AUDIT REPORT FOR L&T ( LARSON & TOUBRO )

By

Anjali Priya

20201BAL012

BALLB

SEMESTER - 09

SUBMITTED TO

Prof.Gargee Singh

SCHOOL OF LAW, PRESIDENCY UNIVERSITY

BANGALORE
KARNATAKA, INDIA
OCTOBER, 2024
INTRODUCTION:

Larsen & Toubro (L&T) is a renowned Indian multinational conglomerate, recognized for its
expertise in engineering, construction, manufacturing, technology, and financial services.
Established in 1938 by two Danish engineers, Henning Holck-Larsen and Søren Kristian
Toubro, L&T has grown from a small partnership firm into one of the largest and most
respected companies in India. With its headquarters in Mumbai, the company has a strong
global presence, operating in over 30 countries.

L&T is synonymous with large-scale infrastructure and industrial projects. It has been
instrumental in the development of some of India’s most iconic structures, including
highways, airports, metros, and power plants. The company's engineering and construction
arm is a leader in delivering complex, turnkey projects across sectors like civil, mechanical,
and electrical engineering. L&T's heavy engineering division plays a critical role in sectors
like nuclear power, aerospace, and defense, manufacturing key components such as reactors,
submarines, and missile systems.

The company's technological prowess extends to the fields of electrical and automation
solutions, where it offers a wide range of products and services, including industrial
automation, smart technology, and energy-efficient systems. L&T also has a significant
presence in the defense sector, contributing to India’s self-reliance in defense production with
projects related to missile systems, warships, and communication systems.

Through its subsidiary, L&T Technology Services, the conglomerate has expanded into
digital solutions and engineering consulting, catering to global clients across industries like
healthcare, automotive, and aerospace. L&T’s commitment to innovation, sustainability, and
excellence has positioned it as a leader in India’s industrial and technological advancements.
Listed on the Bombay Stock Exchange and National Stock Exchange, L&T is a key player in
driving India's growth and its global reputation for engineering and construction excellence.

History :
Larsen & Toubro (L&T) was founded in 1938 by Henning Holck-Larsen and Søren Kristian
Toubro, originally representing Danish dairy equipment manufacturer FLSmidth in India. The
onset of World War II and the German invasion of Denmark in 1940 disrupted supplies,
prompting L&T to diversify into the repair and fabrication of ships. They formed Hilda Ltd.
to handle war-related operations and entered the installation sector by taking over a soda ash
plant project from German engineers who were interned.
In 1946, L&T incorporated Engineering Construction & Contracts Ltd. (ECC), which became
the construction division of the company. By 1947, they represented manufacturers of
equipment for industries like hydrogenated oils, soaps, and glass. L&T also signed a deal
with Caterpillar to market earth-moving equipment, and the influx of war-surplus equipment
enabled expansion. The company raised additional equity capital, becoming Larsen & Toubro
Private Limited in 1946. By 1950, L&T went public with ₹20 lakh capital and moved into its
current headquarters, L&T House.
The 1960s marked a period of industrial expansion, with ventures like Utkal Machinery and
Audco India. L&T also entered the nuclear sector, and it was chosen by Dr. Homi Bhabha to
build reactors. During the 1970s, L&T collaborated with the Indian Space Research
Organisation (ISRO), manufacturing critical space components. In 1976, L&T merged
with ECC to strengthen its financial capacity for large-scale international projects, rebranding
it as L&T Construction.
By the 1980s, L&T began working with the Defence Research and Development
Organisation (DRDO), contributing to defense systems development. In 1994, it founded
L&T Finance. L&T continued to grow, acquiring IT services company Mindtree in 2019 and
developing commercial projects around the Hyderabad Metro Rail.

BUSINESS MODEL:
L&T’s revenue has been structured into five broad categories:
 Construction—This segment covers many construction-related projects in Buildings
and factories, Civil Infrastructure, Transportation Infrastructure, and Power
Transmission and distribution.
 Manufacturing – This segment covers Defence Equipment & Systems, Construction,
Mining & Industrial Machinery, Heavy Engineering, Industrial Valves and Electrical
& Automation Systems
 EPC Projects – This segment covers Hydrocarbon Engineering, Power, and Power
Development.
 Services – L&T also provides expertise in IT solutions, data management, smart city
infrastructure, and financial advisory services.
 Others – This segment caters to projects that do not lie in any other segment such as
Hyderabad Metro, Infrastructure Development Projects, and corporate functions
STRATEGIES:
L&T is known for incorporating multiple strategies to retain and increase market share in the
long run. Some of these strategies are:
 Activities: Larsen & Toubro Ltd. encompasses manufacturing, designing, and
developing its products, as well as offering services to clients.
 Customer Relationships: The company provides extensive support via email and
customer care numbers. It believes in building strong, familiar relationships with
customers.
 Channels: One of the primary channels of the company is its business development
and sales team. The company promotes its offerings through social media pages,
advertising, websites, and conference participation.
 Value Proposition: The company creates accessibility by offering its clients a wide
variety of options. It focuses on providing high-quality and robust solutions and
services to its clients and customers in manufacturing and financial services.

