2.7       Query

Acceptance of Audit by Undercutting Audit Fees-4.

 Messrs X & Co. were appointed as Auditors of a Public Joint Stock Company, Jointly with another firm of Chartered Accountants, for auditing its accounts for the year 1973 on a remuneration of Rs. 15,000/- to be divided equally between the two firms.

The accounts for 1973 have been adopted by the Board and are certified by both the firms of Chartered Accountants and they are to be laid before the Annual General Meeting of the company to be held in the last week of this month. Unfortunately, the partner of the other firm of Chartered Accountants, who was attending to this client expired last month.

Now two members of the company want to move a Resolution for appointing X & Co. as sole Auditors of the Company for the year 1974 on a remuneration of Rs.12,000/-.

The questions that arise are: -

1.         If the Resolution is passed at the Annual General Meeting of the Company appointing Messrs X & Co. as sole auditors of the Company for the year 1974 on a remuneration of Rs. 12,000/-, could they accept the audit, of course after inquiring of the other firm whether it has any objection to our accepting the audit?

2.         If they accept the audit could it be said that they are guilty of misconduct, because they have accepted the audit, under the circumstances mentioned above, on a lower remuneration?

                                                          Opinion                                              September 13, 1974

In general terms, if there is any change in the auditors of the company, there should not be any reduction in total audit fee payable by the company unless there is some reduction in the Quantum of the audit work involved. Facts as stated in your query do not indicate any reduction of quantum of the audit work involved arising out of the substitution of two firms of auditors by one. Accordingly, new audit fee of Rs.12, 000/- in place of previous audit fee of Rs.15, 000/- appears to be undercutting of audit fee.

In cases of joint audit, there may be certain overlapping of some of the audit functions being carried out by both the firms of auditors and accordingly the appointment of a single firm of auditors in place of two may result in some reduction of the audit work.  However, this particular aspect has not been brought out in the query and accordingly has not been examined by the Committee.

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