In Short
The Situation: On June 26, 2023, the National Financial Reporting Authority of India (“NFRA”) issued a circular reminding statutory auditors in India of their obligation under Indian law to report to the Indian Central Government any instances in which an auditor has “reason to believe” that a fraud of one crore rupees or more (approximately $120,000) has been committed “against the company by its officers or employees.” The circular instructs auditors to exercise their “professional skepticism while evaluating fraud,” notes that their determination “need not be influenced by [a] legal opinion provided by the Company or its Management,” and cautions auditors about potential consequences for failing to comply with their obligations.
The Result: While the full effects of the NFRA circular remain to be seen, the circular seems likely to cause statutory auditors of Indian businesses—including businesses owned by international parent companies—to expand the depth and breadth of their audits and reporting obligations. For instance, auditors may be more likely to seek and independently evaluate information about any suspected fraud in order to determine whether they have “reason to…
