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

While auditing Ganga Pharma Ltd., the statutory auditor, CA Rohan, finds indications that an officer of the company has committed a fraud involving Rs 2 crore against the company. Under the Companies Act, 2013 as understood at CA Final level, what must the auditor do?

Because the suspected fraud of Rs 2 crore is at or above Rs 1 crore, the auditor must report it to the Central Government in the prescribed manner, after first informing the Board or Audit Committee and seeking their reply within the prescribed time. Keeping it only in working papers is insufficient.

  1. AReport the matter to the Central Government within the prescribed time and manner, since the amount is Rs 1 crore or more, after seeking the Board's reply as prescribedCorrect
  2. BIgnore reporting since fraud by officers is the Board's responsibility
  3. CReport it directly to the police without informing anyone
  4. DOnly mention it in the audit working papers

Explanation

Where the auditor has reason to believe an offence of fraud involving Rs 1 crore or more is being or has been committed against the company by its officers or employees, the auditor reports to the Central Government in the prescribed manner, first informing the Board or Audit Committee and seeking a reply within the prescribed period. Rs 2 crore crosses the threshold. Merely documenting it fails the statutory duty.

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