Secretarial Audit: An Overview

In India, there are various statutes, laws, rules and regulations that are applicable to the Corporate Sector. To reduce the risk of frauds as well as the potential cost of non-compliance of applicable provisions, it became essential to conduct an effective audit. Due to this, The Institute of Company Secretaries of India understood the need of a Secretarial Audit and introduced the guidelines “Corporate Governance Voluntary Guidelines, 2009” which recommended the secretarial audit initially. Later, the Companies Act, 2013 also introduced the concept of Secretarial Audit as a class of new audit in addition to other audits. Secretarial Audit focuses on verifying the company’s adherence to applicable laws, rules, procedures, and internal regulatory frameworks. It certifies the existence of adequate systems and processes for ensuring compliance and provides necessary comfort to stakeholders regarding the company’s legal compliance status.

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-compliance and taking timely remedial steps.

Secretarial Audit adds value and helps improve the operations of a company. It brings a systematic and disciplined approach to evaluating and enhancing the effectiveness of risk management, control, and governance processes.

Moreover, Secretarial Audit is a vital component of total compliance management within an organization. it enables the company to take corrective measures promptly, thus mitigating potential risks and ensuring regulatory adherence.

In essence, Secretarial Audit plays a crucial role in corporate compliance management by providing insights into the company’s compliance status, identifying areas for improvement, and facilitating proactive measures to address noncompliance issues. By upholding legal and regulatory standards, Secretarial Audit contributes to the overall governance and sustainability of the organization.

Secretarial Audit as per Companies Act, 2013

Section 204 of the 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 a 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.

Secretarial Audit Report and Company Secretary in Practice

• Secretarial audit report is filed by a company secretary to ensure that the company has complied with all the applicable laws, rules and regulations. It includes a comprehensive analysis of the company’s compliance and governance processes and can help identify potential risks and areas of improvement.

• A Company Secretary in practice is a professional who is well-versed in matters of statutory, procedural, and practical aspects of laws applicable to companies, both listed and unlisted public and private companies. A strong knowledge base makes him a competent professional to conduct Secretarial Audit. In terms of section 204(1), only a member of the Institute of Company Secretaries of India holding certificate of practice (Company Secretary in Practice) can conduct a Secretarial Audit and issue the Secretarial Audit Report to the company.

• The Company Secretary in practice conducts the secretarial audit independently and objectively, ensuring compliance with applicable laws, rules, and regulations governing the company’s operations. Their role is crucial in providing assurance to stakeholders regarding the company’s adherence to legal and governance standards

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 a 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 the Registrar of Companies in e-form MGT-14 within 30 days from the date of passing the 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.

Objectives of Secretarial Audit

• To Check & Report on Compliances of applicable laws To take corrective measures for non-compliance. To safeguard the interest of directors and investors of the company.
• To prevent unreasonable legal actions by law enforcing agencies.

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
• Any other law applicable to the Client Company.

Documents Required for Secretarial Audit

Secretarial Audit is a process of ensuring that a company is complying with all the applicable laws and regulations. The documents required for the secretarial Audit are as follows:

• Memorandum and Articles of Association.
• Forms filed with the Registrar of Companies with challans.
• Notes and agenda of the Board, Committee and General Meetings.
• Proof of Circulation of Notice and Agenda of Board meetings, Committee meetings and the General Meeting
• Proof of circulation of Draft Minutes and Final Minutes of meeting of Board and its committees.
• Attendance Register of Board and committee meetings
• All statutory registers.
• Copy of financial statement along with notes to accounts and Auditor Report.
• Report of Internal Auditor.
• Notices of annual and event-based disclosure of directors’ interests.
• Copies of contracts made between the company and any of the related parties.
• Shareholder List, details of Share Transfers which have taken place during the financial year.
• Copy of Share Transfer Deeds.
• Instruments creating, modifying or satisfying charges.
• Forms relating to Disclosures from Directors.
• Certificate from RTA stating the number of shareholders as on the close of the financial year.
• Certified true Board Resolution for any type of corporate actions taken by the Company.
• Details of the Holding and Subsidiary Companies.
• Complete details of Shares and Debentures issued during the year.
• Details with respect to maintenance of cost records and appointment of cost auditor.
• Details of appointment of Auditor and Internal auditor.
• The list of Related Party Transactions.
• Corporate Action Forms filed by the Company with Depositories.
• Equity Shareholding pattern and its break up as at the close of the financial year.
• Any orders received by the company from the High court/Tribunal or from any other regulatory body.
• Compliance record under FEMA with respect to FDI, ECB and ODI as applicable.
• Copies of Shareholders and joint ventures agreement(s), if any
• Corporate Social Responsibility (CSR).
• Directors and Key Managerial Personnel (KMP).
• Bank Statements relating to transfer of dividend to separate bank account, proof of dispatch of dividend
• Such other documents as required for the purpose of audit.

Conclusion: Secretarial audit serves as a cornerstone for corporate governance and compliance management in India. By assessing and verifying a company’s adherence to statutory provisions and internal frameworks, it fosters transparency, mitigates risks, and enhances stakeholder confidence. The appointment of qualified professionals and meticulous scrutiny of requisite documents are integral to the efficacy of secretarial audits, ensuring the integrity and sustainability of corporate entities.