Company Audit — Reporting on Frauds under Section 143(12)
## Section 143(12): Reporting on Frauds
The auditor has a statutory duty to report fraud discovered during audit. The reporting channel depends on the amount involved.
### Two-Tier Fraud Reporting Mechanism
Threshold
Who to Report To
Legal Basis
Fraud ≥ ₹1 crore (individually)
Central Government
Sec 143(12) + Rule 13 of Companies (Audit and Auditors) Rules, 2014
Fraud < ₹1 crore
Audit Committee (u/s 177) or Board of Directors (if no Audit Committee)
Sec 143(12)
### Key Conditions
Trigger: Auditor has reason to believe (not certainty) that fraud is being or has been committed.
Perpetrators: Must be officers or employees of the company.
Nature: The offence must be fraud — not mere error or irregularity.
For CARO reporting: Fraud-related matters must also be reported at paragraph 3(xi) of CARO 2020.
### Practical Implication
The ₹1 crore threshold is applied individually per fraud instance, not cumulatively.
Reporting to Central Government is a serious formal process with prescribed timelines and format under Rule 13.
Worked example
### Example 1
Example 1 — ₹1 Crore+ Fraud
During audit of DEF Ltd, the auditor discovers that the CFO has been diverting funds through fictitious vendor payments totalling ₹3.5 crore over two years. Since the amount exceeds ₹1 crore and the officer (CFO) is an employee of the company, the auditor must report to the Central Government within prescribed timelines under Sec 143(12) read with Rule 13.
### Example 2
Example 2 — Below Threshold Fraud
An internal audit observation reveals that a junior accounts officer has been inflating petty cash claims totalling ₹8 lakh. The auditor, having reason to believe this is fraud, reports the matter to the Audit Committee (or Board if no Audit Committee exists). This is not reported to the Central Government.
⚠️ Common exam mistakes
Confusing the threshold: ₹1 crore is the cutoff for Central Government reporting — below ₹1 crore goes to Audit Committee/Board, NOT Central Government
Forgetting that the trigger is 'reason to believe' — the auditor does not need to prove fraud conclusively before reporting
Assuming fraud reporting covers only external fraud — the section specifically covers fraud by officers OR employees (internal parties)
Missing the CARO 2020 overlap — fraud must also be addressed under paragraph 3(xi) of CARO separately from Sec 143(12) reporting
Bare-Act text Section 143(12) · Companies Act, 2013 read with Rule 13 of Companies (Audit and Auditors) Rules, 2014 · click to expand
Section 143(12): 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, which involves or is expected to involve individually an amount of ₹1 crore or above, 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 prescribed. In case of a fraud involving lesser than the specified amount [i.e. less than ₹1 crore], the auditor shall report the matter to the audit committee constituted under section 177 or to the Board in other cases within such time and in such manner as prescribed.