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In Companies (Audit and Auditors) Amendment Rules 2014

Section 143(12) of Companies Act, 2013 states

If an Auditor of the Company, in the course of the performance of his duties as auditor, has reason to believe that an offence involving fraud is being or has been committed against the company by officers or employees of the company, he shall immediately report the matter to the Central Government within such time and in such manner as may be prescribed.

Companies (Amendments) Act, 2015 (21 of 2015), dt. 25-05-2015 stated

If an Auditor of the Company, in the course of the performance of his duties as auditor, has reason to believe that an offence of fraud involving such amounts or amount as may be prescribed, is being or has been committed in the company by its officer or employees, the auditor shall report the matter to the central Government within such time and in such manner as may be prescribed.

In the Companies (Audit and Auditors) Rules, 2014 (hereinafter referred to as the principal rules),- Amended vide  Notification No. G.S.R. 972(E), dated 14-12-2015

Before Amendments

(1) For the purpose of section 143(12), in case of auditor has sufficient reason to believe that an offence involving fraud, is being or has been committed against the company by officers or employees of the company, he shall report the matter to CG immediately but not later than 60 Days of his knowledge and after following the procedure mentioned below:-

(i) Auditor shall forward his report to the Board or the Audit Committee (if any), immediately after he comes to knowledge of the Fraud, seeing their reply or observation within 45 Days.

(ii) On receipt of such reply or observations the auditor shall forward his report and reply or observation of the Board or the Audit Committee along with his comment to the CG within 45 Days of receipt of such reply or observations;

(iii) In case the auditor fails to get any reply or observations from the Board or Audit Committee within the 45 Days, he shall forward his report to CG along with a note containing the details of his report that was earlier forward to the Board or Audit Committee for which he fails to receive any reply or observation within the stipulate time.

(2) The report shall be sent to the Secretary, Ministry of Corporate Affairs in a sealed cover by Registered Post with Acknowledgement Due or by Speed Post followed by an e-mail in confirmation of the same;

(3) The report shall be on the letter-head of the auditor containing postal address, e-mail address and contact telephone number or mobile number and be signed by the auditor with his seal and shall indicate his Membership Number.

(4) The report shall be in the form of a statement as specified in Form ADT-4.

(5) 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.”

After Amendments vide Notification No. G.S.R. 972(E), dated 14-12-2015

“13. Reporting of frauds by auditor and other matters:

(1) If an auditor of a company, in the course of the performance of his duties as statutory 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.

(2) The auditor shall report the matter to the Central Government as under:-

(a) 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;

(b) 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 (on such reply or observations of the Board or the Audit Committee) to the Central Government within fifteen days from the date of receipt of such reply or observations;

(c) 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;

(d) The report shall be sent to the Secretary, Ministry of Corporate Affairs in a sealed cover by Registered Post with Acknowledgement Due or by Speed Post followed by an e-mail in confirmation of the same;

(e) The report shall be on the letter-head of the auditor containing postal address, e-mail address and contact telephone number or mobile number and be signed by the auditor with his seal and shall indicate his Membership Number; and

(f) The report shall be in the form of a statement as specified in Form ADT-4.

(3) In case of a fraud involving lesser than the amount specified in sub-rule (1), the auditor shall report the matter to Audit Committee constituted under section 177 or to the Board immediately but not later than two days of his knowledge of the fraud and he shall report the matter specifying the following:-

(a) Nature of Fraud with description;

(b) Approximate amount involved; and

(c) Parties involved.

(4) The following details of each of the fraud reported to the Audit Committee or the Board under sub-rule (3) during the year shall be disclosed in the Board’s Report:-

(a) Nature of Fraud with description;

(b) Approximate Amount involved;

(c) Parties involved, if remedial action not taken; and

(d) Remedial actions taken.

(5) 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.”;

 (Prepared by Sanoj Kumar (CS Trainee)-  E-mail [email protected])

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