Auditor Remuneration, Removal

27/07/2021 0 By indiafreenotes

The remuneration of the auditor of a company shall be fixed in its general meeting or in such manner as may be determined therein:

  • Provided that the Board may fix remuneration of the first auditor appointed by it.
  • The remuneration under sub-section (1) shall, in addition to the fee payable to an auditor, include the expenses, if any, incurred by the auditor in connection with the audit of the company and any facility extended to him but does not include any remuneration paid to him for any other service rendered by him at the request of the company.

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

  • As an Auditor
  • As an Advisor in the matters of taxation, management and company law
  • Another amount as specified.
  • Any sum paid by the company to meet the expenses of the auditors will be included in the word ‘remuneration’.
  • When an auditor is appointed by the Board of Directors, (First auditors and Casual vacancy), the remuneration is fixed by the board of directors.
  • If a retiring auditor is reappointed, his remuneration continues to became unless it is decided otherwise in the general meeting.
  • 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.
  • When an auditor is appointed by the Central Government, the Central government fixes the remuneration.
  • 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.

Removal

  1. Special notice: The shareholder who intends to remove the auditor, shall give 14 days’ notice (Special notice) to the company, informing his intention to remove the auditor by passing a resolution in the general meeting.
  2. Communication to the retiring auditor: The company on receipt of such notice, should send a copy to the retiring auditor.

3. Representation by retiring auditor: The retiring auditor can make a written representation, not exceeding a reasonable length, to the company, regarding his proposed removal. He may also request the company to circulate his representation to the members. The company should send a copy of the representation of the auditor to the shareholders, either along with the notice to meeting or subsequently. The company is required to send the representation to the shareholders only if the representation is made by the auditor within a reasonable time.

  1. Representation to be read: If the representation is not circulated to the shareholders, the auditor may require that his representation be read out in the general meeting.
  2. Right to attend the meeting: The auditor who is proposed to be removed has an inherent right to attend the general meeting. He can also make an oral statement at the meeting as to his proposed removal.
  3. Not to abuse the right: The above privileges are extended to the auditor to protect his independence and to prevent his unjust removal. However, if the Company Law Board is satisfied that his right to make a representation is likely to be abused by him by way of seeking unwarranted publicity for a defamatory matter, the CLB may order that the representation may not be read out or circulated to the shareholders. In this regard, the company or any other aggrieved party may apply to Company Law Board seeking the direction of the Company Law Board.

Removal of Auditor after expiry of term

After the expiry of the term of office, an auditor, is usually automatically reappointed. However, if the company decides not to re-appoint the existing auditor, the following procedure has to be followed.

Removal of other Statutory auditors

The auditors can be removed, before the expiry of their term, by the company in a general meeting only with the prior approval of the Central Government. This provision prevents unjust removal of auditors.

Removal of first auditors

We know that the first auditors are appointed by the Board of Directors. To remove the first auditors, an ordinary resolution is to be passed at the shareholders meeting. If another person is proposed to be appointed in his place, at least 14 days notice is required.