The National Financial Reporting Authority (NFRA) has urged statutory auditors to exercise professional scepticism while assessing company fraud, and to remain independent of any influence from company legal opinions.
The accounting watchdog emphasised that auditors could not absolve themselves of their responsibility to report suspected or actual fraud, as mandated by the Companies Act, 2013. An NFRA circular pointed out that during the discharge of the regulator’s statutory duties, auditors had been observed to neglect their fraud reporting responsibilities.
Statutory auditors are obligated to report any suspected or detected fraud if they encounter suspicious activities, transactions, or operational situations that indicate potential fraudulent acts by a company’s officers or employees, according to the circular.
In such situations, the NFRA directed statutory auditors to take immediate action as prescribed under rule 13 of Companies (Audit and Auditors) Rules 2014. This involves reporting the matter to the board or audit committee within two days of becoming aware of the fraud.