Month: December

ILLUSTRATION OF REPORTING UNDER SEBI LODR
WITH DISCLAIMER OPINION AND REPORTING UNDER SECTION 143(12) TO THE CENTRAL
GOVERNMENT

8K
MILES SOFTWARE SERVICES LTD. (31^st March, 2019)

From
Independent Auditors’ Report on Consolidated Financial Results

DISCLAIMER OF OPINION

1.       We were engaged to audit
the accompanying Statement of Consolidated Financial Results of 8K Miles
Software Services Limited (‘the Parent’ / ‘the Holding Company’ / ‘the
Company’) and its subsidiaries (refer paragraph 16 below, for the subsidiaries
that are considered in these consolidated financial results), (the Parent and
its subsidiaries together referred to as ‘the Group’) for the year ended 31^st
March, 2019 (‘the statement’), being submitted by the Parent pursuant to
the requirement of Regulation 33 of the SEBI (Listing Obligations and
Disclosure Requirements) Regulations, 2015, as modified by Circular No.
CIR/CFD/FAC/62/2016 dated 5^th July, 2016.

2.       This Statement, which is the
responsibility of the Parent’s management and approved by the Board of
Directors, has been compiled from the related consolidated financial statements
which has been prepared in accordance with the Indian Accounting Standards prescribed
u/s 133 of the Companies Act, 2013 (the Act), read with relevant rules issued
thereunder (Ind AS) and other accounting principles generally accepted in India.

3.       Our responsibility is to conduct an audit
of the Statement in accordance with Standards on Auditing specified u/s 143(10)
of the Act and to issue an auditor’s report. However, because of the matters
described in Paragraphs 4 to 15 below, we were not able to obtain sufficient
appropriate audit evidence to provide a basis for an audit opinion on the
Statement.

BASIS FOR DISCLAIMER OF OPINION

4.       Report u/s 143 (12) of the Act

During the
course of our audit of the Statement for the year ended 31^st March,
2019 we came across certain transactions that gave us reason to believe that
suspected offences involving fraud have been committed in the Group. Such
transactions with regard to the Statement, inter alia, pertained to:

(a)      Several instances of inconsistencies
between the initial bank statements and the subsequent bank statements provided
for verification in certain subsidiaries. Also see paragraphs 6.3 and 7 below.

(b)     Several instances of inconsistencies between
declarations provided by Directors and information available in the public
forum which demonstrated existence of probable related parties which were not
disclosed previously, including certain transactions with such parties which
were not disclosed or approved by the Audit Committee / Board of Directors.
Also see paragraphs 6.3 and 12.1(a) below.

(c)      Several instances of transactions with
certain customers, wherein the Company was not able to provide us with the
particulars of the services rendered and acknowledged by the customer, the
details of employees actually rendering such service, the appropriateness and
source of the monies received from such customers. Also see paragraph 7 below.

(d)     Several inconsistencies with the names of
the parties / customers mentioned in the bank statements of some of the
subsidiaries and the books of accounts maintained by those subsidiaries. Also
see paragraph 4(a) above and paragraphs 6.3 and 7 below.

(e)      Several instances of multiple addresses
being considered in various communications with certain customers in the
invoices, website of the customer, on cheques received from customers, including
instances wherein some of the communication addresses coincided with the
residential address of certain employees of the Company or its subsidiaries,
which impacted our ability to establish the authenticity of the customer. Also
see paragraph 7 below.

(f)      Several instances of communications with a
vendor, wherein there were multiple
communications using different email ids, documents with varying
signatures and differences in the spelling of the common signatory of the
vendor, etc., which impacted our ability to establish the authenticity of the
vendor. Also see paragraph 8.1 below.

(g)     Several instances of transactions with
vendors, wherein there were inconsistencies between the nature of services as
mentioned in the invoices and the basis of recording in the books of accounts
as consultancy expenses and intangible assets, multiple federal tax
identification against the same vendor, contracts signed by employees post
cessation of their employment, etc. Also see paragraph 8.2 below.

