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Section 142 — Remuneration of Auditors

Think about it this way: you've just appointed an auditor for your company. Now who decides how much to pay them? That's exactly what Section 142 answers — and it matters for both governance and exam marks.

Who fixes the remuneration? The short answer: the shareholders in a general meeting. This makes sense — the auditor is supposed to be independent and report to shareholders, so naturally the shareholders decide the pay. You cannot let the Board silently decide what to pay the auditor every year, because that creates a conflict of interest (an auditor whose pay depends on the management's goodwill is unlikely to be truly independent). There is one clean exception: when the Board appoints the first auditor (which it is allowed to do under Section 139(6) before the first AGM), the Board can also fix that first auditor's remuneration. After that, it goes back to the general meeting.

What counts as 'remuneration'? This is the part students miss. Remuneration under Section 142 is broader than just the audit fee. It includes: (a) the audit fee itself, and (b) any expenses the auditor incurs while doing the audit — travel to branch offices, hotel stays during a factory visit, printing costs, etc. — and (c) any facility extended to the auditor (say, the company provides a company car for site visits). However, it excludes fees paid for any other service the auditor renders — for example, if the same CA firm is also doing GST consultation or tax filing for the company, that fee is NOT part of Section 142 remuneration. That separate fee is governed by other arrangements and must be disclosed separately in the financial statements. This distinction is frequently tested as a 4-mark theory question in CA Inter Auditing.

📊 Worked example

Example 1 — Identifying what's included in remuneration

Rajesh & Co. Pvt. Ltd. appointed M/s Sharma & Associates as statutory auditors at their AGM. During the year, the following payments were made:

| Item | Amount |

|---|---|

| Audit fee agreed at AGM | ₹1,50,000 |

| Travel & stay expenses for branch audit (Pune) | ₹18,000 |

| GST compliance advisory fee (separate engagement) | ₹40,000 |

| Laptop provided to auditor for use during audit | ₹45,000 (facility) |

Working:

  • Audit fee → ✅ Included (core remuneration)
  • Travel & stay → ✅ Included (expenses incurred in connection with audit)
  • GST advisory fee → ❌ Excluded (service rendered other than audit, at company's request)
  • Laptop facility → ✅ Included (facility extended to auditor)

Remuneration under Section 142 = ₹1,50,000 + ₹18,000 + ₹45,000 = ₹2,13,000

The GST advisory fee of ₹40,000 will be disclosed separately in the financials but is NOT covered under Section 142.

---

Example 2 — Who fixes the pay?

Ms. Iyer incorporated a private limited company on 1st January 2026. The Board appointed M/s Kapoor & Co. as first auditors on 15th January 2026 under Section 139(6). The first AGM is scheduled for September 2026.

Question: Can the Board fix M/s Kapoor & Co.'s remuneration for the period January–September 2026?

Answer: Yes. The proviso to Section 142(1) expressly allows the Board to fix remuneration of the first auditor appointed by it. So the Board can decide, say, ₹75,000 as remuneration for this period. From the second year onward, remuneration must be fixed at the general meeting.

⚠️ Common exam mistakes

  • Students think the Board always fixes auditor remuneration — Wrong. It is fixed in the general meeting (typically AGM). The Board can only do it for the first auditor it appoints. Don't mix this up with the power to appoint the first auditor.
  • Forgetting that expenses are part of remuneration — Many students write only 'audit fee' when asked to define remuneration under s.142. Always add reimbursed expenses and facilities — they are explicitly included.
  • Including fees for other services in Section 142 remuneration — If the auditor is also doing tax work or management consulting for the company, that fee is excluded from s.142. It gets disclosed separately in the financial statements under Schedule III.
  • Confusing 'facility' with 'fee' — A facility (like providing office space or equipment to the auditor) has monetary value and is treated as part of remuneration. Students often think only cash payments count.
  • Missing the exam hook — If the question asks 'whether the Board can fix the remuneration of the auditor,' always check: is this the first auditor appointed by the Board? If yes — Board can. If no — General meeting must. One sentence on the proviso can fetch you the full 2 marks.
📖 Bare Act text — Section 142, Companies Act 2013 (click to expand)
(1) 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. (2) 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.
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