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CA Intermediate · Corporate and Other Laws · Audit and Auditors

Under the Companies Act, 2013, an auditor of a company, in the course of performing duties, has reason to believe that an offence involving fraud is being committed against the company by its officers or employees. The amount of fraud is Rs 5 crore. What must the auditor do?

For fraud of Rs 1 crore or more by officers or employees, the auditor must report to the Central Government after first informing the Board or Audit Committee and seeking its reply within 45 days. Merely reporting to the Board, the Registrar, or ignoring the fraud is not correct.

  1. AReport the matter to the Central Government within 60 days of knowledge, after first seeking the Board's reply within 45 days, and the Board's reply or observations must be forwardedCorrect
  2. BReport only to the Board and not to the Central Government
  3. CIgnore it because fraud reporting is the duty of the management only
  4. DReport to the Registrar of Companies alone within 7 days

Explanation

Where an auditor has reason to believe that fraud of Rs 1 crore or above is being or has been committed against the company by its officers or employees, the auditor reports to the Central Government. The auditor first reports to the Board or Audit Committee within 2 days of knowledge, seeking a reply within 45 days, and then reports to the Central Government within 15 days of receiving the reply or observations, or of the lapse of 45 days. Of the options, only the first describes reporting to the Central Government after seeking the Board's reply, and its timing detail is the closest, while the others are plainly wrong in substance.

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