CS Professional · Environmental, Social and Governance (ESG) - Principles and Practice · Governance Influencers
During the audit of Sundaram Pharma Ltd, the statutory auditor finds that the managing director has diverted funds, which is an offence involving suspected fraud of Rs 2 crore by officers of the company. The auditor has not received any response from management. What is the auditor's duty under the Companies Act, 2013?
The auditor must report the suspected fraud to the Central Government in the prescribed manner, after first informing the board or audit committee and allowing time for response. Since the amount is above Rs 1 crore, reporting to the Government is mandatory, not optional.
- AIgnore it, as fraud detection is solely management's job
- BReport it to the Central Government as prescribed, after first informing the board or audit committee and allowing time for a reply, because the amount is Rs 1 crore or aboveCorrect
- CReport it only to the shareholders at the next AGM
- DResign immediately without any reporting
Explanation
For suspected offence-involving fraud of Rs 1 crore or more, the auditor must report to the Central Government following the prescribed procedure, which includes informing the board or audit committee and seeking a reply within the stipulated time. Rs 2 crore exceeds the threshold. Reporting only at the AGM or resigning does not discharge the duty.
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