# Reporting of Frauds by Auditors — Section 143(12)

When, during the course of audit, the auditor has reason to believe that an offence involving fraud is being or has been committed against the company by its officers or employees, his reporting obligation depends on the amount of fraud.

Note the critical scope: the fraud must be against the company, and by its officers or employees. Fraud by outsiders or fraud by the company on others is not covered here.

## The ₹1 Crore Threshold — Two Different Tracks

### Track 1: Fraud LESS THAN ₹1 crore (Reported internally only)

1. Auditor reports to Audit Committee or BOD within 2 days of his knowledge, specifying:

Nature of fraud with description
Approximate amount involved
Parties involved

2. The Audit Committee/BOD must disclose in the Board's Report:

Nature of fraud with description
Approximate amount involved
Parties involved (only if remedial action is not taken)
Remedial actions taken

No report to Central Government in this case.

### Track 2: Fraud of ₹1 crore OR MORE (Reported to Central Government)

1. Auditor reports to Audit Committee or BOD within 2 days of knowledge, seeking their reply/observation within 45 days.

2. If reply received within 45 days: auditor forwards his report + reply + his comments on the reply to the Central Government within 15 days of receipt of reply.

3. If no reply within 45 days: auditor forwards his report to CG along with a note stating that no reply was received.

Important caveat: The auditor reports to CG only if he is the first person to identify the fraud. But in all cases, he must still report to Audit Committee/BOD.

## Form and Mode

The report to CG is filed electronically in Form ADT-4.

## Penalty for non-compliance

Applies to auditor, CS, or CMA in practice who fails to report:

Listed company: ₹5 lakhs
Other company: ₹1 lakh

## Memory Hook

2 days — to report to Audit Committee/BOD (both tracks)
45 days — wait for reply (₹1 crore+ track)
15 days — to forward to CG after reply received

Worked example

### Example 1

Q. During FY 2024-25, Mr. A (statutory auditor of M Ltd.) discovers on 1st June that a manager has embezzled ₹80 lakhs. When and to whom must he report?

A. Since the amount (₹80 lakhs) is less than ₹1 crore, this is Track 1. Mr. A must report to the Audit Committee or BOD within 2 days, i.e., by 3rd June, specifying nature, amount and parties involved. No reporting to CG is required. The Board's Report will disclose the fraud particulars.

### Example 2

Q. Mr. B detects a fraud of ₹3 crores committed by a senior officer on 1st April. He reports to the Audit Committee on 2nd April. The Committee replies on 20th May. By when must he report to CG?

A. Reply received within 45 days — as soon as the reply comes, the 15-day clock for CG starts. He must forward report + reply + his comments to CG within 15 days from 20th May, i.e., by 4th June, electronically in Form ADT-4.

⚠️ Common exam mistakes

Reporting frauds by outsiders/third parties under Section 143(12) — this section only covers fraud by officers/employees against the company.
Confusing the timelines: 2 days (internal), 45 days (wait for reply), 15 days (CG after reply).
Reporting to CG for frauds below ₹1 crore — these are internal only.
Forgetting that even in the ₹1 crore+ case, the report to Audit Committee/BOD must happen first.
Filing Form ADT-4 physically — it must be electronic.
Assuming an auditor who is the 2nd person to identify the fraud must also report to CG — only the first identifier reports to CG.

Bare-Act text Section 143(12) · Companies Act, 2013 · click to expand

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 involving such amount or amounts as may be prescribed, is being or has been committed in the company by its officers or employees, the auditor shall report the matter to the Central Government within such time and in such manner as may be prescribed. In case of a fraud involving lesser than the specified amount, the auditor shall report the matter to the audit committee or to the Board within such time and in such manner as may be prescribed.

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Reporting of Frauds by Auditors [Section 143(12)]

Worked example

⚠️ Common exam mistakes