Understanding Secretarial Audit: A Key to Corporate Governance
In the dynamic world of corporate governance, transparency and compliance have become the cornerstones of sustainable business practices. Among the various mechanisms that ensure a company adheres to legal and ethical standards, Secretarial Audit plays a vital role. Introduced under the Companies Act, 2013 in India, secretarial audit is a powerful tool for improving governance and maintaining legal compliance.
In this blog, we delve into what secretarial audit is, why it’s important, who needs to conduct it, and how it benefits companies in the long run.
📌 What is Secretarial Audit?
Secretarial Audit is a compliance audit conducted by a practicing Company Secretary (CS) to verify whether a company is adhering to the provisions of various corporate laws, rules, and regulations. It primarily focuses on non-financial aspects of the company such as compliance with the Companies Act, SEBI regulations, labor laws, and other allied laws.
This audit ensures that the company has proper systems and processes in place to monitor compliance and proactively identify any gaps or risks.
🏛️ Legal Framework
The concept of secretarial audit is mandated under Section 204 of the Companies Act, 2013, read with Rule 9 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014.
As per the law, the following companies are required to obtain a secretarial audit report:
- Every listed company
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Every public company having:
- Paid-up share capital of ₹50 crore or more, or
- Turnover of ₹250 crore or more
The secretarial audit report must be annexed with the board’s report in the company’s annual report and filed with the Registrar of Companies (RoC).
🧑💼 Who Can Conduct a Secretarial Audit?
Only a Practicing Company Secretary (PCS) who is a member of the Institute of Company Secretaries of India (ICSI) is authorized to conduct a secretarial audit. The audit should be conducted in an independent and unbiased manner.
✅ Scope of Secretarial Audit
The scope of secretarial audit includes, but is not limited to:
- Compliance with the Companies Act, 2013
- Adherence to SEBI (LODR) Regulations, 2015
- Observance of FEMA regulations (if applicable)
- Compliance with labor and environmental laws
- Maintenance of statutory registers and records
- Filing of necessary returns and forms with regulatory bodies
- Good governance practices including board processes, policies, and procedures
💡 Benefits of Secretarial Audit
- Enhanced Compliance: Identifies areas of non-compliance and helps take corrective actions promptly.
- Improved Governance: Encourages better corporate governance by reviewing internal systems.
- Risk Mitigation: Helps in identifying legal and regulatory risks before they escalate.
- Stakeholder Confidence: Boosts investor and stakeholder trust by ensuring transparency.
- Board Support: Aids the board of directors in understanding compliance-related complexities and taking informed decisions.
🧾 Format of the Report
The Secretarial Audit Report is issued in Form MR-3 and includes:
- Auditor’s opinion on compliance
- Observations, qualifications, or reservations, if any
- Suggestions for improvement
🚨 Consequences of Non-Compliance
Failure to conduct a secretarial audit or non-compliance with applicable provisions can lead to penalties for the company and its officers in default. It may also damage the company's reputation and lead to legal complications.
📚 Conclusion
Secretarial Audit is more than a statutory requirement—it's a critical governance tool that helps companies stay on the right side of the law. In an era where regulatory scrutiny is increasing, a proactive approach to secretarial audit not only ensures compliance but also enhances the overall governance framework of a company.
Investing in a robust secretarial audit process is not just about avoiding penalties; it’s about building a culture of compliance, trust, and accountability