Secretarial Audit - An Overview

A secretarial audit is a part of the organization’s total compliance management system. The secretarial audit acts as an effective tool for corporate compliance management. Also, it benefits in detecting the noncompliance and to take the respective measures.

Secretarial Audit applicability is a process to check the company compliance with the provisions of many laws and rules or regulations or procedures, records, accounting, maintenance of books, etc. An independent professional can take control of the secretarial audit of the company. It is a procedure to make sure that the legal and procedural specifications are followed and observed. No matter what, the secretarial audit report applicability follows the due process. It is primarily a mechanism to monitor compliance concerning the requirements of stated laws.

Secretarial Audit Report

Secretarial audit report is filed by a company secretary to ensure that the company has complied with all the applicable laws, rules and regulations. It includes a comprehensive analysis of the company's compliance and governance processes, and can help identify potential risks and areas of improvement. The report also includes recommendations for any necessary improvements or corrective actions. It is mandatory for certain classes of companies in India to obtain a secretarial audit report, as required by the Companies Act, 2013.

Who can be appointed as Secretarial Auditor?

Members of the Institute of Company Secretaries of India, who are holding the certificate of practice which certifies to perform as a secretarial audit, can only conduct Secretarial Audit and provide with the secretarial audit report applicability to the Company or organization.

Secretarial Audit Applicability

The applicability of Secretarial Audit is as follows:

• Every listed company is required to conduct a secretarial audit of its records every year
• Any public business with a paid-up share capital of at least ₹50 crores or a yearly revenue of at least ₹250 crores is obligated to undergo an annual secretarial audit of its books
• Every private firm that has a paid-up share capital of at least ₹50 crores or a yearly revenue of at least ₹250 crores is obligated to conduct an annual secretarial audit of its books
• Every business that owes banks or other public financial institutions loans or borrowings totaling at least ₹100 crore is expected to undergo an annual secretarial audit of its books.

Documents Required for Secretarial Audit

• Charter Documents
• Last year Secretarial Audit Report
• Statutory Registers
• Board and General Meeting Minutes & Notices thereto
• Audited financial statements
• Filings & Intimations with Registrar of Companies, Stock Exchanges, Newspaper Advertisements (if Listed)
• Annual Performance Reports, Lease Deed, LUT cum Bond, softex returns
• Filings with other statutory departments
• Filings with RBI (If there is a foreign investment)
• ECB Returns (if there are foreign borrowings in the company)
• Registers maintained under Labour Laws
• Disclosures and Declaration for code of conduct received from the directors
• Sitting fees and Remuneration details paid to directors
• Proof of spending CSR amount
• SAST Disclosures
• Bank account details for dividend

Process Of Secretarial Audit

• Step 1: Prepare a checklist for the audit, which includes all the statutory and regulatory requirements to be complied with
• Step 2: Verify the compliance of the company with the checklist prepared
• Step 3: Management of the business is informed of the verification process' results and, if necessary, suggestions for corrective action
• Step 4: The company's management is expected to take necessary action to rectify any non-compliances identified in the audit report
• Step 5: The final step is to file the audit report with the relevant regulatory authorities.

Benefits of Secretarial Audit (Statutory or Forensic)

• Possessing a secretarial audit will help your organization have an effective mechanism with the legal and procedural requirements to make sure of the compliance handled.
• It helps in spreading a level of confidence to the directors & Key Management Personnel (KMP), etc.
• The company directors can concentrate on their important business matters and meeting only when the Secretarial Audit ensures legal and procedural requirements in a safer, better and audible way.
• Thereby, it helps to reduce the work of law enforcement authorities.
• By following this, it shows the right path to investors by showcasing your legal records.
• secretarial audit applicability is a productive governance and compliance risk management tool. It produces the result in a much better way.

