The Companies Act, 2013 had specified a new reporting requirement for the statutory auditors of companies. Under Section 143(12) of the Companies Act, 2013 the auditor was required to report on frauds/ suspected frauds in certain situations laid down in the section. Considering the challenges for the auditors in reporting under this section, ICAI had made several representations to the Ministry of Corporate Affairs (MCA) from time to time.
The Ministry has been proactive in considering the views and suggestions of ICAI and actively reviewed some of the issues stemming from the new Companies Act taking into account the interest of the stakeholders at large. ICAI had strongly represented to MCA on Fraud Reporting submitting that concept of materiality should be introduced and certain threshold limits should be specified for reporting on fraud by the auditor.
The Companies (Amendment) Bill 2014 was passed by Lok Sabha on December 17’14. The Government has brought out a significant amendment pertaining to Section 143 (12) - Fraud Reporting. It was one of the strong concerns of ICAI as the provisions in the Act required that a fraud involving a minimal amount should also be reported to the Government.
CA.K.Raghu, President, ICAI said “ICAI welcomes the amendment issued by the Government. Now, the auditor would be required to report fraud to the Government above the mandated threshold limit. Any fraud below the threshold limit would have to be reported to the Audit Committee/ Board.”
Further, the amendment also provides for the companies whose auditors have reported frauds under this sub-section to the audit committee or the Board but not reported to the Central Government, shall disclose the details about such frauds in the Board's report.
Raghu added “Indeed, this amendment is a major achievement for ICAI and CA profession as the views and suggestions submitted by ICAI have been considered and incorporated in the Companies (Amendment) Bill, 2014. The Hon’ble Finance Minister acknowledged the views of ICAI in the Lok Sabha. We would soon come out with the Guidance Note on Fraud Reporting for our members.”