Remuneration of Auditors | Who fixes the remuneration?

Who fixes remuneration of various Auditors?

The person or persons who appoint the auditor fix his remuneration –

1. When an auditor is appointed by the Board of Directors, (First auditors and Casual vacancy), the remuneration is fixed by the board of directors.

2. When an auditor is appointed by the Central Government, the Central government fixes the remuneration.

3. Shareholders also fix the remuneration of an auditor in the following two circumstances.

  • When the auditor is appointed in the annual general meeting.
  • When the auditor is appointed by Comptroller and Auditor General.

(The remuneration may be fixed either at the annual general meeting or at any general meeting).

4. If a retiring auditor is reappointed, his remuneration continues to became unless it is decided otherwise in the general meeting.

5. Any sum paid by the company to meet the expenses of the auditors will be included in the word ‘remuneration’.

6. In addition to remuneration for audit, an auditor may receive separate remuneration for rendering consultancy services and for attending to cases pertaining to Income-tax. Such fees do not require the approval of the general meeting.

To prevent undue influence and dependence on an audit client, Companies (Amendment) Act 2003, prescribes a limit for the remuneration of auditor.

As per section 226(3A) of the Act,

the remuneration to an auditor from a company cannot exceed 25% of his total income in any financial year.

However, the provision does not apply to a small auditor whose income is less than Rs. 15 lakhs per year and to new auditors (who have not completed first 5 years of their practice)

The Schedule VI of the Companies Act requires disclosure of the audit fees in the following format — Amount Received

  1. as an Auditor
  2. as an Advisor in the matters of taxation, management and company law,
  3. other amount as specified.

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