A secretarial audit is a process to check an organisation's compliance with the rules. It helps facilitate compliance with rules and regulations in a company and maintains discipline amongst its administration, officials and members.
The benefits of a secretarial audit are available to many: promoters, executive directors, officers of the company, regulators, government authorities, investors, financial institutions, banks, creditors and consumers alike.
Did you know?
One of the main objectives of a company is basically to manage risks. This can be easily taken care of by having a system of secretarial audits in the company administration.
Also Read: What are the Different Types of Audits and Levels of Assurance?
What Is a Secretarial Audit?
The process of secretarial audit is an instrument for compliance that is a feature of a complete compliance management system in any institution or organisation. 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 fulfiled, and the standard due process is followed through a secretarial audit. It is significantly a mechanism to check adherence with the needful stated laws.
The Secretarial Audit Applicability
The secretarial audit process involves compulsory provisions relating to the application of the audit procedure, which is as follows:
- All listed company
- All public companies having
The commissioned share capital should be more than ₹50 crores, and the turnover should be more than ₹250 crores. If any of these criteria match, then a secretarial audit becomes compulsory, and a practising Company Secretary is fit to conduct the process of a secretarial audit.
What Is the Scope of a Secretarial Audit?
Form MR-3 mentions five laws through which secretarial audits are conducted and reports are prepared.
- Regulations and guidelines are suggested under the Securities and Exchange Board of India Act, 1992 (SEBI Act).
- Depositories Act, 1996.
- Securities Contracts (Regulation) Act, 1956.
- Foreign Exchange Management Act, 1999 and the laws made within the Foreign Direct Investment (FDI), Overseas Direct Investment (ODI) and External Commercial Borrowings (ECB).
- Companies Act, 2013.
The scope of a secretarial audit mainly focuses on the following aspects
- Keeping a check on the compliance of secretarial standards issued by the Institute of Company Secretaries of India.
- Delineating on compliances with the Listing Agreement.
- Preparing a report on the compliance of other laws that may apply to the company, which shall incorporate all the laws that apply to a particular industry, for example, for property dealing - all laws applicable to the real estate industry.
For plastic design, company-all laws apply to the plastic industry. Similarly, all regulations apply to the coal industry for a company in the coal sector. Again, for companies in the fintech sector, jute industry, etc.
- Observing and reporting on the adequacy and efficiency of the systems and processes with other laws.
- Analyse and ensure compliance with basic laws like labour laws, competition laws, environmental laws, etc.
- Examines and reports on the detailed analysis of qualifications, reservations or negative remarks regarding the board structures or setup and procedures relating to the audit period.
- Secretarial auditors may depend upon the reports produced by the statutory auditors or other positioned professionals to check compliance with other laws like Income Tax, Customs laws and GST, CGST, etc.
How Is an Appointment of the Secretarial Auditor Made?
A secretarial auditor is appointed through the following process:
Firstly, the consent of the secretarial auditor is obtained. Next, a true certified copy of a resolution passed through in the board meeting with the Registrar of Companies as an additional document in MGT – 14 is made. Then, the secretarial auditor is appointed in the secretarial audit at the board meeting. Finally, the remuneration is fixed in the board meeting.
The Process of a Secretarial Audit
A secretarial auditor or their firm determines the process of secretarial audit wherein they mention the required to be submitted for the audit. This checklist of documents depends upon the nature of the company's business activities that the company carries out. If any company or company officials or company secretary mess with the secretarial audit, they need to undergo the punishment provision.
The punishment goes like this:
- Company
- Every official of the company
- The company secretary
Shall be punishable with
- Minimum ₹1 lakh
- Maximum ₹5 lakhs
The Secretarial Audit Report Format and Making
- A Company Secretary in practice should prepare the secretarial audit report.
- The report shall be prepared in Form M-3.R
- Annexed with the board's report, considering the increasing importance of corporate governance.
Also Read: What is an Audit Trail and Why Do We Need it?
What Are the Objectives of a Secretarial Audit?
The following are the objectives of a secretarial audit:
- A secretarial audit cross-checks & prepares a report on the compliances of the laws appropriate and the secretarial standards established.
- To figure out the non-compliances and insufficient compliances and make a report accordingly.
- To safeguard the interest of the various stakeholders, i.e., the employees, customers, societal system, etc.
- To steer clear of any unjustifiable legal actions/penalties by the law implementing agencies and other persons.
What Are the Benefits of a Secretarial Audit?
The following are the benefits of a secretarial audit:
- A secretarial audit forms an effective methodology to ensure that the legal and procedural requirements are well complied with.
- This process of secretarial audit provides a certain degree of confidence to the directors & the High-level Management Personnel etc.
- The process of a secretarial audit makes sure that the legal and procedural necessities are complied with fully so that the company individuals can focus on crucial business agendas.
- It encourages the benevolence of a company to its stakeholders and regulators.
- The process of a secretarial audit is a powerful governing and compliance management feature.
- A secretarial audit helps the investor make sense of the conformity efficiency of the companies they intend to invest in, which improves the company's reputation and name in the market and business world.
Conclusion
The secretarial audit is an independent procedure with objective assurance intended to fill value and improve an organisation's operational facilities. It facilitates achieving the organisation's objectives by developing a systematic, standardised approach to analysing and improvising the effectiveness of risk management tendencies, control and governance mechanisms.
A secretarial audit is optional and voluntary for private companies and small public sector companies. As per their whims and fancies, these companies might adopt secretarial audit practices to maintain compliance systems and steer clear of the risks associated with non-compliance mishaps.
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