(h)      Appropriate approvals and concerns over
recovery of advances made to a related party, by the Group. Also see paragraph
6 below.

Pursuant, inter
alia, to the above observations, we requested the Audit Committee of the
Company to provide us with their replies or observations to the aforesaid
matters for us to consider the same as part of our audit.

Subsequent
to our reporting of such matters to the Audit Committee vide our letter dated
15^th July, 2019, the Audit Committee in its meeting held on 18^th
July, 2019 appointed an external firm of Chartered Accountants to carry out an
investigation. We are informed that as on the date of this report, the
investigation report of the external firm of Chartered Accountants has not yet
been received by the Company and, hence, the same has not been made available
to us.

Further,
we also included the aforesaid matters in our report dated 13^th
September, 2019 to the Central Government in accordance with the requirements
of section 143(12) of the Act.

Pending
receipt of the report on the findings of such investigation and pending receipt
of information and explanations and evidence relating to the aforesaid matters
from the management of the Company, we have been unable to obtain sufficient
and appropriate audit evidence in respect of the above matters / transactions
that gave us reasons to believe that suspected offences involving fraud may
have been committed in the company and / or its subsidiaries.

In view of
the above, we are unable to comment on the consequential adjustments, if any,
that may be required to the Statement in this regard.

5.   Access to books of accounts of a
subsidiary and information on subsidiaries

5.1.    Our terms of engagement for the audit of the
Statement included the management’s responsibility to provide us access, at all
times, to the records of all the subsidiaries of the Company insofar as it
relates to the consolidation of its financial statements as envisaged in the
Act.

However,
the Company did not provide us the access to the records and books of accounts
of 8K Miles Software Services FZE, a wholly-owned subsidiary of the Company,
which represents total assets of Rs. 11,635.68 lakhs as at 31^st
March, 2019, total revenues of Rs. 7,560.23 lakhs, profit after tax of Rs.
789.65 lakhs and net cash outflows amounting to Rs. 96 lakhs for the year ended
on that date, as considered in the Statement.

These
balances have been included in the Statement by the management based on
financial statements of the subsidiary, prepared in accordance with the
International Financial Reporting Standards (IFRS), wherein the auditor of the
subsidiary has issued an unmodified report.

We were
unable to obtain sufficient appropriate audit evidence about the state of
affairs of the subsidiary as at 31^st March, 2019 and the results of
its operations for the year then ended, in the absence of access to the records
and books of accounts of the subsidiary.

5.2.    Based on information in the public domain, 8K
Miles Cloud Solutions Pte. Limited, Singapore has stated itself to be a
subsidiary of the Holding Company. This entity appears to have been
incorporated on 8^th May, 2017. Further, 8K Miles Software Services
Pte. Ltd, Singapore and 8K Miles Software Services UK Limited, United Kingdom
exist with the promoter directors appearing as shareholders / directors. The
incorporation of wholly-owned subsidiaries in these countries was approved by
the Board of Directors of the Holding Company on 30^th May, 2018.

However,
all these three entities have not been considered by the management of the
Holding Company as subsidiaries in the preparation of the consolidated
financial statements. We are informed by the management that these entities are
not subsidiaries of the Holding Company and the information in the public
domain, including with the regulatory authorities in those geographies, is not
correct.

We have
not been provided with the audited financial statements of these entities and /
or any other verifiable evidence to ascertain the relationship of these
entities with the Holding Company. Hence, we are unable to comment on the
relationship of these entities and the impact the financial statements of these
entities may have on the Statement.

