reporting-on-fraudulent-activities-by-auditors.js
8.97 KB
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
43
44
45
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60
61
62
63
64
65
66
67
68
69
70
71
72
73
74
75
76
77
78
79
80
81
82
83
84
85
86
87
88
89
90
91
92
93
94
95
96
97
98
99
100
101
102
103
104
105
106
107
108
109
110
111
112
113
114
115
116
117
118
119
120
121
122
123
124
125
126
127
128
129
130
131
132
133
134
135
136
137
138
139
140
141
142
143
144
145
146
147
148
149
150
151
152
153
154
155
156
157
158
159
160
161
162
163
164
165
166
167
168
169
170
171
172
173
174
175
176
177
178
179
180
181
182
183
184
185
import PageBanner from "@/components/reuseables/PageBanner";
import Image from "next/image";
import Link from "next/link";
import React from "react";
const banners = [
{
imageSrc: "/images/banner/blog.webp",
pageTitle: "Reporting on Fraudulent Activities by Auditors",
homePageUrl: "/",
homePageText: "Blog",
activePageText: "Reporting on Fraudulent Activities by Auditors",
},
];
const Reportingblog = () => {
return (
<>
<PageBanner banners={banners} />
<div className="blog-details-area ptb-100">
<div className="container">
<div className="row">
<div className="col-lg-12 col-md-12">
<div className="blog-details-desc">
<div className="article-image">
<Image
src="/images/blog/blog-2.jpeg"
layout="fill"
alt="image"
className="image-fluid image"
/>
</div>
<div className="article-content">
<div className="entry-meta">
<ul>
<li>
<i className="ri-shield-user-line"></i>
<p> By Advith Consulting</p>
</li>
<li>
<i className="ri-calendar-2-line"></i>
<p>July 23, 2024</p>
</li>
</ul>
</div>
<h3>1. Introduction</h3>
<p>
Corporate Frauds!! The words doing rounds after India
witnessed its own high-class corporate frauds from The
Satyam, Commonwealth Games, 2G Spectrum or the Coal Gate
Scam to the latest Nirav Modi Scam. Such scams put the
entire country to shame, loose investors wealth, deprives
Government of its tax revenues and even worse, puts the poor
and deserving away from resources and support.
<br /> <br />
One of the measures that Government has taken is to ensure
that such frauds are reported is by way of introduction of
Section 143(12) in The Companies Act, 2013. While similar
provision existed in the previous company law as well,
143(12) is more specific and action oriented. This section
deals with the provisions on Reporting of Fraudulent
Activities by the Statutory Auditor of the Company.
<br/> <br /> <h6 className="blog-pointer"> Fraud includes: </h6>
<ul>
<li>Act</li>
<li>Omission</li>
<li>Concealment of any fact</li>
<li>
This notification puts the following conditions for a
start-up company to be exempt from angel tax
</li>
<li>
Abuse of position committed by any person or any other
person with connivance in any manner
</li>
<li>With the intent to deceive</li>
<li>To gain undue advantage from, or</li>
<li>
To injure the interests of the company, its
shareholders, its creditors, or any other person whether
or not there is any wrongful gain or wrongful loss
</li>
</ul>
Para 11(a) of SA 240 define fraud as - an intentional act by
<ul>
<li>
An intentional act by one or more individuals among
management, those charged with governance, employees, or
third parties
</li>
<li>Involving the use of deception</li>
<li>To obtain an unjust or illegal advantage</li>
</ul>
There is a thin line of difference between the two
definitions. Section 447 includes ‘acts with an intent to
injure the interests of, the company or its shareholders or
its creditors or any other person, whether or not there is
any wrongful gain or wrongful loss’ whilst SA requires
reporting when there is an act that have intent to injure
the interests of the company and to obtain unjust or illegal
advantage.
<br /> <br />
<h6 className="blog-pointer">
Reporting of Fraud by Auditor
</h6>
<p>
As per Section 143(12) of the Act if an auditor of a
company in the course of the performance of his duties as
auditor, has reason to believe that an offence of fraud
has been committed by its officers or employees, the
reporting of fraud is required as under:
</p>
<h6 className="blog-pointer">
Who needs to report on fraud?
</h6>
A Statutory Auditor, Cost Accountant or a Company Secretary
need to report on frauds. Though an internal auditor is
appointed under the Act, fraud reporting doesn’t apply to
them.
<Image
src="/images/blog/report2.jpeg"
alt="reporting"
fill
className="img-fluid image mt-3 mb-3" />
<br />
Reporting by auditors u/s 143(12) would apply even if the
fraud is required to be or has been reported under any other
statute or to any other regulating authority. For instance,
a fraud detected is already reported by the auditor,
appointed by the regulating statute for banking companies
i.e. under the Banking Regulation Act, now the question is
whether the statutory auditor can free himself from the
provisions of this section saying the detected fraud is
already reported and hence reporting under The Companies
Act, 2013 is not required? The answer is No, since the
section clearly tells reporting provisions would apply even
if the fraud reported in any other act or under any other
statute.<br/> .<br/>
<h6 className="blog-pointer">Manner of Reporting</h6>
<Image
src="/images/blog/report1.jpeg"
alt="reporting"
fill
className="img-fluid image mb-3 mt-2" />
<br />
<h6 className="blog-pointer">Punishment for Default</h6>
As per Section 147(2), if an auditor has contravened Section
143 knowingly or will fully with the intention to deceive
the company or its shareholders or creditors or tax
authorities the punishment for default would be as under: a)
Punishable with imprisonment for a term up to 1 year and b)
Fine which should be minimum INR 1 lac and can be further
extended to INR 35lacs
<br /> <br />
<h6 className="blog-pointer">
Conclusion
</h6>
With growing greed of people and morality dropping, Corporate frauds are raising. Auditor being the one entrusted with the responsibility to report on any such frauds, the role of auditor is rapidly changing and the expectation of Government and people at large are also increasing. Auditors need to equip themselves and their audit practices to detect any fraud that might have taken place, including frauds emanating out of use of technology, to not only report them to cover their legal responsibility but also to discharge their moral responsibility.
</p>
<div className="article-footer">
<div className="article-tags">
<Link href="/blog">Consulting</Link>
<Link href="/blog">Business</Link>
<Link href="/blog">Market</Link>
</div>
</div>
</div>
</div>
</div>
</div>
</div>
</div>
</>
);
};
export default Reportingblog;