The auditor's duty to report fraud is triggered when the auditor, during performance of duties, has reason to believe a fraud has been or is being committed in the company by its officers or employees.
## Two-Tier Reporting Based on Amount
Amount of Fraud
Report To
How
₹1 crore or above (individually)
Central Government
Form ADT-4
Less than ₹1 crore
Audit Committee (or Board, if no AC)
Internal reporting
## Key Conditions
1. The auditor must have reason to believe — not mere suspicion.
2. The fraud must be committed by officers or employees (not by third parties, customers, etc.).
3. The threshold of ₹1 crore is per individual fraud, not aggregate.
4. Reporting to CG is in Form ADT-4 within prescribed timelines.
## Linkage with CARO Clause (xi)(b)
Whenever a Form ADT-4 is filed, the auditor must also separately report this filing under CARO 2020 Clause (xi)(b).
## Decision Tree
```
Fraud detected by auditor
|
Committed by officer/employee?
|
YES
|
Amount ≥ ₹1 crore?
/ \
YES NO
| |
Report to Report to
CG (ADT-4) Audit Committee/Board
```
Worked example
### Example 1
Example 1 — Above threshold:
During audit, the auditor finds the CFO siphoned off ₹2 crore via fake vendor invoices.
Action: Officer involved + amount ≥ ₹1 crore → Auditor must file Form ADT-4 with CG and report this filing under CARO Clause (xi)(b).
Action: Employee involved + amount < ₹1 crore → Report to Audit Committee (or Board). No filing with CG.
### Example 3
Example 3 — Customer fraud:
A customer cheated the company by submitting fake purchase orders worth ₹3 crore.
Action: Fraud is BY a customer (third party), not by an officer/employee → Sec 143(12) reporting NOT triggered. (Other auditor actions like SA 240 procedures may still apply.)
⚠️ Common exam mistakes
Aggregating multiple small frauds to cross the ₹1 crore threshold — the threshold is per individual fraud
Reporting third-party frauds (vendor/customer fraud) to CG — Sec 143(12) is restricted to frauds by officers/employees
Reporting to CG under ₹1 crore — below threshold goes only to Audit Committee/Board
Filing ADT-4 without also reporting it under CARO Clause (xi)(b) — both are required
Bare-Act text 143(12) · Companies Act, 2013 · click to expand
Section 143(12) — Notwithstanding anything contained in this section, 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. Provided that in case of a fraud involving lesser than the specified amount, the auditor shall report the matter to the audit committee constituted under section 177 or to the Board in other cases.