Secretarial Audit

A secretarial Audit is an audit of non-financial aspects of the company having an impact on the performance of the company. It improves the operations and adds value to them. It is a mechanism that is necessary for the management, regulators and stakeholders for checking compliance with applicable laws. The laws like the Companies Act, Securities law, FEMA, labour laws, Competition law and Environmental laws.

The Audit is mandatory under the Companies Act, 2013 for the Companies Act, 2013 for listed companies and other prescribed classes of companies. The limit of paid-up capital and turnover is provided under the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014.

Secretarial Audit Applicability 2022

As per the relevant section of the Companies Act, 2013 and Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 provides than every listed company and a company as prescribed under the act are:

• Each Public company with paid up capital of Rs. 50 crores or more, or
• Each Public company with turnover of Rs. 250 crores or more, or
• Every company with outstanding loans or borrowings from banks or public financial institutions of Rs. 100 crore or more

The Report of Form MR-3 is made by the Company Secretary in Practice in Annexure-A. The periodical audit helps in detecting non-compliances and taking corrective measures and avoiding risk. The report must provide the details of specific events occurred in the reporting period on the affairs of the company. The auditor must submit a certificate of eligibility for appointment as auditor.

Procedure for Appointment of Secretarial Auditor

As per the relevant provisions of the Companies Act, 2013 must be a person as given in the following points:

• An Auditor shall be a Company secretary in practice who is a member of the Institute of Company Secretaries of India
• He/she must have a Certificate of Practice for conducting an audit and furnishing an Audit Report to the company.

According to the Companies (Meetings of Board and its Powers) Rules, 2014, the appointment must be made in the following manner:

• The auditor must be appointed at the start of the year for checking the compliances on a continuous basis.
• Consent is obtained from the Secretarial Auditor
• A resolution should be passed in a convened board meeting of the company.
• The E-Form MGT-14 shall be filled with the Registrar of Companies with an attachment of the resolution passed in a board meeting.
• The remuneration of the auditor is fixed in the board meeting itself.
• A preliminary meeting is held with the auditor
• The meeting is upon the finalization of an audit plan
• The interview, analysis and testing of procedures.
• Preparation of working papers
• Discussions are based on the audit summary
• It is advisable to submit a quarterly report including the compliances made in various laws.
• As per the Secretarial Standards, a notice of the annual general meeting should be sent to every member, director, auditor and debenture trustee, if any.

Objectives for Carrying out Secretarial Audit

The main aim of conducting an audit is to evaluate and make an opinion for reporting to the shareholders about the compliances made by the company in regard to statutes, rules and guidelines about the compliance management system. The Company Secretary in practice must have the following qualities are listed below:

• Checking of Documents

  The professional has to keep records of documents and check in the audit and preparation of checklists.

• Unbiased

  The Company Secretary must be honest and impartial while performing the audit.

• Deadlines

  The process must be carried out with respect to the timelines and with expertise.

• Team-Building to secretarial audit

  The team of audit must be trained in the process with requirements and ethics. The updates must be communicated to the team by the leader.

• Knowledge and Understanding

  The exact knowledge of law and understanding of compliance systems, legal language, procedures and secretarial standards

• Collecting Evidence

  The independent checking by the authorities and verification process with statutory and internal auditors.

• Audit Diary

  The auditor maintains a diary with planning and executing and verifications by the team members and listed with audit trails conducted.

• Maintenance of Back-Up Papers

  The auditor must maintain an audit diary and papers like working papers, supporting documents and observations. The audit evidence for defending the misconduct for enquiry from regulators.

Secretarial Audit Checklist

The followings are the Acts and Rules covered under the audit report in Form MR-3:
1. Companies Act, 2013 and rules there under
2. Securities Contract (Regulation) Act, 1956 and rules there under
3. Depositories Act, 1996 and rules there under
4. Foreign Exchange Management Act, 1999, Foreign Direct Investment, External Commercial Borrowings and overseas direct investment.
5. Securities and Exchange Board of India Act, 1992 with the regulations prescribed are as follows:

• SEBI and (Substantial Acquisition of Shares and Takeovers) with Regulations, 2011
• SEBI and (Prohibition of Insider Trading) and its Regulations, 1992
• SEBI and (Issue of Capital and Disclosure Requirements) and its Regulations, 2009
• SEBI and (ESOS and ESPS) and its Guidelines, 1999
• SEBI and (Issue and Listing of Debt securities) and its Regulations, 2009
• SEBI and (Buyback of Securities) Regulations, 1998

6. Secretarial Audit Applicability 2021 in laws applicable to the company depending on the specific industry.
7. Secretarial Standards provided by the Institute of Company Secretaries of India
8. Listing Agreements between Stock Exchange and the company.

Compliances as per Companies Act, 2013

The compliance of maintenance of statutory registers, filing forms, and returns with ROC and following the provisions of Articles and Memorandum of Association.
The documents that should be checked are given as follows:

1. Register and Record

• Register of Members and Debenture Holders
• Minutes book of meetings, class meetings
• Register of Deposits, Investments, Charges and Contracts
• Books of Accounts and cost records
• Register of Directors, MD, secretary and manager in Secretarial Audit Companies Act, 2013
• Register of Shareholding of director
• Register of security given, investments, loans made, or guarantee provided
• Register of Directors and Shareholder’s attendance
• Register of Transfer
• Register of Fixed assets

2. Returns

• Annual Returns
• Financial Statements (Balance sheet and P & L A/c)
• Return of Allotment
• Change of Registered office
• Return of Appointment of MD/WTD/Manager
• Return of Deposits

3. Meetings

• Board Meeting
• Extraordinary General Meeting
• Annual General Meeting
• Committee Meeting
• Minutes of Meetings of the company
• Proof of dispatch of a notice to directors/members as per the Companies Act, 2013.

Penalty for Contravention

As per the Secretarial Audit Section 204 and provisions of the Companies Act, 2013 are as follows:

• Every company and officer or practicing company secretary in default is liable for a penalty of Rs. 2 lakhs.
• In case of a False or Incorrect Audit Report then Section 447 is applicable for a person found guilty and deals with punishment for fraud and the punishment is:
• Imprisonment for not less than six months which can extend to ten years
• The fine is not less than the amount involved in the fraud and can be extended to three times the amount involved in the fraud. The fraud can be found in related party transactions, excessive managerial remuneration, Insider Training.