The provisions related to remuneration of Auditors has been prescribed under Section 142 of the Companies Act, 2013 (CA 2013). Section 142 has come into force on 1st April, 2014 vide Notification No. S.O. 902(E) issued dated 27-03-2014. This section corresponds to section 224 of the Companies Act, 1956 i.e. appointment and remuneration of auditors.
Fixing Remuneration of Auditors of a Company [Section 142(1)]
As per the provisions of section 142(1) of the Companies Act, 2013, the remuneration of the auditor of a company shall be fixed in its general meeting or in such manner as may be determined therein.
However, the remuneration of First Auditor appointed under section 139 by the Board of Directors (BOD) of the company shall be fixed by the Board itself.
Payment of Fee and Expenses included in Remuneration of Auditors [Section 142(2)]
According to the provisions of sub-section (2) of section 142 of CA 2013, the aforesaid remuneration shall be in addition to the fee payable to an auditor. The remuneration shall:
1) Include: Remuneration of Auditor include the expenses, if any, incurred by the auditor in connection with the audit of the company and any facility extended to him.
2) Exclude: Remuneration of Auditor does not include any remuneration paid to him for any other service rendered by him at the request of the company.
Disclosure Requirement of Amount paid to Auditors [Schedule III]
In compliance with Paragraph 5 “Additional Information” of general instructions for preparation of statement of profit and loss (P/L) of PART-II of Schedule-III of the Companies Act, 2013, a Company shall disclose by way of notes additional information regarding aggregate expenditure on the following items:
Payments to the auditor as
(b) for taxation matters;
(c) for company law matters;
(d) for management services;
(e) for other services; and
(f) for reimbursement of expenses.
Thus, any amount paid to auditors of a company shall be disclosed by way of additional notes. In other words, it is mandatory to disclose in the P/L the detailed information in regard to payments made to the auditor whether as fees, expenses or otherwise for services rendered.
Penalties for contravention of Section 142 [Section 147(1)]
If any of the provisions of section 142 related to remuneration of Auditors is contravened, the following person shall be punishable:
1) Company: The Company shall be punishable with fine between ₹25 thousands and ₹5 lakhs; and
2) Officers: Every officer of the company who is in default shall be punishable with
i) Imprisonment for a minimum term of 1 Day and maximum term of 1 year; or
ii) With a minimum fine of ₹10000 and Maximum fine up to ₹100000; or
iii) With both.
Remuneration of Auditor as per Companies Act, 1956
You may recall the provisions related to remuneration of auditors according to the Companies Act, 1956. As per section 224 of CA 1956, the remuneration of auditor:
(a) may be fixed by the Board or the CG, in case of an auditor appointed by the Board of Directors or the Central Government, as the case may be; or
(b) may be fixed by the Company in general meeting or in such manner as the company in general meeting may determine; or
(c) In the case of an auditor appointed under section 619 of the Companies Act, 1956, by the CAG i.e. Comptroller and Auditor-General of India.
However, the remuneration of the auditor shall now be fixed in its general meeting or in such manner as may be determined therein in compliance with the provisions of section 142 of the Companies Act, 2013.