EPFO EO/AO 2023 General Ability Test · Question 80 of 120

Correct — D, (d) are ₹ 1 crore or above. The obligation is created by section 143(12) of the Companies Act, 2013 and quantified by rule 13 of the Companies (Audit and Auditors) Rules, 2014. Section 143(12) provides that where an auditor of a company, in the course of performing his duties as auditor, has reason to believe that an offence of fraud involving such amount as may be prescribed is being or has been committed in the company by its officers or employees, he shall report the matter to the Central Government within such time and in such manner as may be prescribed. A first proviso deals with frauds below the prescribed amount: those are to be reported to the audit committee constituted under section 177, or to the Board. A second proviso requires a company whose auditor has reported a fraud to the audit committee or the Board but not to the Central Government to disclose the details of it in the Board's report. The prescribed amount is in rule 13(1): the duty to report to the Central Government arises where the auditor has reason to believe that an offence of fraud 'which involves or is expected to involve individually an amount of rupees one crore or above' is being or has been committed against the company by its officers or employees. So ₹ 1 crore is the single dividing line in the whole scheme, and it works in both directions — at or above it, the report goes to the Government; below it, the report goes to the audit committee or the Board within two days, specifying the nature of the fraud, the approximate amount involved and the parties involved. The procedure for the Government report is worth carrying with the figure, because the paper can ask for any part of it. The auditor first sends his report to the Board or the audit committee, immediately and not later than two days after coming to know of the fraud, asking for their reply or observations within forty-five days. On receiving them he forwards his report, their reply and his own comments on it to the Central Government within fifteen days. If no reply comes within the forty-five days, he forwards the report anyway with a note recording that. The report goes to the Secretary, Ministry of Corporate Affairs, in a sealed cover by registered post with acknowledgement due or by speed post, followed by an email in confirmation, and it takes the form of a statement in Form ADT-4. Two further points. Section 143(13) protects the auditor: no duty to which he is subject is regarded as contravened by reason of his reporting under sub-section (12), provided it is done in good faith. And section 143(14) applies the whole of this mutatis mutandis to the cost accountant in practice conducting a cost audit under section 148 and the company secretary in practice conducting a secretarial audit under section 204.

• (a)exceed ₹ 20 lakh — Twenty lakh is not a threshold anywhere in section 143 or in rule 13. The fraud-reporting scheme uses exactly one figure, and it is ₹ 1 crore. The option is offered because candidates half-remember that the Act attaches consequences to fraud at several different levels and reach for a plausible round number. Note also the verb: rule 13 says 'one crore or above', so a fraud of exactly ₹ 1 crore is reportable to the Central Government — an option phrased as 'exceed' would exclude that case even if its figure were right.
• (b)exceed ₹ 50 lakh — Also not a threshold in this scheme. Fifty lakh is the kind of figure that feels like a statutory limit because it appears in other contexts in company law, but section 143(12) and rule 13 know only ₹ 1 crore, above which the report goes to the Central Government and below which it goes to the audit committee or the Board. There is no intermediate tier of reporting between those two, and no separate figure for listed or unlisted companies.
• (c)exceed ₹ 75 lakh — The closest of the three wrong figures to the real one, and offered for exactly that reason — a candidate who remembers only that the threshold is high may settle for it. It appears nowhere in section 143 or rule 13. The rule's own words are 'an amount of rupees one crore or above', and the amount is measured individually per fraud, not aggregated across several frauds discovered in the same audit, which is a distinction the examiner can also test on its own.

