The Advantages of Secretarial Audit in India

Advantages of Secretarial Audit:

1. Confidence and Trust: Secretarial audit helps build trust and confidence among various stakeholders, including directors, creditors, employees, and management, by ensuring the company's adherence to legal and regulatory requirements.

2. Goodwill: Companies that consistently comply with regulations through secretarial audit gain a positive reputation and goodwill in the business environment.

3. Effective Mechanism: Secretarial audit establishes an effective internal mechanism for monitoring and regulating compliance and non-compliance issues, allowing the management to focus on core business operations.

4. Legal Procedures: By ensuring that all procedures are conducted legally, secretarial audit enables the management to concentrate on strategic business activities with the assurance that legal aspects are being handled.

5. Investor Confidence: Investors gain confidence in the company's financial integrity and operational transparency when they see a strong commitment to compliance through secretarial audit.

Applicability of Secretarial Audit in India: As per Section 204(1) of the Companies Act 2013, secretarial audit is mandatory for the following categories of companies in India:

1. All Unlisted Entities.

2. Unlisted Public Companies with a paid-up share capital exceeding Rs. 50 Crore.

3. Unlisted Public Companies with a turnover exceeding Rs. 250 Crore.

4. Private Companies that are subsidiaries of unlisted public companies if they meet the following criteria:

   • Paid-up share capital exceeding Rs. 50 Crore.
   • Turnover exceeding Rs. 250 Crore.

These criteria are designed to ensure that companies of a certain size and impact undergo secretarial audits to maintain compliance, transparency, and accountability in their operations.

It's worth noting that regulations and requirements may change over time, so it's important for companies to stay updated with the latest legal provisions and ensure they meet their obligations accordingly

The Process of Secretarial Audit

1. Initial Meeting and Fee Agreement: The auditor meets with the company's management to discuss the scope of the audit and agree upon the professional fees for conducting the audit.

2. Scope Identification: The auditor identifies the scope and activities that will be covered during the audit. This involves listing the specific areas of the company's operations that need to be examined.

3. Engagement Letter: Once the scope is finalized, the company issues an engagement letter to the auditor. This letter outlines the terms and conditions of the auditor's appointment, including the scope, responsibilities, timelines, and fees.

4. Planning the Audit: The Practicing Company Secretary (PCS) plans the auditing procedures. This involves determining the sequence in which different areas of laws will be covered, scheduling audit visits, estimating the time required for the audit, and other logistical considerations.

5. Conducting the Audit: The actual audit process takes place. The PCS examines relevant documents, records, processes, and procedures to ensure compliance with legal and regulatory requirements. They also identify any observations or findings during this process.

6. Documenting Observations: Throughout the audit, the PCS documents all observations, findings, discrepancies, and issues identified. This documentation serves as the basis for the audit report.

7. Final Audit Report: Once the audit is completed, the PCS compiles the final audit report. This report is presented in the prescribed format (MR-3) as required by regulations. The report includes a detailed analysis of the audit findings, compliance status, and any recommendations for improvement.

8. Submission of Audit Report: The final audit report is submitted to the company. It should be duly signed by the PCS and bear the Company Secretary in Practice stamp. This report provides an overview of the company's compliance with regulations and identifies areas for potential enhancement.

It's important to note that the secretarial audit process requires a thorough understanding of the relevant legal and regulatory frameworks, as well as the ability to critically assess the company's operations. The process aims to enhance transparency, ensure legal compliance, and promote good corporate governance practices.

Application of Secretarial Audit conducting different spheres

For Listed Companies: Listed companies are mandated by the Securities and Exchange Board of India (SEBI) to undergo secretarial audit. These companies should engage authorized Practising Company Secretaries (PCS) or Practising Chartered Accountants (PCA) for the audit. During the process, the PCS should reconcile information from depositories like CDSL/NSDL with the shares held.

For Central Public Sector (CPS) Projects: As per the Ministry of Heavy Industries and Public Enterprises, secretarial audit is mandatory for corporate governance in CPS projects.

For Banks: The Reserve Bank of India (RBI) requires banks to conduct due diligence through secretarial audit. Banks should obtain a certificate from practising professionals indicating the level of compliance.

For Private Companies/Unlisted Public Companies: Unlisted private companies and unlisted public companies are required to undergo secretarial audit once a year. The audit report must be submitted to the concerned Registrar of Companies (ROC). This audit is also conducted by a practising professional such as a PCS.

Penalties for Non-Compliance: Failure to comply with the provisions of Section 204 of the Companies Act can result in penalties. Companies, their directors, officers, or practising company secretaries found in violation may face penalties ranging from a minimum of Rs. 1 lakh to a maximum of Rs. 5 lakhs.

These regulations and requirements emphasize the importance of maintaining transparency, good governance practices, and compliance with legal and regulatory standards in various sectors of the economy. Non-compliance can lead to financial penalties and damage to a company's reputation.