Compliance Check – Secretarial Audit

A Secretarial Audit is done to check the compliance of different legislations (like the Companies Act) and other economic and corporate laws, rules and procedures applicable to an organization.

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The process of secretarial audit is an instrument for compliance that is a feature of a complete compliance management system in any institution or organization. The secretarial audit is a constructive tool to check and maintain compliance with the provisions of various rules and regulations, laws, procedures and other accounting material. Independent professionals audit corporations, detect non-compliance and then suggest corrective measures.

The compliance officer makes sure that the legal method requirements are fulfilled, and that the standard due process is followed through a secretarial audit. It is significantly a mechanism to check adherence with the needful stated laws.

Benefits of Secretarial Audit

Compliance With Laws and Regulations: The most significant benefit of a secretarial audit is that it ensures compliance with laws and regulations. The audit helps companies identify and address any non-compliance issues, thereby avoiding legal and financial penalties.

Improved Internal Controls: Secretarial audit helps companies to improve their internal controls and processes. The audit identifies gaps and discrepancies in the company’s processes and procedures and provides recommendations on how to improve them.

Increased Transparency: Secretarial audit promotes transparency by ensuring that the company’s books and records are accurate and up-to-date. This, in turn, increases investor confidence and enhances the company’s reputation.

Reduced Risk of Fraud and Errors: Secretarial audit helps companies to reduce the risk of fraud and errors. By improving their internal controls and processes, companies can prevent fraudulent activities and errors from occurring.

Better Decision-Making: Secretarial audit provides valuable insights into a company’s operations, which can help management to make better decisions. The audit highlights areas that need improvement, enabling the company to focus its resources on the most critical areas.

Applicability of Secretarial Audit

Secretarial Audit is a mandate for the below-mentioned companies. Also, these companies are required to prepare Secretarial Audit Reports.

  • Every Listed Company
  • Every public company has a paid-up share capital of 50 crores or more.
  • A public company has a turnover of more than Rs. 250 crores or more.
  • Every company has a borrowing of 100 crores or more.

Appointment of Secretarial Auditor

Secretarial Audits and Reports can only be conducted by ICSI members with a certificate of practice.

A secretarial auditor must be appointed by a board resolution, according to rule 8 of the Companies (Meetings of Board and its Powers) Rules, 2014. Within 30 days of passing the resolution, it must be filed with the Registrar in e-form MGT14. 

It is suggested that a Secretarial Auditor be hired at the start of the fiscal year. The Secretarial Auditor can provide the Board with quarterly reports on compliance with numerous laws and regulations.

Scope of Secretarial Audit

  • Reporting on the compliance of five laws as mentioned in form MR-3:
  • Companies Act, 2013 and the rules made thereunder;
  • Securities Contracts (Regulation) Act, 1956 (‘SCRA’), and the rules made thereunder;
  • Depositories Act, 1996, and the rules made thereunder;
  • Foreign Exchange Management Act, 1999 and the rules and regulations made thereunder to the extent of Foreign Direct Investment, Overseas Direct Investment, and External Commercial Borrowings;
  • Regulations and Guidelines prescribed under the Securities and Exchange Board of India Act, 1992 (‘SEBI Act’)
  • Reporting on the compliance of secretarial standards issued by the Institute of Company Secretaries of India;
  • Reporting on Compliances with the Listing Agreement;
  • Reporting on compliance of ‘Other laws as may apply specifically to the company which shall include all the laws which apply to specific industry for example for Banks- all laws applicable to the Banking Industry; for insurance company-all laws applicable to the insurance industry; likewise for a company in petroleum sector- all laws applicable to petroleum industry; similarly for companies in the pharmaceutical sector, cement industry etc.
  • Examines and reports regarding the adequacy and efficiency of the systems and processes with other laws.
  • Monitor and ensure compliance with general laws like labour laws, competition laws, and environmental laws.
  • Examines and reports on the specific observations or qualifications, reservations or adverse remarks in respect of the Board Structures/system and processes relating to the Audit period.
  • Secretarial Auditors may rely on reports given by statutory auditors or other designated professionals to check compliance with other laws like Income Tax, Customs, GST

