Form ADT-4: Reporting Fraud of ₹1 Crore or More by Auditors

When ADT-4 applies

Section 143(12) requires an auditor who, in the course of performing duties, has reason to believe that an offence of fraud involving the company is being or has been committed by its officers or employees, to report it. The route depends on the amount. Rule 13 of the Companies (Audit and Auditors) Rules, 2014 sets the threshold at ₹1 crore.

The duty also applies to cost auditors and secretarial auditors performing their duties under the Act. It does not apply to fraud committed by outsiders against the company, which is outside Section 143(12).

Timeline under Rule 13

For fraud of ₹1 crore or more, the auditor follows a fixed sequence set out in Rule 13. The time limits are short, so auditors usually keep a dated working-paper trail of each step, including how and when the board or audit committee received the report.

• Within 2 days of knowledge, report to the board or audit committee and seek their reply or observations within 45 days
• On receiving the reply, or if none arrives within 45 days, forward the report with the reply and the auditor's comments to the Central Government within 15 days
• Send the report in ADT-4 to the Secretary, Ministry of Corporate Affairs, and file the e-form as prescribed

What goes into the report

ADT-4 asks for the nature of the fraud with description, approximate amount involved, the parties involved, whether the board or audit committee replied and their response, and the auditor's observations on that reply. The auditor signs with their DSC and states their membership number.

The report should be factual and limited to what the auditor has found in the course of the audit. Auditors take care to rely on documents and evidence collected during their work rather than speculation, and to record the basis for their belief, since the report may be examined by investigating agencies.

Penalty for not reporting

Section 143(15) provides that an auditor, cost accountant or company secretary in practice who fails to comply with Section 143(12) is liable to a penalty of ₹5 lakh in the case of a listed company and ₹1 lakh in the case of any other company. This is a personal liability of the professional, not the company.

Professional bodies such as ICAI can also treat failure to report as a matter for disciplinary action, and the National Financial Reporting Authority oversees auditors of certain classes of companies, including listed companies and large unlisted companies. Auditors therefore treat ADT-4 as a serious professional obligation.

What the company should do

For companies, the practical point is to respond to the auditor's report within 45 days with a considered reply. The board's report must disclose details of frauds reported by auditors that are not reportable to the Central Government. Companies facing a fraud report usually need legal and forensic advice quickly, and Refogo's partner advocates can provide legal advice on the company's response.

Step by step

1. 1Identify suspected fraud

   Auditor forms a reason to believe fraud by officers or employees occurred.

2. 2Report to board within 2 days

   Send the report to the board or audit committee seeking a reply in 45 days.

3. 3Receive reply or wait 45 days

   Record the response or its absence.

4. 4Prepare ADT-4

   Include facts, amount, parties, the board's reply and auditor's comments.

5. 5Send within 15 days

   Forward to the Central Government and file the e-form with DSC.