Mumbai: The minimum threshold limit, which will determine the reporting of fraud by auditors to either the board of directors of the company or the government, will depend on the turnover and net profits of the company. According to the Companies (Amendment) Bill, 2014, which was passed in the Rajya Sabha recently, an auditor of the company is required to report to the Centre any frauds above a certain limit, committed against the company by its officers or employees.
But frauds below the prescribed threshold limit will have to be reported only to the audit committee or the board. While the Bill didn’t prescribe the quantum of fraud for determining the reporting authority, sources said that the monetary limit, which will be prescribed in the rules, would be linked to a certain percentage of the turnover or net profits of the company.
“Prescribing a fixed monetary limit like Rs 5 crore or Rs10 crore would not serve the purpose. The intention is to bring only those cases to the attention of the Centre where the fraud is having a serious material impact on the company’s operations. A fraud amounting to Rs10 crore will be significant for a company with a turnover of Rs100 crore while it will be a very insignificant amount to have a material impact on a company having a turnover of Rs1,000 crore. So the idea is to prescribe a monetary limit in terms of percentage of turnover and net profit. It could be either 10 per cent, 15 per cent, which is yet to be decided,” said a person familiar with the matter.
