Page 216 - CA Final PARAM Digital Book.

➢ Section 143(12)
Further, as per section 143(12) of the Companies Act, 2013, if an auditor of a company, in the
course of the performance of his duties as auditor, has reason to believe that an offence
involving fraud is being or has been committed against the company by officers or employees of
the company, he shall immediately report the matter to the Central Government (in case
amount of fraud is rupees 1 crore or above) or Audit Committee or Board in other cases (in case
the amount of fraud involved is less than rupees 1 crore) within such time and in such manner
as may be prescribed.
• Fraud Committed against the Company:
Fraud committed against the company. has to be reported in accordance with Clause (xi)
of Para 3 of CARO 2020, and as per section 143(12) of the Companies Act, 2013.

• Fraud committed against the company by a vendor of the Company:
In case employees or management are involved in fraud committed by vendor, reporting
has to be done in accordance with CARO 2020 and as per section 143 (12) of the
Companies Act, 2013. Suspected fraud by vendors, customers and other third parties
should be dealt with in accordance with SA 240. Therefore, reporting has to be done in
accordance with SA 240, “The Auditor’s Responsibilities relating to Fraud in an audit of
Financial Statements”.

• Company has committed major fraud on its customer of which case is
pending in the court:
Major fraud committed by the company on its customer has to be reported in
accordance with Clause (xi) of Para 3 of CARO 2020.

➢ Fraud reported in Cost Audit Report but not noticed by Statutory Auditor:
As per Clause (xi) of Para 3 of CARO 2020, all frauds noticed or reported during the year shall be
reported indicating the nature and amount involved as specified the fraud by the company or on
the company by its officers or employees are only covered.

Here in the given scenario, a fraud has been reported in the cost audit report but not noticed by
Statutory Auditor in his audit. Hence the statutory auditor has to report the nature and amount
involved in the audit report as per section 143 of the Companies Act, 2013

QNO Cl-13-- Non-Disclosure of RPT Old Course – (M19R, N19M, N20E,N21M)
409.020 TITANIUM CNO—CARO.280
An amount of ₹ 3.25 Lakhs per month is paid to M/s. WE CARE Associates, a partnership firm, which is a
'related party' in accordance with the provisions of the Companies Act, 2013 for the marketing services
rendered by them. Based on an independent assessment, the consideration paid is higher than the arm's
length pricing by ₹ 0.25 Lakhs per month. Whilst the transaction was accounted in the financial
statements based on the amounts' paid, no separate disclosure has been made in the notes forming part
of the accounts highlighting the same as a 'related party' transaction.
OR
In the course of audit of MM Ltd. for the financial year ended 3 March 2019, your audit team has
identified the following matter:
An amount of Z 4 Lakh per month for the marketing services rendered is paid to M/s. MG Associates, a
partnership firm in which Director of MM Ltd. is also a managing partner, with a profit-sharing ratio of
30%. Based on an independent assessment, the consideration paid is higher than the arm's length pricing
by 1.50 Lakh per month. Whilst the transaction was accounted in the financial statements based on the
amounts paid, no separate disclosure has been made in the notes forming part of the accounts.
Give your comments for reporting under CARO 2020.
Answer Part I -- Relevant Standards & Laws
▪ Clause(xiii) of para 3 of CARO 2020
Part II -- Requirements of Relevant Standards & Laws
➢ As per clause (xiii) of para 3 of CARO 2020, the auditor is required to report, “whether all
transactions with the related parties are in compliance with sections 177 and 188 of Companies

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