from
actual developments in the future. These include the determination of the discount rate,
future salary increases, attrition rate and mortality rates. Due to the complexities involved in
the valuation and its long-term nature, a defined benefit obligation is highly sensitive to
changes in these assumptions. All assumptions are reviewed at each reporting date.
iv) Expected credit losses on financial assets:
The impairment provisions of financial assets are based on assumptions about risk of default
and expected timing of collection. The Company uses judgment in making these
assumptions and selecting the inputs to the expected credit loss calculation based on the
Company's history of collections, customer's creditworthiness, existing market conditions as
well as forward looking estimates at the end of each reporting period.
d) Functional and presentation currency
Items included in the financial statements of the entity are measured using the currency of the primary
economic environment in which the entity operates ('the functional currency'). The financial
statements are presented in Indian rupees, which is the functional currency of the Company.
e) Revenue recognition
Revenue is recognized upon transfer of control of promised services to customers in an amount that
reflects the consideration which the Company expects to receive in exchange for those services.
Revenues from customer contracts are considered for recognition and measurement when the
contract has been approved by the parties to the contract, the parties to the contract are committed
to perform their respective obligations, each party's rights and payment terms regarding the services
to be transferred are identified, the contract has commercial substance and it is probable that the
entity will collect the consideration to which it is entitled to in exchange for the services that will be
rendered.
The company assesses the services promised in a contract and identifies distinct performance
obligations in the contract.
Revenue is measured based on the consideration specified in a contract with a customer and excludes
amounts collected on behalf of third parties.
The company's contracts may include variable consideration including rebates, volume discounts and
penalties. The Company includes variable consideration as part of transaction price when there is a
basis to reasonably estimate the amount of the variable consideration and when it is probable that a
significant reversal of cumulative revenue recognized will not occur when the uncertainty associated
with the variable consideration is resolved.
The Company allocates the transaction price to each distinct performance obligation based on the
relative standalone selling price.
Revenue from contracts which are on time and material basis are recognized when services are
rendered, and related costs are incurred.
Revenue from fixed price contracts where the performance obligations are satisfied over time and
where there is no uncertainty as to measurement or collectability of consideration, is recognized as
per the percentage of completion method. The percentage of completion method requires the
company to estimate the services performed to date as a proportion of the total services to be
performed. Efforts or costs expended (input method) has been used to measure progress towards
completion as there is a direct relationship between input and productivity.
Contract assets are recognized when there is excess of revenue earned over billings on contracts.
Contract assets are classified as unbilled receivables (only act of invoicing is pending) when there is
unconditional right to receive cash, and only passage of time is required, as per contractual terms.
Unearned revenue ("contract liability") arises when there are billing in excess of revenue.
f) other income
Interest income is accrued on a time basis by reference to the principal outstanding and the effective
interest rate applicable.
Dividend income is accounted for when the right to receive is established and it is probable that the
economic benefits associated with the dividend will flow to the Company and the amount of dividend
can be measured reliably.
g) Employee benefits
(i) Short term employee benefits: All employee benefits falling due wholly within twelve months
of rendering the service are classified as short-term employee benefits. The benefits like
salaries, wages, and short term compensated absences and performance incentives are
recognized in the period in which the employee renders the related service.
(ii) Post-employment benefits:
• The Company's contribution to state governed provident fund scheme, employee state
insurance scheme and employee pension scheme are classified as defined contribution plans.
The contribution paid/payable under the schemes is recognized during the period in which
the employee renders the related service.
• The employee provident fund schemes are managed by board of trustees established by the
Company. The employee's gratuity fund scheme and the Company's pension schemes are
managed by Life Insurance Corporation of India (LIC). These are classified as defined
benefit plans. The present value of the obligation under such defined benefit plans is
determined based on actuarial valuation using the Projected Unit Credit Method, which
recognizes each period of service as giving rise to additional unit of employee benefit
entitlement and measures each unit separately to build up the final obligation.
• The obligation is measured at the present value of the estimated future cash flows using a
discount rate based on the market yield on government bonds, having maturity periods
approximating to the terms of related obligations.
• Remeasurements, comprising of actuarial gains and losses, the effect of the asset ceiling,
excluding amounts included in net interest on the net defined benefit liability and the return
on plan assets (excluding amounts included in net interest on the net defined benefit liability),
are recognized immediately in the balance sheet with a corresponding debit or credit to
retained earnings through other comprehensive income in the period in which they occur.
