Page 215 - Hitachi IR 2025

Key audit matters How our audit addressed the key audit matter
• Assessment of various risks emanating from operational
delays, contract terms, changes in estimations and scope,
accounting for onerous obligations, technical, legal,
external environment etc. This requires the Company
to estimate various costs to capture such risks, including
liquidated damages and warranties.
In view of the above and because the Company and its external
stakeholders focus on revenue as a key performance indicator,
we determined this area to be an area involving significant risk,
an area of audit focus, and accordingly a key audit matter.
• We performed a retrospective review for contracts
completed during the current year by comparing the final
outcome of the contracts with previous estimates made for
those contracts to assess the reliability of the management’s
estimation process.
• We performed tests for completeness and appropriateness
of actual cost booked in the correct period, by testing the
underlying documents for samples selected using statistical
sampling.
• We assessed the disclosures made in the financial
statements.
Trade receivables (including unbilled revenue) and contract assets
(as described in Note 2.3.1(i), 12, 15 and 38 of the accompanying financial statements)
Trade receivables including unbilled revenue and retention
money with customers and contract assets forms a significant
part of the financial statements. Customer contracts typically
involve time consuming and complex conditions around
closure of contracts, including technical acceptances. This
generally leads to longer and significant time for realization of
receivables. As a result of the above, management’s assessment
of recoverability of trade receivables (including unbilled
revenue) and contract assets, involves critical evaluation of all
factors impacting recoverability, including impact of external
environment, capability of customers to pay, historical payment
records, evaluation of litigations, etc.
Management makes an impairment allowance for trade
receivables (including unbilled revenue) and contract assets
on the basis of it’s assessment of recoverability of specific
customers and on the basis of expected credit loss model for the
remaining customers in accordance with Ind AS 109, Financial
Instruments. For the purposes of impairment assessment,
significant judgements and assumptions are made, including
assessing credit risk, timing and amount of realization, etc.
In view of above, we determined this area to be an area of audit
focus, and accordingly a key audit matter.
In view of the significance of the matter we applied the
following audit procedures in this area, among others to obtain
sufficient appropriate audit evidence:
• We obtained an understanding of the processes
implemented by management over the recognition and the
recoverability of the trade receivables (including unbilled
revenue) and contract assets.
• We tested key controls (both design and operating
effectiveness) over the recognition and the recoverability
of the trade receivables (including unbilled revenue) and
contract assets.
• We obtained and tested the ageing of aforesaid receivables
/ assets on a sample basis.
• We performed test of details and tested relevant contracts
and documents for material trade receivable balances
(including unbilled revenue) and amounts included in
contract assets.
• We evaluated the model adopted by management to
estimate the expected credit loss. We enquired the
management in respect of the various judgements and
estimates made relating to impairment provision against
trade receivable (including unbilled revenue) and contract
assets.
• We obtained and discussed management assessment of
impairment for specific customer balances and understood
reasons for the determination.
• We have circulated direct confirmations on a sample basis
using statistical sampling. In case of non- receipt of such
confirmations, alternate test procedures such as testing
subsequent receipts and underlying documents have been
performed.
• We assessed the disclosures made in the financial
statements.
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 Annual report, but does not
include the financial statements and our auditor’s report
thereon. The Annual report is expected to be made
available to us after the date of this auditor's report.
Our opinion on the 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 financial statements,
our responsibility is to read the other information
identified above when it becomes available and, in
doing so, consider whether such other information is
materially inconsistent with the financial statements
or our knowledge obtained in the audit or otherwise
appears to be materially misstated.
When we read the Annual report, if we conclude that
there is a material misstatement therein, we are required
to communicate the matter to those charged with
governance and take necessary actions as applicable
under the applicable laws and regulations.
Integrated Annual Report 2024-25
213