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CA Intermediate · Corporate and Other Laws · Audit and Auditors

During the audit of Zenith Steels Ltd, the statutory auditor finds that the company's officers have committed fraud of Rs 2 crore against the company. Under the Companies Act, 2013 and related rules, what must the auditor do?

For a fraud of Rs 1 crore or more by officers or employees, the auditor must report it to the Central Government. He first reports to the board or audit committee and seeks their reply, and then forwards his report to the Central Government within the prescribed time.

  1. AReport it to the Central Government within the prescribed time, after first seeking the board's or audit committee's views within 2 days of knowledgeCorrect
  2. BIgnore it, since fraud reporting is only for the board
  3. CReport it to the Registrar of Companies within 7 days of knowledge, with no other step
  4. DMention it only in the next AGM

Explanation

For fraud of Rs 1 crore or above, the auditor must report it to the Central Government. First, he reports to the board or audit committee within 2 days of knowledge and seeks a reply or observations within 45 days. Then, if not satisfied, he forwards the report to the Central Government within 15 days of the reply or the end of the period. Options two to four omit this procedure.

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