What is Secretarial Audit.
Secretarial Audit is an audit to verify compliance with various legislations including the Companies Act and different corporate and economic laws applicable to the company. The Secretarial Auditor states an opinion as to whether there exist sufficient systems and processes in the company corresponding to the size and operations of the company to monitor and assure compliance with applicable laws, rules, regulations, and guidelines. Secretarial Audit serves to recognize the situations of non-compliance and promotes taking corrective measures.
It audits the adherence of good corporate exercises by the company. It is, therefore, an objective and accurate assurance dedicated to adding value and better operations of the Company. It helps in accomplishing the organisation‟s objectives by producing a methodical, disciplined approach to evaluate and improve the effectiveness of risk management, control, and governance processes. Secretarial Audit thus presents necessary comfort to the management, regulators, and the stakeholders, as to the statutory compliance, good governance and the occurrence of proper and sufficient systems and processes.
What are the benefits of Secretarial Audit?
Secretarial Audit can be an effective multi-pronged protection to secure the regulator, create trust amongst the shareholders, the creditors and other stakeholders in companies, assure FIIs/FIs/SFCs/SIDCs/Banks and introduce self-regulation and professional discipline in companies. It is a mechanism of risk alleviation and will allow companies to effectively mark compliance risk issues. It helps the organizations to develop their corporate image. Secretarial Audit promotes monitoring compliances with the provisions of law through a legal compliance management programme which can provide positive results to the stakeholders of a company:
Secretarial Audit confirms the promoters of a company that that in charge of its management are managing its affairs in accordance with the requirements of laws and the owners‟ stake is not being disclosed to unintended risk.
(b) Non-executive/Independent directors
Secretarial Audit provides aid to the Non-executive/Independent Directors that proper mechanisms and processes are in place to secure compliance with laws applicable to the company, thus decreasing any risk from a regulatory or governance perspective.
It also helps to diminish the responsibility of the regulators in ensuring compliances and they can take timely actions upon the offenders.
it helps the investors in taking knowledgeable investment decision, as it estimates the company in terms of compliance and governance standards being followed by the company.
(e) Other Stakeholders
It is an adequate due attention exercise for the prospective investors or joint venture partners. Further Financial Institutions, Banks, Creditors, and Consumers can measure the law abiding nature of company management.
f) Benefits to the company itself —
Companies with an adequate compliance management programme have a minor chance of receiving penalties, both commercial and by way of imprisonment.
— Companies that invest business and personal values and an effective compliance management plan within their work culture usually enjoys employee and customer loyalty and public admiration for their brand, which can translate into better market capitalization and shareholder returns.
– Honor for the company as a good corporate citizen. The Secretarial Audit gives an inbuilt mechanism .
Skills Required to Conduct a Secretarial Audit.
The purpose of the Secretarial Auditor‟s Report is to initiate evaluation and form an impression and to report to the shareholders as to whether, and if so, to what extent, the company has complied with the laws covering various statutes, rules, regulations, about the boarding process, existence of compliance management system.
This needs an understanding of the corporate laws and economic laws applicable to the company. Thus, for serving Secretarial Audit, a Company Secretary in Practice is required to have proficient knowledge of all corporate laws. To be able to give a useful report, a Company Secretary in Practice is expected to have the following:
While handling the Audit, the secretarial auditor should have the knowledge of exact nature and activities of the Company, about the laws which are relevant to the Company. He should have a knowledge of the existence of compliance system, Board process & procedures, selection, and evaluation process for the Board.
Secretarial Auditor is needed to assure that he has a team of appropriately trained staff, who can assist the preparation of the report. Most importantly they should be informed of the basic audit requirements and ethics. Relevant legislative and administrative updates should be shared and interacted with the team to build and keep the expertise.
3) Documentation & backup:
He is expected to develop a standard & checklists which will help in the evaluation process. He is expected to keep proper records of documents and checklists filed through the course of the audit.
4) Reliance upon management representations and declaration:
He may rely upon the authority representation letter or declaration up to a specific extent.
