Corporate and Other Laws · Audit and Auditors

Remuneration and Powers and Duties of Auditors under the Companies Act

Updated 4 October 2026 · Fact-checked

Under Section 142, the company in general meeting fixes the auditor's remuneration, and the Board fixes the first auditor's. Under Section 143, the auditor can access books at all times, must report to members on a true and fair view, must follow auditing standards, and must report fraud as Section 143(12) requires.

Understand Remuneration and Powers and Duties of Auditors

Section 142 deals with the auditor's pay. The remuneration is fixed in general meeting or in the manner the meeting decides. The only exception is the first auditor, whose remuneration the Board may fix. The remuneration includes the auditor's fee, the expenses incurred in connection with the audit and any facility given to him. It does not include pay for any other service the company asked him to do.

Section 143 gives the auditor powers and imposes duties. The main power is the right of access at all times to the books of account and vouchers, wherever they are kept. He can also ask officers for the information and explanation he thinks necessary. For a holding company, the auditor also has access to the records of its subsidiaries and associate companies, but only so far as it relates to consolidating the financial statements.

Section 143(1) also lists matters the auditor must inquire into. These are: security and terms of secured loans and advances; transactions represented merely by book entries; sale of securities below purchase price (for companies that are not investment or banking companies); loans shown as deposits; personal expenses charged to revenue; and shares allotted for cash where cash was not actually received.

The main duty is the audit report under Section 143(2) and (3). The auditor reports to members on the accounts and financial statements, after considering the Act, the accounting and auditing standards and matters required by rules or orders. He states whether they give a true and fair view of the state of affairs, profit or loss and cash flow. Section 143(3) adds specific matters to state, such as information obtained, books kept, branch reports, agreement with books, compliance with accounting standards, disqualification of directors, and internal financial controls. If any matter is answered in the negative or with a qualification, the report must state the reasons (Section 143(4)).

Two more duties matter. Every auditor must comply with the auditing standards (Section 143(9)). If he has reason to believe an offence involving fraud is being or has been committed against the company by its officers or employees, he must report it as Section 143(12) requires. The Central Government can also direct, under Section 143(11), that the report include a statement on specified matters. The Companies (Auditor's Report) Order (CARO) is made under that power.

Key rules to remember

Who fixes remuneration (Section 142(1)): General meeting (or in the manner it decides); first auditor: Board may fix; The Board fixes pay only for the first auditor appointed by it.
What remuneration includes (Section 142(2)): Fee + expenses incurred for the audit + facilities extended; excludes pay for other services at company's request; Other services are paid separately and are not part of audit remuneration.
Right of access (Section 143(1)): Access at all times to books and vouchers, at any place; may require information and explanation; For a holding company, access to subsidiaries' and associates' records only for consolidation.
Audit report (Section 143(2)): Report to members: true and fair view of state of affairs, profit or loss and cash flow; Must consider the Act, accounting and auditing standards and prescribed matters.
Negative or qualified answer (Section 143(4)): Report must state the reasons; Applies to any matter required to be in the report.
Auditing standards (Section 143(9)): Every auditor shall comply with the auditing standards; Until notified, standards specified by ICAI are deemed to be the auditing standards (Section 143(10)).
Fraud reporting (Section 143(12)): Fraud by officers or employees: report to Central Government; if the fraud involves less than the specified amount (₹1 crore under the rules): audit committee or Board; Report immediately, within the prescribed time and manner. The specified amount is set by rules, not by the Act. Good-faith reporting is not a breach of duty (Section 143(13)).
Penalty for non-reporting (Section 143(15)): Listed company: ₹5,00,000; any other company: ₹1,00,000; Applies to an auditor, cost accountant or company secretary in practice who does not comply with Section 143(12), whichever reporting route applies.
Branch audit (Section 143(8)): Branch auditor reports to company's auditor, who deals with it as he considers necessary; Company's auditor states how he dealt with it (Section 143(3)(c)).

