Secretarial Audit

What is the procedure of a Secretarial Audit for a Public Company?

A Secretarial Audit secures non-financial aspects of the business impact on the Company’s performance and verifies compliance with applicable laws, regulations and guidelines.

The company secretary independently checks records, books, and documents and verifies whether it complies with the Company’s legal and procedural requirements and processes.

Therefore, it is an independent body intending to add value and improve the operational qualities of the Company. It helps to accomplish organisation prospects by bringing effective risk management and securing a governance process.

Thus, it provides necessary tools to the management, stakeholders and regulators.

Objectives:

• Ensure the Audit complies with various specified laws, regulations and legislation.
• Help to check with non-compliance of rules prescribed and facilitate taking corrective measures to avoid future problems.
• To assure the Company’s stakeholders that the compliances are being followed.
• Ensure that the companies have an operative compliance management team so they have a lesser chance of receiving penalties.

Applicability:

According to  the Companies Act, 2013^[1], read with rule 9 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, and applies to the following companies:

• Every listed Company
• Every public Company has a paid-up share capital of Rs. 50 crore or more.
• Every public Company has a turnover of Rs. 250 crores.
• Every Company has borrowings and outstanding loans from public financial institutions or banks exceeding Rs. 100 crores.
• The Companies must annex the Board’s Report in Form MR-3.

Appointment

• Members of the ICSI holding a certificate of practice can conduct or furnish a report.
• According to Rule 8 of the Companies (Meetings of Board and its Powers) Rules, 2014, an auditor is appointed through a board resolution. The board resolution has to file before the Registrar within 30 days of passing the resolution.
• An Auditor has to be appointed at the beginning of the financial year. The Auditor may submit quarterly reports to the Boards regarding compliance with laws, regulations and legislation.

Audit Report

The Audit Report must be prepared and reviewed by an appointed Company Secretary. It shall be prepared in Form MR and annexed with the Board’s Report of the Company.

SCOPE

Form MR-3 regulates five laws through which audits are conducted and prepared reports.

• Securities Contracts (Regulation) Act, 1956.
• Depositories Act, 1996.
• Foreign Exchange Management Act, 1999
• Securities and Exchange Board of India
• Overseas Direct Investment
•  Foreign Direct Investment
• External Commercial Borrowings.
• Companies Act, 2013.

Benefits

• A Secretarial audit can effectively assure the regulator and boost confidence amongst the shareholders, and the creditors in companies, which allows a company to effectively comply with the future risk and facilitate a compliance management programme.
• It forms a practical methodology to give effect to the legal and procedural requirements that are followed.
• The process of an Audit generates confidence among high-level officials and directors.
• The process of an audit ensures that the legal and procedural requirements have been complied with effectively.
• It is an effective due diligence exercise to give confidence to stakeholders and regulators in a company.
• It is a well-built governing management feature for enhancing corporate compliance.
• It helps the investor to make an informed investment decision that evaluates the Company’s governance norms being followed by the Company.

Procedure

The procedure for Secretarial Audit is mentioned below:-

Appointment

After passing a resolution as per rule 8 of companies Rules 2014, an auditor is appointed.

Communication

An Auditor is supposed to communicate formally with the Auditor and provide a letter of engagement.

Acceptance of Appointment

After the formal communication with Auditor about the appointment, the Auditor needs to give the assent of his appointment after signing his Letter of Engagement.

Discussion

The next step to be followed after acceptance of the letter of engagement is to discuss the Company’s management programme with the Auditor to learn about the company policies.

Preliminary Meeting

After the discussion with the Auditor, conduct a meeting to give a better structure to the audit plan and make plans accordingly.

Finalised the Audit plan

Generally, after discussing the audit plans, the next step is to follow to implement the audit plans and inform other staff about the same.

Analysis

Further, the next step is to do the testing interview and analyse the staff capabilities to implement the audit plan.

Preparation of Report

An Auditor must prepare the working report, including all the Company’s audit reports.

Audit Summary for Discussions

The next step is to prepare the audit summary and discuss the same with the concerned persons.

Submission of Secretarial Audit Report

The final step is the submission of the report to the secretarial Auditor.

Penalty

If a Company or the Company Secretary contravenes any provision of the Companies Act, 2013 or who is in default, they shall be liable to a penalty of two lakhs rupees under section 204 of the Companies Act, 2013

Conclusion

The secretarial Audit is an independent procedure that must be complied rules. However, it facilitates good practices amongst the members. To achieve Company’s prospects by developing a strategy and standardised approach to improve risk management, provide suitable governance mechanisms and helps to detect non-compliance and to take corrective measures.

However, public companies might adopt audit practices to maintain compliance systems and clear the risks associated with non-compliance mishaps. The corporate sector considers this audit system the most effective way to manage corporate rules and regulations, thereby taking preventive measures to protect the company’s record.

Read our Article: Secretarial Audit in India – Process & Benefits