written by | May 17, 2022

What Is a Secretarial Audit?

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Table of Content


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. 

  1. Regulations and guidelines are suggested under the Securities and Exchange Board of India Act, 1992 (SEBI Act).
  2. Depositories Act, 1996.
  3. Securities Contracts (Regulation) Act, 1956.
  4. Foreign Exchange Management Act, 1999 and the laws made within the Foreign Direct Investment (FDI), Overseas Direct Investment (ODI) and External Commercial Borrowings (ECB). 
  5. Companies Act, 2013.

The scope of a secretarial audit mainly focuses on the following aspects

  1. Keeping a check on the compliance of secretarial standards issued by the Institute of Company Secretaries of India.  
  2. Delineating on compliances with the Listing Agreement.
  3. 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. 

  1. Observing and reporting on the adequacy and efficiency of the systems and processes with other laws.
  2. Analyse and ensure compliance with basic laws like labour laws, competition laws, environmental laws, etc. 
  3. 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.
  4. 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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FAQs

Q: What is the process of secretarial audit?

Ans:

The process of a secretarial audit requires document submission, which is determined by the secretarial auditor or the firm of secretarial auditors. This checklist of documents depends upon the nature of the company's business activities that the company carries out.

There is also a provision for contravention or punishment if a company or any official of the company or the company secretary messes with the condition of the secretarial audit.

The punishment goes like this:

  • Company
  • Every official of the company
  • The company secretary

Shall be punishable with

  • Minimum ₹1 lakh
  • Maximum ₹5 lakhs

Q: What are the benefits of secretarial audits?

Ans:

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 procedures and 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 level of companies, which in turn improves the company's name in the market and business world.

Q: What are the objectives of a secretarial audit?

Ans:

The following are the objectives of a secretarial audit:

  • To verify & prepare a report on the compliances of the laws applicable and the secretarial standards established.
  • To figure out the non-compliances and inadequate compliances and report them accordingly.
  • To defend the interest of 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.

Q: What are five laws related to the scope of secretarial audit?

Ans:

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

  • Companies Act, 2013
  • Securities Contracts (Regulation) Act, 1956
  • Depositories Act, 1996
  • Foreign Exchange Management Act, 1999 and the regulations and laws made within that to the extent of Foreign Direct Investment (FDI), Overseas Direct Investment (ODI) and External Commercial Borrowings (ECB).
  • Regulations and guidelines are suggested under the Securities and Exchange Board of India Act, 1992 (SEBI Act).

Q: What is the applicability scope of a secretarial audit?

Ans:

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 paid-up 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.

Q: What is a secretarial audit?

Ans:

The process of a secretarial audit is an instrument for compliance that is a feature of a complete compliance management system in any institution or organisation. It is a constructive tool to check and maintain compliance with the provisions of various rules and regulations, laws, procedures and other accounting material. It is done by an independent professional for corporate compliance, helps detect non-compliant activities, and suggests corrective measures.

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The information, product and services provided on this website are provided on an “as is” and “as available” basis without any warranty or representation, express or implied. Khatabook Blogs are meant purely for educational discussion of financial products and services. Khatabook does not make a guarantee that the service will meet your requirements, or that it will be uninterrupted, timely and secure, and that errors, if any, will be corrected. The material and information contained herein is for general information purposes only. Consult a professional before relying on the information to make any legal, financial or business decisions. Use this information strictly at your own risk. Khatabook will not be liable for any false, inaccurate or incomplete information present on the website. Although every effort is made to ensure that the information contained in this website is updated, relevant and accurate, Khatabook makes no guarantees about the completeness, reliability, accuracy, suitability or availability with respect to the website or the information, product, services or related graphics contained on the website for any purpose. Khatabook will not be liable for the website being temporarily unavailable, due to any technical issues or otherwise, beyond its control and for any loss or damage suffered as a result of the use of or access to, or inability to use or access to this website whatsoever.
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Disclaimer :
The information, product and services provided on this website are provided on an “as is” and “as available” basis without any warranty or representation, express or implied. Khatabook Blogs are meant purely for educational discussion of financial products and services. Khatabook does not make a guarantee that the service will meet your requirements, or that it will be uninterrupted, timely and secure, and that errors, if any, will be corrected. The material and information contained herein is for general information purposes only. Consult a professional before relying on the information to make any legal, financial or business decisions. Use this information strictly at your own risk. Khatabook will not be liable for any false, inaccurate or incomplete information present on the website. Although every effort is made to ensure that the information contained in this website is updated, relevant and accurate, Khatabook makes no guarantees about the completeness, reliability, accuracy, suitability or availability with respect to the website or the information, product, services or related graphics contained on the website for any purpose. Khatabook will not be liable for the website being temporarily unavailable, due to any technical issues or otherwise, beyond its control and for any loss or damage suffered as a result of the use of or access to, or inability to use or access to this website whatsoever.