6.    8K Miles Media Private Limited (8K Miles
Media)

6.1.    Around the last week of September, 2018 we
were made aware of the resignation of the statutory auditor of 8K Miles Media,
a company promoted by the promoter directors of the Company, vide their
resignation letter dated 30^th April, 2018. As per the said letter,
the resignation was due to the misuse of that Audit Firm’s letterhead and
signature of their partner through forgery in certain ODI certificates
submitted by 8K Miles Media to its bankers for transfer of funds of USD 71.51
lakhs (Rs. 4,612.91 lakhs) to 8K Miles Media Holdings Inc. USA, a subsidiary of
8K Miles Media. 8K Miles Media and its subsidiaries (together ‘8K Miles Media
Group’) were identified as a related party in the consolidated financial
statements of the Company for the year ended 31^st March, 2018.

During the period ended 31^st December, 2018 the management of
8K Miles Media initiated an independent forensic review to evaluate the
authenticity of the signatures in the ODI certificates referred above. 8K Miles
Media has submitted a copy of the forensic report to the Company. We understand
that the aforesaid forensic report states that the writer of the signature in
the ODI certificates is the same as that of the specimen signatures of the
audit partner as provided to the forensic auditor, thereby concluding that there
was no forgery in the ODI certificates.

Since this
matter relates to a company where another firm is the statutory auditor and
since the financial statements of that company are not included in the
consolidated financial statements of the Company, we have not been able to
perform any procedures related to the allegation or the forensic report.

6.2.    Further, during the last week of September,
2018,

(a)      the CEO and Managing Director of the
Company, who was also a promoter director in 8K Miles Media, resigned as a
director in 8K Miles Media.

(b)     the CFO and Executive Director of the
Company, who was the other promoter director in 8K Miles Media, resigned from
his role as CFO of the Company stating that his resignation was to have the
necessary time to clear all the baseless allegations and unsubstantiated
allegations relating to 8K Miles Media. However, he continues to be a director
in both the Company as well as 8K Miles Media.

6.3.    The Company has trade and other receivables
aggregating Rs. 3,309.10 lakhs as at 31^st March, 2019 receivable
from 8K Miles Software Services Inc., a subsidiary. It may be noted that this
subsidiary had loans receivable from entities of 8K Miles Media Group in the
USA aggregating USD 89.61 lakhs (Rs. 5,808.44 lakhs) as at 31^st
March, 2018.

We are informed by the management of the Holding Company that such
amounts due, including interest as accrued, have been fully recovered as at 31^st
March, 2019 by that subsidiary. However, in the absence of appropriate workings
for the interest, documentation regarding loan agreements and due to
inconsistencies noted between the transactions as per the bank statements of
the subsidiary with the transactions as recorded in the books of accounts of
the subsidiary, as mentioned in paragraphs 4(a) and 4(d) above, we were unable
to confirm the management’s assertion on the said collections made by the
subsidiary.

6.4.    We are unable to conclude if the above
events in 8K Miles Media have any effect on:

(a)      the Group and its operations, in view of
the allegations in the aforesaid resignation letter of the statutory auditor of
that company and the nature of the Group’s relationship with 8K Miles Media, as
described in paragraphs 6.1 and 6.2 above, respectively;

(b)     the status of the Group’s receivables from
such related party, as described in paragraph 6.3 above; and

(c)      the consequential impact, if any, of the
same on the operations of the Group.

 7.      Revenue
from contracts with customers and related outstanding receivables

During the
year ended 31^st March, 2019 the Group initially recognised revenue
aggregating to Rs. 54,789 lakhs (including Rs. 2,428.69 lakhs relating to the
Company) from the customers referred to in paragraphs 4(c), 4(d) and 4(e)
above.

The management has, subsequently, based on our report u/s 143(12) of the
Act, reversed and derecognised revenue aggregating to Rs. 16,940.66 lakhs
(including Rs. Nil relating to the Company) and the consequent receivables.
Accordingly, the net revenues recognised from these customers during the year
aggregated to Rs. 37,848.34 lakhs and the outstanding receivables as at 31^st
March, 2019 is Rs. 9,382.13 lakhs (includes balances of Rs. 1,022.36
lakhs outstanding even as at 31^st March, 2018).

