Question

Is independence impaired when an auditor is hired, paid, and fired by the same corporate managers whose activities are the subject of the audit? Does it matter that in most companies the audit committee hires, evaluate, fires (if appropriate), and determines the fees of the external auditor with minimal input from senior management?

Answer 1

Auditor is appointed by the board of directors not by single manager or officer. In case board of directors fails to appoint directors then shareholders will appoint auditor. Auditor is liable to report to shareholders about the financial working of company and how management is complying their duties and responsibilities. Board of directors appoint the auditors in annual general meeting of shareholders and fix the remuneration of the auditor, means with the concern shareholders. To remove the auditor , board has to call meeting of shareholders and with proper reason of removal to be given to shareholders. , to remove the auditor.

Therefore auditor's independence cannot be impaired if they hired , paid and. fired by the same corporate managers, because all the issues cannot be taken up by managers their own, they have to take shareholder's consent in Extra ordinary meeting or AGM.

Yes, it matters because audit committee is consist independent directors therefore more fair decision are expected.

Their duties are as follows :-

Recommendation for appointment, remuneration and duration of appointment of auditors of the company

Review and monitor auditor performance and independence and effectiveness of audit process

Examination of financial statements and auditor's report thereon

The Audit Committee can call for the comments of the auditors regarding internal control systems, the scope of audit, including the observations of the auditors and review of
financial statement before their submission to the Board and may also discuss any related issues with the internal and statutory auditors and the management of the company.

Therefore we can say audit committee plays very important role in the company's true and fair working and it's management true and fair working also.