Secretarial audit is a compliance mechanism introduced under the Companies Act, 2013 to ensure that companies adhere to all applicable laws, rules, regulations, and guidelines. It serves as an independent check on the company’s compliance with corporate laws, securities laws, and other business legislations. Understanding secretarial audit is essential for every company secretary and director.
What is Secretarial Audit?
Secretarial audit is a process of independently verifying a company’s compliance with various laws, including the Companies Act, 2013, SEBI regulations, FEMA, and other sector-specific laws. It is conducted by a practicing Company Secretary (PCS) who examines the company’s records, minutes, registers, filings, and other compliance documents. The audit culminates in a Secretarial Audit Report in Form MR-3, which is annexed to the Board’s Report.
Who Needs a Secretarial Audit?
Under Section 204 of the Companies Act, 2013, secretarial audit is mandatory for every listed company and every public company having a paid-up share capital of Rs 50 crore or more, or a turnover of Rs 250 crore or more. Additionally, SEBI regulations mandate secretarial audit for material subsidiaries of listed companies. Private companies meeting these thresholds are also covered.
Scope of Secretarial Audit
The secretarial auditor examines compliance with the Companies Act and Rules, SEBI Act and Regulations (for listed companies), Depositories Act, Foreign Exchange Management Act, and any industry-specific laws applicable to the company. The audit covers areas including board composition and meetings, general meetings, share capital changes, related party transactions, corporate social responsibility, and filings with regulatory authorities.
Benefits of Secretarial Audit
Beyond being a legal requirement, secretarial audit offers significant benefits. It helps identify compliance gaps before they escalate into penalties, enhances corporate governance standards, builds investor and stakeholder confidence, and provides the board with an independent assessment of the company’s compliance health. For companies planning an IPO or seeking institutional investment, a clean secretarial audit report is often a prerequisite.
Process of Secretarial Audit
The secretarial audit process begins with the appointment of a PCS by the board. The auditor then obtains necessary documents and records, examines board and general meeting minutes, verifies statutory registers, checks ROC and other regulatory filings, reviews related party transactions, and examines compliance with applicable laws. The auditor issues the secretarial audit report along with observations, qualifications, or adverse remarks if any.
Investing in a thorough secretarial audit is an investment in your company’s governance framework. Reach out to discuss how we can help with your secretarial audit requirements.