## CARO 2020 – Clause (xi): Fraud Reporting

Three sub-clauses covering fraud noticed, reports filed, and whistle-blower complaints.

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### (a) Fraud Noticed or Reported

Whether any fraud by the company or any fraud on the company has been noticed or reported during the year.
If yes:
Nature of fraud
Amount involved
Parties involved

> Note: Even if amount is NIL or management represents that no fraud occurred, the auditor applies professional skepticism.

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### (b) Report u/s 143(12) — Form ADT-4

If the auditor has reason to believe that an offence of fraud is being or has been committed:
The auditor must report to the Central Government via Form ADT-4.
CARO requires checking: Whether any such report has been filed by the auditor during the year with the Central Government.

> Section 143(12): Auditor's duty to report fraud discovered during audit to the Central Government.

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### (c) Whistle-Blower Complaints

Whether the auditor has considered any whistle-blower complaints received by the company during the year in the course of the audit.

### Summary

Sub-clause	What to Report
(a)	Fraud by/on company — nature and amount
(b)	Whether ADT-4 filed with Central Govt
(c)	Whether whistle-blower complaints considered

Worked example

### Example 1

Fraud on Company [Clause xi(a)]:

During statutory audit, the auditor discovers that a purchase manager of ABC Ltd colluded with vendors to raise fictitious invoices of ₹25 lakh. The company's internal investigation confirmed the fraud.

Answer: The auditor reports under Clause 3(xi)(a) that a fraud on the company was noticed during the year. Nature: fictitious vendor invoices raised by purchase manager in collusion with vendors. Amount: ₹25 lakh. The auditor must also evaluate whether reporting under Section 143(12) via Form ADT-4 is required.

### Example 2

Whistle-Blower Complaint [Clause xi(c)]:

During the year, the Audit Committee of XYZ Ltd received an anonymous complaint alleging manipulation of inventory records. The statutory auditor was not informed.

Answer: The auditor, while performing audit procedures, should check whether any whistle-blower complaints were received and consider them. If the auditor was not informed by management, and the complaint relates to financial records, this is itself a concern. The auditor must report under Clause 3(xi)(c) whether such complaints were considered (and if the auditor was not informed, report accordingly).

⚠️ Common exam mistakes

Confusing 'fraud by the company' (e.g., management fraud, financial statement fraud) with 'fraud on the company' (e.g., employee theft) — both must be reported but they are distinct.
Missing the Form ADT-4 requirement — students know about Section 143(12) but forget it links to Form ADT-4 and the Central Government (not just the management or Audit Committee).
Assuming whistle-blower complaints are only relevant if proven — the auditor must consider ALL complaints received, regardless of whether they were substantiated.
Treating NIL fraud as requiring no effort — the auditor must apply professional skepticism even when management represents that no fraud occurred.

Bare-Act text Clause 3(xi) · Companies (Auditor's Report) Order, 2020 (CARO 2020) · click to expand

3(xi)(a) whether any fraud by the company or any fraud on the company has been noticed or reported during the year; if yes, the nature and the amount involved is to be indicated; (b) whether any report under sub-section (12) of section 143 of the Companies Act has been filed by the auditors in Form ADT-4 as prescribed under rule 13 of Companies (Audit and Auditors) Rules, 2014 with the Central Government; (c) whether the auditor has considered whistle-blower complaints, if any, received during the year by the company.

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