In the
absence of complete information regarding the proof of services rendered,
efforts expended, basis of revenue recognition and reversal / derecognition,
and in view of our observations in paragraphs 4(c), 4(d) and 4(e) above in
respect of these customers, and inconsistencies in the bank statements referred
in paragraph 4(a) above, we are unable to conclude on the appropriateness /
correctness / completeness / validity of the net revenue recognised, compliance
with the recognition and measurement of revenue required under the Indian
Accounting Standard (Ind AS) 115 – Revenue from Contracts with Customers and
the corresponding receivables in the Statement.

The Group
has also not carried out an evaluation of the expected credit loss required
under Indian Accounting Standard (Ind AS) 109 – Financial Instruments
for the outstanding trade receivables as at 31^st March, 2019 and
therefore we are unable to comment on the adequacy and appropriateness of the
provision made against the trade receivable balances as at 31^st
March, 2019.

8.       Procurement of services and trade
payables

8.1.    Based on the master service
agreement with the external service provider, referred to in paragraph 4(f)
above, for technical and referral services to be rendered towards certain
customers, referred to in paragraphs 4(c) and 4(e) above, the Company has recorded
consultancy charges of Rs. 1,706.40 lakhs for the year ended 31^st March,
2019 with an outstanding liability of Rs. 1,709.16 lakhs.

In the
absence of complete information regarding proof of the services being rendered
by the vendor, and in view of our observations in paragraph 4(f) above in
respect of this vendor, we are unable to conclude on the appropriateness /
correctness / completeness / validity of the expense and the corresponding
liability recorded in the Statement.

Further,
the Company has not evaluated the applicability or coverage of such services
under the Goods and Services Tax Regulations and has not accrued / paid the
same. However, in our opinion such tax is payable on those services. The
management has not determined the amount of Goods and Services Tax payable and
any interest thereon. We are unable to conclude on the consequential impact of
the same on the Statement.

8.2.    Based on the invoices received from certain vendors, referred to in
paragraph 4(g) above, the Group has for the year ended 31^st March,
2019 recorded consultancy charges aggregating Rs. 26,689.45 lakhs, intangible
assets / assets under development of Rs. 22,267.29 lakhs, with an outstanding
liability of Rs. 2,224.43 lakhs as at that date.

In the
absence of complete information regarding nature of the services being
rendered, the customers for whom these services were rendered and the nature of
intangible assets being developed, and in view of our observations in paragraph
4(g) above in respect of these vendors, we are unable to conclude on the
appropriateness / correctness / completeness / validity of the expense, the
intangible asset / asset under development and the corresponding liability /
payment recorded in the Statement.

9.       Income Taxes

The Group
has recorded tax expenses (net) of Rs. 1,270.57 lakhs during the year ended 31^st
March, 2019 and has a net tax asset as at that date of Rs. 3,155.17 lakhs and a
net deferred tax liability of Rs. 731.91 lakhs relating to certain of its
foreign subsidiaries.

We have not
been provided with the tax returns filed with regard to its foreign
subsidiaries, reconciliation of the balances considered in the tax returns so
filed with the audited financial statements of the subsidiaries, the tax
position and status of assessments of such subsidiaries, a roll forward to the
deferred tax position as at 31^st March, 2019 from 31^st
March, 2018 and the workings for the tax provision for the current year.

We are
accordingly unable to conclude on the carrying amounts of tax assets and liabilities,
including deferred tax balances, as at 31^st March, 2019 as
considered in the Statement. Further, in the absence of the tax returns we have
also not been able to validate if the profits of these subsidiaries considered
in the tax returns and as per the books of accounts provided to us were the
same.

10.     Intangible asset capitalisation and
evaluation of impairment, including for goodwill

10.1. The Group has during the year capitalised costs
towards internally generated intangible assets and internally generated
intangible assets under development amounting to Rs. 32,393.80 lakhs (also
refer paragraphs 4(g) and 8.2 above).

