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CA Final · Advanced Auditing, Assurance and Professional Ethics · Due Diligence, Investigation & Forensic Accounting

CA Anil is the statutory auditor of Bharat Metals Ltd, a company under the Companies Act, 2013. During the audit he suspects that an offence involving fraud has been committed by an officer of the company, and the amount involved is Rs 2 crore. Which action is required of the auditor?

The auditor must report the suspected fraud to the Central Government in the prescribed manner, after informing the Board or Audit Committee and seeking their reply within the specified time. Since Rs 2 crore exceeds the Rs 1 crore threshold, ignoring it or resigning without reporting would breach the duty.

  1. AIgnore the matter because fraud detection is solely the management's responsibility
  2. BReport the matter to the Central Government in the prescribed manner, after first seeking the Board's or Audit Committee's views within the prescribed time, as required for frauds of Rs 1 crore or aboveCorrect
  3. CReport only to the police station having jurisdiction, with a copy to the shareholders
  4. DResign immediately without any reporting, to avoid liability

Explanation

Under the Companies Act, an auditor who has reason to believe that an offence involving fraud of Rs 1 crore or above is being or has been committed by officers or employees must report it to the Central Government following the prescribed procedure, which includes informing the Board or Audit Committee and seeking their reply. Rs 2 crore exceeds the threshold. Ignoring or resigning silently does not meet the duty.

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