CHAIRMAN:
ANALYSIS:
The audit report for Larsen & Toubro Limited (L&T) provides insights into the company's
financial reporting practices and risk management.
Stakeholder-Centric Features:
1. Revenue Recognition from Contracts:
o The audit emphasizes L&T's handling of long-term contracts, particularly
construction and engineering contracts, involving complex judgment in
revenue recognition, cost estimates, and variable considerations. These
practices reflect a strong focus on ensuring fair transactions and compliance
with customer expectations, indicating an alignment with customer interests (a
key stakeholder).
2. Management of Contract Assets and Overdue Milestones:
o L&T’s treatment of contract assets and receivables highlights the company’s
diligence in recognizing revenue only when it is probable to be recovered.
This conservative approach protects creditors and customers from unrealistic
revenue expectations, ensuring fairness and sustainability.
3. Impairment of Investment in Subsidiaries:
o The attention given to assessing the viability and future cash flows of
subsidiaries like L&T Metro Rail (Hyderabad) shows that L&T is not only
protecting its interests but is mindful of the broader social and economic
impact on employees, communities, and other stakeholders linked to these
operations. The valuation of subsidiaries based on future performance and
discounted cash flows also demonstrates concern for long-term stability.
 4. Internal Financial Controls:
o The audit report praises L&T's internal financial controls, which safeguard
assets and prevent fraud. This focus ensures the protection of all stakeholders,
from shareholders to employees and creditors, by mitigating risks through
robust control mechanisms.
5. Ethical Standards:
o The auditors highlight that they have complied with the ethical requirements
laid out by the Institute of Chartered Accountants of India (ICAI), which L&T
seems to support. Ethical compliance aligns with the interests of all
stakeholders, ensuring transparency and accountability in its operations.

Shareholder-Centric Features:
1. Financial Performance and Compliance:
o The audit report gives substantial attention to the financial performance of
L&T, especially its profitability and cash flows. This focus directly appeals to
shareholders, who are primarily concerned with return on investment, as the
audit supports the conclusion that L&T’s financial statements present a true
and fair view.
2. Impairment Testing for Investment in Subsidiaries:
o While assessing the impairment of investments (such as in L&T Metro Rail),
the company is making decisions that may directly impact shareholders’
value. This emphasis on avoiding losses from unprofitable subsidiaries can be
seen as a move to protect shareholder wealth.
3. Board of Directors’ Responsibility:
o The report places significant responsibility on the Board of Directors for
ensuring fair financial reporting, which indirectly serves shareholders’
interests by ensuring that their investments are safeguarded through rigorous
compliance and prudent financial management.

While L&T demonstrates a clear focus on its financial health and compliance, which is
typically aligned with shareholder interests, the company also takes a balanced approach that
incorporates key concerns of other stakeholders such as customers, employees, and creditors.
This is evident in the careful treatment of contracts, ethical compliance, and strong internal
controls, which safeguard not just shareholder value but the interests of a wider array of
stakeholders.
Thus, based on the audit report, L&T appears to follow a stakeholder-centric approach,
balancing the needs and interests of various parties involved in its operations while also
maintaining shareholder value
Opinion :
The auditors express an unmodified opinion, meaning that based on the evidence and
explanations gathered, the standalone financial statements present a true and fair view of:
 Balance Sheet as of March 31, 2024
 Statement of Profit and Loss (including Other Comprehensive Income, OCI)
 Statement of Cash Flows
 Statement of Changes in Equity for the same year
 Notes to the Financial Statements, including accounting policies
The financial statements comply with Indian Accounting Standards (Ind AS) and other
generally accepted accounting principles in India. This section reflects the auditor’s
professional opinion that the financial reports accurately represent the company’s financial
position and performance without material misstatements.

Basis for Opinion :

The auditors affirm that the audit was conducted in line with Standards on Auditing (SAs)
as mandated by Section 143(10) of the Companies Act, 2013. This section highlights the
following points:
 Independence: The auditors complied with the Code of Ethics issued by the Institute
of Chartered Accountants of India (ICAI).
 Sufficient Evidence: The evidence collected was deemed sufficient and appropriate
to support the conclusions reached.
This reinforces the rigor of the audit and the auditors’ adherence to ethical and professional
standards.

