A Secretarial Audit is an audit in which the Secretarial Auditor expresses an opinion as to whether the organization has sufficient structures and procedures proportionate to the size and activities of the company in order to track and validate compliance with the rules, legislation, regulations and guidelines in effect.
Also, a Secretarial Audit is a method by an independent practicing company secretary to verify compliance by an independent practicing company secretary with the rules of different laws and regulations/regulations/procedures, management of books, documents, etc., to ensure that the company has complied with the legal and procedural requirements and has followed proper processes. In essence, it is a system for monitoring compliance with the requirements of the laws and processes mentioned. This allows the organization to deduct any non-compliance that happens. Section 204 of the Companies Act, 2013 and the Listing Regulations enable such companies to carry out a secretarial audit of their companies. Below are the main characteristics of the Secretarial Audit, which are as follows:
- It helps to understand the incidence of non-compliance and makes it easier to take corrective steps.
- It audits the company’s observance of good business practices.
- It is an independent mechanism designed to add value and strengthen the company’s operations.
- It helps to achieve the goals of the organization by taking a systematic, constructive approach to evaluating risk management, control, and governance processes and their possible effectiveness.
- It provides management, regulators, and stakeholders with the required comfort in terms of regulatory enforcement, good governance, and the presence of adequate and proper structures and processes.
Below, the goals of the Secretarial Audit are described as follows:
- Verification and documentation in compliance with relevant laws and Secretarial Standards;
- Indicating non-compliance and insufficient compliance;
- To protect the rights of different stakeholders, such as clients, workers, community, etc.
- To stop any unjustified lawsuits/penalties from law enforcement officers and other individuals as well.
Secretarial Audit for all Listed Companies
The Securities and Exchange Board of India (SEBI) has addressed all listed companies to subject themselves to a secretarial audit initiated by a professional accountant or company secretary. The step is aimed at reconciling the total shares held in CSDL, NSDL, and in physical form with the companies’ admitted, released, and listed stock. SEBI also requested firms, after this audit, to send a quarterly audit report back to the stock exchanges where their original shares are listed. Any discrepancies found must be delivered immediately to the attention of the SEBI and the depositories.
Secretarial Audit for every Public Unlisted Companies
Every Public Unlisted Company is required to conduct auditing by knowledgeable preferably, Company Secretaries India as long as Any notice is delivered from ROC or the other authority. Such an audit comments and presents the Auditor’s view on the proceedings of the corporate, also it states whether the corporate has complied with all the provisions of Companies Act, 1956, SEBI and other relevant acts and presents its adverse comments on an equivalent if any.
Secretarial Audit for private ltd companies
Every private company is required to conduct auditing by knowledgeable preferably, Company Secretary on yearly basis. Such an audit comments and presents the Auditor’s view on the proceedings of the corporate, also it states whether the corporate has complied with all the provisions of Companies Act, 1956, SEBI and other relevant acts and presents its adverse comments on an equivalent if any.
Secretarial Audit-Central Public Sector Conducting Corporate Governance Audit
The Ministry of Heavy Industries and Public Enterprise has drawn up guidelines for Central Public Sector Companies on corporate governance. Via a consultation process where the stakeholders participated, these guidelines have evolved. These guidelines confine the view of the provisions to the legislation, rules and instructions in question. These corporate governance guidelines are designed with the aim of upholding the rules in their activity by the Central Public Sector Enterprises. The rights of shareholders and related stakeholders will be covered by the proper implementation of those guidelines.
Due Diligence report for Banks- Public and personal Limited Companies as per RBI Compliance
The Federal Reserve Bank of India vid it’s circular no. DBOD NO. BP. BC.46/08.12.001/2008-09 dated September 19, 2008, advised all to scheduled commercial banks(excluding RRBs and LABs) to get a regular certificate by professional, preferably by a corporation Secretary, regarding the compliance of varied statutory prescription that is as per specimen given ion the notification.
In respect of matters set out in RBI Circular No., the practicing Company Secretary is required to certify compliance. NO. BP. Dated 19 September 2008, BC.46/08.12.001/2008-09. Paragraph 2(iii) of the RBI Circular provides that the Due Diligence Report is to be drawn up in the format set out in Annex III. The format was later updated and simplified by the RBI.