Acts Under Secretarial Audit

Depositories Act, 1996

Labour, Fiscal, and Other laws are limited to the applicability of the Company

Companies Act, 2013

• Review of Charter Documents alterations if any and related compliances
• Share Capital and Debentures Rules - Compliance related to ICDR, Pre and Post Issue Compliances
• Borrowings - Borrowing Limit, Pre and Post Borrowing Compliances
• Public Deposit if any - Pre and Post Compliances
• Board and General Meetings - Notice, Agenda and Minutes
• Declaration and Payment of Dividend - Pre and Post Compliances
• Board of Directors - Appointment & Resignation
• Internal Audit and Internal Audit Report
• Auditor Appointment, Tenure of Appointment & Rotation
• CSR Compliances - Committee Formation, Limit of Contribution
• Related Party Transactions & its Compliances
• Inter Corporate Loan, Investments and Corporate Guarantee
• Buy-Back of Shares - Pre & Post Compliances
• Annual Return & Annual Compliances
• Member Register and Change in any Shareholding Pattern
• Secretarial Standards

Foreign Exchange Management Act

• Foreign Direct Investment
• Overseas Direct Investment
• External Commercial Borrowings

Securities And Exchange Board Of India Act, 1992

• The Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011
• The Securities and Exchange Board of India (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 (Registrars to an Issue and Share Transfer Agents) Regulations, 1993
• The Securities and Exchange Board of India (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999
• The Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015

Labour, Fiscal & Other Laws

• Factories Act, 1948
• Industrial Disputes Act, 1947
• The Payment of Wages Act, 1936
• The Minimum Wages Act, 1948
• Employees’ State Insurance Act, 1948
• The Employees’ Provident Fund and Miscellaneous Provisions Act, 1952
• The Payment of Bonus Act, 1965
• The Payment of Gratuity Act, 1972
• The Contract Labour(Regulation and Abolition)Act,1970
• The Maternity Benefit Act, 1961
• The Child Labour (Prohibition and Regulation Act), 1986
• The Employees’ Compensation Act, 1923
• The Apprentices Act, 1961
• Equal Remuneration Act, 1976
• The Employment Exchange (Compulsory Notification of Vacancies) Act, 1959
• The Environment (Protection) Act, 1986
• The Sexual Harassment Of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013
• The Water (Prevention & Control of Pollution)Act,1974
• The Air (Prevention & Control of Pollution) Act, 1981
• Tax deducted at Source
• Advance Tax
• GST
• Professional, Property & Dividend Tax

Services Provided Under Secretarial Audit

The secretarial audit checks compliance of various legislations including the Companies Act and other corporate and economic laws applicable to the company. A secretarial audit is a process to check the compliances made by a company under the Corporate Law and the other relevant laws, regulations, rules, and procedures, etc. It was enacted vide section 204 of the 2013 Companies Act. Under this, the regulators monitor the companies for compliances as needed by the stated laws and processes.

Every company must comply with government rules, regulations, and laws. Any non-adherence to the compliances can be dicey for the company. Organizations need to conduct a periodical examination of their work to point out the errors and to maintain a strong compliance mechanism system in any organization.

It is maintained that periodical inspections of the records give the Authority the exact information of the company’s compliance policy.

A detailed secretarial audit helps:

• To check reports on compliances.
• To protect the interest of employees, customers, society, etc.
• To avoid any unnecessary legal actions by the law enforcement agencies.
• To point out inadequate compliances and non-compliances.
• To ensure that the procedural and legal requirements are suitably complied and that is important for the image and the goodwill of any company.

Secretarial Audit Limit

In India, the Companies Act, 2013, requires certain companies to conduct a Secretarial Audit. The limit for Secretarial Audit is as follows:

• All listed companies and their Indian subsidiaries
• Public companies with a paid-up share capital of ₹50 crores or more
• Private companies with a paid-up share capital of ₹50 crores or more
• Companies with an annual turnover of ₹250 crores or more.

Therefore, if a company falls under any of the above categories, it is required to conduct a Secretarial Audit.

Scope of Secretarial Audit

The purview of a secretarial audit is the set of activities that the audit procedure covers. So fo them are discussed below:

• It includes the examination of the company's legal and regulatory compliance, corporate governance framework, secretarial and procedural compliances, and overall compliance with applicable laws and regulations
• The audit aims to ensure that the company is functioning within the framework of the law and that the interests of stakeholders, shareholders, and the public are protected
• A certified company secretary conducts the audit, evaluates the business' performance, and makes suggestions for strengthening compliance and governance.
• The scope of the audit may differ based on the size and nature of the company and the industry it operates in.

