Mere Resignation of an Auditor from Co. doesn’t Absolve him from his Responsibility to Report Suspected Fraud: NFRA

NFRA issues a circular covering the Statutory Auditors’ Responsibilities in relation to Fraud in a Company. Based on the provisions outlined in the Companies Act, 2013, CARO 2020, and Standards on Auditing, the reporting obligation of auditors related to fraud can be summarized as follows:

1. Statutory Auditors must follow the procedures specified under Rule 13 of the Companies (Audit and Auditors) Rules 2014, to report any instances of fraud or suspected fraud to the Board/Audit Committee within two days of his/her knowledge of the fraud.
2. In cases where the reported fraud exceeds or is expected to exceed one crore rupees, and the auditor does not receive any response or observations from the Board or Audit Committee within 45 days, the Statutory Auditor is required to submit a report in the specified form (ADT-4) to the Secretary of the Ministry of Corporate Affairs, Government of India.
3. Even if the Statutory Auditor is not the first individual to uncover the fraud or suspected fraud, they still have a responsibility to file Form ADT-4 with the Central Government in accordance with section 143 (12) of the Companies Act, 2013.
4. The act of resigning does not relieve the Auditor of their obligation to report suspected fraud or fraud as required by law.
5. The Statutory Auditor shall exercise professional skepticism while evaluating fraud, and should not be influenced by legal opinion provided by the company or its management.

Click Here To Read The Full Circular