What is a secretarial audit? and when it is required?
Only a member of the Institute of Company Secretaries of India, holding a certificate of practice, can conduct a secretarial Audit.
The companies act 2013 deals with the Secretarial Audit pursuant to the Section 204 of the 2013 Companies Act. Through the Secretarial Audit, the compliances are checked which a company is required to comply under various Corporate Law and other relevant laws, rules, regulations, and procedures etc.
This is a tool whereby the regulators monitor companies for compliances as required by the stated laws and processes.
The board of director of the company are assured of compliance of different provisions of applicable laws and shall also reinforce the faith of the shareholders that the company directors are working for the company observing all the applicable laws to the company and are working for the bona fide interest of the company and they are related to either directly or indirectly, to any technical error, commission or omission, violation or contravention, breaches and non- compliance.
If noncompliance is informed well in time then, in that case, it will enable the directors to adopt measures to mitigate and avoid any offenses they might have committed unknowingly. To a company there are many laws which are applicable to it hence to deal with corporate functions and thereof stay compliant is a big challenge in today’s world, in such a situation the secretarial Auditor will act as a catalyst and would be able to support the Board of Directors and the Government of India.
The non-adherence to compliances can be risky for the company. In order to stay protect the company from the consequence of non- compliances it is very important to conduct periodical examination and check on the working of the company.
Who is eligible to conduct the Secretarial Audit?
Only a member of the Institute of Company Secretaries of India, holding a certificate of practice, can conduct a secretarial Audit and basis the audit done he/she shall furnish the official Secretarial Audit Report to the Company.
Section 204(4) deals with the punishment and penal consequences of the default made pursuant to the secretarial Audit. Under this section ambit, the company or any officer of the company or the company secretary in practice has been covered.
It is the part of Legal compliance reporting system. The secretarial Audit report not only helps the directors of the company to run it properly, it also helps the Government of India to conceive and the compliance status of the company.
U/S 383 A (1) of the Act following compliance is required:
1. A company having paid up share capital of Rs 10 lakh or more and is not required to employ a whole time secretary and has to file with the ROC a certificate from a secretary in whole time practice.
2. The Compliance Certificate was made mandatory under the Companies (Amendment) Act, 2000, pursuant to the section 383A(1) of the Companies Act which makes it mandatory for every company paid up share capital of Rs 10 lakh or more shall file with the Registrar a certificate from a secretary within such time and subject to such conditions as may be prescribed, with regard to the facts stated in the secretarial Audit report and to see whether the company has complied with all provisions of this Act or not.
3. A copy of such certificate shall be attached with Board’s report.
4. The report should be issued by CS after reviewing and inspecting the relevant documents of the company to conclude about the position of the company.
5. Audit report: It shall specify the Scope, Content, and Criteria of the Audit and the status of the required compliance under applicable law. The certificate is to be issued in accordance with the rules and guidelines issued by the Central Government of India, the central Government of India has framed Companies (Compliance Certificate) Rules, 2001 which constitutes a 33-item formula for Compliance Certificate.
The secretarial Audit as approved by an independent professional carried out the compliances under the Act will serve the larger interest of the shareholders, creditors, and employees.
Objectives of Secretarial Audit are:
• Warn and Protect the top Management from undesirable hassles,
• A compliance check of the statutory regulations of the company.
• It is also an important tool to check into the insight of the company and can be used by the investor, shareholder, and lender protection so as to mitigate the level of scam and non- compliance.
The advantage of Secretarial Audit:
• It ensures the company management and affairs are being conducted in accordance with statutory requirements.
• The owners’ stake is not being exposed to excessive risk.
• It confirms that the upper management is working competently, effectively and efficiently, and takes care of the compliance level, this on other hand gives a comfortable feeling that the people in charge of the day-to-day management of the company are not likely to be exposed to penal or other liability in near future on account of non-compliance done by the company.
• It substantially reduces the burden of the law-enforcement authorities
• It acts as the assistance tool to the bodies like SEBI, Stock Exchanges, Financial Institutions, Banks, etc. to gauge or measures the levels of compliance and non-compliance by the concerned companies.
• It acts as an effective due diligence exercise for the prospective acquirers.
Application of the Secretarial Audit:
1. Secretarial Audit for Listed Companies: - According to the Securities and Exchange Board of India (SEBI) all the listed companies are required to get themselves audited by a qualified chartered accountant or company secretary.
It deals with the reconciliation of total shares held in CSDL, NSDL and in physical form with the admitted, issued and listed capital of companies.
Apart from this secretarial Audit, the SEBI has also stipulated for companies to submit a quarterly Audit report to the stock exchanges where their shares are listed. In case of any discrepancies being found, are required to be brought to the notice of SEBI and depositories immediately.
2. Secretarial Audit for public unlisted companies: - Every Public Unlisted Company shall undergo the secretarial Audit, only if any notice is delivered from ROC or any other authority.
It states compliance with all the provisions of Companies Act, 2013/1956, SEBI and other relevant acts by the Company and puts in it favorable or unfavorable comments, if any.
3. Secretarial Audit of the Corporate Governance Audit Of Central Public Sector Undertaking:- Ministry of Heavy Industries and Public Enterprise has formulated guidelines on Corporate Governance for Central Public Sector Enterprises. These guidelines have been formulated keeping in mind the responsibility the public sector owes towards public and the proper implementation of these guidelines would protect the interest of shareholders and relevant stakeholders.
4. Due Diligence Report In Case Of The Banks- Public And Private Limited Companies is done as per the RBI Compliance:- It has been advised by the RBI to scheduled commercial banks(excluding RRBs and LABs) to procure regular certificate by professional for a compliance check. Certain matters have been enlisted by RBI through circulars, in accordance with the format provided by RBI at its site.
5. STOCKBROKERS AUDIT: - SEBI (Securities and Exchange Board of India) has directed to carry out complete Internal Audit on half yearly basis through the chartered accountants, Company Secretaries India, and cost and management accountant who are in practice.
6. Secretarial Audit of a private company:- It is done on annual basis and the same I required to be submitted to RoC, the Audit is done through the CA/PCS(Company Secretary/Charted accountant) practicing and having practicing certificate number and is eligible to conduct the audit.