Overview of Secretarial Audit

What is the Applicability of Secretarial Audit?

Secretarial Audit is mandatory for the below-mentioned companies. Also, the companies are required to prepare the Secretarial Audit Report.

• Every Listed Company
• Every public company having a paid-up share capital of 50 crore rupees or more.
• A public company having a turnover of more than Rs. 250 crore or more.
• Every company having a borrowing of 100 crores or more.

Note- If anyone of the above criteria meets, a secretarial audit is mandatory.

What are the Important Provisions regarding the Secretarial Audit?

The important provisions regarding Secretarial Audit are as follows:-

• Matters to be specified in the Secretarial Audit.
• Flexibility in the form of a Compliance Certificate.
• Verification of records and documents.
• A Crucial area of the Secretarial Audit report under the Companies Act 2013.
• Crucial area of the Secretarial Audit report under SEBI Rules and Regulations.
• Crucial area of the Secretarial Audit report under other laws.
• Period of the Secretarial Audit.
• Disqualification for the appointment of the Secretarial Auditors.
• Duty of the company to provide all assistance.
• Objectives of Secretarial Audit.

What are the Benefits of a Secretarial Audit?

The Benefits of Secretarial Audit are as follows:-

• It can be an effectual due diligence performance for the prospective acquirer of a company or possessing interest or a partner of a Joint venture.
• It indemnifies the owners that the management and affairs of the company are being conducted following the requirements of law and that the owner’s stake is not being exposed to undue risk.
• It administers professional discipline and self-regulation.
• Reduces the work pressure of the regulators due to better and timely compliances.
• It shows the right path to investors by showcasing your legal records.

What Laws are specifically mentioned in the Secretarial Audit Reports?

In terms of Secretarial Audit report, the Secretarial Auditor needs to examine and report the compliance of the following specific laws-

• The Companies Act, 2013 (the Act) and the rules made thereunder,
• The Securities Contracts (Regulation) Act, 1956 (‘SCRA’) and the rules made thereunder,
• The Depositories Act, 1996 and the Regulations and Byelaws framed thereunder,
• 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,
• The following Regulations and Guidelines prescribed under the Securities and Exchange Board of India Act, 1992 (‘SEBI Act’)-

What is the procedure of the Secretarial Audit?

The detailed Secretarial Audit process is given below:-

• Appointment of Secretarial Auditor
• Communication to earlier Incumbent
• Acceptance of Appointment by the Secretarial Auditor
• Preliminary Discussions about the company with the Secretarial Auditor
• Preliminary Meeting with the Auditor
• Finalization of Audit plan and briefing the staff
• Testing, Interview and Analysis
• Preparing the working papers
• Audit Summary for Discussions
• Submission of Secretarial Audit Report

What Documents are required for Secretarial Audit?

Below-mentioned documents are required for Secretarial Audit-

• Charter Documents and Statutory Registers,
• Board and General Meeting Minutes & Notices,
• Audited financial statements and Last year Secretarial Audit Report,
• If the company is listed, Filings & Intimations with ROC, Stock Exchanges, Newspaper Advertisements.
• Annual Performance Reports, Lease Deed, Bonds and returns
• Filings with RBI (If there is a foreign investment) and other statutory departments,
• Registers maintained under Labour Laws
• Admission and Statement for code of conduct received from the directors
• Remuneration and Sitting fees details paid to directors.
• Particulars of CSR amount
• SAST Disclosures
• Bank account details for dividend
• Details of ECB Returns, in case of foreign borrowings in the company.

What are the Frauds and Penalties associated with penalty for False Statements?

Section 448 of Companies Act 2013, deals with the penalty for false statements. The section provides that if in any return, report, certificate, financial statement, prospectus, statement or other document required by, or for the purposes of any of the provisions of this Act or the rules made thereunder, any person makes a statement,—

• Which is false in any material particulars, knowing it to be false; or
• Which omits any material fact, knowing it to be material, he shall be liable under section 447.