How Govt. intends to reduce fraud reporting burden of auditors

The Companies Act, 2013 requires reporting of frauds by an auditor that are found in the course of the performance of an audit to the central government. Sub-section 12 of Section 143, read with Rule 13 of the Companies (Audit and Auditors) Rules, 2014 of the Companies Act, 2013 contains such provisions. Section 143(12) is applicable with effect from 14th December, 2015.

The extant norms provide 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 involving such amount or amounts as may be prescribed, 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. Rule 13 of the Companies (Audit and Auditors) Rules, 2014 prescribes time and manner of reporting of fraud to the government.

Recently, the Ministry of Corporate Affairs (MCA) amended the Rule 13 of the Companies (Audit and Auditors) Rules, 2014 vide notification no. G.S.R. 972(E). Now, the revised Rule 13 prescribes amount of fraud that should be reported, time-limit and the manner of reporting of fraud.

Major changes are as follows:-

1.  Now a statutory auditor requires to report only those frauds which involve an amount of Rs. 1 Crore or more.

2.  The auditor should report the fraud, first of all, to the Board or the Audit Committee, as the case may be, within 2 days of his knowledge of the fraud, seeking their reply or observations within 45 days. Earlier, the auditor had to report to the Board or Audit Committee