Mandatory Reporting of suspicious Activities
Statutory Auditors are under a mandatory obligation
to report fraud or suspected fraud if they observe
suspicious activities, transactions or operating
circumstances in a company that indicate reasons to
believe that an offence of fraud is being or has been
committed against the company by its officers or
employees. In such an event, the Statutory Auditor
shall initiate the steps prescribed under Rule 13 of
Companies (Audit and Auditors) Rules 2014 which
begins with reporting the matter to the Board/Audit
Committee within TWO days of his/her knowledge of
the fraud.
It may be noted that there is no materiality threshold
for fraud reporting under the circular
Reporting to Central govt if fraud ≥ 1 crore rupees
In the case of reporting of a fraud
involving or expected to involve
individually an amount of rupees one
crore or above, the Statutory Auditor
fails to get any reply / observations
from the Board/Audit Committee
within 45 days, the Auditor shall
forward a report in the specified form
viz., ADT-4 to Secretary, Ministry of
Corporate Affairs, Government of India.
Duty to submit Form ADT-4
The Statutory Auditor is duty bound to
submit Form ADT-4 to the Central
Government u/s 143(12) even in cases
where the Statutory Auditor is not the first
person to identify the fraud/suspected
fraud
Resignation is no excuse to bypass responsibilities
Resignation does not absolve the Auditor
of his responsibility to report suspected
fraud or fraud as mandated by the law.
Discretionary power of the Auditor
The Statutory Auditor shall exercise his/her
own professional skepticism while
evaluating fraud, and need not be
influenced by legal opinion provided by
the Company or its Management
Scope of "Fraud" under the Act
Under section 447 of the Companies Act “fraud” in relation to affairs of a
company or any body corporate, includes any act, omis sion, concealment
of any fact or abuse of position committed by any person or any other
person with the connivance in any mann er, with intent to deceive, to gain
undue advantage from, or to injure the interests of, the company or its
shareholders or its credito rs or any other person, whether or not there is
any wrongful gain or wrongful loss.
For a quick overview of the remedies.
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