Whether an Auditor’s remark is a qualification or disclosure ? Excess r...

The auditor of the company has given a Auditor’s
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 MANAGERIAL REMUNERATION 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"