Specific Laws governing Secretarial Audit Reports

In terms of the Secretarial Audit report, the Secretarial Auditor needs to examine and report compliance with the following Laws-

  • The Companies Act, 2013 (the Act) and the Rules made there under,
  • The SEBI (Registrars to an Issue and Share Transfer Agents) Regulations, 1993 regarding the Companies Act and dealing with the client;
  • The following Regulations and Guidelines are prescribed under the Securities and Exchange Board of India Act, 1992 (‘SEBI Act’)
  • The Securities Contracts (Regulation) Act, 1956 (‘SCRA’) and the Rules made there under,
  • The Depositories Act, 1996 and the Regulations and Byelaws framed there under,
  • Foreign Exchange Management Act, 1999 and the rules and regulations made there under to the extent of Foreign Direct Investment, Overseas Direct Investment and External Commercial Borrowings,
  • The SEBI (Issue and Listing of Debt Securities) Regulations, 2008;
  • The SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011;
  • The Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 1992/ SEBI (Prohibition of Insider Trading) Regulations, 2015;
  • The Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009;
  • The Securities and Exchange Board of India (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999/ SEBI (Share Based Employee Benefits) Regulations, 2014;
  • The Securities and Exchange Board of India (Delisting of Equity Shares) Regulations, 2009; and
  • The Securities and Exchange Board of India (Buyback of Securities) Regulations, 1998;
  • SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015.

Documents are required for Secretarial Audit?

  • Charter Documents and Statutory Registers;
  • Board and General Meeting Minutes & Notices;
  • Last year’s Secretarial Audit Report and Audited financial statements;
  • If the company is listed- as ROC;
  • Filings & Intimations, Advertisements;
  • Stock Exchanges, Newspaper;
  • Lease Deed, Bonds, Annual Performance Reports, and other returns;
  • If there is a foreign investment then filings with RBI and other statutory departments are needed;
  • Registers that are maintained as per Labour Laws;
  • Statement and Admission for code of conduct received from the directors;
  • Sitting fees and remuneration details paid to directors;
  • Particulars of CSR amount;
  • SAST Disclosures;
  • Details of Bank account regarding dividend;
  • If there are any foreign borrowings in the company the details of ECB Returns are required.

Procedure for carrying out secretarial audit & How we can assist?

The following procedure has to be utilised for carrying out the secretarial audit in India:

  • Appointment of Company Secretary: Under Rule 8 of the Companies (Meetings of the Board) Rules 2014, the company is required to conduct a board meeting and pass the resolution related to the appointment of a secretary auditor.
  • Formal Communication regarding this: The appointment of the secretary auditor is supposed to be formally communicated to the individual carrying out the audit. This would be formally carried out by receiving a letter of engagement from the company.
  • Signing the Letter of Engagement: Once the auditor is appointed, the letter of engagement has to be signed to ensure that duties and responsibilities are carried out in the performance of audit functions.
  • Preparing Working Papers Report: This step would include any reports related to secretarial audits which are carried out by a company. Such summary related to secretarial audit would be carried out by the individual appointed as a secretarial auditor.

We can ensure that these documents comply with applicable laws and regulations and that they accurately reflect the company’s operations.

  • Submission of Audit Report: In the last step, the report has to be submitted per the requirements of the Companies Act, 2013. When carrying out the submission of the report, a thorough analysis has to be carried out by a secretarial auditor. With this analysis, some form of remarks related to the report must be provided. Such remarks have to be made in the report itself. As the audit is carried out by an independent party, the report must be unbiased. This report must be in the form of an opinion.

We can conduct a legal due diligence exercise to identify any potential legal risks or liabilities that the company may face. This could involve reviewing contracts, conducting interviews with key stakeholders, and examining legal records.

  • Not Providing Opinion: If the work carried out by the auditor is hampered and not able to perform functions due to limitations imposed by the company, then such limitations must be highlighted in the report related to the secretary audit. A remark has to be made that carrying out compliance in restricted areas cannot be performed. If such opinions or remarks are present in the report, then the Board of Directors must explain the same.

We can assess whether the company is complying with legal requirements in areas such as corporate governance, labour laws, environmental laws, and tax laws. We identify any areas where the company may be non-compliant and recommend corrective action.


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