The National Financing Reporting Authority ( “NFRA”) has reiterated the following mandatory obligations on Statutory Auditors to report fraud or suspected fraud if they observe in a company which involves or is expected to involve individually an amount of Rs 1 crore or above by its officers or employees :
- Statutory Auditor should initiate steps prescribed under Rule 13 of Companies (Audit and Auditors) Rules 2014 which begins with reporting the matter to the Board / Audit Committee within 2 days of his / her knowledge of the fraud.
- In the case of reporting of a fraud involving or expected to involve individually an amount of Rs 1 crore or above, the Statutory Auditor fails to get any reply / observations from the Board / Audit Committee within 45 days, the Auditor should forward a report in the specified Form ADT-4 to Secretary, Ministry of Corporate Affairs, Government of India.
- The Statutory Auditor is duty bound to submit Form ADT-4 to the Central Government u/s 143 (12) of the Companies Act, 2013 even in cases where the Statutory Auditor is not the first person to identify the fraud / suspected fraud.
- Resignation does not absolve the Auditor of his responsibility to report suspected fraud or fraud as mandated by the law.
- The Statutory Auditor should exercise his / her own professional skepticism while evaluating fraud and need not be influenced by legal opinion provided by the Company or its Management.
For a detailed read, please refer to the hyperlink below.
Source : National Financing Reporting Authority
