Compliance Check – Secretarial Audit

Overview of Secretarial Audit

The Secretarial Audit is a process where a Secretarial Auditor checks whether the organization complies with applicable laws and regulations. Key features of Secretarial Audit include:

• Recognizing non-compliance events and facilitating corrective measures.
• Serving as proof that the company adheres to good corporate practices.
• Adding value and improving the company’s operations.
• Assisting in achieving the company’s objectives by systematically examining control, governance processes, and risk management effectiveness.
• Providing confidence to management, regulators, and stakeholders regarding statutory compliance, good governance, and proper systems and processes.

Applicability of Secretarial Audit

Secretarial Audit is mandatory for the following companies, which must also prepare a Secretarial Audit Report:

• Every listed company.
• Every public company with a paid-up share capital of ₹50 crore or more.
• Every public company with a turnover of more than ₹250 crore.
• Every company with borrowings of ₹100 crore or more.

Important Provisions Pertaining to Secretarial Audit

Key provisions include:

• Matters to be mentioned in the Audit.
• Compliance Certificate.
• Verification of documents and records.
• Crucial areas of the Secretarial Audit report under the Companies Act 2013.
• Crucial areas of the Secretarial Audit report under SEBI Rules and Regulations.
• Crucial areas of the Secretarial Audit report under other laws.
• Period of the Secretarial Audit.
• Disqualification criteria for Secretarial Auditors.
• Company assistance requirements.

Objectives of Secretarial Audit

Benefits of Secretarial Audit

Secretarial Audit offers several benefits:

• Acts as part of due diligence for potential acquirers or joint venture partners.
• Assures owners that the company’s management and affairs comply with provisions, protecting the owner’s stake.
• Promotes self-regulation and professional discipline.
• Ensures timely compliances.
• Enhances the company’s image among investors regarding legal records.

Beneficiaries of Secretarial Audit

Beneficiaries include:

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

Laws Specifically Mentioned in the Secretarial Audit Reports

The Secretarial Auditor examines and reports compliance with the following laws:

• The Companies Act, 2013, and the related rules.
• The SEBI (Registrars to an Issue and Share Transfer Agents) Regulations, 1993.
• Regulations and Guidelines under the Securities and Exchange Board of India Act, 1992.
• The Securities Contracts (Regulation) Act, 1956, and related rules.
• The Depositories Act, 1996, and related regulations and byelaws.
• The Foreign Exchange Management Act, 1999, concerning FDI, ODI, and ECBs.
• Various SEBI regulations regarding debt securities, substantial acquisition, insider trading, capital disclosure, employee benefits, delisting, buyback, and listing obligations.

Pre-Requisites for a Secretarial Audit

The prerequisites include:

• The Secretarial Audit Report should be prepared by a practicing Company Secretary.
• It should follow the Form MR-3 format.
• The report should be annexed to the Board Report by the company.

Eligibility Criteria for the Appointment of a Secretarial Auditor

Members of the Institute of Company Secretaries of India (ICSI) holding a valid certificate of practice are eligible to conduct a Secretarial Audit and prepare the Secretarial Audit Report.

Documents Required for Secretarial Audit

Required documents include:

• Charter documents and statutory registers.
• Board and general meeting minutes & notices.
• Last year’s Secretarial Audit Report and audited financial statements.
• ROC filings and intimations, advertisements (for listed companies).
• Stock exchange communications, newspaper ads.
• Lease deeds, bonds, annual performance reports, and other returns.
• Filings with RBI and other statutory departments for foreign investments.
• Registers maintained as per labor laws.
• Directors’ code of conduct statements and remuneration details.
• CSR amount particulars.
• SAST disclosures.
• Bank account details regarding dividends.
• ECB returns for foreign borrowings.

Procedure of the Secretarial Audit

The procedure includes:

1. Appointment of Secretarial Auditor via Board Meeting resolution.
2. Communication to the previous incumbent.
3. Acceptance of the appointment by the Secretarial Auditor.
4. Initial discussions about the company with the Secretarial Auditor.
5. Preliminary meeting to plan the audit.
6. Finalization of the audit plan and briefing the staff.
7. Testing, interviews, and analysis.
8. Preparation of the working report.
9. Audit summary discussions.
10. Submission of the Secretarial Audit Report.

Process Reporting Qualification in the Secretarial Audit Report

The auditor can highlight non-compliance in bold or italics and specify reasons for any inability to express an opinion. The Board of Directors must address all auditor remarks in their resolution.

Penalty for Fraud and False Statement

Penal provisions under the Companies Act 2013 include:

• Section 447: Imprisonment of 6 months to 10 years and a fine up to three times the fraud amount.
• Section 448: Penalty for false statements, including fines and imprisonment for knowingly providing false or omitting material information.

How Corporate Raasta Consulting Helps Its Clients in Secretarial Audit

Corporate Raasta Consulting has a team of experts and experienced business advisors who assist and execute the entire Secretarial Audit. They offer:

• Comprehensive analysis of laws and accounts.
• Preparation and analysis of documents, reports, and statements.
• Ensuring compliance with Secretarial Standards and business procedures.
• Viewing audit services as an investment with medium to long-term benefits.

Why Choose Corporate Raasta Consulting?

Corporate Raasta Consulting’s trained professionals guide and assist you throughout the Secretarial Audit procedure, ensuring timely and effective completion of your audit and related services. For any queries related to Secretarial Audit and related services, contact our experienced professionals at Corporate Raasta Consulting.