Fraud reporting under Companies Act - a detailed analysis
Fraud reporting under Companies Act The new act has given a lot of responsibility on the auditor to report frauds to the board of directors and the govt.
Fraud reporting under Companies Act
The new act has given a lot of responsibility on the auditor to report frauds to the board of directors and the government. It means that even for a small fraud in any large multi-location enterprise, the onus would be on the concerned chartered account, or cost and management accountant to report frauds
Section 143(12):‘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.’
Section 143(13):‘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 matter referred to in sub-section (12) if it is done in good faith.
Section 143(14):‘Provisions of this section shall mutatis mutandis apply to (a) the cost accountant in practice conducting cost audit under section 148; or (b) the company secretary in practice conducting secretarial audit under section 204.’
Section 143(15):‘If any auditor, cost accountant or company secretary in practice do not comply with the provisions of sub-section (12), he shall be punishable with fine which shall not be less than 1 lakh but which may extend to 25 lakh.’
- (i) Auditor shall forward his report to the board or the audit committee, as the case may be, immediately after he comes to knowledge of the fraud, seeking their reply or observations within 45 days;
- (ii) 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 15 days of receipt of such reply or observations;
- (iii) In case the auditor fails to get any 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.