Reporting on Fraud by Auditor : Companies Act 2013


Reporting on Fraud by Auditor 

As per Section 143(12) of Companies act 2013,

If in the course of performance of his duties as auditor, the auditor has reason to believe that an offence involving certain fraud is being or has been committed against the company by officers or employees, the matter should be reported to the Central Government within the prescribed time and manner.

Timeline of Reporting on Fraud by Auditor  : immediately but not later than thirty days of his knowledge or information

copy to the audit committee or in case the company has not constituted an audit committee, to the Board.

reporting is required in case of :-

(a) fraud(s) that is/ are happening frequently or

(b) fraud(s) where amount involved or likely to be involved is not less than 5 percent of net profit or 2 percent of the turnover of the company for the preceding financial year.

In case of other frauds: Report the matter to the Audit committee / Board of Directors

Similar Provisions of Fraud Reporting applicable to Cost Auditor and Secretarial Auditor:

Rule 13(5) The provision of this rule shall also apply, mutatis mutandis, to a cost auditor and a secretarial auditor during the performance of his duties under section 148 and section 204 respectively.

Punishment for Fraud in Companies Act, 2013: (Section 447)

  • Imprisonment [6 months to 10 years]
  • In cases where fraud involves public interest, term of imprisonment not to be less than 3 years
  • Fine: Not less than amount involved in the fraud and extending to three times the amount in certain cases

The Companies Act, 2013 has provided punishment for fraud as provided under section 447 in around 20 sections of the Act e.g. u/s 7(5), 7(6), 8(11), 34, 36, 38(1), 46(5), 56(7), 66(10), 75, 140(5), 206(4), 213, 229, 251(1), 266(1), 339(3), 448 etc. for directors, key managerial personnel, auditors and/or officers of company.

Penalty for failure of Reporting on Fraud by Auditor :- punishable with fine which shall not be less than Rs. 1,00,000/- but which may extend to Rs. 25,00,000/-.