The Companies Act 2013 requires statutory auditors' fees to be set in the company's annual general meeting. Yet, most of the resolutions regarding auditor remuneration, when presented to shareholders for a vote, only ask shareholders to empower the board of directors to set auditor remuneration.
Shareholders have been empowered by regulations to have a say in the selection and remuneration of auditors. The Companies Act 2013 requires statutory auditors' fees to be set in the company's annual general meeting. Yet, most of the resolutions regarding auditor remuneration, when presented to shareholders for a vote, only ask shareholders to empower the board of directors to set auditor remuneration. (Click here for complete coverage of Companies Act 2013)
Proxy advisory firm Institutional investors Advisory Services highlights five things about auditor remuneration that shareholders need to be aware of.
'YOU' have a say!
The Companies Act 2013 stipulates that the remuneration of auditors should be fixed by the company at its general meeting (or as determined in the meeting). This implies all shareholders should have an opportunity to ratify/approve the remuneration paid to the statutory auditors.
It's right there in the Annual Report
Every company needs to disclose the remuneration paid to its auditors in the annual report. This is typically found under the head 'other expenses' in the P&L statement.
It should only be audit
The integrity, objectivity and independence of the audit process is usually maintained if auditors have no other vested interests or business dealings with the company. Therefore, the Companies Act 2013 has specifically debarred auditors, and firms from the same audit network, from providing accounting, book keeping, internal audit, actuarial, investment advisory and management services
PSU Banks pay the most to auditors
The Reserve Bank of India (RBI) has prescribed rates for auditor remuneration in PSU banks. Since PSU banks generally get more branches physically audited than private sector banks, the auditor remuneration in PSU banks tends to be much higher (median: Rs 19.66 cr) as compared to private banks (median: Rs 1.53 cr).
More money doesn't mean better quality
Watch out for those numbers! Several studies have shown that high auditor remuneration may be inversely correlated with auditor independence – especially for some of the smaller audit firms.
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