Duty to report fraud by auditors

Auditors, like many professionals, owe a duty of confidentiality to their clients. This means that if an auditor discovers fraud, it is strongly arguable that he should take his clients' instructions on whether or not to report the fraud. In many cases, the directors of a client company might prefer not to report the fraud as it may reflect badly on their management, in addition to damaging the company's reputation.

However, for public companies or their subsidiaries, auditors are required to report serious fraud to the Minister of Finance. Under section 207(9A) of the Companies Act, serious fraud is defined as an offfence involving fraud or dishonesty where the maximum penalty is at least 2 years jail and the value of the property involved at worth at least $20,000.

An interesting point about the provision is that the auditor is only required to report fraud against the company by its officers or employees. However, if he discovers that the company is committing fraud against someone else, the provision does not seem to apply(the relevant words of the provision being "is being or has been committed against the company by officers or employees of the company").