Page 215 - CA Final PARAM Digital Book.

QNO Cl 11--Fraud Reporting (Noticed or Reported) Old Course – (N18R, M19R, M19M, N21M)
407.010 TITANIUM CNO—CARO.240
Whilst the Audit team has identified various matters, they need your advice to include the same in
your audit report in view of CARO 2020: -
(ii) The Internal Auditor of the Company has identified a fraud in the recruitment of employees by
the HR department wherein certain sums were alleged to have been taken as kick -back from
the employees for taking them on board with the Company. After due investigation, the
concerned HR Manager was sacked. The amount of such kickbacks is expected to be in the

range of 13.50 Lakh.
OR
Paragraph 3(xi) of CARO, 2020 requires the auditor to report whether any fraud by the company or any
fraud on the company by its officers or employees has been noticed or reported during the year. The
clause does not require the auditor to discover such frauds. The scope of auditor’s inquiry under this
clause is restricted to frauds ‘noticed or reported’ during the year. Comment.
Answer ➢ Paragraph 3(xi) of CARO, 2020 states that :
Whether any fraud by the company or any fraud on the company has been noticed or reported
during the year, if yes,
• the nature and
• the amount involved is to be indicated;

The clause does not require the auditor to discover such frauds. The scope of auditor’s inquiry under
this clause is restricted to frauds ‘noticed or reported’ during the year.
The use of the words “noticed or reported” indicates that the management of the company should have
knowledge about the frauds by the company or on the company that have occurred during the period
covered by the auditor’s report.

In the instant case, a fraud has been identified in recruitment of employees by the HR Department
wherein certain sums were alleged to have been taken as kickback from the company of amounting
rupees approx. 13.50 lakh. The auditor is required to report on the same in accordance with clause (xi)
of para 3 of CARO 2020.

QNO Cl 11--Cl 11--Fraud Reporting (Reporting on Cases) Old Course – (N18E, SM21)
407.020 TITANIUM CNO—CARO.240
What are the reporting requirements in the audit report under the Companies Act, 2013 / CARO, 2020
for the following situations?
(i) A fraud has been committed against the company by an officer of the company.
(ii) A fraud has been committed against the company by a vendor of the company.
(iii) The company has committed a major fraud on its customer and the case is pending in the
court.

A fraud has been reported in the cost audit report but not noticed by statutory auditor in his audit.
Answer Part I -- Relevant Standards & Laws
▪ Clause (xi) of Para 3 of CARO, 2020
▪ Section 143(12)
Part II -- Requirements of Relevant Standards & Laws
➢ CARO Clause (xi)
• Whether any fraud by the company or any fraud on the company has been noticed or
reported during the year, if yes,
• the nature and
• the amount involved is to be indicated.

• Whether any report under sub-section (12) of section 143 of the Companies Act has been
filed by the auditors in Form ADT-4 as prescribed under rule 13 of Companies (Audit and
Auditors) Rules, 2014 with the Central Government;

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