Monday, September 17, 2007

#24 Auditing for Directors Fee

How do we ensure the directors fee in the profit & loss is not materially stated?

In normal circumstances, directors fee charged to P&L is a provisional expense, which is subject to the approval of shareholders. In normal circumstances, the directors fee will only be approved after the financial statement have been presented and finalized. The approval for directors, to certain extent, based on the financial performance of the company ( i.e. information from financial statement).

Then, how do we assess the directors fee?

1. The proposed directors shouldn't be materially different from the prior year directors fee given the same number of directors. Hence, prior year fee is a good reference.

2. Refer to the resolution to check if prior year proposed directors' fees have been approved subsequently.

3. Assess other factors that could affect the directors fee provision.

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