Atul Ltd 2019-20

Corporate Overview Statutory Reports Financial Statements 01-21 22-91 92-228 94 Atul Ltd | Annual Report 2019-20 Key audit matters Auditor's responses Contingent liabilities and provisions The Company has received certain claims from the government authority and a customer, which are disputed. These involve high degree of judgement to determine the possible outcomes and estimates relating to the timing and the amount of outflows of resources embodying economic benefits. Our procedures included but were not limited to: - Obtaining a detailed understanding of processes and controls of the Management with respect to claims or disputes. - Evaluation of the design of the controls relating to compilation of the claims, assessment of probability of outcome, estimates of the timing and the amount of the outflows and appropriate reporting by the Management. Testing implementation and operating effectiveness of the key controls. - Performing following procedures on samples selected: • Understanding the matters by reading the correspondences | communications, minutes of the Audit Committee and | or the Board meetings and discussions with the appropriate Management personnel. • Performing corroborative inquiries with appropriate level of the Management personnel including status update, expectation of outcomes with the basis and the future course of action contemplated by the Company and perusing legal opinions, if any, obtained by the Management. • Obtaining direct confirmation from the legal attorneys of the Company and considering their opinions | probability assessment of the outcomes. • Evaluating the evidences supporting the judgement of the Management about possibleoutcomesand the reasonableness of the estimates. We involved our internal experts for technical guidance and evaluation of the assessments of the Management, as appropriate. - Evaluating appropriateness of adequate disclosures in accordance with the applicable accounting standards. Allowance for credit losses The Company determines the allowance for credit losses on trade receivables based on historical loss experience adjusted to reflect current and estimated future economic conditions of its customers, their industry and geography of operations. In calculating expected credit loss, the Company also considers the insurance covers and other securities, besides other related information for its customers, including credit reports, to estimate the probability of default in future and has taken into account estimates of possible effect from the pandemic relating to COVID-19. Management has exercised significant judgement in estimating the allowance for credit losses. Refer Note 10 to the Standalone Financial Statements. Our procedures related to allowance for credit losses for trade receivables included the following, among others: Testing the effectiveness of controls over the: - classification of customers by the businesses and computing the net exposure as at the reporting date, - development of the methodology for the allowance for credit losses, including consideration of the current and estimated future economic conditions, - completeness and accuracy of information used in the estimation of probability of default and - computation of the allowance for credit losses. Testing the arithmetical accuracy and computation of the allowances prepared by the Management. Testing the allowance for credit loss through alternate scenarios including profiling of customers based on their attributes with various built-in sensitivities around approach, the assumptions and factoring the possible effect of the pandemic, to independently validate the Management estimates.