Fraud reporting norms increase responsibility on auditors: Report

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Immaterial frauds will now form a part of the annual report, and the requirement to report immaterial frauds to the central government has been done away with, it noted.

Statutory auditors will now have to mandatorily report to the Centre all corporate frauds amounting to Rs. 1 crore or above.

 

By specifying a threshold of Rs. 1 crore, the Corporate Affairs Ministry (MCA) has now done away with the requirement to report immaterial frauds to the Centre.

 

The Ministry has also now spelt out the procedure for fraud reporting to the Centre. First, the auditor has to inform the Board or audit committee and seek their views within 45 days.

 

On receipt of audit committee’s views, the auditor would have to within 15 days send his report to the Centre.

 

For frauds involving amounts lower than Rs. 1 crore, statutory auditors now need to report this matter only to the audit committee of the company, the Ministry has said amending rules for this purpose.

 

The reporting to the audit committee would have to be done not later than two days of his knowledge of the fraud.

 

Prior to this Ministry move, the company law required statutory auditors to report to the Centre all frauds by the company or against it.

 

Vishal Seth. Managing Director and National Leader IFRS and Financial Reporting Advisory, Protiviti India, Indian arm of a global consulting firm, said this threshold of Rs. 1 crore was a “fairly reasonable” given the magnitude of transactions in India.

 

“This is a big change in India. There was a need for a threshold and the Ministry has now specified it,” Seth told Business Line here.

 

Meanwhile, KPMG in India said in a note that the Ministry’s move on fraud reporting would increase responsibility of auditors. The amended rule prescribing the timelines for fraud reporting indicates the effort the Ministry is putting to increase the efficiency and timelines of such reporting, KPMG has said.

 

Related party transactions

 

The Ministry has now amended rules to specify that an audit committee would be empowered to provide “omnibus approvals” for related party transactions (RPTs) so long as certain conditions are met.

 

The conditions specified by the Ministry are largely similar to the Listing Regulations.

 

Yogesh Sharma, Partner, Grant Thornton India LLP, said this will certainly assist in ease of doing business without compromising the intent of the law.

 

Moreover, omnibus approval process was already included in the SEBI listing guidelines and hence this change will align the two requirements, he added.

 

For RPTs, the Company Law enacted in 2013 required every individual transaction to be approved by the Audit Committee. This made the approval process inefficient and delayed the decision making. For instance, each repeat transaction also required a separate approval.

 

The company law amendments in 2015 enabled “omnibus approval” for RPTs on annual basis that meet specified conditions prescribed in rules. The Ministry has now specified the conditions under which such omnibus approvals could be provided.

 

Reacting to the Ministry’s move, CA Institute President Manoj Fadnis welcomed the threshold specified by the Ministry. “This will bring certainty to the auditors as to the frauds that are to be reported to the central government and those that are to be reported to the audit committee,” he told Business Line .

Greater vigil

  • The auditor must first report the fraud to the company’s audit panel
  • The audit panel will have to give its views in 45 days
  • Within 15 days of that, the auditor will have to send his report to the Centre
  • Frauds amounting to less that Rs. 1 crore will need to be reported only to the company’s audit panel

Source: http://www.thehindubusinessline.com/todays-paper/tp-news/rules-eased-auditors-need-to-report-to-centre-corporate-frauds-of-over-rs-1-cr/article8029996.ece

Government to set up new agency to probe corporate accounting frauds

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The government will soon set up a specialised agency to investigate large corporate accounting frauds. It is keen to establish a robust mechanism for faster inquiries into scams such as the one at Satyam Computer Services, which overstated earnings for several years under a previous management.

The proposed agency is likely to examine accounting frauds of certain classes of listed companies or those of Rs 500 crore and more.

To be formed under the Companies Act provisions, the agency will be mandated to investigate auditing and accounting frauds, either suo motu or on referral by the Centre.

 

“The threshold for accounting frauds to be probed by the upcoming agency is likely to be Rs 500 crore and above. It could also probe frauds of certain classes of listed companies,” said a senior government official. “Currently, there’s a lack of specialisation required to probe complex accounting frauds. The agency will ensure swifter probes.”
First suggested in the aftermath of the Satyam fraud, in which the auditor was also implicated, the upcoming agency will have an overarching role to regulate chartered accountants as well as set standards. It will have forensic auditors on its panel as well.

At present, the Institute of Chartered Accountants of India (ICAI) has authority to investigate and take disciplinary action in cases in which an auditor is involved. Any fraud below the threshold set by the government could still be investigated by the professional association.

ICAI has requested the corporate affairs ministry to not dilute its authority. If the government is keen on setting up an authority, ICAI has suggested that this look at high-value accounting scams above a threshold of Rs 1,000 crore.
“We have made a representation to the government that ICAI’s mandate should not be diluted and authority to initiate probe and take disciplinary action against auditors should rest with the institute,” ICAI president Manoj Fadnis told ET.

In recent years, ICAI has probed auditors of companies such as Reebok, Sesa Goa, Satyam and the Saradha Group among others. These inquiries followed references sent by the Serious Fraud Investigation Office (SFIO).
“The agency will strengthen the government’s mechanism and will ensure faster enquires into accounting frauds. For the auditing profession as well, it will be a very positive step as the agency will oversee quality of profession,” said Lalit Kumar, partner at J Sagar Associates. “But the government also has to ensure that ICAI’s mandate is not diluted.”

A recent study by Assocham and Grant Thornton India said there was a 45 per cent increase in Indian corporate fraud in the past two years. The proposed agency will have powers to penalise audit firms in case they are found guilty of misconduct. Penalty could also include the disbarment of such audit firms.

The agency will also be solely in charge of setting up and revising accounting standards and will have professionals from industry and several government bodies on its panel. “The agency will make recommendations on formulation and laying down of accounting and auditing standards for companies,” a senior government official told ET. “It will also monitor and enforce compliance and oversee quality of service of professionals in the industry.”

ET VIEW

No Duplication Please, Overhaul SFIO

Duplication makes no sense. India already has a specialised agency, the Serious Fraud Investigation Office (SFIO) to do cutting-edge investigation on financial frauds. The Institute of Chartered Accounts of India, on its part, can take disciplinary action against errant auditors. True, the SFIO’s functioning has been dismal so far, and what is needed is to transform the agency to take on new and complex probes. It should hire professionals laterally including cyber security experts, forensic auditors and tap the best talent from other investigating agencies. Ideally, it should draw together a team depending on the case. But to attract the best talent, it also needs to pay market-linked salaries.

Source: http://economictimes.indiatimes.com/articleshow/49927368.cms