We have audited the accompanying standalone financial, statements of Mahindra & Mahindra Financial. Services Limited ("the Company"), which comprise the BaLance Sheet as at 31st March 2024, and the Statement of Profit and Loss (including Other Comprehensive Income), the Statement of Cash FLows and the Statement of Changes in Equity for the year ended on that date, and notes to the financiaL statements, incLuding a summary of materiaL accounting poLicies and other explanatory information.
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, ("Ind AS") and other accounting principLes generaLLy accepted in India, of the state of affairs of the Company as at 31st March 2024, and its profit, totaL comprehensive income, its cash fLows and the changes in equity for the year ended on that date.
Basis for opinion
We conducted our audit of the standaLone financiaL statements 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 Auditor's ResponsibiLity 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 the 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 obtained by us is sufficient and appropriate to provide a basis for our audit opinion on the standaLone financiaL statements.
Emphasis of matter
We draw attention to Note 42 (ii) to the standalone financiaL statements, which describes the impact of a fraud in respect of retaiL vehicLe Loans in one of the branches of the Company.
Our opinion is not modified in respect of this matter.
We draw attention to Note 43 to the standaLone financiaL statements, which describes that the Company may incur cost associated with incident which are currentLy indeterminabLe as at the date of this Report.
Our opinion is not modified in respect of this matter.
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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Key audit matter
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Auditor's response
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1
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Allowances for Expected Credit Losses ("ECL"):
As at 31st March 2024, the carrying vaLue of Loan assets measured at amortised cost, aggregated ? 99,195.18 crore (net of aLLowance of expected credit Loss ? 3401.59 crore) constituting approximateLy 86% of the Company's totaL assets. Significant judgement is used in cLassifying these loan assets and applying appropriate measurement principles. ECL on such loan assets measured at amortised cost is a criticaL estimate invoLving greater LeveL of management judgement. As part of our risk assessment, we determined that the ECL on such Loan assets has a high degree of estimation uncertainty, with a potentiaL range of reasonabLe outcomes for the StandaLone FinanciaL
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We have examined the poLicies approved by the Board of Directors of the Company that articuLate the objectives of managing each portfoLio and their business modeLs. We have aLso verified the methodoLogy adopted for computation of ECL ("ECL Model") that addresses policies approved by the Board of Directors, procedures and controLs for assessing and measuring credit risk on aLL Lending exposures measured at amortised cost. Our audit procedures related to the aLLowance for ECL incLuded the foLLowing, among others:
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Key audit matter
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Auditor's response
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Statements. The elements of estimating ECL which involved
increased level of audit focus are the following:
• Qualitative and quantitative factors used in staging the loan assets measured at amortised cost;
• Basis used for estimating Probabilities of Default ("PD"), Loss Given Default ("LGD") and Exposure at Default ("EAD") at product level with past trends;
• Judgements used in projecting economic scenarios and probability weights applied to reflect future economic conditions; and
• Adjustments to model driven ECL results to address emerging trends.
(Refer Note 2.5(ii), 2.11(h), 6 and 50.2 to the Standalone
Financial Statements).
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Testing the design and operating effectiveness of the
following:
• completeness and accuracy of the EAD and the classification thereof into stages consistent with the definitions applied in accordance with the policy approved by the Board of Directors including the appropriateness of the qualitative factors to be applied;
• completeness, accuracy and appropriateness of information used in the estimation of the PD and LGD for the different stages depending on the nature of the portfolio; and
• accuracy of the computation of the ECL estimate including reasonableness of the methodology used to determine macro-economic adjustment basis forward looking information..
Test of details on a sample in respect of the following:
• accuracy and completeness of the input data such as period of default and other related information used in estimating the PD;
• the mathematical accuracy of the ECL computation by using the same input data as used by the Company;
• completeness and accuracy of the staging of the loans and the underlying data based on which the ECL estimates have been computed;
• assessed whether the disclosures on key judgements, assumptions and quantitative data with respect to impairment loss allowance in standalone financial statements are appropriate and sufficient.
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2.
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Information Technology and General Controls:
The Company is dependent on its Information Technology ("IT") systems due to the significant number of transactions that are processed daily across such multiple and discrete IT systems. Also, IT application controls are critical to ensure that changes to applications and underlying data are made in an appropriate manner and under controlled environments. Appropriate controls contribute to mitigating the risk of potential fraud or errors as a result of changes to applications and data. On account of the pervasive use of its IT systems, the testing of the general computer controls of the IT systems used in financial reporting was considered to be a Key Audit Matter.
