Secretarial Audit
Shivang Goyal
Shivang Goyal is a Practicing Company Secretary,with over a decade of experience in the field of corporate law, his expertise lies in managing corporate actions and ensuring routine compliance for listed companies, making him a trusted professional in the domains of the Companies Act and Securities Law.
Shivang’s deep understanding of regulatory frameworks and his commitment to excellence have established him as a go-to expert for navigating complex corporate governance challenges.
Introduction:
A secretarial audit is a type of compliance audit that is a component of an organization’s overall compliance management. The secretarial audit is a valuable instrument for managing corporate compliance. It facilitates the identification of non-compliance and the implementation of remedial actions.
An independent professional conducts a secretarial audit to verify that the business has complied with legal and procedural requirements and that due process has been followed. The audit involves checking compliance with the provisions of various laws, rules, regulations, and procedures, as well as the maintenance of books, records, etc. It aids in achieving the organization’s goals by providing a methodical, disciplined strategy to assess and enhance the effectiveness of risk management, control, and governance procedures.
Applicability for Secretarial Audit:
According to Rule 9 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, in conjunction with Section 204 of the Companies Act, 2013,
The Board’s Report, prepared by Section 134, and the Secretarial Audit Report, provided by a practicing Company Secretary in Form MR-3, shall be appended for the following classes of companies:
Criteria | Applicability |
Every listed company | Applicable |
Public company with at least ₹50 crore in paid-up share capital | Applicable |
Public company with annual revenue of at least ₹250 crore | Applicable |
Any company with outstanding loans/borrowings of at least ₹100 crore from banks or FIs | Applicable |
Need for Secretarial Audit:
- An efficient system to guarantee proper compliance with legal and procedural standards.
- Provides directors and key managerial personnel with greater confidence.
- A Secretarial Audit ensures compliance with legal and procedural requirements, enabling directors to focus on key business issues.
- Enhances a company’s reputation and goodwill among stakeholders and authorities.
- A secretarial audit is a useful tool for risk management in governance and compliance.
Annual Secretarial Audit Report:
To comply with Regulation 24A of the SEBI (LODR) Regulations, 2015, the listed company and its unlisted material subsidiaries must continue to use Form No. MR-3 for secretarial audit reports, as mandated by the Companies Act, 2013, and the corresponding regulations.
In this context, a “material subsidiary” is defined as a subsidiary whose net worth or income in the previous accounting year exceeded ten percent of the consolidated net worth or income of the company and its subsidiaries, respectively.
Secretarial Audit Checklist:
- Statutory registers and records: Under the Companies Act of 2013, the auditor shall verify that the business has kept all statutory registers and records. Additionally, the auditor should verify that the entries made in the registers are current.
- Board and general meetings: By the Companies Act of 2013, the auditor should confirm that the business has conducted all the necessary board and general meetings. The auditor should also confirm that the meeting minutes have been kept up to date.
- Annual filings: In accordance with the Companies Act of 2013, the auditor should confirm that the business has submitted the required annual returns, financial statements, and other paperwork.
- Agreements and contracts: The auditor should confirm that the business has carried out all agreements and contracts in compliance with the 2013 Companies Act.
- Related party transactions: The auditor must confirm whether the business has engaged in any related party transactions and if the financial statements accurately reflect such transactions.
- Compliance with additional laws and regulations: The auditor should confirm that the business has complied with all relevant rules and regulations, including the GST Act and the Income Tax Act.
Documents required for Secretarial Audit:
- The Memorandum and Articles of Association (MOA and AOA), any applicable shareholder agreements, joint venture agreements, or other significant contracts or instruments.
- Submissions to the stock market, ROC, RBI, or other regulatory bodies.
- Prospectus and associated documents.
- Statement of Related Party Transactions by AS-18, with board or shareholder approval.
- A statement of deposits, investments, and borrowings.
- Every Statutory Record or Register.
- Financial statements, Directors’ reports, and Auditors’ reports.
- Declarations, agreements, newspaper articles, stock market disclosures, etc.
- Relevant rulings, letters, or approvals from regulatory bodies such the ROC, SEBI, or NCLT.
- Agenda, Minutes, Notices, and Attendance meeting registers.
- Oversight or guidance from the judiciary, the Quai judicial body, or regulators.
- Record the Board’s procedures and compliance dashboards.
Process of Secretarial Audit:
- Appointment of a secretarial auditor through a board meeting decision.
- The corporation should provide the secretarial auditor with a copy of the board resolution and a formal letter of appointment. The acceptance of the appointment should be confirmed in writing by the secretarial auditor.
- A general overview of the business is expected of the secretarial auditor. He might decide to use surveys to gather data about the business.
- The initial meeting with administrative personnel and senior management will provide a clear understanding of expectations and how audit operations should be conducted.
- Before the audit starts, a thorough checklist covering every facet of the secretarial audit should be created, and audit personnel should be adequately trained.
- The secretarial auditor will ascertain whether the controls found in the preliminary evaluation are functioning correctly and according to the company’s stated procedures.
- It is advised that the audit’s conclusions be compiled and given to management for early discussion to get their opinions, clarifications, and responses.
- The secretarial auditor will create the secretarial audit report in MR-3 after taking into account the management’s explanations and responses. Although the report is intended for the members, the Board must receive it.
Conclusion:
One important procedure that aids in guaranteeing adherence to company laws and regulations is a secretarial audit. The secretarial audit checklist facilitates a comprehensive assessment of the company’s compliance and outlines the essential elements of a secretarial audit. It increases stakeholder confidence, reduces risks, and promotes openness. The effectiveness of secretarial audits, which guarantee the sustainability and integrity of corporate entities, depends on the hiring of qualified personnel and the careful examination of necessary documentation.
For any clarifications or queries, please feel free to reach out to us at admin@fintracadvisors.com
Disclaimer
The content published on this blog is for informational purposes only. The opinions expressed here are solely those of the respective authors and do not necessarily reflect the views of Fintrac Advisors. No warranties are made regarding this information’s completeness, reliability, or accuracy. Any action taken based on the information presented in this blog is strictly at the reader’s own risk, and we will not be liable for any losses or damages resulting from its use. It is recommended that professional expertise be sought for such matters. External links on this blog may direct users to third-party sites beyond our control. We do not take responsibility for their nature, content, or availability.