• The net interest cost is calculated by applying the discount rate to the net balance of the
defined benefit obligation and the fair value of plan assets. This cost is included in employee
benefit expense in the statement of profit and loss.
• In case of funded plans, the fair value of the plan assets is reduced from the gross obligation
under the defined benefit plans to recognize the obligation on a net basis.
• Gains or losses on the curtailment or settlement of any defined benefit plan are recognized
when the curtailment or settlement occurs. Past service cost is recognized as expense on a
straight-line basis over the average period until the benefits become vested.
(iii) Compensated absences: The Company treats accumulated leave expected to be carried
forward beyond twelve months, as long-term employee benefit for measurement purposes.
Compensated absences are provided based on the actuarial valuation using the projected
unit credit method at the reporting date. Actuarial gains/losses are immediately taken to the
statement of profit and loss. The Company presents the entire leave as a current liability in
the balance sheet if the entity does not have an unconditional right to defer the settlement
for at least twelve months after the reporting period.
h) Property, plant and equipment
a) Recognition & Measurement: Property, plant and equipment are recognized when it is
probable that future economic benefits associated with the item will flow to the company
and the cost of the item can be measured reliably.
Property, plant and equipment are stated at cost net of tax/duty credits availed, if any, less
accumulated depreciation and cumulative impairment, if any.
Property, plant and equipment not ready for intended use on the date of balance sheet are
disclosed under capital work-in-progress.
b) Depreciation: Depreciation is provided for property, plant and equipment so as to expense
the cost over their estimated useful lives, based on evaluation, using straight-line method.
The estimated useful lives and residual value are reviewed at the end of each reporting
period, with the effect of any changes in estimate accounted for on a prospective basis.
Depreciation is charged on pro-rata basis for property, plant and equipment purchased/sold
during the year.
Based on technical evaluation, the management believes that the useful lives as given above best represents
the period over which the management expects to use these assets.
PPE is derecognized upon disposal or when no future economic benefits are expected from its use or disposal.
Any gain or loss arising on derecognition is recognized in the Statement of Profit and Loss.
i) Intangible assets and amortization
Intangible assets are recognized when it is probable that the future economic benefits that are
attributable to the asset will flow to the enterprise and the cost of the asset can be measured reliably.
Intangible assets are measured at cost (net of tax/duty credits availed, if any) or fair value as of the
date of acquisition, as applicable, less accumulated amortization and cumulative impairment.
The estimated useful life of intangible assets (software) is are amortized on a straight-line basis as per
the table below:
Asset class Useful life (years)
Specialized software 3 - 6
Technical knowhow 4
Customer contracts and relationships 4
Tradename 1
j) Goodwill
Goodwill represents the cost of acquired business as established at the date of acquisition of the
business in excess of the acquirer's interest in the net fair value of the identifiable assets, liabilities
and contingent liabilities less accumulated impairment losses, if any. Goodwill is tested for
impairment annually or when events or circumstances indicate that the implied fair value of goodwill
is less than it carrying amount.
k) Impairment of assets
i) Trade receivables: The Company uses an expected credit loss Model to assess the impairment
loss. The Company uses a provision matrix to compute the expected credit loss allowance for
trade receivables. The provision matrix takes into account available external and internal credit
risk factors and the Company's historical experience with customers.
ii) Tangible and intangible assets: Property, plant and equipment and intangible assets (other
than goodwill) are evaluated for recoverability whenever there is any indication that their
carrying amounts may not be recoverable. If any such indication exists, the recoverable amount
(i.e. higher of the fair value less cost to sell and the value-in-use) is determined on an individual
asset basis unless the asset does not generate cash flows that are largely independent of those
from other assets. In such cases, the recoverable amount is determined for the cash generating
unit (CGU) to which the asset belongs.
If the recoverable amount of an asset (or CGU) is estimated to be less than it carrying
amount, the carrying amount of the asset (or CGU) is reduced to its recoverable amount.
An impairment loss is recognized in the statement of profit and loss.
Impairment is determined for goodwill by assessing the recoverable amount of each CGU
(or group of CGUs) to which the goodwill relates. When the recoverable amount of the
CGU is less than it's carrying amount, an impairment loss is recognized. Impairment losses
relating to goodwill cannot be reversed in future periods.
l) Leases
The Company assesses at contract inception whether a contract is, or contains, a lease. That is, if the
contract conveys the right to control the use of an identified asset for a period of time in exchange
for consideration.
