Overview of Secretarial Audit

The Secretarial Audit is an audit where the Secretarial Auditor expresses an opinion as to whether there subsist appropriate systems and processes in the company proportionate with the size and operations of the company to monitor and check compliance with applicable laws, rules, regulations, and guidelines. The Key features of Secretarial Audit are given below, those are as follows:-

  • It helps in recognizing the event of non-compliance and facilitates taking corrective measures.
  • It audits the compliance of good corporate practices by the company.
  • It is an independent process intended to add value and improve the operations of the Company.
  • It helps in accomplishing the company’s objectives by bringing a systematic, productive approach to examine and potential effectiveness of risk management, control, and governance processes.
  • It provides necessary comfort to the management, regulators, and stakeholders, as to statutory compliance, good governance, and the existence of proper and adequate systems and processes.

What is the Applicability of Secretarial Audit?

Secretarial Audit is mandatory for the below-mentioned companies. Also, the companies are required to prepare the Secretarial Audit Report.

  • Every Listed Company
  • Every public company having a paid-up share capital of 50 crore rupees or more.
  • A public company having a turnover of more than Rs. 250 crore or more.
  • Every company having a borrowing of 100 crores or more.

Note- If anyone of the above criteria meets, a secretarial audit is mandatory.

Who can be Appointed as a Secretarial Auditor?

Members of the ICSI (Institute of Company Secretaries of India), who are holding the certificate of practice which validates to perform as a secretarial audit, can only conduct Secretarial Audit and prepare the Secretarial Audit Report of the Company.

What are the Important Provisions regarding the Secretarial Audit?

The important provisions regarding Secretarial Audit are as follows:-

  • Matters to be specified in the Secretarial Audit.
  • Flexibility in the form of a Compliance Certificate.
  • Verification of records and documents.
  • A Crucial area of the Secretarial Audit report under the Companies Act 2013.
  • Crucial area of the Secretarial Audit report under SEBI Rules and Regulations.
  • Crucial area of the Secretarial Audit report under other laws.
  • Period of the Secretarial Audit.
  • Disqualification for the appointment of the Secretarial Auditors.
  • Duty of the company to provide all assistance.
  • Objectives of Secretarial Audit.

What are the Benefits of a Secretarial Audit?

The Benefits of Secretarial Audit are as follows:-

  • It can be an effectual due diligence performance for the prospective acquirer of a company or possessing interest or a partner of a Joint venture.
  • It indemnifies the owners that the management and affairs of the company are being conducted following the requirements of law and that the owner’s stake is not being exposed to undue risk.
  • It administers professional discipline and self-regulation.
  • Reduces the work pressure of the regulators due to better and timely compliances.
  • It shows the right path to investors by showcasing your legal records.

What Laws are specifically mentioned in the Secretarial Audit Reports?

In terms of Secretarial Audit report, the Secretarial Auditor needs to examine and report the compliance of the following specific laws-

  • The Companies Act, 2013 (the Act) and the rules made thereunder,
  • The Securities Contracts (Regulation) Act, 1956 (‘SCRA’) and the rules made thereunder,
  • The Depositories Act, 1996 and the Regulations and Byelaws framed thereunder,
  • 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,
  • The following Regulations and Guidelines prescribed under the Securities and Exchange Board of India Act, 1992 (‘SEBI Act’)-

What is the procedure of the Secretarial Audit?

The detailed Secretarial Audit process is given below:-

  • Appointment of Secretarial Auditor
  • Communication to earlier Incumbent
  • Acceptance of Appointment by the Secretarial Auditor
  • Preliminary Discussions about the company with the Secretarial Auditor
  • Preliminary Meeting with the Auditor
  • Finalization of Audit plan and briefing the staff
  • Testing, Interview and Analysis
  • Preparing the working papers
  • Audit Summary for Discussions
  • Submission of Secretarial Audit Report

What is the Manner of Reporting Qualification in the Secretarial Audit Report?

While Reporting a Secretarial Audit report, the Secretarial Auditor shall mark a qualification, reservation, or adverse remarks, if any, at the relevant places in his report in Bold type or Italics. However, if the auditor is unable to express an opinion on any matter, he/she should specify that he/she is unable to express an opinion on that particular matter stating the reasons therefore.

If the requisite work required to be performed is constricted on account of restrictions imposed by the company or on account of circumstantial limitations, the Report should highlight such limitations. If such limitations are so perceptible that the Auditor is unable to express any opinion, he/she should state that in the absence of necessary information and records, he is unable to report on compliance(s) relating to the restricted areas by the Company.

Further, the BOD of the company in its Board’s report shall explain in full qualification or observation or other remarks made by the PCS in the Secretarial Audit Report.

What Documents are required for Secretarial Audit?

Below-mentioned documents are required for Secretarial Audit-

  • Charter Documents and Statutory Registers,
  • Board and General Meeting Minutes & Notices,
  • Audited financial statements and Last year Secretarial Audit Report,
  • If the company is listed, Filings & Intimations with ROC, Stock Exchanges, Newspaper Advertisements.
  • Annual Performance Reports, Lease Deed, Bonds and returns
  • Filings with RBI (If there is a foreign investment) and other statutory departments,
  • Registers maintained under Labour Laws
  • Admission and Statement for code of conduct received from the directors
  • Remuneration and Sitting fees details paid to directors.
  • Particulars of CSR amount
  • SAST Disclosures
  • Bank account details for dividend
  • Details of ECB Returns, in case of foreign borrowings in the company.

What are the Frauds and Penalties associated with penalty for False Statements?

Section 448 of Companies Act 2013, deals with the penalty for false statements. The section provides that if in any return, report, certificate, financial statement, prospectus, statement or other document required by, or for the purposes of any of the provisions of this Act or the rules made thereunder, any person makes a statement,—

  • Which is false in any material particulars, knowing it to be false; or
  • Which omits any material fact, knowing it to be material, he shall be liable under section 447.