Secretarial Audit
Secretarial Audit is a compliance audit and it is a part of total compliance management in an organisation. The Secretarial Audit is an effective tool for corporate compliance management. It helps to detect non-compliance and to take corrective measures.
Secretarial Audit is a process to check compliance with the provisions of various laws and rules/regulations/ procedures, maintenance of books, records etc., by an independent professional to ensure that the company has complied with the legal and procedural requirements and also followed the due processes. It is essentially a mechanism to monitor compliance with the requirements of stated laws.
A Company Secretary in Practice has been assigned the role of Secretarial Auditor under section 2(2)(c)(v) of the Company Secretaries Act, 1980.
Ever-increasing complexities of laws and responsibilities of directors (especially non-executive directors) make it imperative that a Practicing Company Secretary (PCS) reports whether or not there exists proper compliance mechanism and systems in the corporate structure. PCS has also to verify whether diverse requirements under applicable laws have been duly complied with or not and if there is a need for any corrective measures or improvement in the system.
Secretarial Audit on a continuous basis would help the company in initiating corrective measures and strengthening its compliance mechanism and processes. It is recommended that the Secretarial Audit be carried out periodically (quarterly / half yearly) and adverse findings if any, be communicated to the Board for corrective action.
The multiplicity of laws, rules, regulations, etc. has necessitated introduction of a compliance management system to ensure compliances of laws applicable to a company. This has a two-fold objective:
(a) Firstly, to protect the interests of all the stakeholders;
(b) Secondly, to avoid any legal action against the company and its management.
As of now Secretarial Audit is not mandatory on the Companies. However, it is optionally undertaken by the companies for maintaining good Corporate Governance practices.
Secretarial Audit is a new requirement which has been prescribed under Section 204 of the Companies Act, 2013. The provisions regarding secretarial audit are as follows :
Every listed company and other class of companies as may be prescribed is required to annex to the Board’s Report, a Secretarial Audit Report.
As per rule 9 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, other class of companies for the purpose of section 204 of the Companies Act, 2013 include:
(a) Every public company having a paid-up share capital of fifty crore rupees or more; or
(b) Every public company having a turnover of two hundred fifty crore rupees or more; or
Secretarial Audit has to be conducted by a Practising Company Secretary in respect of the secretarial and other records of the company.
Company is required to give all necessary information and assistance to the Practising Company Secretary to conduct the audit.
The Board is required to provide explanation in the Board’s Report to every qualification, observation or other adverse remark made by the company secretary in his report. The secretarial Auditor will submit his report in Form MR-3.
If a company or any officer of the company or the company secretary in practice, contravenes the provisions of this section, the company, every officer of the company or the company secretary in practice, who is in default, shall be publishable with fine which shall not be less than one lakh rupees but which may extend to five lakh rupees
As per Section 143(14), all provisions regarding rights, duties and obligations of statutory auditors shall also apply to Company Secretary in Practice conducting secretarial audit.