Assurance Gazette – April 2024 Edition

The Assurance Gazette of April 2024 presents a crucial discussion on NFRA’s unwavering stance against company fraud, emphasizing the paramount importance of accountability and trust in the financial landscape. In this edition, we delve into NFRA’s latest circular, which underscores the proactive measures taken to safeguard stakeholders’ interests and maintain the integrity of financial reporting. Additionally, it captures the significance of Ind AS 37 for financial reporting and transparency. This standard ensures the accurate portrayal of entities’ financial positions by recognizing provisions, contingent liabilities, and assets, thereby aiding stakeholders in making informed decisions. 

NFRA’s Viewpoint On Company Fraud: Addressing Accountability And Trust: 

Introduction: 

In its recent circular NF-25013/2/2023 dated June 26, 2023, NFRA addressed irregularities wherein statutory auditors failed to meet their statutory obligations regarding the reporting of fraud as required by the Companies Act, 2013. In instances of fraud, the auditor must adhere to the guidelines outlined in Section 143(12) of the Companies Act 2013, Clause (xi) of the Companies (Auditor’s Report) Order 2020, and SA 240 as delineated by the ICAI.  

It is pertinent to note that the definition of fraud under section 447 of Companies Act 2013 is wide and states that, “fraud” in relation to affairs of a company or anybody corporate, includes any act, omission, concealment of any fact or abuse of position committed by any person or any other person with the connivance in any manner, with intent to deceive, to gain undue advantage from, or to injure the interests of, the company or its shareholders or its creditors or any other person, whether or not there is any wrongful gain or wrongful loss.  

The statutory auditor is required to submit Form ADT-4 to the Central Government even if they are not the first person to identify the fraud. The circular also states that resignation by the auditor would not absolve the auditor of their responsibility to report suspected fraud. 

Management Responsibility in Relation To Fraud: 

The primary responsibility for prevention and detection of fraud vests with the management and those charged with the governance. Such responsibility includes:  

• Designing and implementing effective internal control systems to prevent, detect, and mitigate the risk of fraud. 
• Regular assessments to identify areas vulnerable to fraud and take proactive measures to address any identified risks. 
• Establish robust monitoring mechanisms to detect and respond promptly to any indications of fraudulent activities. 
• Report instances of fraud to relevant authorities, regulatory bodies, and stakeholders in accordance with legal and regulatory obligations. 
• Collaborate with auditors to assess the risk of fraud and ensure that appropriate controls are in place to mitigate such risks. 
• Provide auditors with unrestricted access to relevant information and personnel to facilitate their audit procedures, including investigations into potential fraud. 
• Cooperate fully with auditors during fraud investigations, providing necessary assistance and resources to facilitate the process and ensure its effectiveness. 
• Consider and implement any recommendations or suggestions made by auditors to strengthen fraud prevention and detection mechanisms within the organization.