Government may relax corporate fraud reporting norms to be reported by Auditors

The gov­ern­ment is like­ly to relax norms of cor­po­rate fraud report­ing by audi­tors, with the min­istry of cor­po­rate affairs (MCA) con­sid­er­ing a pro­pos­al to make report­ing manda­to­ry only if fraud involves 10 per cent or more of the com­pa­ny’s turnover or it is repet­i­tive in nature. Under the Com­pa­nies Act, 2013, the statu­to­ry audi­tor has to report all frauds to the cen­tral gov­ern­ment with­in 60 days of com­ing to know about it. 

Ear­li­er,  ICAI had urged the cor­po­rate affairs min­istry to allow the con­cept of mate­ri­al­i­ty to the fraud report­ing require­ment.  “The cur­rent legal pro­vi­sions require a statu­to­ry audi­tor to report all frauds to the gov­ern­ment which is a huge respon­si­bil­i­ty and will also be dif­fi­cult as frauds as small as Rs 1,000 have to be reported.

Accord­ing to Sec­tion 143 of the Com­pa­nies Act, if an audi­tor comes across an offence involv­ing fraud being com­mit­ted against the com­pa­ny by man­age­ment or employ­ees, it has to first bring the inci­dent to the notice of the board or audit com­mit­tee of the com­pa­ny and seek its reply with­in 45 days.