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Secretarial Audit
The audit is not exactly only the inspection of financial records and accounts. Actually, audit means proper inspection and verification of the company overall operations and functions, data, records, efficiency and so on. Secretarial Audit is all about the inspection of annual compliance with all related rules and regulations that must be followed. Apart from the regulators and stakeholders, the Secretarial audit even checks the employees that management of the company is compliant and holds the internal control of the company, disciplined approach, risk management, and governance process all check.
Secretarial Audit in India
Secretarial Audit is legal compliance that helps to monitor, examine and verify that the company operations and adheres to the rules and regulations applicable upon it. It also plays a vital role to inspect the error and mistakes regularly and to establish a racy compliance mechanism in the company.
As per the Companies Act 2013, each and every Company has several rules and ordinances to comply with their reports and records. Thus regular Audit depicts exact details about applicable law on the entity and the extent up to that it has complied as per the provisions of law.
The Advantages of Secretarial Audit in India
Following are the advantages of the secretarial audit:
- Secures the confidence of directors, creditors, stakeholders, employee, and management in the functioning of the company
- The compliant entity avails the advantage of the goodwill
- Ensures the effective mechanism of the company in place and monitors and regulates the compliance and non-compliance of a company
- The secretarial audit ensures that all the procedures are done legally which helps the management to concentrate on other important operations of the company.
- Investors get a good opinion about the level of compliance the entity does to be checked that their funds and investments are in safer hands.
Applicability of Secretarial Audit in India
Section 204(1) of Companies Act 2013, actually regulates scope, applicability, procedure, etc. that are related to Secretarial Audit. Thus Audit is mandatory for the following categories of companies:
- All Unlisted Entities
- Unlisted Public Company having paid-up share capital exceeding more than Rs. 50 Crore
- Unlisted Public Company that holds turnover exceeding more than Rs. 250 Crore
- Private Company that is a subordinate of an unlisted public company with:
- • paid-up exceeding more than RS.50 Crore
- • turnover exceeding more than RS.250 Crore
The Process of Secretarial Audit
The process of Secretarial Audit is too that hard and fast steps to be followed, however, below are the steps that should be followed by an auditor while carrying on auditing:
- Meeting with management to discuss the scope of its work and the payment of their professional fees to be delivered for conducting the audit
- After setting all the primary objects, identification of scope and activities are started which shall be listed
- After the finalizing the PCS, the company shall grant an engagement letter which holds all the terms and condition of his appointment
- PCS shall plan accordingly about the procedure for auditing work such as areas of laws which has to be covered first, date of visits for auditing, approx time schedule needed to finish the auditing work, and so on.
- Conducting the audit and filing all the observations and finding done throughout the process of audit
- After completing the auditing work, PCS will present the final Audit report in the prescribed format MR-3 duly signed and with Company Secretary in Practice stamp on it.
Application of Secretarial Audit conducting different spheres
- For Listed companies: Secretarial audit is made mandatory for listed companies by SEBI. These companies should get audited by authorized PCA/PCS. During the process, PCS should conciliate the CDSL/NSDL information with shares held
- For Central Public Sector: As per the Ministry of heavy enterprise and public enterprise, it is mandatory for corporate governance of CPS projects.
- For Banks: According to RBI, due diligence for banks and they should secure a certificate from practising professionals mentioning the level of compliance do
- For private company/ Unlisted public: These sectors company must get audited once in a year. And are mandatory to submit the audited report to concerned ROC which is done by practising professional
The penalty enforced for the infringement of Section 204
The company, its director, officer, or practising company secretary if conflicts any provision of this section will be liable with a penalty or fine of a minimum of Rs.1 Lakh and it can be extended to Rs. 5 Lakhs.
Frequently Asked Questions
The audit is not exactly only the inspection of financial records and accounts. Actually, audit means proper inspection and verification of the company overall operations and functions, data, records, efficiency and so on.
Secretarial Audit is legal compliance that helps to monitor, examine and verify that the company operations and adheres to the rules and regulations applicable upon it.
- Secures the confidence of directors, creditors, stakeholders, employee, and management in the functioning of the company
- The compliant entity avails the advantage of the goodwill
- Ensures the effective mechanism of the company in place and monitors and regulates the compliance and non-compliance of a company
- The secretarial audit ensures that all the procedures are done legally which helps the management to concentrate on other important operations of the company.
- Investors get a good opinion about the level of compliance the entity does to be checked that their funds and investments are in safer hands.
The company, its director, officer, or practicing company secretary if conflicts any provision of this section will be liable with a penalty or fine of a minimum of Rs.1 Lakh and it can be extended to Rs. 5 Lakhs.
