Exercise professional scepticism while evaluating fraud at cos: NFRA tells auditors

June 26, 2023

Synopsis
Reiterating various provisions under the company's law and auditing standards, NFRA stressed that a "statutory auditor shall exercise his/her own professional scepticism while evaluating fraud and need not be influenced by legal opinion provided by the company or its management".

The National Financial Reporting Authority (NFRA) on Monday said a statutory auditor should exercise his or her professional scepticism while evaluating fraud at a company and should not be influenced by the legal opinion provided by the management. "Resignation does not absolve the auditor of his responsibility to report suspected fraud or fraud as mandated by the law," the watchdog said in a circular to the auditors of entities regulated by it.

The stern message comes against the backdrop of instances of corporate fraud and NFRA also taking action in recent months against various auditors for lapses.

In the course of discharge of the regulator's statutory functions, it has been noticed that auditors are not fulfilling their statutory responsibilities relating to reporting fraud, the circular said.

Reiterating various provisions under the company's law and auditing standards, NFRA stressed that a "statutory auditor shall exercise his/her own professional scepticism while evaluating fraud and need not be influenced by legal opinion provided by the company or its management".

Statutory auditors are under a mandatory obligation to report fraud or suspected fraud if they observe suspicious activities, transactions or operating circumstances in a company that indicate reasons to believe that an offence of fraud is being or has been committed against the company by its officers or employees, the circular said.

In such an event, NFRA said the statutory auditor shall initiate the steps prescribed under Rule 13 of Companies (Audit and Auditors) Rules 2014, which begins with reporting the matter to the Board/Audit Committee within two days of his/her knowledge of the fraud.

"There is a misconception amongst some auditors that resigning from an audit engagement absolves them of their reporting obligations relating to fraud and the consequences under CA (Companies Act) 2013 for non-reporting of fraud," it said.

[The Economic Times]