Recently, BG Ltd., an existing Indian Company, was taken over by a new set of shareholders, who acquired majority stake in the company. They have taken steps to change Mr. E, the existing auditor, following the procedure

CS Professional · Forensic Audit · PYQS · December 2020
Recently, BG Ltd., an existing Indian Company, was taken over by a new set of shareholders, who acquired majority stake in the company. They have taken steps to change Mr. E, the existing auditor, following the procedures laid down in the Companies Act, 2013. They opine that two years back, a major fraud had been committed against the company and that Mr. E was aware of it, but he had not reported the same. The fraud is in the area of inflated purchases of products and services relating to the company construction project (factory building). You are appointed as the forensic auditor (FA) to carry out a forensic audit to look into the fraud. You are required to advise the present management on these aspects: Is there any duty on the part of auditor of a company to report the fraud, if any, which he has come across?

Answer & Explanation:

Duty of the Auditor to report Fraud Section 143(12) of the Companies Act, 2013 read with the Companies (Audit and Auditors) Amendment Rules, 2015 provides that 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 which involves or is expected to involve individually an amount of rupees one crore or above, is being or has been committed against the company by its officers, the auditor shall report the matter to the Central Government. The auditor shall report the matter to the Central Government as under: The auditor to report the matter to the Board/Audit Committee, as the case may be, immediately but not later than 2 days of his knowledge of the fraud, seeking their reply or observations within 45 days; On receipt of such reply, the auditor to forward his report and the reply of the Board/Audit Committee along with his comments to the Central Government within 15 days from the date of receipt of such reply or observations; In case the auditor fails to get any reply or observations from the Board/Audit Committee within 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 has not received any reply or observations; The report shall be sent to the Secretary, Ministry of Corporate Affairs in a sealed cover by Registered Post with Acknowledgement Due or by Speed Post followed by an e-mail in confirmation of the same. The report shall be in the form of a statement as specified in Form ADT-4. In case of a fraud involving lesser than rupees one crore, the auditor shall report the matter to Audit Committee or to the Board immediately but not later than 2 days of his knowledge of the fraud and he shall report the matter specifying the following: Nature of Fraud with description; Approximate amount involved; and Parties involved. The following details of each of the frauds reported to the Audit Committee or the Board during the year to be disclosed in the Board's Report: Nature of Fraud with description; Approximate Amount involved; Parties involved, if remedial action not taken; and Remedial actions taken.

Topics: Auditor's Responsibilities

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