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CA Final · Integrated Business Solutions (Multidisciplinary Case Study with Strategic Management) · Corporate and Economic Laws

Case: Ganga Steel Ltd's auditor, while auditing the accounts, has reason to believe that an offence involving fraud of Rs 2 crore is being committed against the company by its officers. Under section 143(12) of the Companies Act, 2013, what must the auditor do?

Because the suspected fraud of Rs 2 crore exceeds the Rs 1 crore threshold, the auditor must report it to the Central Government. He first informs the board or audit committee and seeks their reply within the prescribed period, then files the report with the Central Government within the stipulated time.

  1. AReport to the Central Government within the prescribed time after first informing the board or audit committee and seeking their replyCorrect
  2. BIgnore it unless the amount is above Rs 10 crore
  3. CReport directly to the police without informing the board
  4. DReport only to the shareholders at the next annual general meeting

Explanation

For fraud of Rs 1 crore or more by officers or employees, the auditor must report to the Central Government. Under the rules he first reports to the board or audit committee within 2 days of knowledge, seeking a reply within 45 days, and then reports to the Central Government within 15 days of receiving the reply or the period lapsing. Rs 2 crore exceeds the Rs 1 crore threshold, so Rs 10 crore is irrelevant.

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