Key Audit Matters :

KAMs are areas in the audit requiring special attention due to their complexity or the degree
of judgment involved. Though these do not modify the overall opinion, they provide insight
into challenging areas of the audit.
Revenue Recognition – Construction Contracts
 Description:
o Revenue is recognized on a percentage of completion basis, matching the
stage of work with costs incurred.
o Management exercises significant judgment in estimating project costs, risks,
and contingencies, including variations and delays.
  Audit Procedures:
o Evaluated internal controls for revenue recognition.
o Reviewed contract agreements, change orders, and milestone tracking.
o Tested the accuracy of contract costs and assessed variable considerations.
o Verified adjustments made due to customer delays or disputes.
Measurement of Contract Assets and Overdue Receivables
 Description:
o Contract assets represent work completed but not yet invoiced.
o Management estimates credit losses on overdue receivables, involving
complex assessments of recoverability.
 Audit Procedures:
o Verified controls related to recognition of contract assets and receivables.
o Examined documentation supporting the execution of work.
o Assessed the recoverability of overdue invoices through historical data and
post-year-end collections.
Impairment of Investment in Subsidiary – L&T Metro Rail (Hyderabad) Ltd.
 Description:
o L&T’s total investment in this subsidiary amounts to ₹7,412.99 crore, along
with additional debenture investments of ₹436.36 crore.
o Given the subsidiary's accumulated losses, management evaluated whether
the investment needed to be impaired.
 Audit Procedures:
o Reviewed controls over future revenue forecasts and cash flow projections.
o Performed sensitivity analysis on the discount rate used in impairment
calculations.
o Verified the mathematical accuracy and methodology of the impairment model
with the support of fair value specialists.

Other Information :
This section clarifies that non-audited sections of the company’s annual report—such as the
Management Discussion and Analysis (MD&A), Board’s Report, and Corporate Governance
Report—are not covered by the auditor’s opinion. However, the auditors have reviewed
these sections for consistency with the financial statements and found no material
inconsistencies.
Responsibilities of Management and Governance for the Financial Statements
The responsibility of the Board of Directors and management includes:
 Ensuring that the financial statements present a true and fair view.
 Maintaining adequate accounting records and internal controls.
 Assessing the company’s ability to continue as a going concern and disclosing any
material uncertainties.
 Preventing fraud and irregularities and ensuring the accuracy of financial
judgments.
The management must also ensure compliance with relevant accounting principles and laws
governing financial reporting.

Auditor’s Responsibilities
The auditors are responsible for expressing an opinion on the financial statements based on
their audit, including:
 Providing reasonable assurance that the financials are free of material
misstatements.
 Evaluating the appropriateness of accounting policies and the reasonableness of
estimates used.
 Testing the internal financial controls to ensure proper financial reporting.
 Assessing whether the going concern assumption is appropriate and identifying
material uncertainties.
 Communicating the Key Audit Matters with those charged with governance.

Other Matters :
This section discusses specific elements audited by other auditors:
 Joint Operations:
o The company has 30 joint operations, which were proportionately
consolidated into the financial statements.
o The assets, revenue, and cash flows from these operations amount to:
 Total assets: ₹3,509.61 crore
 Total revenue: ₹4,434.70 crore
  Net cash outflows: ₹377.92 crore
These operations were audited by different auditors, and the primary auditors rely on their
reports while issuing the final opinion.

Report on Other Legal and Regulatory Requirements :

As required under Section 143(3) of the Companies Act, 2013, the auditors confirm the
following:
 Information and Explanations: All relevant information required for the audit was
provided.
 Books of Account: The company maintained proper books of account in accordance
with legal requirements.
 Compliance with Standards: The financial statements comply with Ind AS and
other prescribed accounting standards.
 Internal Financial Controls: No material weaknesses in internal financial controls
were identified during the audit.
 Fraud or Governance Issues: No significant frauds, non-compliance, or governance
concerns were noted.

Conclusion :
The auditors conclude that Larsen & Toubro Limited’s standalone financial statements
for the fiscal year ending March 31, 2024, present a true and fair view in compliance with
Indian Accounting Standards (Ind AS) and other applicable accounting frameworks.

Sign-Off by Auditing Firm

 For [Larson & Toubro]
 Anjali Priya , Chartered Accountants
 Date: 14.10.2024
 Place: Delhi