5) The third party supporting and evidence:
It would perpetually be helpful to check filing made by the company at MCA & other authorities separately. Confirmation and enquiries can also be made with the other statutory and internal auditors and consultants and Independent Directors of the Company
6) Adhering to the timelines:
The plan set to conduct the audit process should be stringently adhered to in order to gain the confidence of the client and raise the expertise level of the team.
7) Honesty and fairness:
A Company Secretary in Practice has the professional responsibility to provide a fair and objective view. Company Secretary in Practice should be independent of the company being audited. The Secretarial Auditor is required to assure that activities of the client company are in accordance with the applicable procedure and that backing evidence kept by the company is certified.
8) Maintaining Audit Diary: The Audit exercise needs to be planned and performed professionally and verifications done by the team members should be recorded daily. Such keeping of diary would help in keeping audit trail that would come in beneficial to assure the quality of audit
What is the periodicity of Secretarial Audit?
Proactive Secretarial Audit on a constant basis would help the company in initiating remedial measures and establishing its compliance tool and processes. It is, therefore, desirable that the Secretarial Audit is taken out periodically (quarterly / half year / annually) and unfavorable finding if any, is reported on an interim basis to the Board immediately.
The Secretarial Audit Report to be annexed with Board‟s report is required to be presented before the preparation of Board‟s Report.
What are the minimum fees to be charged with respect to conducting of a secretarial audit?
There is no minimum fees prescribed by ICSI for conducting Secretarial
Audit by Company Secretary in practice.
However, it would be in the convenience of things that Company Secretary in practice needs the proper call about fees regarding the nature & size of the company, type of company and the works required to be put in while taking out Secretarial Audit.
It is habitual that member should keep high standard and quality in
How is the Secretarial Auditor appointed?
As per Rule 8 of the Companies (Meetings of Board and its powers) Rules,
2014, Secretarial Auditor is essential to be appointed by means of a resolution passed at a duly met Board meeting.
It is desirable for Secretarial Auditor to get the letter of appointment from the company. Secretarial Auditor should formally accept the letter of appointment. Further, as a sound corporate practice, it is desirable that change in the Secretarial Auditor during the year is communicated to the members of the Board‟s Report.
What is the professional responsibility and penalty for wrong audit report?
Section 448 of Companies Act, 2013 deals with punishment for false statements. The section provides that if in any return, report, certificate, financial statement, prospectus, statement or other document required by, or for the purposes of any of the provisions of this Act or the rules made thereunder, any person makes a statement,—
(a) which is false in any matter particulars, knowing it to be false; or
(b) which eliminates any material fact, knowing it to be material,
he shall be liable under section 447.
Section 447 deals with penalty for fraud which provides that any person
who is pronounced to be guilty of fraud, shall be punishable with imprisonment for a term which shall not be less than six months but which may extend to ten years and shall also be responsible to fine which shall not be less than the amount included in the fraud, but which may extend to three times the amount concerned in the fraud. In case, the fraud in a subject involves public interest, the term of imprisonment shall not be less than three years.
In terms of Section 448, a Company Secretary in Practice is responsible for bringing penal provision if, he makes a statement in the Secretarial Audit Report which is false is any material particulars, knowing it is false or omits any material fact knowing it to be material.
Section 204(4) further provides that if Company Secretary in Practice
contravenes the provisions of Section 204, he shall be punishable with fine which shall not be less than one lakh rupees but which may increase to five lakh rupees.
Additionally, the Company Secretary in Practice shall be accountable for professional or other offense mentioned in First or Second Schedule or in both the Schedules to the Company Secretaries Act, 1980 and where held guilty, be responsible for the following actions:
(i) where found guilty of professional or other misconduct
mentioned in the First Schedule:
(b) elimination of name from the register of members up to a
period of three months;
(c) fine which may increase to one lakh rupees.
(ii) where found guilty of professional or other misconduct
mentioned in the Second Schedule:
(b) removal of name from the register of members
permanently or such period as may be thought fit by the
(c) fine which may extend to five lakh rupees.
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