The Companies Act, 2013 turned the statutory auditor into a reporter of fraud rather than merely a reporter on accounts. Section 143(12), as it now stands after the amendment that introduced a prescribed amount, splits the duty in two: frauds at or above the prescribed figure go to the Central Government, frauds below it go to the audit committee constituted under section 177 or to the Board, and the company must then disclose in its Board's report the details of any fraud reported internally but not to the Government. Rule 13 of the Companies (Audit and Auditors) Rules, 2014 fixes the figure at ₹ 1 crore, individually, and sets the machinery: a two-day internal report, forty-five days for the Board or committee to reply, fifteen days to forward everything to the Secretary, Ministry of Corporate Affairs, in a sealed cover with an email in confirmation, on Form ADT-4. The auditor is protected by section 143(13) if he reports in good faith and penalised under section 143(15) if he does not report at all. Section 143(14) extends the same duty to cost auditors under section 148 and secretarial auditors under section 204. Behind all of it stands section 447, which defines fraud in relation to a company's affairs as any act, omission, concealment of fact or abuse of position committed with intent to deceive, to gain undue advantage from, or to injure the interests of the company, its shareholders, its creditors or any other person, and punishes it with imprisonment of six months to ten years — not less than three years where public interest is involved — and a fine of not less than the amount involved and up to three times that amount.

Auditing law is a fixed component of the EO/AO accountancy block, and reporting thresholds are its most examinable part because they are single, unambiguous numbers attached to a named authority. This item is the pure form of that: four figures, one authority, one rule. The habit rewarded is learning each reporting duty as a triple — what triggers it, to whom the report goes, and in what form and time — because the examiner can ask about any of the three and often asks about the form, which is the part most candidates skip.

• Companies Act, 2013, section 143(12) — an auditor who has reason to believe an offence of fraud involving the prescribed amount is being or has been committed in the company by its officers or employees shall report it to the Central Government.
• Rule 13(1) of the Companies (Audit and Auditors) Rules, 2014 — the prescribed amount is a fraud which involves or is expected to involve individually ₹ 1 crore or above.
• Frauds below ₹ 1 crore are reported to the audit committee constituted under section 177, or to the Board, within two days, with the nature of the fraud, the approximate amount and the parties involved.
• Procedure for a Central Government report: report to the Board or audit committee within two days seeking a reply within forty-five days, then forward the report, the reply and the auditor's comments to the Central Government within fifteen days.
• If no reply is received within forty-five days, the auditor forwards his report to the Central Government with a note recording that fact.
• The report goes to the Secretary, Ministry of Corporate Affairs, in a sealed cover by registered post with acknowledgement due or speed post, followed by an email, in the form of a statement in Form ADT-4.
• Section 143(13) — no duty of the auditor is regarded as contravened by reason of such reporting if it is done in good faith.
• Section 143(14) — the provision applies mutatis mutandis to a cost accountant in practice conducting a cost audit under section 148 and a company secretary in practice conducting a secretarial audit under section 204.
• Where a fraud is reported to the audit committee or the Board but not to the Central Government, the company must disclose its details in the Board's report.

• Choosing a figure below ₹ 1 crore. The scheme has exactly one threshold, and every smaller figure on the option list is invented.
• Reading the threshold as 'exceeding' ₹ 1 crore. The rule says 'one crore or above', so a fraud of exactly ₹ 1 crore is reportable to the Government.
• Aggregating several frauds to cross the threshold. The rule measures the amount individually.
• Forgetting the internal step. Even a Central Government report begins with a report to the Board or audit committee within two days.

Auditing questions in EO/AO turn on thresholds, authorities and forms — who must be told, above what amount, within how many days, and on which prescribed form. Tabulate the reporting duties of the auditor with their figures and their time limits, and add the form numbers, because a question naming ADT-4 or asking for the forty-five day period is as likely as one asking for the amount.

No directly related past PYQ was found.

• practice — not a real PYQ

  An auditor reporting a fraud to the Central Government under section 143(12) of the Companies Act, 2013 must do so in :

  • (a)Form ADT-1
  • (b)Form ADT-3
  • (c)Form ADT-4
  • (d)Form MGT-7

  Answer(c) Form ADT-4

• practice — not a real PYQ

  Where the fraud detected by the auditor involves an amount less than the prescribed threshold, he shall report the matter to :

  • (a)The Central Government
  • (b)The Registrar of Companies
  • (c)The audit committee or the Board
  • (d)The National Financial Reporting Authority

  Answer(c) The audit committee or the Board