How to solve Remuneration and Powers and Duties of Auditors questions

Most questions on this topic are provision-facts-conclusion. Identify which sub-section the facts test, then apply it in plain words.

1Read the facts and decide the issue: remuneration, access to records, contents of report, fraud, or CARO.
2State the provision in one or two sentences, with the section number if you are sure of it, for example Section 142(1) or Section 143(12).
3List the facts from the question that match or break each condition of the provision.
4For fraud questions, check who committed it (officers or employees), that it is against the company, and the amount of the fraud against the specified amount (₹1 crore under the rules) to decide whether the report goes to the Central Government or to the audit committee or Board.
5For report questions, state the matters the auditor must report on, and add that negative or qualified answers need reasons under Section 143(4).
6Write a clear conclusion that answers the exact question asked, such as 'the Board cannot fix the remuneration' or 'the auditor must report to the Central Government'.
7Add the consequence if relevant, such as the penalty under Section 143(15).

Quickest way: Section-hook method for Sections 142 and 143

When to use it: Use in MCQs and short written answers when you have under two minutes per question.

Tie each sub-section to a keyword: 142 = pay; 143(1) = access; 143(2) = true and fair view; 143(3) = report matters; 143(4) = reasons; 143(9) = standards; 143(12) = fraud; 143(15) = penalty.
In MCQs, eliminate options that give the Board power over remuneration, unless the auditor is the first auditor.
Eliminate options that limit access to the registered office. The right covers books kept at any place.
Eliminate options that reverse fraud reporting. Reporting is by the auditor, and it concerns fraud against the company by officers or employees.
In written answers, use the format: Provision, Facts, Conclusion. Each part earns step marks.

Common mistakes in Remuneration and Powers and Duties of Auditors

Saying the Board always fixes the auditor's remuneration.
Students remember the first-auditor exception and apply it to everyone.
Fix: Remember: general meeting (or manner it decides) is the rule. The Board fixes pay only for the first auditor it appoints.
Including fees for other services in audit remuneration.
Students read 'remuneration' broadly.
Fix: Section 142(2) includes the fee, audit expenses and facilities, but excludes pay for other services rendered at the company's request.
Saying the holding company's auditor can access subsidiaries' records for any purpose.
The proviso is read without its limit.
Fix: Access to the records of subsidiaries and associate companies is only so far as it relates to consolidation of the financial statements.
Applying fraud reporting to every fraud, including frauds by outsiders.
Students ignore the words 'by officers or employees of the company'.
Fix: Section 143(12) covers offences involving fraud against the company by its officers or employees. Check this before answering.
Forgetting that a negative or qualified answer needs reasons.
Students list report matters but stop there.
Fix: Always add Section 143(4): the report must state the reasons for any negative or qualified answer.
Treating the fraud-reporting penalty as the same for all companies.
Students memorise one figure.
Fix: Remember both: ₹5,00,000 for a listed company and ₹1,00,000 for any other company.

Worked examples

Example 1

Zenith Ltd's statutory auditor is not the first auditor. The Board fixed his remuneration at ₹6,00,000 without placing the matter before members, and the general meeting has not authorised the Board to fix it. Is the Board's action valid? Also, the company asked the auditor to do a tax consultancy assignment for ₹1,50,000. Is that part of audit remuneration?

Show the solution

Provision: Under Section 142(1), the auditor's remuneration is fixed in general meeting or in the manner the general meeting determines. The Board may fix remuneration only for the first auditor appointed by it.
Facts: Zenith Ltd's auditor is not the first auditor. The Board fixed the pay without the members' decision, and the general meeting had not authorised the Board as the manner of fixing.
Conclusion on part one: The Board's fixing is not valid. It would be valid only if the general meeting had authorised the Board as the manner of fixing the remuneration.
Provision on part two: Section 142(2) says audit remuneration includes the fee, expenses incurred in connection with the audit and facilities extended. It does not include pay for any other service rendered at the company's request.
Conclusion on part two: The ₹1,50,000 for tax consultancy is not part of audit remuneration under Section 142.

