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CA Intermediate · Corporate and Other Laws · Audit and Auditors

Rao & Co., statutory auditors of Delta Infra Ltd, find that the company's managing director has committed a fraud of Rs 2 crore against the company, discovered during the audit. Which is the correct duty of the auditor under the Companies Act, 2013?

Because the fraud is Rs 2 crore, which is Rs 1 crore or more, the auditor must report to the Central Government. The procedure first involves informing the Board or Audit Committee and seeking a reply within 45 days, then forwarding the report with the reply. It is not an internal-only matter.

  1. AReport to the Central Government within 60 days of knowledge, after seeking the Board's reply within 45 days, since the amount is Rs 1 crore or moreCorrect
  2. BReport to the Audit Committee only, since fraud by the managing director is an internal matter
  3. CReport to the Registrar of Companies immediately in all cases of fraud regardless of amount
  4. DReport to the Central Government within 2 days of knowledge, with no reference to the Board

Explanation

For fraud of Rs 1 crore or more by officers or employees, the auditor reports to the Central Government. He first reports to the Board or Audit Committee within two days of knowledge, seeks their reply within 45 days, and then forwards the report with the reply within 15 days after the 45 days. Option D wrongly excludes the Board step.

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