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Sunday, May 11, 2014

Remuneration of an Auditor and Ceiling on number of Audits

Remuneration of an Auditor

a)      The general rule is that the appointing authority is authorized to fix the remuneration of an auditor as per Section 224(8). Remuneration includes the sum paid by the company in respect of the auditor’s expenses.

b)      In the case of a new company where the auditors are appointed by the board of directors, the remuneration will be fixed by the board of directors. Similarly, if an auditor is appointed to fill a casual vacancy the remuneration will be fixed by the board of directors.

c)       When an auditor is appointed by the Central Government the remuneration will also be fixed by the Central Government.

d)      If the auditor’s appointed at the annual general meeting, the remuneration is also fixed at the annual general meeting.

e)      Where the auditor is reappointed in the next annual general meeting, the amount fixed in the previous year is considered for the currency year also, if nothing more is specifically provided as remuneration in the current annual general meeting.


f)       A part from the routine audit work, if a chartered accountant is entrusted with the work of taxation, writing up of the account books and other professional services then the auditors and the board of directors can fix up the remuneration mutually for the additional work. Moreover, the sanction of the share holders is not needed for the same. Any remuneration paid for services other than routine audit work should be explained in the Profit and Loss account separately as under:

i)        Remuneration as an Auditor of the company.
ii)       In the capacity of an adviser in respect of:
Ø  Taxation representation.
Ø  Company Law matters
Ø  Management Services.
Ø  Internal Auditing
Ø  Other professional services and
Ø  For travelling and out of pocket expenses.

Audit Ceiling Sec 224 (1B)
Ceiling refers to restriction on the no. of corporate audits that can be held by a Chartered accountant or firm of chartered accountants. As per provisions of Section 224(1B) of The Companies Act 1956,  No company or its board of director shall appoint or reappoint any person or firm as its auditor if such person or firm, at the date of appointment;

a)      Is in full time employment elsewhere, or

b)       Is holding appointment as auditor of the/more than specified number of companies.

The maximum limit of company audit is 20 companies per person. Out of which not more than 10 should be companies having paid up capital of Rs. 25 Lacs or more. But In case of a partnership firm, the limit is 20 companies per partner who is not in full time employment elsewhere.
If a chartered accountant is partner in more than one firms or he is partner as well proprietor, the limit still is 20 companies per person. For Calculating no of Audits, the following points is to be considered:

INCLUDED (For Calculation)                                                        EXCLUDED
Part Audit                                                                                            Branch Audit
Joint audit                                                                                            Corporations which are not company
Audit of Sec. 25 Company.                                                                  Foreign company
Audit of Govt. Co.                                                                               Guarantee co. not having share capital
                                                                                                            Special audit

                                                                                                             Private company.