Companies Act, 2013 being a stringent legislation would soon require the auditors to report and alert the authorities in case of any fraud including sum of at least Rs. 1 crore or 10 % of the company turnover. This mandatory reporting is an early alarm bell being put in place by the regulators to prevent the biggest corporate frauds which had taken place in India the most popular amongst that being the Satyam™s imbroglio and the recent Sahara Group case.
The ministry of corporate affairs is likely to notify by the end of this month the threshold and the rules for flagging corporate frauds to the government.
“The norms are being finalised,” and the expected threshold is in line with the framework suggested by the Institute of Charted Accountants of India (ICAI). The concept of fraud reporting was introduced in the Companies Act 2013, implemented from April 2014. However, the government has so far not notified monetary threshold or rules for reporting.
The amendments bill was passed by Parliament in the last session. The government has brought in the concept of materiality and a threshold for reporting by auditors. Any fraud below the threshold limit will have to be reported to company’s audit committee and its board. ICAI has already issued a guidance note in this regard.
In addition to statutory auditors, the reporting responsibilities under the Companies Act apply to cost accountants conducting a cost audit as well as company secretaries conducting secretarial audit if they have reason to believe there is fraud or suspected fraud during the course of performance of duties as auditor.
The multi-crore rupee Satyam fraud, the largest corporate scam in India, would have come to light much before had the auditors flagged it to the government or company’s board.