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With the assistance of our IT specialists, we obtained an understanding of the Company's IT applications, databases and operating systems relevant to financial reporting and the control environment. For these elements of the IT infrastructure the areas of our focus included access security (including controls over privileged access), program change controls, database management and network operations. In particular:
• We tested the design, implementation, and operating effectiveness of the Company's general IT controls over the IT systems relevant to financial reporting. This included evaluation of Company's controls over segregation of duties and access rights being provisioned / modified based on duly approved requests, access for exit cases being revoked in a timely manner and access of all users being recertified during the period of audit.
• We also tested key automated business cycle controls and logic for the reports generated through the IT infrastructure that were relevant for financial reporting or were used in the exercise of internal financial controls with reference to financial statements. Our tests included testing of the compensating controls or alternate procedures to assess whether there were any unaddressed IT risks that would materiality impact the Financial Statements.
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Information other than the financial statements and auditor's report thereon
• The Company's Board of Directors is responsible for the other information. The other information comprises the information incLuded in the Board's Report, (including annexures thereto), Business Responsibility and sustainability report and Management Discussion and Analysis ("MD&A'') (collectively referred to as "other information"), but does not include the consolidated financial statements, standalone financial statements and our auditor's report thereon. The Other Information 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 will 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 included in the above reports, if we conclude that there is a material misstatement therein, we are required to communicate the matter to those charged with governance as required under SA 720 The Auditor's responsibilities Relating to Other Information.
Responsibilities of management 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 including other comprehensive income, cash flows and changes in equity of the Company in accordance with the accounting principles generally accepted in India, including Ind AS 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 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.
In preparing the standalone financial statements, management and 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 intend to liquidate the Company or to cease operations, or has no realistic alternative but to do so.
The Company's Board of Directors are also responsible for overseeing the Company's financial reporting process.
Auditor's responsibility 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 these 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 financial controls 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 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 the 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
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 (which are materiaL either individuaLLy or in the aggregate) have been received by the Company from any person(s) or entity(ies), 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 on behalf of the Ultimate Beneficiaries.
(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), as provided under (a) and (b) above, contain any materiaL misstatement.
v. The final dividend proposed in the previous year, decLared and paid by the Company during the year is in accordance with section 123 of the Act, as appLicabLe.
As stated in note 22(ii) to the standaLone
financial statements, the Board of
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 financial controls 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 Section 143(3) of the Act, based on our audit we report that:
a) We have sought and obtained al 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, except for not complying with the requirement of audit trail as stated in i (vi) beLow.
c) The Balance Sheet, the Statement of Profit and Loss incLuding Other Comprehensive Income, the Statement of Cash FLows and Statement of Changes in Equity 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) On the basis of the written representations received from the Directors as on 31st March, 2024 taken on record by the Board of Directors, none of the directors is disqualified as on 31st March, 2024 from being appointed as a Director in terms of Section 164(2) of the Act.
f) The modification relating to the maintenance of accounts and other matters connected therewith, is as stated in paragraph (b) above.
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, refer to our separate Report in "Annexure A" Our report expresses an unmodified opinion on the adequacy and operating effectiveness of the Company's internal financial controls with reference to standalone financial statements.
h) With respect to the other matters to be incLuded in the Auditor's Report in accordance with the requirements of section 197(16) of the Act, as amended, in our opinion and to the best of our information and according to the expLanations given to us, the remuneration paid by the Company to its Directors during the year is in accordance with the provisions of section 197 of the Act.
i) 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 has disclosed the impact of pending litigations on its financial position in its 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. During the year, the Company has regularly transferred the required amounts to the Investor Education and Protection Fund except for the delay in one instance for transfer of ^ 1,538 only. Refer Note 17 of the Standalone FinanciaL Statement.
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(s) or entity(ies), 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
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. Such dividend proposed is in accordance with section 123 of the Act, as applicable.
vi. Based on our examination, which included test checks, the Company has used accounting software for maintaining its books of account for the financial year ended 31st March, 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 except that audit trail feature was not enabLed at the database LeveL to Log any direct data changes.
Further, during the course of our audit, we did not come across any instance of audit trail feature being tampered with, in respect of accounting software for the period for which the audit trail feature was enabLed and operating.
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 year ended 31st March, 2024.
2. As required by the Companies (Auditor's Report) Order, 2020 ("the Order") issued by the CentraL Government in terms of Section 143(11) of the Act, we give in "Annexure B" a statement on the matters specified in paragraphs 3 and 4 of the Order.
For Mukund M. Chitale & Co. For Deloitte Haskins & Sells
Chartered Accountants Chartered Accountants
(Firm's Registration No. 106655W) (Firm's Registration No. 117365W)
M. M. Chitale Rupen K. Bhatt
Partner Partner
(Membership No. 14054) (Membership No. 046930)
(UDIN: 24014054BKGTYQ7894) (UDIN: 24046930BKEZVK5704)
PLace: Mumbai PLace: Mumbai
Date: 4th May 2024 Date: 4th May 2024
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