CA Pratik Arora
The Companies Act, 2013 has introduced many new reporting requirements for the statutory auditors of companies. One of these requirements is given under the sub-section 12 of Section 143 of the Companies Act, 2013 which requires the statutory auditors to report to the Central Government about the fraud/suspected fraud committed against the company by the officers or employees of the company. Ministry of Corporate Affairs has also introduced Companies (Auditor’s Report) Order, 2015 which also talks about fraud reporting. Fraud as per SA (standard of Auditing) 240- “The Auditor’s Responsibility Relating to Fraud in an Audit of Financial Statement”, an intentional act by one or more individuals among management, those charged with governance, employees, or third parties, involving the use of deception to obtain an unjust or illegal advantage.
As per the explanation to section 447 of companies act 2013, fraud includes any act, omission, concealment of any fact or abuse of position committed by any person or any other person with the connivance in any manner, with intent to deceive, to gain undue advantage from, or to injure the interests of, the company or its shareholders or its creditors or any other person, whether or not there is any wrongful gain or wrongful loss.
Sub-section 12 of Section 143 of the Companies Act, 2013 states, “Notwithstanding anything contained in this section, if an auditor of a 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.” According to the section, the auditor should immediately but not later than sixty day from the date of his knowledge and after following the procedure given under the section, report to the central government. The report shall be in the form of a statement as specified in Form ADT-4.
According to clause (xii) of CARO, 2015 auditor needs to report whether any fraud on or by the company has been noticed or reported during the year; If yes, the nature and amount involved is to be indicated.
For Detection of fraud professional required to use their professional skepticism while doing audit. It may be possible not to detect acts that have intent to injure the interests of the company or cause wrongful gain or wrongful loss, unless the financial effects of such acts are reflected in the books of account/financial statements of the company. For example, an auditor may not be able to detect if an employee is receiving pay-offs for favoring a specific vendor, which is a fraudulent act, since such pay-offs would not be recorded in the books of account of the company. Therefore, the auditor shall consider the requirements of the SAs, insofar as it relates to the risk of fraud, including the definition of fraud as stated in SA 240 above, in planning and performing his audit procedures in an audit of financial statements to address the risk of material misstatement due to fraud.
If any auditor does not comply with the provisions of Sub-section 143(12), he shall be punishable with fine of at least one lakh rupees, which may extend to twenty-five lakh rupees.
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