NFRA: Representation on Circular issued by NFRA regarding responsibilities of statutory auditors to report fraud

Terms of use

Terms of Use

The use of this site and the content contained therein is governed by the Terms of Use. When you use this site you acknowledge that you have read the Terms of Use and that you accept and will be bound by the terms hereof and such terms as may be modified from time to time.

All text, graphics, audio, design and other works on the site are the copyrighted works of nasscom unless otherwise indicated. All rights reserved.
Content on the site is for personal use only and may be downloaded provided the material is kept intact and there is no violation of the copyrights, trademarks, and other proprietary rights. Any alteration of the material or use of the material contained in the site for any other purpose is a violation of the copyright of nasscom and / or its affiliates or associates or of its third-party information providers. This material cannot be copied, reproduced, republished, uploaded, posted, transmitted or distributed in any way for non-personal use without obtaining the prior permission from nasscom.
The nasscom Members login is for the reference of only registered nasscom Member Companies.
nasscom reserves the right to modify the terms of use of any service without any liability. nasscom reserves the right to take all measures necessary to prevent access to any service or termination of service if the terms of use are not complied with or are contravened or there is any violation of copyright, trademark or other proprietary right.
From time to time nasscom may supplement these terms of use with additional terms pertaining to specific content (additional terms). Such additional terms are hereby incorporated by reference into these Terms of Use.

Disclaimer

The Company information provided on the nasscom web site is as per data collected by companies. nasscom is not liable on the authenticity of such data.
nasscom has exercised due diligence in checking the correctness and authenticity of the information contained in the site, but nasscom or any of its affiliates or associates or employees shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this site. The information from or through this site is provided "as is" and all warranties express or implied of any kind, regarding any matter pertaining to any service or channel, including without limitation the implied warranties of merchantability, fitness for a particular purpose, and non-infringement are disclaimed. nasscom and its affiliates and associates shall not be liable, at any time, for any failure of performance, error, omission, interruption, deletion, defect, delay in operation or transmission, computer virus, communications line failure, theft or destruction or unauthorised access to, alteration of, or use of information contained on the site. No representations, warranties or guarantees whatsoever are made as to the accuracy, adequacy, reliability, completeness, suitability or applicability of the information to a particular situation.
nasscom or its affiliates or associates or its employees do not provide any judgments or warranty in respect of the authenticity or correctness of the content of other services or sites to which links are provided. A link to another service or site is not an endorsement of any products or services on such site or the site.
The content provided is for information purposes alone and does not substitute for specific advice whether investment, legal, taxation or otherwise. nasscom disclaims all liability for damages caused by use of content on the site.
All responsibility and liability for any damages caused by downloading of any data is disclaimed.
nasscom reserves the right to modify, suspend / cancel, or discontinue any or all sections, or service at any time without notice.

For any grievances under the Information Technology Act 2000, please get in touch with Grievance Officer, Mr. Anirban Mandal at data-query@nasscom.in.

New

See all

No notification found.

NFRA: Representation on Circular issued by NFRA regarding responsibilities of statutory auditors to report fraud

Tejasvi

@tejasvi

November 29, 2023

Public Policy

S. 143(12) of Companies Act, 2013 (Companies Act) read with Rule 13 of Companies (Audit and Auditors) Rules, 2014 (Rules) casts responsibility on the auditor of a company to report instances of fraud involving amount of INR 1 crore or above by its officer or employees to the Central government (in form ADT-4). In case of fraud involving an amount less than INR 1 crore, the auditor is required to report the matter to Audit Committee or Board of Directors of the company within 2 days of his knowledge of fraud.

As per the guidance note issued by Institute of Chartered Accountants of India (ICAI) on reporting of fraud under S. 143(12) of Companie Act in February 2016 (ICAI Guidance Note), the requirement to report fraud under S. 143(12) of Companies Act is only for:

Frauds done by employees or officers of the Company and not by third party such as vendors, customers, etc.
Frauds that financially affect the company.
Frauds which are identified by auditors during performance of an audit.

The ICAI guidance note on S. 143(12) specifically states that the auditors are required to report only those instances of fraud done by employees or officers of a company, where auditor is the first person to identify such events and not otherwise. It further states that if a fraud has already been reported or has been identified/detected by the management or through company’s vigil/whistle blower mechanism and has been/is being remediated/dealt with by them and such case is informed to the auditor, then auditor is not required to report it under S. 143(12), since he has not per se identified the fraud.

Para 4.2 of Circular No. NF-25013/2/2023 dated June 26, 2023, issued by NFRA (NFRA Circular) mandates statutory auditors to submit Form ADT-4 to the Central Government under S. 143(12) even in cases where the statutory auditor is not the first person to identify the fraud/suspected fraud.

We have made a representation to NFRA highlighting that the NFRA circular deviates from the provisions of S. 143(12) of Companies Act and ICAI guidance note. NFRA Circular requires auditor to report all frauds, whereas Companies Act read with ICAI guidance note requires auditor to report only those frauds which are detected first-hand by them. This all-encompassing reporting requirement prescribed by the NFRA Circular goes beyond what is covered under S. 143(12) read with ICAI guidance note.

It is important to note that the intent of S. 143(12) of Companies Act is to identify and report fraud committed by employees or officers of a company such as directors, promoters, Key Managerial Personnel or Senior Management Personnel.

S. 143(12) of Companies Act read with ICAI guidance note cover frauds that are identified by the auditor during performance of audit and places onus on them to report such frauds. In instances where frauds are detected by other parties, neither S. 143(12) of the companies act nor ICAI guidance note require auditors to disclose such frauds. In such cases, ICAI guidance note highlights the steps to be taken by auditors to see if the fraud has been appropriately addressed by the management.

We have requested NFRA to use reference to S.143(12) of Companies Act to refer to reporting of frauds that are identified by the auditor during performance of audit. For other frauds, the NFRA circular should not refer to S. 143(12) and instead refer to the ICAI guidance to reiterate the steps to be taken by auditors to see if the fraud has been appropriately addressed by the management. Clarity on this aspect will provide certainty to the industry and will facilitate ease of doing business in India.

Disclaimer

That the contents of third-party articles/blogs published here on the website, and the interpretation of all information in the article/blogs such as data, maps, numbers, opinions etc. displayed in the article/blogs and views or the opinions expressed within the content are solely of the author's; and do not reflect the opinions and beliefs of NASSCOM or its affiliates in any manner. NASSCOM does not take any liability w.r.t. content in any manner and will not be liable in any manner whatsoever for any kind of liability arising out of any act, error or omission. The contents of third-party article/blogs published, are provided solely as convenience; and the presence of these articles/blogs should not, under any circumstances, be considered as an endorsement of the contents by NASSCOM in any manner; and if you chose to access these articles/blogs , you do so at your own risk.

Tejasvi