Secretarial Audit

What is secretarial audit?

It is a compliance audit governed under section 204 of the companies Act,2013 read with Rule 9, which is conducted to check whether the company is following the applicable laws, rules, regulations. It is an independent verification process carried out by a Practicing Company Secretary (PCS) to ensure that the company has compiled- Corporate laws, SEBI regulations, Other applicable laws.

Applicability

  • To all listed companies
  • Public companies having paid up share capital of Rs 50 crore or more, or
  • Public companies with a turnover of Rs 250 crore or more
  • Private company with a turnover of Rs 250 crore or more.
  • Companies having outstanding loans/borrowings ≥ Rs 100 crore from banks/public financial institutions.

As per Regulation 24A of SEBI (Listing Obligations and Disclosure Requirement) Regulations, 2014, the Secretarial Audit is mandatory for listed entities and their material unlisted subsidiaries incorporated in India and shall annex the secretarial audit report given by the practicing company secretary with the annual report of the company.

Objective Of A Secretarial Audit

  • To verify compliance with the provisions of applicable laws, regulations, including the Companies Act, SEBI regulations, FEMA regulations, and other relevant statutes.
  • To assess the adequacy and effectiveness of governance practices within the organization, including the composition and functioning of the BOD, adherence to governance guidelines and ethical standards.
  • To evaluate the procedures and processes followed by the board of directors in discharging their duties and responsibilities.
  • To review the maintenance and accuracy of statutory registers, records, and filings required under company law, ensuring that they are up to date and complaint with legal requirement.
  • To detect instances of fraud, mismanagement, or irregularities within the organization by conducting a comprehensive review of corporate records, transaction, and governance practices.
  • By providing independent assurance on the company’s compliance and governance practices, fostering trust and credibility among investors, regulators, and other stakeholders.

Advantages

  • Better compliance of law leading to reduction in number frauds and consequent prosecutions.
  • Protecting the interest of stakeholders and strengthening their faith in the corporates.
  • Independent assurance and comfort to independent/non-executive/nominee directors that the affairs of the company have been conducted as per law.
  • Instilling professional discipline and self-regulation.
  • Reducing workload of regulators due to better and timely compliances.
  • Enhancing quality of services to investors.

Any qualifications in the report will immediately alert the investors.

Auditor

Must be Practicing Company Secretary (PCS).

Report Form

File Form MGT-14 within 30 days of appointment to ROC along with the resolution for appointment of secretarial auditor. Audit report is provided in form No. MR-3, which must be annexed to the Board’s report.

Penalty And Risk Of Secretarial Auditor

If a company or any officer of the company or the company secretary in practice, contravenes the provisions of section 204 of the Act, the company, every officer of the company or the company secretary in practice, who is in default, shall be liable to penalty of Rs2 lakh.

In case the PCS failed to comply with the provisions of section 143 is liable for a penalty:

  1. In case of listed company, be liable to a penalty of Rs 5 lakh; and
  2. In case of any other company, be liable to a penalty of Rs 1 lakh.
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