In the
absence of appropriate documentation as to the nature of these intangible
assets, data to demonstrate the appropriateness of the timing to commence
capitalisation of costs associated with such intangible assets as well as the
basis to demonstrate the costs capitalised in fact were associated with the
intangibles being developed, we are unable to comment on the carrying value of
such intangible assets as at 31^st March, 2019.

10.2.  The Group has goodwill and acquired
intangibles (net of amortisation) of Rs. 62,800.11 lakhs as at 31^st March, 2019.

The
management has not provided us with their assessment of any impairment to the
carrying value of such goodwill and other intangible assets. Accordingly, we
are unable to comment on the appropriateness of the carrying value and the
recoverability of such goodwill and other intangible assets as at 31^st March,
2019.

11.     Business Combinations

The Group
had in the previous year ended 31^st March, 2018 completed certain
acquisitions or had paid advances towards proposed acquisitions, wherein we
noted that:

11.1. During the previous year ended 31^st
March, 2018, the Group had recorded an amount of USD 3,304,557 (INR 2,142.01
lakhs) as contingent consideration due to the erstwhile owners of Cornerstone
Advisors Group LLC (‘Cornerstone’) payable upon satisfaction of conditions as
specified in the acquisition agreement. During the current year an amount of
USD 1,747,198 (INR 1,218.85 lakhs) has been paid by the Group to the erstwhile
members of Cornerstone. In the absence of details with respect to satisfaction
of conditions as specified in the acquisition agreement, we are unable to comment
on the amount of contingent consideration that has been paid during the year
and the carrying amount of USD 1,557,359 (Rs. 1,079.56 lakhs) as the liability
towards contingent consideration as at 31^st March, 2019. Further,
such consideration has not been fair valued as required under Ind AS 109.

11.2. An advance of USD 6,500,000 was paid by one of
the subsidiaries of the Company, during the previous year ended 31^st
March, 2018, consequent to a share purchase agreement entered into with a
Seller and a Corporation for acquiring the entire outstanding shares of the
Corporation. In accordance with the said agreement, in the event the closing of
acquisition doesn’t occur within 15 months (i.e., before February, 2019) from
the date of agreement, Seller will retain USD 500,000 as penalty and balance
USD 6,000,000) shall be refunded to the Group within five calendar days.

As at 31^st
March, 2019 the acquisition as planned was not completed and the management of
the Company has represented that the term of the share purchase agreement has
been extended. In the absence of supporting convincing evidence and our
inability to send direct confirmation request to the Seller and the Corporation
on the revision of the terms including waiver of the penalty, due to not receiving
the communication address to which the confirmation requests were to be sent,
we are unable to comment on the recoverability of the amount of Rs. 4,505.80
lakhs (equivalent to USD 6,500,000) included under Note 9 as ‘advances towards
acquisition’, as at 31^st March, 2019 and the consequential impact,
if any, on the Statement.

12.     Regulatory compliances

12.1. We are unable to conclude on the consequential
impact, if any, on the operations and the financial performance of the Group
arising out of the following matters pertaining to non-compliance with the
provisions of the Companies Act, 2013 and notifications issued by the
Securities and Exchange Board of India (SEBI), as applicable:

(a)      In the absence of appropriate processes for
identifying related parties in view of the matters reported in paragraph 4(b)
above, we are unable to comment on the accuracy and completeness of the related
parties identified and disclosed by the Company including compliance with
obtaining necessary approvals, as required, from those charged with governance.

(b)     It was noted that in the case of two of the
directors who were re-appointed at the Annual General Meeting (AGM) held on 18^th
September, 2015 and designated as independent directors (one was also the
Chairman of the Audit Committee and the other a member of the Nomination and
Remuneration Committee and also the Chairman of the Stakeholder Relationship
Committee), they may have ceased to be independent directors under the Act with
effect from 17^th November, 2015 and 12^th August, 2015, respectively, being the date from when their
relatives were employed either with the Company or its subsidiary. These
directors have been designated as non-independent directors by the Company from
6^th September, 2019 and 13^th February, 2019,
respectively.

Considering
the above, we are unable to opine on the validity of the meetings of the Board
of Directors, Audit Committee, Stakeholder Relationship Committee and
Nomination and Remuneration Committee, in regards to the quorum in such meetings
and the resolutions approved in those meetings from the aforesaid AGM date
until the dates when the Company designated them as non-independent directors.

12.2. We are unable to conclude on the consequential
impact, if any, on the Statement arising out of the matters pertaining to
non-compliance by the Holding Company with the applicable master directions /
notifications issued by the Reserve Bank of India (RBI) and provisions of the
Foreign Exchange Management Act, 1999, as amended, in respect of the following:

(a)      The Holding Company has export trade
receivables and foreign currency interest receivable aggregating Rs. 3,037.28
lakhs and Rs. 336.13 lakhs, respectively, including intra-group receivables
which amounts, as at 31^st March, 2019, were outstanding for more
than nine months from the invoice date, which is beyond the time limit
stipulated under the Foreign Exchange Management (Export of Goods &
Services) Regulations, 2015, for repatriation of foreign currency receivables.

(b)     As at 31^st March, 2019 the
Company had not made the necessary intimations to the authorised dealer / RBI
as required under the Master Directions provided by the RBI on Foreign
Investment in India for loan / collaterals / pledge received from the promoter
of the Company, being a resident outside India, amounting to Rs. 1,395.02 lakhs
during the year ended 31^st March, 2019.

However,
subsequent to the year-end, the Company has made an intimation to the
authorised dealer on 12^th July, 2019 and is yet to make an
application for condonation of delay.

(c)      It appears that the Holding Company has
provided a corporate guarantee to Columbia Bank for a line of credit availed by
two of the subsidiaries in the Group aggregating USD 5,000,000 on 12^th
September, 2018. As per the loan sanction document issued by Columbia Bank, the
line of credit was approved by Columbia Bank, based on a representation by the
Managing Director of the Holding Company that the corporate guarantee was
approved by the shareholders of the Holding Company.

We have not been provided with minutes of the meeting of the
shareholders referred above approving such corporate guarantee. Further, the
Company has also not intimated the authorised dealer for providing such
corporate guarantee as required under the Master Directions provided by the RBI
on Direct Investment by Residents in Joint Venture (JV) / Wholly-Owned
Subsidiary (WOS) Abroad.

12.3. Further, the Holding Company has not carried
out a comprehensive review of compliance with laws and regulations and
therefore we are unable to comment if there are any other instances of
non-compliance with laws and regulations and any consequential impact thereof.

13.     Information / clarifications requested
but not provided

During the
course of our audit, we have requested from the management various information
and clarifications that were required for the purposes of our audit. In
addition to the information and clarifications pending in respect of the
matters described in paragraphs 4 to 12 above, information, inter alia,
relating to assessment of how the revenue recognised by the Group was in
compliance with the provisions of Ind AS 115, documentation supporting
evaluation of expected credit losses as at 31^st March, 2019,
information of payroll costs recognised in some of the subsidiaries,
confirmation of balances from customers, vendors and other parties, etc., are
also pending to be provided to / received by us. In view of such pending
information, we have not been able to obtain sufficient appropriate evidence to
conclude on those matters to express an opinion on the Statement.

14.     Book Entries

In view of
the matters described in paragraphs 4, 6.3, 7, 8, 10 and 13 of the Basis for
Disclaimer of Opinion section of our report, we are unable to state if any of
the transactions referred to in those paragraphs were represented by mere book
entries.

15.     Use of going concern assumption

In view of
the matters reported in paragraphs 4 to 14 above, and in the absence of
reliable cash flow projections by the management, and any consequential impact
of those matters on the Statement and operations of the Group, we are unable to
comment on the appropriateness of the going concern assumption adopted by the
management in the preparation of the Statement.

