2.3 - Query

Acceptance of Audit by Undercutting Audit Fees-2.

Whether in the circumstances detailed below the acceptance of audit by Mr. A would constitute a breach of the code of Conduct prescribed for Chartered Accountants:

1. Mr. A has been auditing the accounts of one unit of a Charitable institution, on an honorarium of Rs.125/-per annum, to cover his out of pocket expenses.

2. Another unit of the same organisation situated elsewhere was being audited by Mr. B on annual fee of Rs.300/-.

3. The organisation started a third unit and requested Mr. B to audit the accounts of that new unit also, without fixing any remuneration. The said Mr. B submitted a bill Rs.350/- for this work which the organisation has not accepted.

4. The organisation approached Mr. A and requested him to audit the accounts of the entire organisation for the next year. Mr. A who was charging Rs.125/-per annum for one unit offered to audit the accounts of other two units also and to charge Rs.300/-only to cover his out of pocket expenses for these two units in addition to Rs.125/-paid to him for the 3rd unit.


June21, 1966

On the facts stated by the querist, it appears that the acceptance of work by A for a fee which is less than the fee previously charged by the other auditor would amount to undercutting. This is on the assumption that there has been no change in the volume of activities of the client involving a reduction in the amount of work involved. As to the annual fee of Rs. 300/-there was no dispute. Although the fee of Rs. 350 /- for the other unit was not acceptable to the institution that by itself would not lead to the conclusion that it was an over charge. We consider that the member of the Institute may accept appointment at a lower remuneration, if he has satisfied himself that the work involved in the performance of the audit has declined sufficiently to warrant a lower fee.