Secretarial Audit must be renewed every year with a new auditor to review the company’s secretarial practices. The auditor submits the report to the Board, which addresses compliance issues. Regular audits help maintain legal compliance and support good governance.
Secretarial Audit
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Overview of Secretarial Audit
Secretarial Audit is an independent and objective verification process aimed at ensuring that an organization is complying with various legal and regulatory requirements, internal processes, and good governance practices. It primarily focuses on companies’ adherence to statutory and regulatory requirements as well as providing value-added services by assessing the adequacy of systems and processes.
Purpose of Secretarial Audit
To verify compliance with legal and regulatory requirements.
To ensure adherence to good corporate governance practices.
To detect and rectify non-compliance before it escalates.
To provide assurance to stakeholders that the company operates within a defined legal framework.
To improve transparency, accountability, and credibility of the company.
Ensuring Compliance
Benefits of Secretarial Audit
Secretarial Audit offers numerous benefits to businesses, including enhanced compliance, improved governance, and effective risk management. By conducting a thorough review of secretarial records and practices, it ensures adherence to relevant laws and regulations, minimizing the risk of fines and legal issues while fostering trust among stakeholders like investors, customers, and regulatory authorities. Additionally, a comprehensive audit strengthens governance practices by identifying governance-related issues, enhancing communication, accountability, and decision-making, ultimately boosting the company’s reputation and credibility. Furthermore, Secretarial Audit contributes to efficient risk management by identifying and addressing compliance gaps, thereby mitigating legal, operational, financial, and reputational risks. Incorporating robust risk management practices into business processes ensures resilience, stability, and long-term success, making Secretarial Audit a vital tool for sustainable growth and compliance excellence.
Requirements of Secretarial Auditor
Appointment
The Board of Directors must appoint a Secretarial Auditor who is a member of the Institute of Company Secretaries of India (ICSI) to ensure independent and expert evaluation.
Audit Scope
Involves a thorough review of secretarial records, regulatory documents, meeting minutes, and annual reports to verify compliance with legal requirements and maintain records.
Audit Report
A comprehensive report is submitted to the Board, highlighting compliance status, non-compliances, and procedural flaws, aiding stakeholders in assessing governance and compliance practices.
Eligibility Criteria for Secretarial Auditor
Company Type
Mandatory for public companies and specified companies under the Companies Act, 2013, ensuring transparency and accountability in operations.
Net Worth
Applicable to companies with a net worth of INR 500 crore or more, warranting a comprehensive compliance review due to their financial significance.
Turnover
Required for companies with a turnover of INR 1000 crore or more, ensuring thorough compliance checks for large-scale operations.
Documents Required for Secretarial Audit
Board Resolution:
A resolution for appointing the Secretarial Auditor, filed with the Registrar of Companies (ROC) within the prescribed time.Auditor’s Information:
The ICSI registration details and professional credentials of the Secretarial Auditor to confirm their qualification.Audit Report:
The final report from the Secretarial Auditor, including compliance status and recommendations, to be retained for 8 years from the signing date.
Checklist for Secretarial Audit
Appointment of Secretarial Auditor
Appoint a qualified ICSI member as the auditor via Board Resolution.
Audit Scope
Define the audit scope to include all relevant records and legal compliance.
Audit Report
Review the audit report and take corrective actions on findings.
Documentation
Maintain key documents like statutory registers, meeting minutes, and regulatory filings.
Compliance
Ensure all legal requirements are met with accurate and up-to-date records.
Risk Management
Identify and manage risks related to legal, financial, and operational compliance.
Governance Practices
Establish accountability, responsibility, and clear decision-making processes.
Stakeholder Trust
Foster trust through consistent legal compliance and effective governance.
Sustainable Growth
Promote long-term success by reducing risks and maintaining proper governance.
Strengthening Governance
Process of Secretarial Audit
Appointment of Secretarial Auditor
The Board appoints a qualified ICSI member as the auditor through a Board Resolution, ensuring their professional credentials.
Audit Conduct
Audit Report
The auditor submits a report to the Board, detailing the company's compliance status, findings, and recommendations.
Board Action
The Board reviews the audit report and takes corrective actions to address non-compliance or governance issues identified during the audit.
Secretarial Audit Compliance
The audit report must be submitted to the Ministry of Corporate Affairs (MCA) annually. The auditor ensures independence and checks for compliance with laws like labor regulations. The process involves techniques like sample and random checks to ensure accurate records and compliance.
Renewal of Secretarial Audit
Frequently Asked Questions
What is Secretarial Audit?
Secretarial Audit is a compliance audit that checks whether a company is adhering to various legal and regulatory requirements, particularly under corporate laws. It is conducted by a qualified company secretary to ensure good corporate governance and compliance with statutory obligations.
Who can be a Secretarial Auditor?
A Secretarial Auditor must be a member of the Institute of Company Secretaries of India (ICSI) and hold a certificate of practice. Only a practicing company secretary (PCS) is eligible to conduct a Secretarial Audit.
Is Secretarial Audit important for all companies?
No, Secretarial Audit is mandatory only for certain classes of companies, including:
Listed companies
Public companies with a paid-up share capital of ₹50 crore or more
Public companies with a turnover of ₹250 crore or more
What is the job of the Secretarial Auditor?
The Secretarial Auditor's role is to:
Verify compliance with corporate laws
Ensure adherence to good governance practices
Identify any non-compliance issues
Provide recommendations for improvements
Issue a Secretarial Audit Report in Form MR-3
How often should Secretarial Audit be conducted?
Secretarial Audit should be conducted annually. The report must be submitted as part of the company's Board Report for each financial year.
What are the consequences of non-compliance with Secretarial Audit requirements?
Non-compliance may result in:
Penalties imposed by regulatory authorities
Disqualification of directors
Legal action against the company and its officers
Loss of credibility and reputational damage
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