REPORTING FRAUDS BY AUDITORS

Section 143 (14) of the Companies Act, 2013 (‘Act’ for short) provides that notwithstanding anything contained in this section, if an auditor of a company, in the course of the performance of his duties as an auditor, has reasons 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.

Rule 13 of the Companies (Audit and Auditors) Rules, 2014 provides that the above said report shall the made to the Central Government immediately but not later than sixty days of his knowledge and after following the procedure indicated herein below:

• Auditor shall forward his report to the Board or the audit committee, as the case may be, immediately he comes to knowledge of the fraud, seeking their reply or observations within 45 days;
• On receipt of such reply or observations from the Board or the Audit Committee within the stipulated period of 45 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 failed to receive any reply or observations within the stipulated time.

The report shall be sent to the Secretary, Ministry of Corporate Affairs in a sealer cover by Registered Post with Acknowledgement or by Speed post followed by an e-mail in confirmation of the same.  The report shall be on the letter head of the auditor containing postal address, e-mail address and contact number and be signed by the auditor by the auditor with his seal and shall indicate his membership number

The report shall be in the form of a statement as specified in ADT -4.  No duty to which an auditor of a company may be subject to shall be regarded as  having been contravened by reason of his reporting the matters if it is done in good faith.

The report shall, among other things, contain the following:

• Date of the annual general meeting when the Auditor was appointed or reappointed;
• Address of the office or location where the suspected offence is believed to have been or is being committed;
• Full details of the suspected offence involving fraud (documents in support should be attached);
• Particulars of officers or employees who are suspected to be involved in the commission of the offence, if any;
• Basis on which fraud is suspected;
• Period during which the suspected fraud has occurred;
• Date of sending report to the Board or Audit Committee as per Rule 13(1);
• Date of reply received from Board or Audit Committee, if any and if so received, copy of the reply should be attached and the gist of reply should be given;
• Whether the auditor is satisfied with the reply of the Board or the Audit Committee?
• Estimated amount involved in the suspected fraud;
• Details of steps, if any, taken by the company in this regard; (full details with references should be furnished)
• Any other relevant information

The above shall be duly verified by the audit along  with his seal.  The report along with attachments are to be sent to the Ministry of Corporate Affairs shall be sent in a sealed cover.