Convert your Business - Secretarial Audit

Secretarial Audit

Secretarial audit is an effective corporate governance tool to avoid non compliances of various rules and laws or procedures or regulations, accounting, maintenance of books, records, etc. A secretarial audit of the company can be operated by an independent professional in being a member of ICSI. It is a process which ensures the legal and procedural specifications of the company are observed and followed. The secretarial audit administers due process and is a mechanism of monitoring compliance related to the requirements of stated laws.

Applicability of Secretarial Audit:

(a) All Listed Companies

(b) All public companies with Paid-up share capital of fifty crores or more

(c) All public companies having a turnover of two hundred crores or more; 1[or]

Any company having an outstanding loan or borrowing from public financial institutions or banks of one hundred crores or more.

Only members of the Institute of Company Secretaries of India, holding the certificate of practice endorsing them to perform as a secretarial auditor, may conduct Secretarial Audit and provide with the Secretarial Audit Report to a Company or organization.

Secretarial Audit Report

For every company, the secretarial audit report is applicable only when it fulfils the following conditions:

  • A Company Secretary in Practice prepares the audit report.
  • Form MR-3 is generated
  • It has annexed the Board’s Report, considering the increasing importance of Corporate Governance.

Scope of Secretarial Audit

The secretarial audit examines the compliance of distinct legislations included in the Companies Act and other economic and corporate laws which are applicable to the company. A secretarial audit is a procedure to verify the compliances made by the company under the Corporate Law and relevant laws, rules, procedures, regulations, etc. It was an imposed vide section 204 of Companies Act, 2013 under which, the regulators will observe the companies for compliances as required by the stated laws and processes.

Every company must comply with government laws, regulations and rules. Any non-adherence to the compliances can be dicey for the company. Organizations are required to conduct a periodical examination to identify the errors of the work and also to nurture a powerful compliance implementation in any organization.

The periodical inspections of the records will provide the Authority with appropriate information concerned with compliance policy of company.

A detailed secretarial audit helps:

  • To check compliance reports.
  • To protect public interest, especially of employees, customers, etc.
  • To stay compliant and avoid unnecessary legal actions by the law enforcement agencies.
  • To identify inadequate compliances and non-compliances.
  • To ensure suitable compliance of procedural and legal requirements crucial to the image and the goodwill of any company.

Benefits of Secretarial Audit

  • Generating a secretarial audit will aid your organization to have a productive implementation with procedural and legal requirements to ensure that compliance is maintained.
  • The Key Management Personnel (KMP) and Directors get boosted with confidence levels with its impact.
  • Meetings and important matters related to business can be taken into consideration by the directors only when secretarial audit ensures procedural and legal requirements in better, audible and safe means.
  • Therefore, it decreases the work of law enforcement authorities.
  • Investors will portray the appropriate by showcasing the legal records if this is followed.
  • Secretarial Audit plays a significant role as a tool which provides effective governance and compliance risk management.

Companies Act, 2013

  • Charter Documents concerned compliances review, if any
  • Share Capital and Debenture Rules- Pre & Post Issue Compliances and compliances concerned with ICDR.
  • Borrowings – Pre and post borrowing compliances and borrowing limit
  • Public deposits, if any – Pre & Post Compliances
  • Board and General Meetings – Agenda, Minutes and Notice
  • Declaration and Payment of Dividend – Pre & Post Compliances·         Board of Directors – Resignations and Appointment
  • Internal Audit Report and Internal Audit
  • Auditor Appointment, Tenure of Appointment & Rotation
  • CSR Compliances - Limit of Contribution and Committee Formation
  • Related Party Transactions & its Compliances
  • Inter Corporate Loan, Investments and Corporate Guarantee
  • Buy-Back of Shares - Pre and Post Compliances
  • Annual Return & Annual Compliances
  • Member Register and Change in any Shareholding Pattern
  • Secretarial Standards

Foreign Exchange Management Act

  • Foreign Direct Investment
  • Overseas Direct Investment
  • External Commercial Borrowings

 Securities and Exchange Board of India Act, 1992

  • The Securities and Exchange Board of India (Registrars to an Issue and Share Transfer Agents) Regulations, 1993
  • The Securities and Exchange Board of India (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999
  • The Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009
  • The Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011
  • The Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015
  • The Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 2015

Labour, Fiscal & Other Laws

  • The Employee’s Compensation Act, 1923
  • The Payment of Wages Act, 1936
  • Industrial Disputes Act, 1947
  • Employee’s State Insurance Act, 1948
  • The Minimum Wages Act, 1948
  • Factories Act, 1948
  • Employee’s Provident Fund and Miscellaneous Provisions Act, 1952
  • The Employment Exchange (Compulsory Notification of Vacancies) Act, 1959
  • The Apprentices Act, 1961
  • The Maternity Benefit Act, 1961
  • The Payment of Bous Act, 1965
  • The Contract Labour (Regulation and Abolition) Act, 1970
  • The Payment of Gratuity Act, 1972
  • The Water (Prevention and Control of Pollution) Act, 1974
  • Equal Remuneration Act, 1976
  • The Air (Prevention and Control of Pollution) Act, 1981
  • The Environment (Protection) Act, 1986
  • The Child Labour (Prohibition and Regulation) Act, 1986
  • The Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013
  • Professional, Property and Dividend Tax
  • GST
  • Advance Tax
  • Tax deducted at Source

Securities Contracts (Regulation) Act, 1956 (‘SCRA’)

Depositories Act, 1996

  • Labour, Fiscal, and Other laws are limited to the applicability of the Company

Documents Required for Secretarial Audit

  • SAST Disclosures
  • Charter Documents
  • Statutory Register
  • Bank account details for Dividend
  • Annual Performance Reports, Lease Deed, LUT cum Bond, Softex returns
  • Proof of spending CSR Amount
  • Last year Secretarial Audit Report
  • Registers maintained under Labour Laws
  • Audited Financial statements
  • Sitting fees and Remuneration details paid to Directors
  • ECB Returns (if there are foreign borrowings in the company)
  • Filings with RBI (If there is a foreign investment)
  • Filings and Intimations with Registrar of Companies, Soft Exchanges, Newspaper Advertisements (if listed)
  • Filings with other statutory departments