143(12) of companies act requires that the statutory auditors of the company have to report to the central government about a fraud or suspected fraud committed against the company by the officers or employees of the firm.
ICAI has released a guidance note on Fraud reporting under the Companies Act, 2013. ICAI has asked auditors to apply professional skeptisim and materiality while reporting frauds. It has clarified that only those frauds which are identified by the Auditor as a first person needs to be reported to Central Government. It has also clarified that Auditor is not required to report frauds detected by management/ through company's whistle blower and which is being remediated/dealt with by them.
The guidance note can be downloaded from Guidance-Note-on-Fraud-reporting.pdf
Posted 1 year, 11 months ago by Rakesh Bharadwaj
Alan Greenspan, former Chairman, Federal Reserve, USA, “Corruption, embezzlement, fraud, these are all characteristics which exist everywhere. It is regrettably the way human nature functions, whether we like it or not. What successful economies do is keep it to a minimum. No one has ever eliminated any of that stuff.”
A very good point by institute before commenting on fraud reporting requirements. It is in nature of humans to lure towards making more money than from legal ways. The frauds can be minimised but not completely wiped out from any economy.
The commentarty of ICAI to report frauds inline with SA's is perfect. We as an auditor may not be able to comment on the transactions which are not reflected in financial statements.
It is not possible to comment or report on transaction or events which are not possible to be looked by Auditors. For example, as listed in guidelines, an employee running a paraller business and taking away will never be in eyes of auditor as same is not reported in financial statements.
Posted 1 year, 11 months ago by CA Pulkit Sharma
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