Whether an Auditor’s remark is a qualification or disclosure ?  Excess remuneration paid to MD
Channel: R V Seckar
Date: 2020-10-05

Whether an Auditor’s remark is a qualification or disclosure ?  Excess remuneration paid to MD  
The auditor of the company has given a qualification in the audit report that
 "the company had provided depreciation in respect of fixed assets at the rates prescribed under Income tax act which are at variance with the rates prescribed under Companies act. however this does not affect the accounting results or valuation of assets in Balance sheets in a material manner, since the company has been following this practice since its inception which are at variance with the rates prescribed under companies act, 1956."
The Board  can reply as follows:
" The auditors view are self explanatory. The Board of Director shall take necessary steps towards depreciation calculation as per companies act in the following financial year."
During the current financial year, the Company can calculate depreciation as per Companies Act. and pass the entry for difference between Income Tax and Company Act.
However , some professionals argue that What auditor has stated is just a 'Disclosure' and not 'Qualification, Reservation or Adverse', so Directors need not to comment on the same.
In notes to accounts, Company should mention the details about deviation with regard to depreciation.
In Directors Report, either the Company can reproduce the notes in this regard or it can mention the word "Auditors remarks, if any suitably explained in notes to accounts under note no.---"

However , it is to be noted that What auditor has stated is just a disclosure, there is no qualification or reservation with respect to depreciation. The depreciation rates under the Schedule XIV are minimum rates and company may charge higher rates, so the directors need not to give comment on such disclosure, not even like "Board of Directors will take care of the same from coming financial year and as for as previous year is concerned there is no any difference in valuation of Depreciation."
The comment given by the auditor is not a qualification at all. The auditor has also stated that the Company is following the practice since inception and so it shall not be good to say that the company will follow it in the forthcoming financial year. Even in the next financial year, the auditor may give the same comment. It is better not to give any explanation. 


How Board of Kamat Hotels (India) Ltd recalled excess remuneration paid to its Managing Director dure to pressure from  Lenders 
A VERY RARE DECISION BY THE BOARD - KAMAT HOTELS (INDIA) LTD- WHEN MOST OF THE COMPANIES HAVE OBTAIEND SHAREHOLDERS' CONSENT FOR WAIVER OF RECOVERY OF EXCESS MANAGERIAL REMUNERATION PAID (source : AR 2020) "The Company has paid remuneration* to Dr. Vithal V. Kamat, Executive Chairman and Managing Director for the financial year ended 31st March 2020 which is in excess of the limits prescribed under section 197 of the Companies Act, 2013 (read with Schedule V) by Rs. 41.94 lakhs which was highlighted by the Auditors in the Board Meeting held on 30th July, 2020 and the waiver of the same was subject to approvals from secured lenders and the members.
However, subsequent to the approval of audited accounts for the year ended 31st March, 2020, based on the discussions held by the management with the secured lenders, at the meeting of the Board of Directors held on 28th August, 2020, the Board decided not to approach lenders for their NOC which is a prime condition before approaching members for waiver and instead directed to start the recovery process from Dr. Vithal V. Kamat and until the sum is fully recovered, Dr. Vithal V. Kamat shall hold the excess payment of remuneration *Rs 97.97 lakhs in trust for the Company"