Answer: The Board's fixing of the remuneration is not valid, because the auditor is not the first auditor and the general meeting did not authorise the Board. The tax consultancy fee of ₹1,50,000 is excluded from audit remuneration.

Example 2

During the audit of Orion Ltd, a listed company that is neither an investment nor a banking company, the auditor finds that the company's accountant has diverted ₹2,50,00,000, which is an offence involving fraud against the company. Assume the specified amount for Central Government reporting under the rules is ₹1 crore. What must the auditor do, and what happens if he stays silent? Separately, what would change if the fraud were ₹40,00,000?

Show the solution

Provision: Under Section 143(12), if the auditor, while performing his duties, has reason to believe that an offence involving fraud is being or has been committed against the company by its officers or employees, he must immediately report it to the Central Government within the prescribed time and manner.
Facts: The accountant is an employee. The fraud is against the company. The auditor has reason to believe it has been committed. The amount is ₹2,50,00,000.
Threshold: ₹2,50,00,000 is not less than the specified amount of ₹1 crore, so the auditor reports to the Central Government.
If the amount were ₹40,00,000, it would be less than ₹1 crore. The auditor would then report to the audit committee constituted under Section 177 or to the Board in other cases, in the prescribed time and manner. The company must disclose such frauds in the Board's report.
Protection: Under Section 143(13), reporting in good faith is not a breach of any duty the auditor owes.
Consequence: Under Section 143(15), if the auditor does not comply with Section 143(12), he is liable to a penalty of ₹5,00,000 because Orion Ltd is a listed company. This applies whichever reporting route was required.

Answer: For the ₹2,50,00,000 fraud, the auditor must report immediately to the Central Government. For a fraud of ₹40,00,000 he would report to the audit committee or the Board. Good-faith reporting is protected. If he does not comply with Section 143(12), he is liable to a penalty of ₹5,00,000 because Orion Ltd is listed.

Exam tips

Write section numbers only for the sub-sections you are sure of: 142(1), 142(2), 143(1), 143(2), 143(3), 143(4), 143(9), 143(12), 143(13) and 143(15).
For fraud questions, always check the three conditions: fraud against the company, committed by officers or employees, and the amount against the specified amount (₹1 crore under the rules).
In report-content questions, group Section 143(3) matters into themes: information, books, branches, agreement with books, standards, directors, controls and qualifications.
Do not state CARO paragraph details or applicability thresholds unless you have revised them from the current study material. Say that CARO is a statement on specified matters directed under Section 143(11).
Practise one-line answers for MCQs, such as who fixes pay, what pay includes and what the penalty is.

Practice questions from Audit and Auditors

Remuneration and Powers and Duties of Auditors in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Remuneration and Powers and Duties of Auditors: frequently asked questions

Who fixes the remuneration of the auditor?

Under Section 142(1), it is fixed in the company's general meeting or in the manner the meeting determines. The Board can fix it only for the first auditor it appoints.

What does auditor's remuneration include?

It includes the audit fee, expenses the auditor incurs in connection with the audit and any facility extended to him. It does not include pay for other services he renders at the company's request.

To whom does the auditor report fraud under Section 143(12)?

He reports to the Central Government, unless the fraud involves less than the specified amount, which the rules fix at ₹1 crore. For a lesser amount he reports to the audit committee constituted under Section 177, or to the Board in other cases, and the company discloses it in the Board's report.

What is CARO and where does it come from?

CARO is the Companies (Auditor's Report) Order. It is made under the power in Section 143(11), where the Central Government directs that the auditor's report include a statement on specified matters for certain classes of companies. Check the current study material for its applicability and reporting clauses.

Can the auditor access records kept outside the registered office?

Yes. Section 143(1) gives a right of access at all times to books and vouchers, whether kept at the registered office or at any other place.