Introduction:
All readers will unanimously agree that the duties and responsibilities of audit profession have grown multifold in recent years. While ‘independence’ of an auditor has always remained a myth, – the obligations are literally endless! We have yet to familiarise ourselves with the additional burdens imposed by the new Companies Act. In the meanwhile, the new Maharashtra Co-operative Societies Act (2013) has added one more illogical provision. Now, it expressly requires an auditor to file a First Information Report (FIR) to the Police Authorities. A question naturally arises as to whether it is fair!
Statutory Provisions: In the Amended Act, in section 81, s/s. (5B), the following provisos have been added:-
‘Provided that, where the auditor has come to a conclusion in his audit report that any person is guilty of any offence relating to the accounts or any other offences, he shall file a specific report to the Registrar with a period of fifteen days from the date of submission of his audit report. The auditor concerned shall, after obtaining written permission of the Registrar, file a First Information Report of the offence. The auditor, who fails to file First Information Report, shall be liable for disqualification and his name shall be liable to be removed from the panel of auditors and he shall also be liable to any other action as the Registrar may think fit:
Provided further that, when it is brought to the notice of the Registrar that, the auditor has failed to initiate action as specified above, the Registrar shall cause a First Information Report to be filed by a person authorised by him in that behalf: Provided also that, on conclusion of his audit, if the auditor finds that there are apparent instances of financial irregularities resulting into losses to the society caused by any member of the committee or officers of the society or by any other person, then he shall prepare a Special Report and submit the same to the Registrar alongwith his audit report. Failure to file such Special Report, would amount to negligence in the duties of the auditor and he shall be liable for disqualification for appointment as an auditor or any other action, as the Registrar may think fit.”
Comment:
The scope of the Provision is too wide. What exactly is meant by the term ‘offence relating to accounts’ or ‘any other offences?
The word ‘offence’ is not defined in the Act. Even misbehaviour is an offence; smoking at a public place also is an offence!
As far as I know, initially, it was intended to cover only the frauds.
However, if in a co-operative bank, there is an internal fraud of a petty amount, it is detected and money is recovered, concerned staff is dismissed or punitive action taken, whether still an FIR is to be filed? What if the management is justifiably not willing to do so? Ultimately, it affects the goodwill of the Bank.
There could be internal ‘offences’ where a customer or outside party is not affected. Then what is the propriety of filing an FIR? What purpose will it serve? On the contrary, it may hamper the image of an organisation.
The most unfair part is – why compel an auditor to file an FIR?
The above provision is irrational and needs to be reconsidered on the following grounds: (the following points are narrated by the committee of co-operative societies – Maharashtra (committee of WIRC of ICAI) Role of Auditor is different from that of the investigator. His responsibility is to express an opinion on the financial statements prepared by the management and produced before the auditors
• He is only expected to express an opinion whether financial statements exhibit true & fair view of the state of affairs as on the balance sheet date as well as profit or loss for the period under audit.
• The auditor has to report the fraud, if any detected during the course of audit, to the management or regulators. It is the duty of the management or the regulators to take appropriate action thereon.
• Under none of the Acts where audit is statutorily prescribed, the auditors are required to file FIR after coming across any fraud during the course of audit.
• As the Chartered Accountant’s role is limited to expression of an opinion on the state of affairs, wherever such fraud cases are noticed actions in regard to the same are to be taken by the concerned regulators like Registrar of Companies, SEBI, RBI, Commissioner of sales tax etc.
• Even in case of findings by C & AG or audits conducted by Chartered Accountants u/s 619 of the Companies Act, 1956 for C & AG such actions are taken by the concerned department.
Another lacuna in the amendment Act is, it has been provided that auditor should file a specific report with the registrar within a period of 15 days of submission of report. The auditor concerned shall after obtaining written permission from the Registrar, file an FIR of the offence. Here it is pertinent to note that there is no time limit specified for the Registrar to give the permission in writing.
The auditor who fails to submit the special report to the Registrar or file an FIR shall be liable for disqualification and his name shall be removed from the panel and he shall also be liable for any action as the Registrar may think fit.
Suggestions: A suitable amendment should be made or clarification be issued relieving the auditors from this obligation of filing an FIR.
