Page 155 - CA Final Audit Titanium Full Book. (With Cover Pages)

CA Ravi Taori

Sub-section (13) of section 143 & Other Points.
(Shortcut: CG SPA for DSC holders)
Reporting under CARO, 2020: As per clause (xi) of paragraph 3 of the Companies (Auditor’s Report) Order,
2020, the auditor must report any fraud noticed or reported during the year, specifying the nature and amount
involved.
Guidance Note by ICAI: The Auditing and Assurance Standards Board of ICAI has issued a guidance note to
help members understand the reporting requirements under section 143(12) of the Companies Act, 2013.A
Safeguarding Good Faith Reporting: Sub-section (13) of section 143 of the Companies Act, 2013 protects
auditors who report fraud in good faith, ensuring they are not seen as contravening their duties. (No breach of
Confidentiality)
Penalties for Non-compliance: Non-compliance with the provisions of sub-section (12) of section 143 attracts
a penalty of five lakh rupees for listed companies and one lakh rupees for other companies, applicable to auditors,
cost accountants, or company secretaries in practice.
Applicability to Cost and Secretarial Auditors: The fraud reporting provisions apply equally to cost auditors
and secretarial auditors while performing their duties under sections 148 and 204, respectively.
Definition and Explanation of Fraud: While the definitions of fraud in SA 240 and section 447 of the 2013
Act are similar, section 447 includes acts done with the intent to injure the interests of the company or others,
irrespective of wrongful gain or loss.
Adherence to SA Requirements: Auditors should consider the requirements of the SAs, especially the
definition of fraud in SA 240, while planning and conducting their audit procedures to address the risk of
material misstatement due to fraud.
Detection Challenges for Auditors: Auditors might not detect fraudulent acts that intend to harm the
company's interests or involve wrongful gain or loss unless these acts have financial effects reflected in the
company's books or financial statements.
• Examples of Undetectable Frauds: Some frauds, such as employees receiving payoffs for favouring a
vendor or the misuse of a managerial personnel's password to access confidential information, may not
be detectable as they don't have discernible effects on the financial statements.
6. (Sec 143(11) Duty to report on any other matter specified by Central Government (CARO):
Central Government's Directive: The Central Government can direct, in consultation with the NFRA, that
the auditor's report for specified companies include statements on particular matters through general or special
orders.
7. Duties and powers of branch Auditor.
Duties and powers of branch auditor with respect to branch is same as principal auditor with respect to company
8. Duty to state the reason for qualification or negative report:
Reason for Qualification or Negative Report: According to sub-section (4) of section 143, if any matter in the
audit report is answered negatively or with a qualification, the report must state the reasons for such response.

CARO, 2020.

(CNO CARO.020) Reporting Under CARO, 2020
CARO, 2020 Introduction: Leveraging the authority granted by section 143(11) of the Companies Act, 2013,
the Central Government, post consultation with the National Financial Reporting Authority established under
section 132 of the same act, promulgated the Companies (Auditor’s Report) Order, 2020 (CARO, 2020) on 25th
February 2020. Applicability was deferred to FY 21-22.
1. Applicability of the Order:

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