What is Secretarial Audit in India?

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Secretarial Audit


An audit is not always about accounting or financial records. Secretarial Audit is a proper process to check compliances and verification of documents, efficiency, and data of a company by individual specialists to ensure that the company has complied with the legal as well as procedural necessities and also followed due process of law. Secretarial Audit is a process to monitor compliance with the requirements of stated laws and procedures.

What is Secretarial Audit in India?

A Secretarial Audit is a mechanism to keep a check on the various compliance of an organization to the laws, rules, regulations, notifications, etc., required at the time of the Audit. Secretarial Audit is to check if the company has been fulfilling the provisions of the Companies Act 2013 and all of its rule within.

The rules and regulations about the companies are very multifaceted and ever-increasing. The accountabilities of the directors, promoters, and other decision-making positions are also very complex and critical. So a Practicing Company Secretary (PCS) must be hired to conduct a secretarial audit for that company.



What is the Scope of Secretarial Audit?

The scope of Secretarial Audit consists of verification of various compliances under the following enactments-
  •       The Companies Act,1956;
  •       The Securities Contracts (Regulation) Act, 1956;
  •       The Depositories Act, 1996 and the Regulations;
  •       Foreign Exchange Management Act, 1999;
  •       The Securities and Exchange Board of India Act, which among other things;

a.  The Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009;
b.   The Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011;
c.   The Securities and Exchange Board of India (Buyback of Securities) Regulations, 1998;
The Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 1992;
d.   The Securities and Exchange Board of India (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999;
e.     The Securities and Exchange Board of India (Issue and Listing of Debt Securities) Regulations, 2008;
f.  The Securities and Exchange Board of India (Delisting of Equity Shares) Regulations, 2009
  •        The Listing Agreement that is entered by the Company with Stock Exchange;
  •       Corporate Governance Voluntary Guidelines, 2009;
  •       Corporate Social Responsibility Voluntary Guidelines, 2009;
  •       Governance for Central Public Sector Enterprises, 2010 guidelines;
  •      Corporate Governance Guidelines for Insurance Companies, published by IRDA in case of companies regulated by IRDA.

What are the objectives of the Secretarial Audit?

The objectives of the Secretarial Audit are as follows-

Secretarial Audit

What is the applicability of the Secretarial Audit?


Under section 204(1) of Companies Act 2013. The auditor regulates scope, procedure, applicability, etc. associated to Secretarial Audit. Therefore, it is necessary to conduct  Audit for the following companies:
·         Listed Company
  •       Unlisted Public Company having paid-up capital above INR 50 Crore
  •       Unlisted Public Company having a turnover above INR 250 Crore
  •       Private Company that is a subordinate of any unlisted public company with:

1.       paid-up above INR 50 Crore
2.      turnover above INR 250 Crore

What are The Advantages of a Secretarial Audit?

The secretarial Audit is required due to the following advantages:-
·       To ensure the active working of the place to observe compliance and non-compliance by any company;
·       Self-assurance of directors, employee, creditors, stakeholders and management in the working of the firm;
·      The Auditor safeguards legal proceedings so that management can concentrate on other important matters;
·       The acquiescent company enjoys the advantage of the goodwill of the auditor;
·        Investors also has a fair idea about the level of compliance the corporation does to be guaranteed that their money is in safer hands.

What is the Application of Secretarial Audit in various sectors?

The various sectors are-

·         For Listed Entities-

It is compulsory for every listed entites done by SEBI need to get a Secretarial Audit. Such companies shall get themselves audited by PCS/PCA. During the process of Audit, PCS shall reconcile the CDSL/NSDL details along with shares held

·         For Central Public Sector-

Ministry of heavy enterprise and public enterprise has prepared it compulsory for corporate governance of CPS undertakings.

·         For Banks-

RBI commends due diligence for banks and they shall obtain a certificate from practicing professionals stating the level of compliances.

·         For Unlisted public or private company-

These Company gets audited once a year. They are also required to submit a report to Registrar of Company that is given by the practicing professional.


What is The Procedure for Secretarial Audit?

The following are the steps in that can be followed by an auditor while conducting Audit:-
  •  Deliberate with management regarding the opportunity of its work and professional fees to be kept in mind for the conduct of  any such Audits;
  • Once the principal objects are established, documentation of scope and activities to be carried shall be listed;
  • After the conversation and confirming the PCS, the company will issue an engagement letter containing the terms and condition of his selection
  • PCS should plan forward of the process for Audit like areas of laws that has to be covered and then fix a date of visiting for conducting the audit, required months or days to be taken to complete Audit;
  • Jotting down the entire observations and Conducting the Audit and and finding made during the Audit.
  • Once the Audit is completed, PCS shall succumb the final Audit report in format MR-3 duly signed and stamped by CS in Practice


Who are Secretarial Auditor in a firm?

Under section 204(1) states that a Secretarial Audit can be accompanied only by Secretarial Auditor who is a participant of Institute of Company Secretary India holding a valid certificate of practice that can be Practicing Company Secretary is only allowed to be appointed as a Secretarial Auditor for any firm.
Board Resolution needs to be passed through duly conducted Board Meeting for the approval of the appointment of Auditor and its terms of selection. Resolution for such a selection shall be filed with Registrar of Company through filing e-form MGT-14 within 30 days of nomination.

Secretarial Audit  is advisable for the company to be agreeable to assign the Secretarial Auditor when the fiscal year begins so that the selected Auditor can confirm the company through the year. Once the Audit is finished, Secretarial Auditor should give its report in the approved format of Form No. MR-3 to be annexed with the report.

Conclusion

An audit is not always about accounting or financial records. Secretarial Audit is a proper process to check compliances and verification of documents, efficiency, and data of a company by individual specialists to ensure that the company has complied with the legal as well as procedural necessities and also followed due process of law. Secretarial Audit is a process to monitor compliance with the requirements of stated laws and procedures. In case of any query, contact Corpbiz.

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