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Introduction

  1. Secretarial Audit is a compliance audit
  2. A part of total compliance management in an organization.
  3. An effective tool for corporate compliance management.
  4. Helps to detect noncompliance and to take corrective measures.

Secretarial Audit is a process

  1. To check compliance with the provisions of various laws and rules/ regulations/procedures, maintenance of books, records etc.,
  2. By an independent professional
  3. To make sure that the legal and procedural requirements are complied with
  4. Also followed the due process.
  5. It is essentially a mechanism to monitor compliance with the requirements of stated laws.

Applicability

The mandatory provisions relating to applicability of secretarial audit are as explained below

  1. Every Listed Company.
  2. Every public company having –

Paid up share capital > Rs. 50 crore

Turnover > Rs. 250 crore

If anyone of the criteria meets then also secretarial audit is mandatory.

A practicing Company Secretary has been recognized to conduct a secretarial audit.

Secretarial Audit Report

Every company to which secretarial report applies –

  1. It shall be prepared by a Company Secretary in Practice.
  2. It shall be prepared in Form M-3.R
  3. Annexed with Board’s Report, considering the increasing importance of Corporate Governance.

Scope of Secretarial Audit

Reporting on the compliance of five laws as mentioned in form MR-3:

  1. Companies Act, 2013 and the rules made thereunder;
  2. Securities Contracts (Regulation) Act, 1956 (‘SCRA’), and the rules made thereunder;
  3. Depositories Act, 1996, and the rules made thereunder;
  4. Foreign Exchange Management Act, 1999 and the rules and regulations made thereunder to the extent of Foreign Direct Investment, Overseas Direct Investment, and External Commercial Borrowings;
  5. Regulations and Guidelines prescribed under the Securities and Exchange Board of India Act, 1992 (‘SEBI Act’)
  6. Reporting on the compliance of secretarial standards issued by the Institute of Company Secretaries of India;  
  7. Reporting on Compliances with the Listing Agreement;
  8. Reporting on compliance of ‘Other laws as may be applicable specifically to the company which shall include all the laws which are applicable to specific industry for example for Banks- all laws applicable to Banking Industry; for insurance company-all laws applicable to insurance industry; likewise for a company in petroleum sector- all laws applicable to petroleum industry; similarly for companies in pharmaceutical sector, cement industry etc.  
  9. Examines and reports regarding the adequacy and efficiency of the systems and processes with other laws.
  10. Monitor and ensure compliance with general laws like labor laws, competition law, environmental laws.
  11. Examines and reports on the specific observations or qualification, reservation or adverse remarks in respect of the Board Structures/system and processes relating to the Audit period.
  12. Secretarial Auditor may rely on reports given by statutory auditors or other designated professionals to check compliance with other laws like Income Tax, Customs, GST

Appointment of Secretarial Auditor

  1. Obtain the consent of secretarial Auditor.
  2. File certified a true copy of a resolution passed in Board Meeting with the Registrar of Companies as an attachment in MGT – 14
  3. Appoint the Secretarial Audit in Board Meeting.
  4. Fix the remuneration in Board Meeting.

Process of Secretarial Audit

Documents Required

Secretarial Auditor or the firm of Secretarial Auditors shall provide the checklist for carrying out the secretarial audit of the company depending upon the nature of business activities carried on by the Company

Duty of the Company

SA1

Duty of the Board w.r.t Qualifications

SA2

Contravention/ Punishment

If a company or any officer of the company or the company secretary in practice, contravenes the provisions of this secretarial audit, then

  1. The company, or
  2. Every officer of the company, or
  3. The company secretary in practice,

who is in default, shall be punishable with

Fine:- Minimum Rs. 1 lakh.

           Maximum Rs. 5 lakh.

Objectives of Secretarial Audit

The objectives of Secretarial Audit are mentioned below as follows:-

  1. To verify & report on compliances of applicable laws and Secretarial Standards;
  2. To point out non-compliances and inadequate compliances;
  3. To protect the interest of various stakeholders i.e. the customers, employees, society etc;
  4. To avoid any unwarranted legal actions/penalties by law enforcing agencies and other persons as well.

Benefits of Secretarial Audit

Broadly, the need for Secretarial Audit is:

  1. An effective mechanism to make sure of the compliance with the legal and procedural requirements
  2. Provides a level of confidence to the directors & Key Managerial Personnel etc.
  3. Secretarial Audit ensures legal and procedural requirements so directors can concentrate on important business matters.
  4. Strengthen the goodwill of a company for their regulators and stakeholders.
  5. Secretarial Audit is an effective governance and compliance risk management tool.
  6. It helps the investor in analyzing the compliance level of companies, thereby increases the reputation

Conclusion

Secretarial Audit is an independent, objective assurance intended to add value and improve an organization’s operations. It helps to accomplish the organization’s objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control, and governance processes.

Secretarial Audit has not been made mandatory for private companies and small public companies. These companies may adopt secretarial audit practices for ensuring compliance and avoiding the risks associated with non-compliance.

An audit is to be on the principle of “Prevention is better than cure” rather than postmortem exercise and to find faults. It strengthens the image and goodwill of a company in the minds of regulators and stakeholders. It acts as an effective compliance risk management tool or a governance tool.

The benefits are available to-

  1. promoters,
  2. executive directors,
  3. officers of the company,
  4. regulators,
  5. government authorities,
  6. investors,
  7. financial institutions,
  8. banks,
  9. creditors and consumers alike.

 

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