Reporting of Fraud by Auditors

Para 13 of the Companies (Audit and auditors) Amendment Rules, 2015 has been amended vide gazzette notification dated 14th December, 2015 to state, among other matters, that if an auditor, has reason to believe that an offence of fraud, which involves or is expected to involve individually an amount of rupees one crore or above, is being or has been committed against the company by its officers or employees, the auditor shall report the matter to the Central Government.

FraudThe auditor shall report the matter to the Central Government as under:

  1. The auditor shall report the matter to the Board or the Audit Committee, as the case may be, immediately but not later than two days of his knowledge of the fraud, seeking their reply or observations within forty-five days.
  2. On receipt of such reply or observations, the auditor shall forward his report and the reply or observations of the Board or the Audit Committee along with his comments to the Central Government within fifteen days from the date of receipt of such reply or observations.
  3. In case the auditor fails to get any reply or observations from the Board or the Audit Committee within the stipulated period of forty-five days, he shall forward his report to the Central Government along with a note containing the details of his report that was earlier forwarded to the Board or the Audit Committee for which he has not received any reply or observations

If the amount is less the rupees one crore, the auditor shall report the matter to the Board or the Audit Committee immediately but not later than two days of his knowledge of the fraud .

Each fraud reported to the Audit Committee or the Board during the year will also be required to be disclosed in the Board’s Report with the prescribed details.

The provision of this rule shall also apply, mutatis mutandis, to a Cost Auditor and a Secretarial Auditor during the performance of his duties under section 148 and section 204 respectively.

Click here to download the Gazzette Notification.

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