Auditors are now required to report any suspected corporate fraud amounting Rs 1 crore or more to the Central Government, as stringent measures are being put in place to curb misdoings. Under the Companies Act, 2013, auditors are required to report to the Government when they come across instances of fraud at a firm, but the threshold was not specified.
To introduce the threshold, the Corporate Affairs Ministry, which implements the Act, has issued the Companies (Audit and Auditors) Amendment Rules, 2015. If ‘auditor of a company, in the course of performance of his duties as statutory auditor, has reason to believe that an offense of fraud, which involves or is expected to involve individually an amount of Rs 1 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,” the ministry said. In case, an auditor comes across such instances then it should be first informed to the company's board or audit committee, within two days of coming to know about the fraud. The auditor would have to seek the reply of the board or audit committee on the matter within 45 days.
After receiving the reply, the auditor should forward his or her report along with response received from the board or audit committee to the central government within 15 days. “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 (auditor) shall forward his report to Centre,” the ministry said notifying the amended rules last week.