Stock Brokers Audit
SEBI (Security and Exchange Board of India) vide it’s Circular Number 20091016-5 as of 16th October 2009 has directed to hold out complete Internal Audit on the half-yearly basis by chartered accountants, Company Secretaries India and price and management accountant who are in practice and who don’t have any conflict of interest. To make the audit effective certain additional areas like provisions concerning the Prevention of cash Laundering Act, Investor Grievances, Handling Mechanism, Power of Attorney received from investors, the status of compliance of last audit/inspection are to be included.
Rule 9 of the Companies (Appointment and Remuneration of Managerial Personnel) Regulations, 2014, read in compliance with section 204 of the Companies Act, 2013:-
Any public company with a share capital payment of fifty crore rupees or more.
Any government business with a turnover of two hundred and fifty crore rupees or more
Any enterprise with unpaid loans or borrowings of one hundred crore rupees or more from banks or public financial institutions.
A secretarial audit report, issued in practice by the company secretary, shall be annexed to the report of its Board in Form No. MR-3’s. In its report, the Board of Directors shall thoroughly clarify any qualifications or findings or other adverse remarks [based on the common ‘Comply or Explain’ doctrine] made in effect by the company secretary in its secretarial audit report.
An efficient process for ensuring consistency with legal and procedural requirements
Provides the directors & Main Management Staff etc. with a degree of trust.
The Secretarial Audit guarantees legal and procedural standards so that managers can focus on critical business issues.
Strengthen a company’s goodwill for its regulators and stakeholders.
Secretarial Audit is an important risk control mechanism for governance and compliance.
It allows the investor to analyze the degree of company compliance, thereby increasing the credibility of the company.
Reporting on the agreement of 5 laws as specified in form MR-3:
Companies Act, 2013 and therefore the rules made thereunder.
Securities Contracts (Regulation) Act, 1956 (‘SCRA’), and therefore the rules made thereunder.
Depositories Act, 1996, and therefore the rules made thereunder.
Foreign Exchange Management Act, 1999 and therefore the rules and regulations made thereunder to the extent of Foreign Direct Investment, Overseas Direct Investment, and External Commercial Borrowings.
The Securities and Exchange Board of India Act, 1992 (‘SEBI Act’) Regulations and Guidelines.
Reporting issued by the Institute of Company Secretaries of India on the conformity of secretarial standards.
Reporting on Compliances with the Listing Agreement.
Reporting on compliance with ‘Other laws as may also be directly applied to the corporation, including all laws applicable to particular sectors, for example for banks-all laws applicable to the banking industry; for insurance companies-all laws applicable to the insurance industry; as well as for a petroleum corporation-all laws applicable to the petroleum industry.
Checks and reports with other legislation on the adequacy and efficacy of the programs and processes.
Monitor and ensure compliance with general laws like labor laws, competition laws, environmental laws.
Examines and reports on the precise observations or qualification, reservation, or adverse remarks in respect of the Board Structures/system and processes concerning the Audit period.
Secretarial Auditor may believe reports given by statutory auditors or other designated professionals to see compliance with other laws like tax, Customs, GST.
Secretarial Audit Report from last year
Registers of the Statutory
Minutes & Notices from the Board and General Meeting
Account statements that are audited
Filings & Intimations with Business Registrar, Stock Exchanges, Newspaper Ads (if Listed)
Year-end Performance of Lease Deed, LUT cum Bond, Annual Results Reports, Softex returns
Filings with other departments of the statute
Filings for RBI (If there is a foreign investment)
Returns by ECB (if there are foreign borrowings in the company)
Registers preserved under Labor Legislation
Disclosures and Code of Conduct Statements issued from the directors
Fees for sitting and details of remuneration charged to directors
Evidence of spending the sum of CSR
Bank Dividend Account Info
In this step, in order to obtain a general overview of operations, the auditor gathers specific information about the organization.
Identifying reach and targets
In a formal meeting with management, the Secretarial Auditor outlines the nature and goals of the review and collects information on critical procedures, reviews the existing controls, and schedules the audit measures.
Getting a formal letter of commitment
The Management’s formal letter of engagement shall be given to the Auditor. The nature and priorities of the audit are communicated in this letter. PCS will then forward to the organization a preliminary checklist that will assist the auditor to learn more about the company under audit.
Meeting with teams or persons included
Top management and any administrative personnel that may be involved in the audit should be present at the opening meeting.
