FAQs on Secretarial Audit
What is Secretarial Audit?
Secretarial Audit is an audit to check compliance of various legislations including the Companies Act and other corporate and economic laws applicable to the company.
What are the benefits of Secretarial Audit?
Secretarial Audit can be an effective multi-pronged weapon to assure the regulator, generate confidence amongst the shareholders, the creditors and other stakeholders in companies, assure FIIs/FIs/SFCs/SIDCs/Banks and instil self regulation and professional discipline in companies. It is a tool of risk mitigation and will allow companies to effectively address compliance risk issues. It helps the companies to build their corporate image.
Who can conduct Secretarial Audit?
Only a member of the Institute of Company Secretaries of India holding certificate of practice (company secretary in practice) can conduct Secretarial Audit and furnish the Secretarial Audit Report to the company. [Section 204(1) of Companies Act, 2013]
Which companies are required to undergo Secretarial Audit?
As per section 204(1) of Companies Act, 2013 read with rule 9 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, the following companies are required to obtain Secretarial Audit Report:
Every listed company; - Every public company having a paid-up share capital of fifty crore rupees or more; or - Every public company having a turnover of two hundred fifty crore rupees or more.
“Turnover” means the aggregate value of the realisation of amount made from the sale, supply or distribution of goods or on account of services rendered, or both, by the company during a financial year. [Section 2(91)]
Whether the Secretarial Audit is voluntary or mandatory as per the provisions of Companies Act, 2013?
Pursuant to the provisions of section 204 of the Companies Act 2013, every listed company and company belonging to class of companies as prescribed is required to annex with its Board’s report, a Secretarial Audit Report given by a Company Secretary in Practice.
Companies which are not covered under section 204 may obtain Secretarial Audit Report voluntarily as it provides an independent assurance of the compliances in the company.
What are the laws specifically mentioned in MR-3 which need to be examined while conducting the Secretarial Audit?
In terms of Form MR-3, the Secretarial Auditor needs to examine and report on the compliance of the following five specific laws: (i) The Companies Act, 2013 (the Act) and the rules made thereunder; (ii) The Securities Contracts (Regulation) Act, 1956 („SCRA‟) and the rules made thereunder; (iii) The Depositories Act, 1996 and the Regulations and Bye-laws framed thereunder; (iv) Foreign Exchange Management Act, 1999 and the rules and regulations made thereunder to the extent of Foreign Direct Investment, Overseas Direct Investment and External Commercial Borrowings; (v) The following Regulations and Guidelines prescribed under the Securities and Exchange Board of India Act, 1992 („SEBI Act‟):- (a) The Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011; (b) The Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 1992; (c) The Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009; (d) The Securities and Exchange Board of India (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999; (e) The Securities and Exchange Board of India (Issue and Listing of Debt Securities) Regulations, 2008; (f) The Securities and Exchange Board of India (Registrars to an Issue and Share Transfer Agents) Regulations, 1993 regarding the Companies Act and dealing with client; (g) The Securities and Exchange Board of India (Delisting of Equity Shares) Regulations, 2009; and (h) The Securities and Exchange Board of India (Buyback of Securities) Regulations, 1998;
In addition, the form MR-3, point (vi) also refers to „Other laws as may be applicable specifically to the company.‟
What is periodicity of Secretarial Audit?
Proactive Secretarial Audit on a continuous basis would help the company in initiating corrective measures and strengthening its compliance mechanism and processes. It is therefore, advisable that the Secretarial Audit is carried out periodically (quarterly / half year / annually) and adverse finding if any, is reported on interim basis to the Board immediately. The Secretarial Audit Report to be annexed with Board’s report is required to be submitted before the preparation of Board’s Report.
What is the format of Secretarial Audit Report?
Secretarial Audit Report is required to be provided in the format prescribed in Form MR-3. (Rule 9 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014).
IS Secretarial Audit applicable to a private company which is a subsidiary of a public company?
Section 2(71) of the Companies Act, 2013 defines a “Public Company as one (a) Which is not a private company; (b) Has a minimum paid-up share capital of five lakh rupees or such higher paid-up capital as may be prescribed. The proviso to the definition states that “Provided that a company which is a subsidiary of a company, not being a private company, shall be deemed to be public company for the purposes of this Act even where such subsidiary company continues to be a private company in its articles. By this definition, it can be inferred that Secretarial Audit would be applicable to a private company which is a subsidiary of a public company, and which falls under the prescribed class of companies.
Is there any restriction on number of Secretarial Audits?
As of now, ICSI has not placed any restrictions on number of audits that can be conducted by a Company Secretary in Practice in one financial year
Is there a requirement of peer review of Secretarial Auditors?
As of now, there is no requirement of peer review of Secretarial Auditors.
Whether financial laws need to be examined while conducting secretarial audit?
In case of financial laws like tax laws and Customs Act etc., Secretarial Auditor may rely on the Reports given by Statutory Auditors or other designated professionals.