The National Financial Reporting Authority ( NFRA ) directed Mahindra Holidays Resorts India Limited (MHRIL) and its auditor to review accounting policies and practices following the order of the Delhi High Court.
The Complaint was made under NFRA Rules, 2018by Brigadier Vivek Chhatreon a host of issues covering accounting and consumer protection issues. The complainant is a Member of the MHRIL, which entitles him to a week’s vacation at different resorts of MHRIL, subject to availability and entitlement. For being eligible, the Members have to pay a one-time (or in instalments) Membership Fee (MF) and recurring Annual Subscription Fee (ASF), in addition to charges on food and beverages consumed during the vacation stay.
MHRIL has averred that it follows a mixed-business model wherein non-members, called Free Inward Travelers (Fils), can also stay in their resorts if there is no demand for rooms from the Members during the said period.
NFRA’s mandate has been defined in Section 132 of the Companies Act 2013 (CA-2013) and includes monitoring and enforcement of compliance with the accounting standards and auditing standards. Therefore, this order is restricted to the issues raised by the petitioner that directly or potentially pertain to the accounting and auditing standards.
The companies are required to keep their books of account based on which they are required to prepare their financial statements, which must give a true and fair view of the state of affairs of the company (s.128 of CA-2013). Section 129 of CA-2013 requires companies to comply with the accounting standards notified by the Central Government under section 133 of the CA-2013.
Failure to comply with section 129 may entail punishment with imprisonment and a fine. The accounts have to be audited by the auditors appointed under section 139 of CA-2013. The auditor must comply with auditing standards prescribed by the Central Government under section 143 (10) of CA-2013.
It was observed that some of thestatements by MHRIL appear extraordinary, raising questions about the accounting systems put in place by MHRL, which should ideally be geared to capture basic unit-level information on revenues and expenses, especially in a business where the revenues and expenses can be traced back to each discrete traveller, be it a Member or FIT, and which in turn also provides a valid basis for pro-rating common expenses like the maintenance, security etc.
The reporting by MHRIL is found deficient in the application of Ind AS 108. Further, the Consolidated Financial Statements do not consider a number of other potential segments like Vacation Ownership, ASF, and Food & Beverages, or the types of Membership, or the other categories of customers such as FIT, and MHRIL has not produced any evidence of testing the criteria of an operating segment as per Ind AS 108 on these potential segments.
In compliance with the orders of the High Court of Delhi dated 18th January 2023, the NRA authorities directed the MHRIL and its auditor to review its accounting policies and practices in respect of segment reporting, as they relate to the application of Ind AS 108.
Subscribe Taxscan Premium to view the JudgmentSupport our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates
