Secretarial Audit

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Overview of Secretarial Audit

The Secretarial Audit is a process where a Secretarial Auditor checks whether the organisation complies with applicable laws and regulations. There are certain features of secretarial Audit which are given below:

  • It helps to recognize the event of non-compliance and facilitates taking corrective measures.
  • It is a proof that the company is complying to the good corporate practices 
  •  The intention of this audit is to add value and improve the operations of the Company.
  • It helps accomplish the company’s objectives by bringing a systematic, productive approach to examine the control, and governance processes and potential effectiveness of risk management 
  • It provides a sense of confidence to the management, regulators, and stakeholders regarding statutory compliance, good governance, and proper and adequate processes and systems

Applicability of Secretarial Audit

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

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

Important Provisions pertaining to Secretarial Audit

The necessary provisions pertaining to Secretarial Audit are given below 

  • Matters that are needed to be mentioned in the Audit.
  • Compliance Certificate.
  • Verification of documents and records  
  • A Crucial area of the Secretarial Audit report under the Companies Act 2013.
  • A crucial area of the Secretarial Audit report under SEBI Rules and Regulations.
  • A crucial area of the Secretarial Audit report under other laws.
  • Period of the Secretarial Audit.
  • Disqualification for the appointment of the Secretarial Auditors.
  • The company has to provide all assistance.
  • Objectives of Secretarial Audit 

Benefits of a Secretarial Audit

The Benefits of a Secretarial Audit are as follows:-

  • It can be a part of due diligence for someone who wants to acquire the company or have any interest in the company or a joint venture partner.
  • It assures the owners that the management and affairs of the company are being conducted according to the provisions and the stake of the owner is not under any risk.
  • It helps in self-regulation and professional discipline.
  • Enables timely compliances.
  • It portrays a good image in front of the investors about the legal records of the company.

Beneficiaries of Secretarial Audit

The beneficiaries of Secretarial Audit are-

  • Promoters
  • Management 
  • Non–Executive Directors 
  • Government Authorities 
  • Investors
  • Other Stakeholders  

Laws specifically mentioned in the Secretarial Audit Reports

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

  • The Companies Act, 2013 (the Act) and the Rules made there under,
  • The SEBI (Registrars to an Issue and Share Transfer Agents) Regulations, 1993 regarding the Companies Act and dealing with the client;
  • The following Regulations and Guidelines are prescribed under the Securities and Exchange Board of India Act, 1992 (‘SEBI Act’)
  • The Securities Contracts (Regulation) Act, 1956 (‘SCRA’) and the Rules made there under,
  • The Depositories Act, 1996 and the Regulations and Byelaws framed there under,
  • Foreign Exchange Management Act, 1999 and the rules and regulations made there under to the extent of Foreign Direct Investment, Overseas Direct Investment and External Commercial Borrowings,
  • The SEBI (Issue and Listing of Debt Securities) Regulations, 2008;
  • The SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011;
  • The Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 1992/ SEBI (Prohibition of Insider Trading) Regulations, 2015;
  • The Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009;
  • The Securities and Exchange Board of India (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999/ SEBI (Share Based Employee Benefits) Regulations, 2014;
  • The Securities and Exchange Board of India (Delisting of Equity Shares) Regulations, 2009; and
  • The Securities and Exchange Board of India (Buyback of Securities) Regulations, 1998;
  • SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015.

Pre- Requisites for a Secretarial Audit

The prerequisites are given below:

  • The Secretarial Audit Report should be prepared by a practising Company Secretary
  • It should be prepared as per Form MR-3 format 
  • The Report should be laid as an annexure by the company in the Board Report.

Eligibility Criteria for the Appointment of a Secretarial Auditor

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

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;
  • Last year’s Secretarial Audit Reportand Audited financial statements;
  • If the company is listed- ROC;
  • Filings & Intimations, Advertisements;
  •   Stock Exchanges, Newspaper;
  •  Lease Deed, Bonds, Annual Performance Reports, and other returns;
  • If there is a foreign investment then the filings with RBI and other statutory departments are needed;
  • Registers that are maintained as per Labour Laws;
  • Statement and Admission for code of conduct received from the directors;
  • Sitting fees and remuneration details paid to directors;
  • Particulars of CSR amount;
  • SAST Disclosures;
  •  Details of Bank account regarding dividend;
  •  If there are any foreign borrowings in the company the details of ECB Returns is required.

Procedure of the Secretarial Audit

The procedure for Secretarial Audit is given below:-

  • Appointment of Secretarial Auditor
    The appointment of a Secretarial Auditor is made by passing a resolution in the Board Meeting.
  • Communication to earlier Incumbent
    After passing the resolution, the next step is formally informing the secretarial auditor about his appointment. This can be done by proposing an engagement letter to the Secretarial Auditor. 
  • Acceptance of Appointment by the Secretarial Auditor
    After the formal communication of employment, the secretarial auditor needs to accept the appointment by signing the Letter of Engagement.

    Initial Discussions about the company with the Secretarial Auditor
    The next step is to discuss the company with the secretarial auditor so that he know the structure of the company 
  • Preliminary Meeting with the Auditor
    After this, there is a meeting with the auditor to decide to make an audit plan. 
  • Finalization of the Audit plan and briefing the staff
    After the meeting with the auditor and discussing the audit plan, the next step is to finalize the audit plan and inform others about the same to other staff. 
  • Testing, Interview and Analysis
     After this step, the next step is to do the testing interview and analysis. 
  • Preparation of Working Report
    The next step is preparing the working report by the secretarial auditor. A working report consists of all the Secretarial audit reports of the company.
  • Audit Summary for Discussions
    The next step is to prepare the audit summary and discuss the same with the concerned persons.
  • Submission of Secretarial Audit Report
    The final step is the submission of the report by the secretarial auditor 

Process Reporting Qualification in the Secretarial Audit Report

During the preparation Secretarial Audit report, the auditor can point out where there is non compliance of the required laws in Bold type or Italics. in case the auditor is unable to express an opinion on any matter he can specify the same, stating the reasons thereof. 

The auditor should provide all the limitations in the report and the reason why he cannot give an opinion on the same Further, the Board of Directors (BoDs) of the company shall mention all the remarks of the auditor in the resolution.

Penalty for Fraud and False Statement

The Companies Act 2013 provides the penal provisions related to committing fraud and giving a false statement. The penal provisions are given below – 

  • Section 447

This section states that if any person is found to commit fraud shall be liable for a minimum imprisonment of 6 months which may extend to 10 years, along with a fine which can be thrice the amount of the fraud committed. 

In relation to the affairs of the company, fraud can be defined as the commission of any illegal act or omission of any legal act, abuse of position, concealment of fact with the intention to deceive, gain undue advantage or hamper the interests of the shareholder or creditors of the company or any other individual irrespective of the fact that there is a wrongful loss or wrongful gain.

  • Section 448&

This section deals with the penalty for false statements. The section provides that if in any report, certificate, return, financial statement, prospectus, statement or other document required by, or for any of the provisions of this Act or the rules made there under, anyone makes any

  •  false false statement about any material particulars, knowing it to be false; 
  •  a statement that omits any material fact, knowing it to be material

Why Dreamunicus?

We at Dreamunicus have trained professionals to help you throughout the Secretarial Audit procedure. Our Experts will guide and assist you in whole process of Audit and related services and also ensures the timely and effective completion of your work. For any queries related to Secretarial Audit and related services, feel free to contact our experienced and trained professionals at Corpbiz.

Frequently Asked Questions (Faq)

Only members of the Institute of Company Secretaries of India having COP (Certificate of Practice) can conduct an Audit and submit the Report in Form MR-3.

Mandatory Provision-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 crores or more.
  • Every company having a borrowing of 100 crores or more.

Voluntary Provision-Companies which are not covered under section 204 may obtain a Secretarial Audit Report voluntarily as it provides an independent undertaking of the compliances in the company.

The Secretarial Audit should be carried out-

  • Periodically,
  • Quarterly,
  • Half-year and,
  • Annually.

In case of any adverse finding, it is reported on an interim basis to the Board immediately. The Report must be annexed with the Board and submitted before the preparation of the Board’s Report.

A secretarial Audit Report is required to be provided in the format laid down in Form MR-3.

Yes, Fiscal laws like tax laws, Customs Act, etc needs to be examined while conducting a secretarial audit.

Presently, The authority (ICSI) has not placed any limitation on the number of Secretarial audits conducted by a Practicing Company Secretary in a financial year.

There is no requisite for peer review of Secretarial Auditors.

Sign the Secretarial Audit Report:

  • The Report should be signed by the Secretarial Auditor who has conducted the Secretarial Audit.
  • In case the audit is conducted by the firm of Company Secretaries, then by the partner under whose governance the Audit was conducted.

Also, while signing the Report, the practising Company Secretary should ensure that he holds the valid certificate of practice number.

The Secretarial Auditor is required to be appointed through a resolution passed at a duly convened Board meeting. However, it is recommended for Secretarial Auditor to get the letter of engagement from the company.

Skills required for conducting the Secretarial Audit process:

  • Knowledge
  • Team
  • Documentation and Backup
  • Reliance upon management representation
  • Complying with the timelines
  • Impartial Behaviour
  • Maintaining the Audit records

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Shams W.Pawel Founder & CEO of XpeedStudio

Behind the word mountains, far from the countries Vokalia and Consonantia, there live the blind texts. Separated they live in Bookmarks grove right at the coast

Shams W.Pawel Founder & CEO of XpeedStudio

Behind the word mountains, far from the countries Vokalia and Consonantia, there live the blind texts. Separated they live in Bookmarks grove right at the coast

Shams W.Pawel Founder & CEO of XpeedStudio

Behind the word mountains, far from the countries Vokalia and Consonantia, there live the blind texts. Separated they live in Bookmarks grove right at the coast

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