Page 154 - CA Final Audit Titanium Full Book. (With Cover Pages)

CA Ravi Taori

(CNO CA.040) Duty to report on frauds:
A. Reporting to the Central Government -
Reporting Fraud to Central Government: As per sub-section (12) of section 143 of the Companies Act, 2013,
if an auditor believes that a fraud involving a prescribed amount has been committed by the company's officers
or employees, they must report it to the Central Government within a prescribed time and manner.
Rule 13 of Companies (Audit and Auditors) Rules, 2014: This rule has been prescribed to guide auditors on
how to report suspected frauds to the Central Government.
Sub-rule (1) of Rule 13: It specifies that if an auditor suspects a fraud involving or expected to involve an amount
of ₹1 crore or above being committed against the company by its officers or employees, it must be reported to
the Central Government.
The manner of reporting the matter to the Central Government is as follows:
1. Reporting to Board or Audit Committee: The auditor should report the matter to the Board or the Audit
Committee within 2 days of becoming aware of the fraud, seeking their reply or observations within 45 days.
2A. Forwarding Reply to Central Government: Upon receiving the reply or observations, the auditor must
forward them along with his report and comments to the Central Government within 15 days from the date of
receipt.
2B. No Reply from Board or Committee: If the auditor does not receive any reply or observations within 45
days, he should forward his report to the Central Government with a note detailing the report previously sent
to the Board or the Audit Committee.
3A. Sending Report to Secretary, MCA: The report should be sent to the Secretary of the Ministry of Corporate
Affairs in a sealed cover by registered post with acknowledgement due or by speed post, followed by a
confirmation email.
3B. Report Format and Details: The report should be on the auditor's letterhead, containing postal and email
addresses, contact number, and be signed with the auditor's seal indicating his membership number.
3C. Form of the Report: The report should be in the form of a statement as specified in Form ADT-4.
B. Reporting to the Audit Committee or Board -
Reporting frauds less than 1 Cr: Sub-section (12) of section 143 of the Companies Act, 2013 dictates that frauds
involving less than ₹1 crore should be reported to the audit committee or the Board, as per the prescribed manner
and timeframe.
Sub-rule (3) of Rule 13: This rule specifies that in cases where the fraud involves less than ₹1 crore, the auditor
must report the matter to the audit committee or the Board within 2 days of becoming aware of the fraud,
detailing specific aspects as required.

a) Nature of Fraud with (b) Approximate amount (c) Parties involved.
description; involved; and

C. Disclosure in the Board's Report:
Fraud Details in Board's Report: According to sub-section (12) of section 143 of the Companies Act, 2013,
companies must disclose details of frauds reported to the audit committee or the Board (but not to the Central
Government) in the Board's report as prescribed.
Sub-rule (4) of Rule 13: This rule mandates that the Board's report should include details of each fraud reported
to the audit committee or the Board during the year under sub-rule (3).

(a) Nature of Fraud with description; (b) Approximate Amount involved;
(c) Parties involved, if remedial action not taken; and (d) Remedial actions taken.

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