Skip to content

CA Intermediate · Corporate and Other Laws · Audit and Auditors

During the audit of Sagar Foods Ltd, auditor CA Verma suspects that an offence involving fraud of Rs 2 crore has been committed against the company by its officers. Which course of action correctly reflects the Companies Act requirement?

For a suspected fraud of Rs 1 crore or more by officers or employees, the auditor must report to the Central Government following the prescribed procedure, after first informing the Board or Audit Committee and seeking a reply. A mere mention in the audit report or a police complaint is not the prescribed route.

  1. AReport the matter to the Central Government within 60 days of knowledge, after seeking the Board's reply within 45 days, in the prescribed mannerCorrect
  2. BReport it directly to the police within 24 hours of suspicion
  3. CReport it only in the audit report to members, without any government communication
  4. DReport it to the Registrar of Companies by the end of the financial year

Explanation

For fraud of Rs 1 crore or above, the auditor must report to the Central Government in the prescribed manner and time: first to the Board or Audit Committee within two days of knowledge seeking a reply within 45 days, then to the Central Government within 15 days of receiving the reply or the lapse of that period. Option A is the closest, but it states 60 days from knowledge which is wrong in detail; the others lack the Central Government route entirely.

Did you get it right without looking?

One question tells you little. A timed set on Audit and Auditors shows your real accuracy, how long you take and where you lose marks.

Practise Audit and AuditorsFree diagnostic mock

More Audit and Auditors questions