SECRETARIAL AUDIT
WHAT IS SECRETARIAL AUDIT?
Secretarial Audit is basically a process of verifying the documents and
information of the company to check their compliance with provisions of
all applicable laws, rules and regulations on the Company. It is a
Compliance Audit. It is conducted by an independent professional. It helps
in recognizing all non-compliances and taking timely remedial steps.
SECRETARIAL AUDIT AS PER COMPANIES ACT, 2013
Section 204 of Companies Act, 2013 read with Rule 9 of Companies
(Appointment and Remuneration of Managerial Personnel) Rules, 2014 is
applicable on Secretarial Audit.
It is mandatory for the following companies to conduct Secretarial
Audit:
Every Listed Company; or
Every Public Company having paid-up share capital of Rs. 50 crores
or more; or
Every Public Company having turnover of Rs. 250 crores or more;
Every company having outstanding loans and borrowings from
banks or financial institutions of Rs. 100 crores or more.
Secretarial Audit Report:
Prepared by Company Secretary in Practice.
Prepared in Form No. MR-3 and annexed with the Board Report of
the Company.
Assistance by Company: Company shall provide full assistance and
facilities to the Auditor while conducting the secretarial audit of the
company.
Explanation by Board: The Board of Directors shall explain in full in
their report, any qualification or observation or other remarks made by
Practicing Company Secretary in his Audit Report.
Contravention of the provision:
If a company or any officer of the company or the Practicing Company
Secretary contravenes the provisions of this section, the company, every
officer of the company or Practicing Company Secretary, who is in default,
shall be punishable with fine which shall be minimum one lakh rupees but
which may extend to five lakh rupees.
Note: Paid up share capital, turnover, or outstanding loans or
borrowings as the case may be, existing on the last date of latest
audited financial statement shall be taken into account.
APPOINTMENT OF SECRETARIAL AUDITOR:
According to the provisions of Section 204, only a member of the
Institute of Company Secretaries of India holding a certificate of
Practice (i.e. PCS) is qualified to conduct secretarial audit of the
company.
Secretarial Auditor is required to be appointed by the Board of
Directors of the Company in the Board Meeting.
Remuneration may also be fixed by the Board of Directors in the
Board meeting.
Certified True Copy of the Resolution passed in the Board Meeting is
required to be filed with Registrar of Companies in e-form MGT-14
within 30 days from the date of passing resolution.
When a new secretarial auditor is appointed in place of the existing
Secretarial Auditor, he/she should communicate the appointment to
the earlier incumbent in writing by registered post.
Note: It is advisable for the company to appoint Secretarial Auditor at the
beginning of financial year because Secretarial Audit involves checking of
compliances on a continuous basis.
POWER AND DUTIES OF SECRETARIAL AUDITOR
To provide guidance to the directors of the company related to their
duties, responsibilities and powers.
To obtain the books of accounts and other relevant vouchers of the
company during the course of their audit.
To receive information and explanation from the officers of company
on various transactions.
To assure compliance of various laws, rules and regulations
applicable on the Company.
OBJECTIVES OF SECRETARIAL AUDIT
To check and report on compliance
To take correctives measures for non-compliance. To safeguard the
interest of directors and investors of the company.
To prevent unreasonable legal actions by law enforcing agencies.
BENEFITS OF SECRETARIAL AUDIT
It helps in detecting non-compliance.
It provides a level of confidence to the Directors & Key Managerial
Personnel of the Company.
It strengthens the goodwill of the Company.
It reduces the work load of various regulators due to timely
compliances.
SCOPE OF SECRETARIAL AUDIT
Companies Act, 2013
Securities and Exchange Board of India, 1992
Reserve Bank of India, 1934
Securities Contract (Regulations) Act, 1956
Depositories Act, 2013
Foreign Exchange Management Act, 1999
Competition Act, 2013
Listing Agreement
Any other law applicable to the Client Company.
PROCESS OF SECRETARIAL AUDIT
o Auditor will gather all relevant documents and information of the
Company which are required for audit.
o Auditor will conduct a formal meeting with the management of the
Company and discuss the scope and objectives of examination.
o Management will issue the formal engagement letter to the auditor
which will communicate the scope and objectives of audit.
o Auditor will meet with all senior management and other staff who
may be involved in the audit process.
o Auditor will engage in planning for audit programme.
o Working Papers are prepared by the auditor to support the audit
opinion.
o Auditor will prepare and submit the audit observations with the
management.
o Auditor will discuss all the Audit Observations with the management
of the Company.
o Auditor will receive response from the client for audit observations.
o Auditor will submit the Audit Report to the client company.
o Auditor may request the company to take all corrective actions.
CONCLUSION
With the recent amendment in the provisions of Secretarial Audit by the
Ministry of Corporate Affairs, it’s scope has been increased. It was
observed that due to this amendment it becomes mandatory for every
company i.e. both unlisted public companies and private companies
having outstanding loans or borrowings from Banks or PFI of Rs. 100
crores or more to conduct Secretarial Audit. However, the companies on
which the provision of Secretarial Audit is not applicable should voluntary
adopt the annual practice of Secretarial Audit to ensure compliance and to
Prevent legal actions by the law-enforcing agencies. An audit is to be on
the principle of “Prevention is better than cure” rather than postmortem
exercise and to find faults. Secretarial Audit is a good corporate
governance practice. Being a pro-active measure, Secretarial Audit gives
a level of confidence to directors and provides assurance to investors of
the company.