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

During a statutory audit of Lotus Infra Ltd, CA Nisha, the auditor, has reason to believe that an offence involving fraud of Rs 2 crore has been committed by officers of the company. Under the Companies Act, 2013, the correct step is:

Because the suspected fraud is Rs 2 crore, which is Rs 1 crore or more, the auditor must report to the Central Government after first informing the Board or Audit Committee and seeking its reply. Reporting only to shareholders or relying on an internal investigation would not satisfy the Companies Act.

  1. AReport the matter to the Central Government within the prescribed time after first informing the Board or Audit Committee and seeking their reply, as the amount is Rs 1 crore or moreCorrect
  2. BReport to the Central Government only if the amount is below Rs 1 crore
  3. CReport the matter only to the shareholders at the next annual general meeting
  4. DDo nothing further once management states that the matter is being investigated internally

Explanation

For fraud involving Rs 1 crore or more, the auditor reports to the Central Government. The practice is to first escalate to the Board or Audit Committee within two days of knowledge, seek their reply within 45 days, and then forward the report with the reply within the prescribed time. Fraud below Rs 1 crore is reported to the Audit Committee or Board and disclosed in the Board's report instead. An internal investigation does not remove the reporting duty.

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