'Rs 1cr fraud reporting threshold brings clarity for auditors'

The threshold of Rs 1 crore for reporting any suspected corporate fraud brings in clarity for auditors but might prove to be less for very large corporates, apex body of chartered accountants ICAI said today.
Earlier this month, the Corporate Affairs Ministry said that auditors are required to report any suspected corporate fraud amounting Rs 1 crore or more to the central government.
The Institute of Chartered Accountants of India (ICAI) had recommended threshold limits based on percentage of turnover and net worth of the company so that only material frauds are reported.
"While the limit notified may prove to be less for very large corporates, we welcome the same as threshold limit will clarify the position.

"This will bring certainty to the auditors as to the frauds that are to be reported to the central government and those that are to be reported to the audit committee," ICAI President Manoj Fadnis said in a statement.
Under the Companies Act, 2013, auditors are required to report to the government when they come across instances of fraud at a firm.

"The threshold limit on the reporting on fraud by the auditors have been specified which will bring clarity about the threshold up to which the fraud has to be reported to the audit committee/ board and above which the fraud has to be reported to the central government," ICAI said.

To introduce the threshold, the Corporate Affairs Ministry, which implements the Act, has issued the Companies (Audit and Auditors) Amendment Rules, 2015.
If "auditor of a company, in the course of performance of his duties as statutory auditor, has reason to believe that an offence of fraud, which involves or is expected to involve individually an amount of Rs 1 crore or above, is being or has been committed against the company by its officers or employees, the auditor shall report the matter to the central government," the Ministry had said.
In case, an auditor comes across such instances then it should be first informed to the company's board or audit committee, within two days of coming to know about the fraud.

The auditor would have to seek the reply of the board or audit committee on the matter within 45 days.
Besides chartered accountants, the provisions would be applicable to cost and secretarial auditors.