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Why Secretarial Audit is Mandatory for Companies?

Narendra Kumar

| Updated: Aug 21, 2017 | Category: Secretarial Audit

Why Secretarial Audit is Mandatory

The secretarial audit is done in order to check the various compliances under the Companies Act 2013 and other applicable laws on the company.

Now we will discuss which companies are required to conduct a Secretarial Audit and who will conduct such Secretarial Audit in India.

Here are the following companies required to obtain a secretarial audit report from the secretarial auditor under Section 204 (1) of the Companies Act 2013 read with Rule 9 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules 2014:

  • Listed Company;
  • Public Company having paid up share capital of rupees 50 crores or more or having a turnover of rupees 250 crores or more.

Turnover implies an aggregate value of the realization of the amount of sale and supply or distribution of goods or services rendered by the company during the financial year.

The Secretarial Audit report shall be made in form MR 3 according to Rule 9 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules 2014.

Secretarial Report is required to be annexed to the board report for the companies falling under the criteria specified in section 204(1).

Companies other than the companies falling under the criteria specified under section 204(1) may also obtain the secretarial audit report voluntarily. 

Who can Conduct a Secretarial Audit?

A member of the Institute of Company Secretaries of India having Certificate of Practice can conduct the secretarial audit according to section 204(1) of the Companies Act 2013. The secretarial report shall be furnished in form MR 3 by the secretarial auditor of the company. An employed company secretary who is not in whole time practice cannot conduct a secretarial audit. There is no restriction on the number of audits that can be conducted by the company secretary in practice in one financial year.

Who is Required to sign a Secretarial Audit Report?

The report shall be signed by the secretarial auditor who is engaged in conducting a secretarial audit by the company whereas in the case of a firm it shall be signed by the partner under whose supervision audit has been conducted.

Appointment of secretarial auditor

The secretarial auditor is appointed by the company by passing a resolution in board meeting according to Rule 8 of the Companies (Meetings of the Board and its powers) Rules 2014. It is required for the secretarial auditor to obtain the letter of engagement from the company and formally accept the letter of engagement.

In the case of a change in secretarial auditor, it is required to be reported to the members of the board report.

Reporting of Fraud

In case during the course of audit secretarial auditor has reason to believe that there is offense involving fraud has been committed or in the case of an offense committed against the company by its employees/officers. Council has issued guidelines specifying the number of companies required to be audited by a company secretary in practice which will be effective taking up secretarial audit assignments for the year 2015-2016 onwards. Few suggestions have been received by the Institute on the number of companies to be audited.

Is Secretarial Audit Applicable to Private Companies?

According to section 2(71) of the companies act 2013, a public company is the one

  • Which is not a private company;
  • Having minimum paid up share capital of rupees five lakhs or such higher amount as may be prescribed.

The provision of this section states that company which is a subsidiary of a public company shall be deemed to be a public company even if such a company is a private company in its article. In relation to secretarial audit every private company which is a subsidiary of a public company, which falls in the prescribed class of companies, is required to conduct an audit.

In a case of contravention of the provision of secretarial audit, an officer in default or company secretary in practice shall be punishable by the fine.

The Process of Secretarial Audit

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Narendra Kumar

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