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CA Final · Advanced Auditing, Assurance and Professional Ethics · Due Diligence, Investigation & Forensic Accounting

While auditing Bharat Forgings Ltd, the auditor suspects that the Chief Financial Officer has diverted funds through fictitious vendors. Under the Companies Act, 2013, once the auditor has reason to believe that an offence involving fraud is being or has been committed against the company by officers or employees, and the amount involved is Rs 3 crore, what must the auditor do?

The auditor must report to the Central Government following the prescribed process. First inform the Board or Audit Committee and seek their response within 45 days, then forward the report to the Central Government. Fraud of Rs 1 crore or more is reportable this way, not only through CARO.

  1. AReport the matter to the Central Government within the prescribed time and process, after first seeking the Board's or Audit Committee's reply within 45 daysCorrect
  2. BReport directly to the Central Government immediately without informing the Board
  3. COnly mention it in the CARO report and take no further action
  4. DReport it to the Registrar of Companies within 7 days

Explanation

For fraud of Rs 1 crore or above, the auditor reports to the Central Government. The process is to first report to the Board or Audit Committee within two days of knowledge, seek their reply or observations within 45 days, and then forward the report to the Central Government within 15 days of receiving the reply or the lapse of the period. Direct immediate reporting skips this process.

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