Corporate India has at most times suffered its minority shareholders and has been content with just sufficient disclosures as not to fall foul of the regulations. The common refrain is, sharing of vital information would only help the competitors!
Recently Mahindra Holiday & Resorts India Ltd (MHRIL) was hauled up by the National Financial Reporting Authority (NFRA) in a proceeding that arose out of a case filed by a disgruntled customer before the Delhi high court, complaining that the company did not disclose important segment information of its business.
MHRIL services its time share customers by collecting the cost of the time share (one-time or instalments) and an annual subscription fee; it also provides accommodation to walk-in customers depending on the vacancy and has a food and beverage(F&B) revenue as well. The historical evolution of how the company was disclosing segment information can be interesting.
Change in reporting format
Till the year third quarter for the accounting year ended March 2018 the notes to the financial accounts stated, “The company has a single reportable segment namely, sale of vacation ownership and related activities.” For the first time in the fourth quarter of the year ending March 2018 the segment reporting was adopted with the note, “Operating segments are reported in a manner consistent with the internal reporting provided to the Chief Operating Decision Maker (“CODM”) of the Group. The Group has identified the following segments as reporting segments based on the information reviewed by CODM: MHRIL(Club Mahindra) and Holiday Club Resorts OY (HCRO).”
This in itself looks quite condescending that the segment is decided not as per the relevant accounting standard but by the way information was given to an internal official, on fact no outsider would be able to verify or validate!
It has not been easy to ascertain the cause of this change and perhaps there could have been many valid reasons but the one that seems apparent is the fact that the previous auditor, Deloitte Haskins and Sells ended their contract and the current auditors, BSR & Co took charge.
Possibly, in the last quarter results the auditor must have felt a twinge of conscience that the single segment approach was grossly unrepresentative of the nature of the business of the company which was in fact providing a more detailed break up of segment wise revenue to the department of company affairs in the annual return filed since 2015.
Is it really hard to gather the info?
The NFRA after reviewing the detailed submissions of the company and that of the auditors which harped on the difficulty of culling out the income and expenditure pertaining to the stream of income being the annual subscription fee, which was the charge of the complainant before the high court, passed an order mandating the company and the auditor to comply with its orders by 30th June 2023.
In fact, some of the observations of the regulator about the untenability of the contentions made by the company of difficulty to collect information makes for a sorry reading of a company which has a highly distinguished board and an audit committee chaired by a former MD and CFO of the biggest bank in the country! In an age when information is at the heart of most business, the excuse of difficulty in culling out the same can at best be comical!
While there may be an excuse that the order had allowed the company to set right its affairs by June 2023, it is quite unedifying to note that the quarterly results for the period ended 2023 has been published with note acknowledging the order received from NFRA and at the same time stating that the disclosures done till now were in order as per Ind AS 108.
The company hails from a conglomerate considered as a benchmark for good governance and whose group chair is famous for his tweets on subjects of social relevance!
If corporates were to treat this as a company specific matter and continue their reluctance to share more information with the common shareholders, the efforts of NFRA would have been in vain as it has bandwidth constraints to investigate each business and determine the right segments. And if the world of the auditors believe that who pays the piper calls the tune, corporate governance would gain little in the process!
