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National Financial Reporting Authority (NFRA) has directed Mahindra Holidays Resorts India Limited (MHRIL) to “thoroughly and proactively” review its accounting policies and practices in respect of segment reporting.
In its 14-page order, the audit regulator has found deficiencies in the company’s accounting disclosures and asked MHRIL to effect changes in the disclosures in line with the letter and spirit of the disclosures required under Companies Act 2013 and SEBI LODR regulations. NFRA has directed MHRIL to complete the review process by June 30.
The latest NFRA order was passed in the wake of Delhi High Court’s order of January 18, 2023 following a writ filed by petitioner Brigadier Vivek Kashinath Chhatre, who alleged various irregularities, including accounting and auditing irregularities in the functioning of MHRIL. Delhi High Court had asked NFRA to dispose of the matter by March 31.
Lack of transparency
The issue raised by Chhatre in his complaint that potentially relates to implementation of accounting standards is that MHRIL raises substantial revenues through the Annual Subscription Fee (ASF) but does not report it as a separate operating segment, as required by Ind AS 108. Because of this, there is a lack of transparency in the operation of the ASF, especially the basis of determining the ASF charges and its utilisation.
Also, MHRIL does not meet its promised obligation of providing the assured one week’s vacation to the members, on the ground of non-availability of rooms, even though the rooms for the same duration could be booked through other channels as non-members. NFRA concluded that both these issues impacted the implementation of accounting standards.
NFRA has in its order directed that MHRIL’s review and the changes brought in its accounting practices and reporting should be properly documented, especially with respect to the Chief Operating Decision Maker’s (CODM) exercise of monitoring and control, both at the aggregated and disaggregated, granular level, and such documentation should be verified by MHRIL’s statutory auditor who should complete this process by July 31, 2023.
Also MHRIL and its statutory auditor should report separately to NFRA the results of their review and the changes effected in the MHRIL’s accounting policies and practices.
“Based on its own review of the reports of MHRIL and its statutory auditor, NFRA will take further course of action as provided under the existing provisions of the Companies Act 2013 and the NFRA Rules”, the NFRA order added.
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