Company as a lessee: The Company applies a single recognition and measurement approach for all
leases, except for short-term leases and leases of low-value assets. The Company recognizes lease
liabilities to make lease payments and right-of-use assets representing its right to use the underlying
assets.
Right-of-use assets: The Company recognizes right-of-use assets at the commencement date of the
lease (i.e., the date the underlying asset is available for use). Right-of-use assets are measured at cost,
less any accumulated depreciation and impairment losses, and adjusted for any remeasurement of
lease liabilities. The cost of right-of-use assets includes the amount of lease liabilities recognized,
initial direct costs incurred, and lease payments made at or before the commencement date less any
lease incentives received. Right-of-use assets are depreciated on a straight-line method from the
commencement date over the lease term.
Lease Liabilities: At the commencement date of the lease, the Company recognizes lease liabilities
measured at the present value of lease payments to be made over the lease term. The lease payments
include fixed payments (including in substance fixed payments) less any lease incentives receivable,
variable lease payments that depend on an index or a rate, and amounts expected to be paid under
residual value guarantees. The lease payments also include the exercise price of a purchase option
reasonably certain to be exercised by the Company and payments of penalties for terminating the
lease, if the lease term reflects the Company exercising the option to terminate.
Short-term leases and leases of low-value assets: The company has elected not to recognize right-
of-use assets and lease liabilities for leases of low value assets and short-term leases. The Company
recognizes the lease payments as an operating expense on a straight-line basis over the term of the
lease.
m) financial instruments
Financial assets and liabilities are recognized when the Company becomes party to a contract that
give rise to a financial asset of one entity and a financial liability or equity instrument of another
entity.
Financial assets and liabilities are initially measured at fair value. Transaction costs that are directly
attributable to the acquisition or issue of financial assets and financial liabilities (other than financial
assets and financial liabilities at fair value through profit or loss) are added to or deducted from the
fair value of the financial assets or financial liabilities, as appropriate, on initial recognition.
Financial assets:
a. financial assets at amortized cost: Financial assets are subsequently measured at amortized cost
if these financial assets are held within a business model whose objective is to hold these assets in
order to collect contractual cash flows and the contractual terms of the financial asset give rise on
specified dates to cash flows that are solely payments of principal and interest on the principal amount
outstanding.
Financial assets at amortized cost are represented by trade receivables, cash and cash equivalents,
employee and other advances and eligible current and non-current assets.
b. Financial assets at fair value through other comprehensive income: Financial assets are
measured at fair value through other comprehensive income if these financial assets are held within
a business model whose objective is achieved by both collecting contractual cash flows and selling
financial assets and the contractual terms of the financial asset give rise on specified dates to cash
flows that are solely payments of principal and interest on the principal amount outstanding.
c. financial assets at fair value through profit or loss: Financial assets are measured at fair value
through profit or loss unless it is measured at amortized cost or at fair value through other
comprehensive income on initial recognition.
The transaction costs directly attributable to the acquisition of financial assets and liabilities at fair
value through profit or loss are immediately recognized in profit or loss.
Financial liabilities: Financial liabilities are initially recognized at fair value, and subsequently
carried at amortized cost using the effective interest method.
Derivative financial instruments and hedge accounting: The Company designates foreign
exchange forward contracts as hedge instruments in respect of foreign exchange risks. These hedges
are accounted for as cash flow hedges.
The Company uses hedging instruments that are governed by the policies of the Company which are
approved by the Board of Directors, which provide written principles on the use of such financial
derivatives consistent with the risk management strategy of the Company.
The hedge instruments are designated and documented as hedges at the inception of the contract.
The effectiveness of hedge instruments to reduce the risk associated with the exposure being hedged
is assessed and measured at inception and on an ongoing basis. The ineffective portion of designated
hedges is recognized immediately in the statement of profit and loss.
The effective portion of change in the fair value of the designated hedging instrument is recognized
in the other comprehensive income and accumulated under the heading cash flow hedge reserve.
Hedge accounting is discontinued when the hedging instrument expires or is sold, terminated or
exercised, or no longer qualifies for hedge accounting. Any gain or loss recognized in other
comprehensive income and accumulated in equity till that time it remains and is recognized in
statement of profit and loss when the forecasted transaction ultimately affects the profit or loss.
