Makhana Pesticides Ltd. is engaged in manufacture and distribution of pesticides, other ancillary products and has a turnover of ₹ 1,000 Crores. The Company has branches across multiple locations and the stocks are store
CS Professional · Forensic Audit · PYQS · December 2021
Makhana Pesticides Ltd. is engaged in manufacture and distribution of pesticides, other ancillary products and has a turnover of ₹ 1,000 Crores. The Company has branches across multiple locations and the stocks are stored and distributed though these locations. The Management of the Company noticed that in few of the branches the write off in stocks was higher. The internal auditor was asked to cover in his scope these aspects and report to the Board, his findings, if any. However, the internal auditor reported that there were no material exceptions and some quantity of stock was becoming obsolete due to weather conditions and was written off. However, the Management was not satisfied with the internal auditor's response, and so it appointed Amrut for an investigation. Amrut went to those branches for detailed investigation and also tried to use data analytics tools to understand the movement of stocks and deliveries. He noted that the stocks worth ₹ 5 Lakhs were pilfered and sold to small farmers in small quantities by the junior staff there. He got to know of this when he overheard a labourer discussing with a local farmer. However, there was no documentation which suggested the involvement of the Branch Manager. The Management issued a Memo to the Branch Manager, to which he agreed to strengthen the internal controls around the storage of inventory and gave explanation to the Management. In this background, answer the following: Should the statutory auditor report such frauds?
Answer & Explanation:
As per provision of Section 143(12) of the Companies Act, 2013, if an auditor of a company in the course of the performance of his duties as auditor, has reason to believe that an offence of fraud involving such amount or amounts (₹ 1 crore or above), is being or has been committed in the company by its officers or employees, the auditor shall report the matter to the Central Government within such time and in such manner as may be prescribed. Provided that in case of a fraud involving lesser than the specified amount as indicated above, the auditor shall report the matter to the audit committee constituted under section 177 or to the Board in other cases within such time and in such manner as may be prescribed. Provided further that the companies, whose auditors have reported frauds under this sub-section to the audit committee or the Board but not reported to the Central Government, shall disclose the details about such frauds in the Board's report in such manner as may be prescribed. Accordingly, the provisions relating to reporting of fraud under section 143(12) of the Companies Act, 2013, apply to Statutory Auditors of the Company. As the amount of fraud does not exceed ₹ 1 Crore, the statutory auditor shall report the matter to the audit committee constituted under section 177 or to the Board as the case may be and shall disclose the details about such frauds in the Board's report in such manner as may be prescribed.
Topics: Auditor's Responsibility
Related Questions in this Topic
- Makhana Pesticides Ltd. is engaged in manufacture and distribution of pesticides, other ancillary products and has a tur...
- A public limited company had done the following transactions: Got a Term Deposit Receipt (TDR) from A Bank or ₹ 1 crore...
- Fraud has always a motive behind it. If an opportunity to commit the fraud exist, the fraudster justifies the crime in s...
- Who shall be comprised in the SFIO committee and to whom shall SFIO report be submitted ?
- Under what circumstances, investigation into the affairs of a company is assigned to SFIO "Serious Fund Investigation Of...