A secretarial audit is an evaluation of a company’s compliance with secretarial and corporate governance standards. It is usually conducted by an external firm of solicitors or company secretaries. The audit may be conducted on a voluntary or mandatory basis and may be required by regulators, shareholders, or other interested parties.
The secretarial audit typically covers a wide range of areas, including compliance with the Companies Act, the listing rules of the stock exchange, and other relevant legislation. It also assesses the adequacy of the company’s internal controls, procedures, and processes. The audit may also include a review of the company’s financial statements and other financial information.
WHAT IS A SECRETARIAL AUDIT?
The Secretarial Audit consists of verifying the documents and information of the company to ensure compliance with all applicable laws, rules, and regulations. A Compliance Audit is being conducted. It is conducted by a professional who is independent. Taking steps to correct non-compliances in a timely manner can be made possible by this tool.
A Secretarial Audit must comply with Section 204 of the Companies Act, 2013 and Rule 9 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014.
It is mandatory for the following companies to conduct a Secretarial Audit :
- Every Listed Company; or
- Every Public Company has a paid-up share capital of Rs. 50 crores or more; or
- Every Public Company having a turnover of Rs. 250 crores or more;
- Every company has outstanding loans and borrowings from banks or financial institutions of Rs. 100 crores or more.
Secretarial Audit Report :
- Company Secretary in Practice prepared this document.
- In Form No. MR-3 and is attached to the Annual Report of the Company.
SECRETARY AUDITOR APPOINTMENT :
- Section 204 of the Companies Act states that only a member of the Institute of Company Secretaries of India (i.e. PCS) is qualified to conduct a secretarial audit of the company.
- In the Board Meeting of the Company, the Secretarial Auditor is appointed by the Board of Directors.
- The Board of Directors may also set remuneration in its meeting.
- In 30 days from the date of the Board Meeting, a Certified True Copy of the Resolution must be filed with the Registrar of Companies in e-form MGT-14.
- A new secretarial auditor should inform the earlier incumbent by registered mail when he/she has been appointed in place of the existing secretarial auditor.
Secretarial Audit involves checking compliances on a continuous basis, so it is recommended that the company appoints one at the beginning of the financial year.
A SECRETARIAL AUDITOR’S POWERS AND DUTIES
- The purpose of this position is to provide guidance to the directors in relation to their duties, responsibilities, and powers.
- In the course of their audit, they are required to obtain the company’s books of accounts and other relevant vouchers.
- Information and explanations about various transactions from the officers of the company.
- Observe all applicable laws, rules, and regulations.
A SECRETARIAL AUDIT’S OBJECTIVES
- Checking and reporting compliance
- In case of non-compliance, take corrective measures. In order to protect the interests of the company’s directors and investors.
- In order to prevent law enforcement agencies from taking unreasonable legal action.
A SECRETARY’S AUDIT HAS THE FOLLOWING BENEFITS
- The tool assists in detecting non-compliance.
- In this manner, the Directors and Key Management Personnel are provided with a level of confidence.
- As a result, the company’s goodwill is strengthened.
- Due to timely compliance, reduces the workload of various regulators.
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 is applicable to the Client Company.
PROCESS OF SECRETARIAL AUDIT
- All relevant documents and information about the Company will be gathered by the auditor for auditing purposes.
- An audit meeting will be held between the auditor and the company’s management to discuss the scope and objectives of the audit.
- A formal engagement letter will be issued by management to the auditor, describing the scope and objectives of the audit.
- An audit meeting will take place with senior management and other staff members involved in the audit.
- Planning for the audit program will be undertaken by the auditor.
- Working Papers are prepared by the auditor to support the audit opinion.
- Audit observations will be prepared and submitted to management by the auditor.
- All Audit Observations will be discussed with the management of the company by the auditor.
- In response to audit observations, the auditor will receive a response from the client.
- The Audit Report will be submitted to the client company by the auditor.
- In some cases, the auditor may request that all corrective actions be taken by the company.
The Ministry of Corporate Affairs recently amended the provisions of Secretarial Audit, expanding its scope. Due to this amendment, every company that has an outstanding loan or borrowing from a bank or PFI of Rs. 100 crores or more, both listed and unlisted, is required to conduct a Secretarial Audit. The law-enforcing agencies may take legal action against companies that do not comply with the provision of Secretarial Audit; however, these companies should adopt the annual practice of Secretarial Audit voluntarily. Rather than a postmortem exercise, an audit should be based on the principle of “Prevention is better than cure.”. A secretarial Audit is a proactive measure that provides assurance to investors and provides confidence to directors.