The Threshold Is Per Fraud, Not Per Audit
Section 143(12) read with Rule 13 of the Companies (Audit and Auditors) Rules, 2014 uses the amount “involved or expected to involve individually” as the trigger. A fraud of ₹1 crore or above must be reported to the Central Government; a fraud below ₹1 crore is reported to the audit committee or the board. The word “individually” means the auditor cannot aggregate unrelated smaller frauds to cross the threshold, nor split a single fraud to stay below it. The characterisation must reflect the facts known to the auditor at the time of detection.
The Two-Day Notification and the Forty-Five-Day Window
For a fraud of ₹1 crore or more, the auditor must report the matter to the board or the audit committee immediately, and not later than two days of knowledge. The board or committee then has forty-five days to furnish its reply or observations. If the reply is received, the auditor forwards the report, the reply, and his comments to the Central Government within fifteen days. If no reply is received within forty-five days, the auditor forwards the report with a note recording the absence of a reply. The sequence is mandatory; a report filed without the board/committee step is procedurally defective.
The Form and Manner of the Report
The report to the Central Government must be in Form ADT-4, on the auditor’s letterhead, signed with seal and membership number, and sent to the Secretary, Ministry of Corporate Affairs, in a sealed cover by registered post with acknowledgement due or speed post, followed by email confirmation. The MCA V3 portal has operationalised ADT-4 filing, but the sealed-cover requirement remains part of the prescribed manner. The auditor should retain proof of dispatch and the acknowledgement.
Below the Threshold: The Audit Committee Route
For a fraud below ₹1 crore, the auditor reports to the audit committee or the board within two days of knowledge, specifying the nature of the fraud with description, the approximate amount involved, and the parties involved. The board’s report must then disclose the nature, amount, parties, and remedial action taken for each such fraud. The smaller-threshold route is not a lesser obligation; it shifts the reporting destination and the disclosure consequence.
The Extension to Cost and Secretarial Auditors
Rule 13(5) applies the fraud-reporting framework mutatis mutandis to the cost auditor under Section 148 and the secretarial auditor under Section 204. A cost auditor who detects a cost-record fraud, or a secretarial auditor who detects a secretarial fraud, is subject to the same two-day, forty-five-day, and fifteen-day sequence. Advisors who treat fraud reporting as a statutory-audit-only obligation miss the extension.
Documentation for the Auditor and the Board
The auditor should maintain a fraud-reporting file containing the date of knowledge, the evidence relied on, the communication to the board or committee, the reply received (or the note recording no reply), the ADT-4 copy, and the dispatch proof. The board should minute its receipt of the auditor’s communication, the steps taken to investigate, and the reply furnished. A board that receives the auditor’s report and does not constitute an investigation committee is exposed to a governance finding independent of the auditor’s compliance.
Call to Action: For Section 143(12) reporting procedure review, ADT-4 documentation, or audit committee response protocol, contact Anuj Desai & Associates at office@anujdesaiassociates.com or 9619456656. Website: https://anujdesaiassociates.com. LinkedIn: linkedin.com/in/ca-anuj-desai-122547230.