India’s Whistle Blower Mechanism: Growing Louder by the Day

On February 25, 2020, the Ministry of Corporate Affairs of India released the Companies (Auditor’s Report) Order, 2020 (“CARO 2020”), which places additional responsibilities on the statutory auditors of the company with regard to whistle blower complaints.

Under clause number (xi), Fraud Reporting, of CARO 2020, the statutory auditor must comment in the audit report as follows:

  • 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.
  • Whether any report under subsection (12) of section 143 of the Companies Act has been filed by the auditors in Form ADT-4 as prescribed under rule 13 of Companies (Audit and Auditors) Rules, 2014 with the Central Government.
  • Whether the auditor has considered whistle blower complaints, if any have been received throughout the year by the company.

The clause number (xi) (a) stated above was part of the earlier CARO 2016 reporting structure, and clauses (xi) (b) and (xi) (c) were new in CARO 2020. Whilst commenting on the clause (xi) (c), the statutory auditor will need to apply professional scepticism and judgement.

This reporting around whistle blower complaints by the statutory auditors would be applicable with retrospective effect from April 1, 2019. As the saying goes ‘Caveat Emptor’, this disclosure will help the shareholders, business partners, and bankers to gain insights into the quality of internal controls of the company or any fraudulent activities that may not have been reported.

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Published

May 14, 2020

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Siddharth Keskar

Director

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