When a company appoints an auditor, one practical question always comes up — who decides how much the auditor gets paid?
Section 142 of the Companies Act, 2013 answers this in a very structured but practical way. It explains how auditor fees are fixed and what payments are considered part of that fee. If you are new to company law, understanding auditor remuneration helps you see how fairness and accountability are maintained inside Indian companies.
What Does Auditor Remuneration Really Mean?
Let’s imagine a simple situation.
A company finishes its financial year. Now an auditor comes in, checks the books of accounts, verifies transactions, and finally issues an audit report. This work takes time, expertise, and professional responsibility — so naturally, the auditor is paid.
Auditor remuneration simply means the total payment given to the auditor for performing audit-related work.
But in real life, payment is not just one fixed professional fee. Audit work often involves travel, documentation, and support arrangements. Section 142 explains clearly what counts as part of this payment and how it is decided.
Many beginners assume auditors fix their own fees. In practice, company law assigns this responsibility to specific decision-makers within the company to maintain independence.
Who Decides the Auditor’s Remuneration?
The answer changes depending on when the auditor is appointed.
Remuneration of Subsequent Auditors
After the first financial year, auditors are generally appointed by shareholders.
In practical terms, this means the owners of the company decide how much the auditor will be paid during a general meeting. Sometimes, instead of fixing an exact amount, shareholders may approve a method or authorize someone to determine the fee later.
Why is this structure used?
Because auditors work mainly to protect shareholder interests by checking whether company accounts present a true picture. So the law gives shareholders the authority to approve the payment.
What this means for you as a beginner: The people who own the company ultimately control the auditor’s compensation, not management alone.
Remuneration of the First Auditor
Now think about a newly incorporated company.
At the beginning, shareholders may not yet be actively involved in decision-making. The company still needs an auditor quickly so that operations can begin smoothly.
So the law allows a practical arrangement.
The Board of Directors appoints the first auditor and also decides the auditor’s remuneration.
In simple words:
- The Board appoints the first auditor.
- The Board fixes the first auditor’s payment.
This avoids delays and helps the company start compliance activities without waiting for shareholder meetings. From practical experience, this is mainly an operational convenience during the early stage of a company’s life.
What Is Included in Auditor Remuneration?
Many beginners think remuneration means only the audit fee. In reality, audit work involves several connected costs.
Section 142 treats certain expenses as part of auditor remuneration because they arise directly from audit work.
1. Audit Fee
This is the main professional payment for conducting the audit — examining records, verifying accounts, and issuing the audit report.
2. Out-of-Pocket Expenses
During audits, auditors often spend money while performing their duties.
For example:
- Traveling to company offices or factories
- Staying overnight during audit visits
- Administrative or documentation expenses
If these costs arise directly because of audit work, they are treated as part of auditor remuneration.
Example: Suppose an auditor travels from Mumbai to Pune to audit a manufacturing plant and spends ₹25,000 on travel and accommodation. Since this expense exists only because of the audit, it becomes part of the auditor’s remuneration.
In practice, companies usually reimburse these expenses along with audit fees.
3. Facilities Provided by the Company
Sometimes companies support audit work by providing facilities such as:
- Temporary office space
- Administrative assistance
- Access arrangements needed to review records
Even though no cash payment is made, these facilities help the auditor perform the audit. Therefore, they are considered part of remuneration under the law.
This often surprises beginners because remuneration is not limited only to money paid directly.
What Is NOT Included in Auditor Remuneration?
Here is where confusion commonly happens.
Auditors may provide services beyond statutory audit work, such as:
- Consultancy assignments
- Advisory services
- Special certification work requested separately
Payments for these additional services are kept separate from audit remuneration.
Why does the law make this distinction?
The idea is transparency. Stakeholders should clearly understand how much the auditor is being paid specifically for independent audit work, without mixing it with other professional engagements.
From a governance perspective, this separation helps maintain trust in the auditor’s independence.
When Audit Fees Are Not Finalized Immediately
Let’s look at a situation that happens quite often in large companies.
Suppose XYZPQ Private Ltd., a large consultancy company with turnover around ₹1,000 crore, appoints statutory auditors. During the Board meeting, the exact audit fee is not finalized because the scope of work is still being evaluated.
The company and auditor sign an engagement letter stating that the fee will be decided later through mutual agreement.
Is this acceptable?
Yes. The appointment remains valid as long as both sides agree that remuneration will be determined later.
In real-life corporate practice, especially in large organizations, audit complexity varies every year. Fee discussions may take time because workload estimation needs detailed review.
Many beginners assume payment must be fixed immediately, but business reality is often more flexible.
Why These Rules Matter
You might wonder why company law spends so much effort explaining auditor payment.
The main reason is independence.
If management alone controlled auditor payments without oversight, there could be pressure that affects audit objectivity. By involving shareholders and clearly defining remuneration, the law creates balance between management, auditors, and owners.
This is one of the early examples of corporate governance in India — responsibilities are divided so that no single group has complete control.
For someone learning company law, this concept quietly explains how investor trust is protected.
Conclusion
Section 142 of the Companies Act, 2013 explains auditor remuneration in a practical and structured way:
- The Board decides payment for the first auditor.
- Shareholders determine payment for later auditors.
- Remuneration includes audit fees, audit-related expenses, and facilities provided for audit work.
- Payments for separate non-audit services are kept outside audit remuneration.
- Audit appointments remain valid even if fees are finalized later through agreement.
Understanding this helps you see how Indian companies maintain fairness and independence in financial reporting — something that ultimately protects shareholders and stakeholders.