Preparation of Audit program
This schedule details the fieldwork required to achieve the goals of the audit. In order to collect and interpret information about the activities of the organization, the auditor will use a range of methods and techniques. The controls analysis lets the auditor define the areas of greatest risk and design checks to be carried out in the fieldwork section.
Preparation of Working Papers
A critical instrument of the audit profession is working papers. They support the judgment of the audit. They link the documents and financials of the management to the opinion of the auditor. They are thorough and fill in several positions.
Observations or Analyses with Management
Detailed remarks detailing the results and proposed suggestions are compiled and introduced for initial discussions with management in order to include their insights.
Audit results overview and subsequent discussions
Upon completion of fieldwork, the auditor shall summarize, in the form of an audit report, the audit results, conclusions, and recommendations required.
Report on Secretarial Audit
The auditor shall prepare a final report on the basis of fieldwork and working papers in order to present audit findings and, where appropriate, to review suggestions for improvement. The final report, with or without qualifications, is to be issued.
Follow up in order to be taken
Finally, the Secretarial Auditor can order the Company to list the actions taken by the Company to address the findings of the audit report, even after the audit process.
25-Mar-2020: Secretarial Audit of more unlisted firms to come under
With effect from 1 April 2020, the secretarial audit will cover all unlisted companies/private enterprises with unpaid loans in excess of Rs 1 billion or more. Such businesses will, without fail, have to apply the results of the mandatory audit to the MCA.
20-Mar-2020: ICSI Sets New Criteria for Secretarial Audit
New guidelines for Secretarial Auditing Standards have been issued by the Institute of Company Secretaries India (ICSI) for the coming financial year. This is in accordance with the audit requirements referred to in the Companies Act, 2013, Section 204.
- The punishment for false statements is discussed in Section 448 of the Companies Act 2013. The section provides that if any person makes a statement 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 wrong, believing it to be false in any material details.
- Where any material evidence is omitted, knowing that it is material, he is liable under section 447.
- Punishment for fraud is addressed in section 447
- A PCS is responsible for attracting criminal provision under Terms of Section 448 if it makes a declaration in the Secretarial Audit Report that any material data is false, knowing that it is false or omitting any material fact that it is material.
What is meant by Secretarial Audit?
A Secretarial Audit is a tool for checking an organization’s compliance with the rules, legislation, regulations, notices, etc. that are prevalent at the time of the audit. In this situation, it is important to verify whether a company has complied with the provisions of the Companies Act 2013 and all of its rules.
Who can be named as the auditor for the secretariat?
Members of the Institute of Company Secretaries of India who hold a certificate of practice certifying that they are performing a secretarial audit can only perform a secretarial audit and provide the company or organization with a Secretarial Audit Report.
Why is there a need for a secretarial audit?
The operation of a corporation is regulated by several laws, guidelines, regulations, statutes, etc. A secretarial auditor is required and compliance with such laws must be handled to protect the interests of the shareholder and to prevent any legal proceedings against the company.
Who can do a Secretarial Audit?
Only members of the Institute of Company Secretaries of India holding a Certificate of Practice can conduct a Secretariat Audit and submit a Management Report on Form MR-3.
What if the Secretarial Audit does not take place?
If any representative of the company, the company itself, or the secretary of the company involved is found to be in violation of the provisions set out in the foregoing section, the official, company or secretary of the company concerned shall be liable for punishment. With a fine beginning from Rs one lakh, the penalty will be added and may even be extended to Rs 5 lakhs.
What is the Secretarial Audit Report format?
The Secretarial Audit Report must be submitted in the format stated in Form MR-3. ( Rule 9 Companies’ Laws (Appointment and Remuneration of Managerial Personnel), 2014).
Why is the Auditor Secretariat appointed?
Using a resolution passed at a properly held Board meeting, the Secretarial Auditor is expected to be named. However, it is recommended that the Secretarial Auditor receive the company’s letter of engagement.
If it is appropriate to review financial laws when performing secretarial audit?
Secretarial auditors can depend on reports submitted by statutory auditors or other designated professionals in the case of financial laws, such as tax laws and customs laws, etc.
Are there any restrictions to the number of secretarial audits?
As of now, ICSI has not set any cap on the number of audits that a Company Secretary in Practice will perform in one financial year.
Is there a peer review provision for Secretarial Auditors?
There is no peer review provision for Secretarial Auditors as of now.