16.     The Statement includes the results of the
following entities:

(i)     8K Miles Software Services Limited (‘the
Parent’)

(ii)     8K Miles Software Services Inc. USA, the
Subsidiary

(iii)    8K Miles Health Cloud Inc. USA, the
Wholly-Owned Subsidiary

(iv)    8K Miles Software Services FZE UAE, the
Wholly-Owned Subsidiary

(v)   Mentor
Minds Solutions & Services Inc. USA, the Wholly-Owned Subsidiary

(vi)    Nexage Technologies USA Inc., the Step-down
Subsidiary

(vii)   Cornerstone Advisors Group LLC, the Step-down Subsidiary

(viii) Serj Solutions Inc. USA, the Step-down
Subsidiary

17.     Because of the significance
of the matters described in paragraphs 4 to 15 above, we have not been able to
obtain sufficient appropriate audit evidence to provide a basis for an audit
opinion as to whether the Statement:

a.       is
presented in accordance with the requirements of Regulation 33 of the SEBI
(Listing Obligations and Disclosure Requirements) Regulations, 2015, as
modified by Circular No. CIR/CFD/FAC/62/2016 dated 5^th July, 2016;
and

b.      gives a true and fair view in conformity with the aforesaid Indian
Accounting Standards and other accounting principles generally accepted in
India of the net profit, total comprehensive income and other financial
information of the Group for the year ended 31^st March, 2019.

The BCAJ
reader can read Management Response on Auditor’s Opinion in the annual report
of the company.

BCAJ Admin

KEY AUDIT MATTER INCLUDED IN AUDIT REPORT ON
‘POTENTIAL IMPACT OF CLIMATE CHANGE’

BP
plc. (31^st DECEMBER, 2019)

From
Audit Report on Consolidated Financial
Statements

Potential impact
of climate change and the energy transition (impacting PP&E, goodwill,
intangible assets and provisions)

KEY
AUDIT MATTER DESCRIPTION

Climate
change impacts BP’s business in a number of ways as set out in the strategic
report on pages 2-71 of the Annual Report and Accounts. It represents a
strategic challenge with its implications becoming increasingly significant
towards 2050 and beyond. Whilst many of BP’s oil and gas properties and
refining assets are long-term in nature, none are being amortised over a period
that extends beyond this date. At current rates of depreciation, depletion and
amortisation (DD&A), the average life of the upstream PP&E is seven
years, and the downstream PP&E is 13 years. Accordingly, the related
principal risks that we have identified for our audit are as follows:

(1)   Forecast assumptions used in assessing the
value of assets within BP’s balance sheet for impairment testing, particularly
oil and gas price assumptions relevant to upstream oil and gas PP&E assets,
may not appropriately reflect changes in supply and demand due to climate
change and the energy transition (see ‘impairment of upstream PP&E’ below);

(2)   Recoverability of exploration and appraisal
(E&A) assets included within BP’s balance sheet where the investment
required in order to develop particular projects into producing oil and gas
PP&E assets might not be sanctioned by the board in future due to climate
change considerations or a potential development may not be considered to be
economic due to the impact of climate change and the energy transition on oil
and gas prices (see ‘impairment of exploration and appraisal assets’ below).
Management also assessed the following potential risks that could arise from
climate change considerations;

(3)   The carrying value of goodwill may no longer
be recoverable and therefore may need to be impaired;

(4)   The useful economic lives of the group’s
PP&E may be shortened as society moves towards ‘net zero’ emissions
targets, such that the DD&A charge is materially understated;

(5)   Decommissioning and asset retirement
obligations may need to be brought forward with a resulting increase in the
present value of the associated liabilities; and

(6)   Climate change-related litigation brought
against BP, as disclosed in Note 33 to the financial statements and described
on page 320 under legal proceedings, may lead to an outflow of funds requiring
provision in the current year.