When a forecasted transaction is no longer expected to occur, the cumulative gain or loss
accumulated in equity is transferred to the statement of profit and loss.
De-recognition: Financial assets are derecognized when all the rights to receive cash flows from the
financial assets expire or transferred without receipt of consideration. Financial liabilities are
derecognized from the Company's balance sheet when the obligation specified in the contract is
discharged or cancelled or expired.
n) Cash and cash equivalents
Cash and cash equivalents includes cash on hand, balances with banks, other short-term, highly liquid
investments with original maturities of three months or less that are readily convertible to known
amounts of cash and which are subject to an insignificant risk of changes in value.
o) Employee stock option scheme
In respect of stock options granted pursuant to the Company's stock options scheme, the excess of
fair value of the option over the exercise price is treated as discount and accounted as employee
compensation expense each year is arrived at based on the number of grants expected to vest. The
total expenses recorded each year is arrived at based on the number of grants that have vested during
the year. At the end of each period, the entity revises its estimates of the number of options that are
expected to vest based on the service conditions. When the share-based award vests, the cumulative
discount recognized as expense in respect of such grant is transferred to securities premium by
crediting the ESOP Outstanding Reserve.
p) foreign currencies
Income and expenses in foreign currencies are recorded at exchange rates prevailing on the date of
the transaction. Foreign currency monetary assets and liabilities are translated at the exchange rate
prevailing on the balance sheet date and exchange gains and losses arising on settlement and
restatement are recognized in the statement of profit and loss. The Company's functional currency
is Indian Rupees. Non-monetary assets and liabilities that are measured in terms of historical cost in
foreign currencies are not retranslated.
q) Income tax
Income tax expense comprises current tax expense and the net change in the deferred tax asset or
liability during the year. Current and deferred tax are recognized in profit or loss, except when they
relate to items that are recognized in other comprehensive income or directly in equity, in which case,
the current and deferred tax are also recognized in other comprehensive income or directly in equity,
respectively.
The current income tax expense includes income taxes payable by the Company and its branches in
India and overseas. The current income tax payable by the Company in India is Indian income tax
payable for their worldwide income after taking credit for tax relief available for export operations in
Special Economic Zones (SEZs).
Current income tax payable by overseas branches of the Company is computed in accordance with
the tax laws applicable in the jurisdiction in which the respective branch operates. The taxes paid are
generally available for set off against the Indian income tax liability of the Company's worldwide
income.
Advance taxes and provisions for current income taxes are presented in the balance sheet after off¬
setting advance tax paid and income tax provision arising in the same tax jurisdiction and where the
relevant tax paying units intends to settle the asset and liability on a net basis.
Deferred income tax is recognized using the balance sheet approach. Deferred income tax assets and
liabilities are recognized for deductible and taxable temporary differences arising between the tax
base of assets and liabilities and their carrying amount, except when the deferred income tax arises
from the initial recognition of an asset or liability in a transaction that is not a business combination
and affects neither accounting nor taxable profit or loss at the time of the transaction.
Deferred income tax asset is recognized to the extent that it is probable that taxable profit will be
available against which the deductible temporary differences and the carry forward of unused tax
credits and unused tax losses can be utilized.
The carrying amount of deferred income tax assets is reviewed at each reporting date and reduced to
the extent that it is no longer probable that sufficient taxable profit will be available to allow all or
part of the deferred income tax asset to be utilized.
Deferred tax assets and liabilities are measured using substantively enacted tax rates expected to apply
to taxable income in the years in which the temporary differences are expected to be received or
settled.
For operations carried out in SEZs, deferred tax assets or liabilities, if any, have been established for
the tax consequences of those temporary differences between the carrying values of assets and
liabilities and their respective tax bases that reverse after the tax holiday ends.
Deferred tax assets and liabilities are offset when they relate to income taxes levied by the same
taxation authority and the relevant entity intends to settle its current tax assets and liabilities on a net
basis.
Deferred tax assets include Minimum Alternative Tax (MAT) paid in accordance with the tax laws in
India, which is likely to give future economic benefits in the form of availability of set off against
future income tax liability. Accordingly, MAT is recognized as deferred tax asset in the balance sheet
when the asset can be measured reliably and it is probable that the future economic benefit associated
with the asset will be realized.
The Company recognizes interest levied related to income tax assessments in interest expenses.
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