The Institute of Company Secretaries of India (ICSI) has submitted a proposal to the Ministry of Corporate Affairs to amend Section 138 of the Companies Act, 2013. The amendment seeks to include Company Secretaries as eligible professionals to conduct internal audits. This move comes as a part of the ICSI’s broader vision to enhance corporate governance and to bolster the roles and responsibilities of Company Secretaries in governance processes.
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Background
As it stands, Section 138 of the Companies Act, 2013, necessitates that certain classes of companies must appoint an internal auditor for scrutinizing various functions and activities. The current law specifies that only Chartered Accountants or Cost Accountants are eligible for this role, or “such other professional as may be decided by the Board.”
Why Company Secretaries?
Company Secretaries, being multidisciplinary professionals, are well-versed in corporate laws, governance, ethics, strategic management, and more. Their curriculum is aligned with the crucial elements needed for conducting an internal audit, such as corporate accounting, risk management, and financial management.
Advantages of the Proposed Amendment
- Multifaceted Expertise: Company Secretaries offer a broad range of knowledge and skills that can be advantageous in a complex auditing process.
- Improved Corporate Governance: Their main focus on good governance makes them particularly equipped to improve an organization’s internal control measures.
- Stakeholder Communication: Recognized as Key Managerial Personnel, Company Secretaries interact with a variety of stakeholders, which can be valuable in auditing processes.
- Cost-Efficiency: Having an in-house Company Secretary perform the audit could save the company from hiring an external professional, thereby reducing costs.
- Ethical Practices: Company Secretaries have a strong grounding in ethics, which could bring more transparency and integrity to the auditing process.
Counterarguments
While the proposal seems beneficial, critics argue that having Company Secretaries conduct internal audits might create a conflict of interest, as they often are part of the organization’s governance structure.
Conclusion
The proposal by ICSI to amend Section 138 of the Companies Act, 2013, has sparked a debate on expanding the role of Company Secretaries. While the advantages seem manifold, the concerns regarding potential conflicts of interest can’t be ignored. However, given their multidisciplinary expertise and primary focus on promoting good corporate governance, the inclusion of Company Secretaries as professionals eligible to conduct internal audits may indeed be a step in the right direction.
By allowing Company Secretaries to conduct internal audits, the law would not only be recognizing their competency in this field but would also potentially improve corporate governance and cost-efficiency. Therefore, this proposed amendment warrants serious consideration by the relevant authorities.
THE INSTITUTE OF
Company Secretaries of India
IN PURSUIT OF PROFESSIONAL EXCELLENCE
Statutory body under an Act of Parliament
(Under the jurisdiction of Ministry of Corporate Affairs)
CL: MCA: 2023 August 24, 2023
Shri Manoj Govil, lAS
Secretary
Ministry of Corporate Affairs
Government of India
Shastri Bhawan
New Delhi -110001
Subject: Proposed amendments to Section 138 under the Companies Act, 2013 for Internal Audit
Ref: ICSI Letter dated March 22, 2017 and October 12, 2018
Dear Sir,
The Institute of Company Secretaries of India has been forthcoming of sharing the issues and needs of all its stakeholders including ils members with the Regulatory Authorities. The members of the Institute on the other hand have considered promoting good corporate governance as their prime objective and have donned many roles in their capacity of Governance Professionals both in employment and in practice.
Amongst the various activities undertaken by Company Secretaries, audit of non-financial activities takes a prime position. This includes Internal Audit as well. Internal Audit requires an in-depth understanding of the business culture, systems, and processes, understanding and improvement of internal controls for effective risk management, understanding the governance structure of the organisation and ability to provide value additions for improvement in governance processes.
Sub section (1) of Section 138 of Companies Act, 2013 pertaining to Internal Audit provides that such class or classes of companies as may be prescribed shall be required to appoint an internal auditor, who shall either be a chartered accountant or a cost accountant, or such other professional as may be decided by the Board to conduct internal audit of the functions and activities of the company.
It is submitted that, being fully capable of undertaking the responsibilities of Internal Auditor, Company ‘Secretaries are pursuing the role as and where decided by the Board. However, the profession has not been mentioned alongside the list of professionals specifically designated for the activity.
The curriculum of the Company Secretaryship programme is well designed covering corporate and other allied laws, and aspects of governance, ethics, corporate restructuring, strategic management, effective compliance management, Corporate Accounting, Corporate Finance and Financial Management, risk management, etc., which are the essential elements of internal audit.
Furthermore, Company Secretary has been recognised as Key Managerial Personnel under the Companies Act, 2013 and interfaces with multifarious stakeholders across the organisation. Appointing Company Secretary, a professional with multidisciplinary expertise, as an internal auditor would result in multiple advantages for different stakeholders including Board and its Committees, Senior Management, Vendors, Suppliers and ‘Shareholders.
In view of the above, It. is submitted that Company Secretaries, amongst other professionals, should also be specifically mentioned under Section 138 and that the words “or a Company Secretary” be inserted after the words “either be a chartered accountant or a cost accountant” and the section should be read as under:
“(1) Such class or classes of companies as may be prescribed shall be required to appoint an internal auditor, who shall either be a chartered accountant or a cost accountant, or a company secretary or such other professional as may be decided by the Board to conduct internal audit of the functions and activities of the company.”
We shall be pleased to provide any further information or clarification in this regard on hearing from your goodself.
Thanking You,
Yours faithfully,
(CS Manish Gupta)
President
The Institute of Company Secretaries of India
THE INTENTION OF THE LAW MAKER IS GOOD IN ONE WAY BUT THE SCOPE SHOULD BE RESTRICTED TO ONLY CORPORATE LAW COMPLIANCES MATTERS ONLY OTHERWISE NEXT STEP WOULD BE INTERNAL FINANCIAL; AUDIT WILL ALOS BE CLAIMED/ALLOTED TO THEM.
SECONDLY SECRETARIAL AUDIT IS THERE THEN THAT CAN BE MADE COMPULSORY TO ALL INSTEAD OF INTERANL AUDIT .
THE EXISTING THRESHOLD LIMIT CAN BE BROUGHT DOWN FOR SECRETARIAL AUDIT MADE COMPULSORY TO AL.
THESE ARE MY VIEWS.
YOU HAVE NICELY ELABORATED THE TOPICS. CONGRATS TO YOU FOR THE SAME.
CA UNMESH NARVEAKR-9821236179
M.COM. FCA, CS, ICWA, DISA, FAFA, LLB.