The material upstream goodwill balance is recorded and tested at the
segment level. The most significant assumption in the goodwill impairment test
affected by climate change relates to future oil and gas prices (see
‘impairment of upstream PP&E’ below). Given the significant headroom in the
goodwill impairment test, management identified no other assumption that could
lead to a material misstatement of goodwill due to the energy transition and
other climate change factors. Disclosures in relation to sensitivities for
goodwill are included within Note 14 on pages 187-188. The downstream segment
has a goodwill balance at 31^st December, 2019 of $3.9 billion, of
which the most significant element is $2.8 billion relating to the lubricants
business. Notwithstanding the expected global transition to electric vehicles,
management noted that demand for lubricants is forecast to continue to grow
until at least 2040, underpinning the substantial headroom in the most recent
impairment test as described in Note 14. As described on pages 70-71 and in
Note 1, the impact of potential changes in DD&A charges, or to decommissioning
dates would not have a material impact on the amounts reported in the current
period.

The above
considerations were a significant focus of management during the period which
led to this being a matter that we communicated to the audit committee, and
which had a significant effect on the overall audit strategy. We therefore
identified this as a key audit matter.

How
the scope of our audit responded to the key audit matter

Overall
response

We held
discussions with management, with Deloitte specialists and within the Group
engagement team to identify the areas where we felt climate change could have a
potential impact on the financial statements.

We also established a climate change steering committee comprising a
group of senior partners with specific sustainability and technical audit and
accounting expertise within Deloitte to provide an independent challenge to our
key decisions and conclusions with respect to this area.

Audit
procedures in respect of impairment of upstream oil and gas PP&E assets and
exploration and appraisal assets

The audit
response related to the two principal risks identified is set out under the key
audit matters for impairment of upstream oil and gas PP&E assets on pages
135-136 and the impairment of exploration and appraisal assets on page 137.

Other
audit procedures performed

We
challenged management’s assertion that the impact of potential changes in
DD&A charges, or to decommissioning dates, would not have a material impact
on the amounts reported in the current period, by making inquiries of relevant
BP personnel outside the finance function, reviewing internal and external
documents and conducting sensitivity analysis as part of our audit risk
assessment procedures. We obtained third party forecasts of future refined
petroleum product demand for those countries which are included in our group
full audit scope for downstream, under a range of scenarios including scenarios
noted as being consistent with achieving the 2015 COP 21 Paris agreement goal
to limit temperature rises to well below 2°C (‘Paris 2°C Goal’). These
indicated that global demand for such products was expected to remain
significant until at least 2040.

We
performed procedures to satisfy ourselves that, other than future oil and gas
price assumptions, there were no other assumptions in management’s goodwill
calculations to which reasonably possible changes could cause goodwill to be
materially misstated.

We
obtained an understanding of the controls identified by management as being
relevant to ensuring the completeness and accuracy of litigation and climate
change related disclosure within the Annual Report; we performed procedures to
test these controls.

With
regard to climate change litigation, we designed procedures specifically to
respond to the risks that provisions could be understated or that contingent
liability disclosures may be omitted or be inaccurate, including:

(i)   Holding discussions with the group general
counsel and other senior BP lawyers regarding climate change matters;

(ii)  Conducting a search for climate change
litigation and claims brought against the group; and

(iii) Making written inquiries of, and holding
discussions with, external legal counsel advising BP in relation to climate
change litigation.

We read
the other information included in the Annual Report and considered (a) whether
there was any material inconsistency between the other information and the
financial statements; or (b) whether there was any material inconsistency
between the other information and our understanding of the business based on
audit evidence obtained and conclusions reached in the audit.

______________________________________________________________________________________________________

Corrigendum

We published an article titled Personal Data Protection by Mr. Rajendra
Ponkshe in the November 2020 issue
of bcaj, on
page 44. Mr. Ponkshe’s title was wrongly mentioned as ?Advocate’ instead of
?Chartered Accountant’.

This oversight at Spenta Multimedia, is regretted. The readers are requested
to note the correct title of the author.

BCAJ Admin