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CA Intermediate · Corporate and Other Laws · Audit and Auditors

During the audit of Nalanda Exports Ltd, the auditor, Ms Shreya, suspects that an offence involving fraud has been committed by the managing director, and the amount involved is Rs 2 crore. Under the Companies Act, 2013, what must she do?

The auditor must first report the matter to the Board or Audit Committee and seek its reply within 45 days. If no satisfactory reply comes, she must then report the fraud to the Central Government. Fraud of Rs 1 crore or above falls under this procedure.

  1. AReport the matter to the Central Government within 60 days of becoming aware, after first seeking the Board's reply within 45 daysCorrect
  2. BReport to the Audit Committee only and take no further action
  3. CReport directly to the Registrar of Companies within seven days
  4. DIgnore it, since fraud of less than Rs 5 crore need not be reported

Explanation

Where the auditor has reason to believe a fraud of Rs 1 crore or above is being or has been committed against the company by officers or employees, section 143(12) requires that he report to the Board or Audit Committee within two days of knowledge, seeking a reply within 45 days. If no satisfactory reply is received, he must report to the Central Government within 15 days of the end of this period. Among the choices, the one that has the Board approached first and then the Central Government matches this structure most closely, whereas the Registrar-only, Audit-Committee-only and Rs 5 crore-limit options are wrong.

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