TOOLS Limited is a Public company engaged in manufacturing of industrial components. During the course of statutory audit for the FY 2025-26, CA…

(a) In the given case of TOOLS Limited, CA Vasu identified a fraud involving misappropriation of funds amounting to 75 lakhs through fictitious vendor invoices created by the senior accountant. Although management has argued that the amount is immaterial considering the company's turnover of 500crore and requested that the matter should not be highlighted in the audit report, the auditor's reporting responsibilities under the Companies Act, 2013 and CARO 2020 are independent of management's views. As per sub-section (12) of section 143 of the Companies Act, 2013, if an auditor of a company in the course of the performance of his duties as auditor, has reason to believe that an offence of fraud involving lesser than the specified amount [i.e. less than 1crore], the auditor shall report the matter to the audit committee constituted under section 177 or to the Board in other cases within such time and in such manner as may be prescribed. In this regard, sub-rule (3) of Rule 13 of the Companies (Audit and Auditors) Rules, 2014 states that in case of a fraud involving lesser than the amount specified in sub-rule (1) [i.e. less than 1crore], the auditor shall report the matter to Audit Committee constituted under section 177 or to the Board immediately but not later than 2 days of his knowledge of the fraud and he shall report the matter specifying the following: (i) Nature of Fraud with description; (ii) Approximate amount involved; and (iii) Parties involved. In the instant case, since the fraud amount in the present case is 75lakhs, reporting to the Audit Committee constituted under section 177 or to the Board is required on immediate basis in the abovementioned prescribed manner. The auditor CA Vasu is also required to report under clause (xi) of paragraph 3 of Companies (Auditor's Report) Order, 2020 on whether any fraud by the company or any fraud on the Company has been noticed or reported during the year. If yes, the nature and the amount involved is to be indicated. Thus, CA Vasu must report fraud in the CARO Report irrespective of materiality considerations raised by management. In this regard, sub-rule (4) of Rule 13 of the Companies (Audit and Auditors) Rules, 2014 states that the company is required to disclose in the Board's Report the following details of each of the fraud reported to the Audit Committee or the Board under sub-rule (3) during the year: (a) Nature of Fraud with description; (b) Approximate Amount involved; (c) Parties involved, if remedial action not taken; and (d) Remedial actions taken.