MCA vide notification no. G.S.R. 972(E) dated December 14, 2015 has made the amendment in Companies (Audit and Auditors) Rules, 2014 through Companies (Audit and Auditors) Amendment Rules, 2015 in respect of provisions relating to reporting of frauds by auditor and other matters. The text of the said changes with comments on the same is reproduced as under:

“13. reporting of frauds by auditor and other matters:

Impact:

Before the said amendment in Companies (Audit and Auditors) Rules, 2014, reporting of frauds by auditors not bifurcated on the basis of an amount involved in the fraud. Therefore now, manner of reporting of fraud classified as below:

1. For rule 13, the following rule shall be substituted, namely:-

   Prior to substitution Rule 13 of Companies (Audit and Auditors) Rules, 2014 read as under:

   1. If an auditor of a company, in the course of the 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 rupees one 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.
   2. The auditor shall report the matter to the Central Government as under:-
      1. the auditor shall report the matter to the Board or the Audit Committee, as the case may be, immediately but not later than (2) two days (time limit has prescribed now) of his knowledge of the fraud, seeking their reply or observations within (45) forty-five days;
      2. on receipt of such reply or observations, the auditor shall forward his report and the reply or observations of the Board or the Audit Committee along with his comments (on such reply or observations of the Board or the Audit Committee) to the Central Government within (15) fifteen days from the date of receipt of such reply or observations;
      3. in case the auditor fails to get any reply or observations from the Board or the Audit Committee within the stipulated period of (45) forty-five days, he shall forward his report to the Central Government along with a note containing the details of his report that was earlier forwarded to the Board or the Audit Committee for which he has not received any reply or observations;
      4. the report shall be sent to the Secretary, Ministry of Corporate Affairs in a sealed cover by Registered Post with Acknowledgement Due or by Speed Post followed by an e-mail in confirmation of the same;
      5. the report shall be on the letter-head of the auditor containing postal address, e-mail address and contact telephone number or mobile number and be signed by the auditor with his seal and shall indicate his Membership Number; and
      6. The report shall be in the form of a statement as specified in Form ADT-4.
   3. In case of a fraud involving lesser than the amount specified in sub-rule (1), the auditor shall report the matter to Audit Committee constituted under section 177 or to the Board immediately but not later than two days of his knowledge of the fraud and he shall report the matter specifying the following:- (New Provision)
      1. Nature of Fraud with description;
      2. Approximate amount involved; and
      3. Parties involved.
   4. The following details of each of the fraud reported to the Audit Committee or the Board under sub-rule (3) during the year shall be disclosed in the Board’s Report:- (New Provision)
      1. Nature of Fraud with description;
      2. Approximate Amount involved;
      3. Parties involved, if remedial action not taken; and
      4. Remedial actions taken.
   5. The provision of this rule shall also apply, mutatis mutandis, to a Cost Auditor and a Secretarial Auditor during the performance of his duties under section 148 and section 204 respectively.”;

      13. Reporting of frauds by auditor.-

      (1) For the purpose of sub-section (12) of section 143, in case the auditor has sufficient reason to believe that an offence involving fraud, is being or has been committed against the company by officers or employees of the company, he shall report the matter to the Central Government immediately but not later than sixty days of his knowledge and after following the procedure indicated herein below:

      (i) auditor shall forward his report to the Board or the Audit Committee, as the case may be, immediately after he comes to knowledge of the fraud, seeking their reply or observations within forty-five days;

      (ii) on receipt of such reply or observations the auditor shall forward his report and the reply or observations of the Board or the Audit Committee along with his comments (on such reply or observations of the Board or the Audit Committee) to the Central Government within fifteen days of receipt of such reply or observations;

      (iii) in case the auditor fails to get any reply or observations from the Board or the Audit Committee within the stipulated period of forty-five days, he shall forward his report to the Central Government along with a note containing the details of his report that was earlier forwarded to the Board or the Audit Committee for which he failed to receive any reply or observations within the stipulated time.

      (2) The report shall be sent to the Secretary, Ministry of Corporate Affairs in a sealed cover by Registered Post with Acknowledgement Due or by Speed post followed by an e-mail in confirmation of the same.

      (3) The report shall be on the letter-head of the auditor containing postal address, e-mail address and contact number and be signed by the auditor with his seal and shall indicate his Membership Number.

      (4) The report shall be in the form of a statement as specified in Form ADT-4.

      (5) The provision of this rule shall also apply, mutatis mutandis, to a cost auditor and a secretarial auditor during the performance of his duties under section 148 and section 204 respectively.
   • an offence of fraud, which involves or is expected to involve individually an amount of rupees one crore (Rs. 1 cr) or above shall be reported to Central Government and
   • in case of a fraud involving lesser than the prescribed amount (i.e. Rs. 1 cr) shall be reported to the Audit Committee or the Board and details of the same shall be disclosed in the Board Report .
2. In the principal rules, after rule 14 and before FORM NO. ADT-1, insert the word “Annexure”;
3. In the principal rules, in Form No. ADT-4,-

   Consequent upon amendment in Rule 13 of Companies (Audit and Auditors) Rules, 2014, the following changes need to be made in Form No. ADT: 4

   1. in line 3, for the word, figures and brackets “rule 13(4)”, the word, figures, letter and brackets “rule 13(2)(f)” shall be substituted; and
   2. in line 25, in item No. (10), for the word, figures and brackets “rule 13(1)”, the word, figures, letter and brackets “rule 13(2)(a)” shall be substituted.