The Government will not fritter away its energies on small corporate frauds, but will concentrate on those which are material or serious in nature. The Companies (amendment) Bill introduced by Arun Jaitley, Minister for Finance, Corporate Affairs, and Information & Broadcasting, in the Lok Sabha on Friday has tweaked the “fraud reporting” norms by statutory auditors.

While the auditors will have to report on every fraud coming to their notice in their ordinary course of audit work, in the proposed Bill, the Government has said that the amount of the fraud would determine who the reporting authority should be.

Only frauds beyond a specified threshold need to be reported to the Union Government.

Where the fraud amount involved is less than the specified threshold, the reporting has to be done to the audit committee of a company.

In situations where having an Audit Committee was not statutorily required frauds below the specified threshold would have to be reported to the board of directors, according to the latest Bill.

The threshold limit will be defined by the Corporate Affairs Ministry subsequently.

Prior to the latest proposals, the company law enacted in 2013 required a statutory auditor to immediately report to the central government that an offence involving fraud is being or has been committed against the company by officers or employees of the company.

The concept of threshold was absent in the fraud reporting provision.

Another interesting aspect of this Bill is that companies – where the auditor has reported the frauds to the audit committee or the Board but not to the Union Government – have to disclose the details of the frauds in the Board of Directors’ report forming part of the annual report.

No dilution

For statutory auditors, the proposed regime is not going to dilute their responsibility on “fraud reporting”, say company law experts.

In the run up to this Bill, the CA Institute had represented to the Union Government that a threshold be introduced for mandatory “fraud reporting” and that “materiality” be factored in as specified in the Standards on Auditing.

Meanwhile, the Companies (amendment) Bill has among other things sought to dilute certain provisions on related party transactions so as to meet corporate demands. (The Hindu Business)