Features of Company Secretarial Audit

Company secretarial audit characteristics include:

• The main goal of a secretarial audit is to make sure that the organisation is in compliance with all applicable laws and regulations
• A company secretarial audit is an independent evaluation of the company's compliance with the law. This helps in providing an unbiased view of the company's operations
• A secretarial audit covers a broad range of areas, including company law, securities law, taxation, labor laws, and environmental laws
• The company secretary prepares a secretarial audit report that includes observations, qualifications, and recommendations.

Secretarial Audit Checklist

Here are some key items that are typically included in a secretarial audit checklist:

• Review of company registration documents
• Verification of the company's statutory registers
• Review of board and shareholder meeting minutes
• Review of director appointments and resignations
• Review of share capital and related transactions
• Compliance with Companies Act provisions
• Compliance with other applicable laws and regulations
• Filing of statutory returns and other documentation
• Examining transactions between linked parties
• Review of the business's policies and code of conduct
• Review of the company's risk management practices
• Review of the company's sustainability practices
• Review of the company's financial statements and related disclosures
• Verification of compliance with the company's internal controls and policies.

Beneficiaries of Secretarial Audit

• The board of directors, stockholders, management, governmental organisations, and other stakeholders of the business profit from secretarial investigations
• It helps to ensure that the company's operations are conducted in accordance with legal and regulatory requirements, minimise the risk of non-compliance, and improve corporate governance
• The audit report can also be useful for potential investors and creditors who can evaluate the company's compliance status and governance practices before investing or extending credit to the company.

Key Clauses Regarding Secretarial Audit

Important clauses relating to secretarial audit include some of the following:

• Every listed company and any public company with a paid-up share capital of ₹50 crores or more or a revenue of ₹250 crores or more is required to perform a secretarial audit under Section 204 of the Companies Act, 2013, according to the law
• The secretarial audit of the firm must be carried out by a company secretary
• The Companies Act of 2013 and other relevant laws, rules, regulations, and guidelines are evaluated for conformity as part of the secretarial audit's scope
• The secretarial audit report must be presented to the company's board of directors in Form MR—3 and must be attached to the board's report
• The board's report, the company's financial statements, and the secretarial audit report must all be submitted with the Registrar of Companies (ROC).

Objectives Of Secretarial Audit

• To make sure a business abides by the relevant laws, rules, regulations, and requirements
• To assess the efficacy of the company's entire governance structure in ensuring that the company's goals and objectives are met
• To guarantee that the company's board of directors and management adhere to accepted moral and ethical standards
• To evaluate and evaluate the company's internal control system and find any vulnerabilities or weak points
• To identify and address any instances of non-compliance or potential non-compliance with legal and regulatory requirements.

Eligibility Criteria for the Appointment of a Secretarial Auditor

• A member of the Institute of Company Secretaries of India (ICSI) is required for the secretarial auditor
• The secretarial auditor must have a certificate of practice (CoP) issued by the ICSI
• The secretarial auditor must have undergone training in secretarial audit conducted by the ICSI
• There cannot be any conflicts of interest between the secretarial auditor and the company under audit
• The secretarial auditor must have experience in handling secretarial matters of companies
• The secretarial auditor must not have been convicted of any offence involving moral turpitude
• The secretarial auditor must not have been found guilty of professional misconduct by the ICSI
• The secretarial auditor must have a good reputation and high professional standards
• The secretarial auditor must have the necessary infrastructure and resources to conduct the audit
• The secretarial auditor must comply with the ethical guidelines and standards set by the ICSI

Pre- Requisites for a Secretarial Audit

A corporate secretary must be chosen by the business.

• The company secretary must provide all the necessary documents and information required to conduct the audit
• The company secretary must provide access to all the books and records of the company, as well as to all the members of the board of directors, auditors, and officers of the company
• The company must ensure that the secretarial auditor is independent and has no conflicts of interest with the company.

Important Provisions Pertaining To Secretarial Audit

Some of the crucial clauses relating to secretarial audits include the following:

• Appointment of Secretarial Auditor: The board of directors of a corporation must hire a company secretary in practice to carry out a secretarial audit of the business
• Frequency of Audit: A single secretarial audit every fiscal year is required
• Compliance Report: The company's board of directors will receive a compliance report from the secretarial auditor, which will be attached to the Board's report.