Secretarial Audit as per section 204 of Companies Act, 2013
Secretarial
Audit for bigger Companies
Secretarial
Audit is a process to check compliance with the provisions of various laws and rules/regulations/procedures,
maintenance of books, records, etc., by an independent practising Company
Secretary to ensure that the company has complied with the legal and procedural
requirements and also followed due processes. It is essentially a mechanism to
monitor compliance with the requirements of stated laws and processes. It helps
to deduct any non-compliance occurs by the Company. The Section 204 of
Companies Act, 2013 mandates certain companies to conduct the Secretarial Audit
in their Companies.
Objectives
of Secretarial Audit:
The objectives of
Secretarial Audit are mentioned below as follows:-
- To verify & report on compliances of applicable laws and Secretarial Standards;
- To point out non-compliances and inadequate compliances;
- To protect the interest of various stakeholders i.e. the customers, employees, society etc.
- To avoid any unwarranted legal actions/penalties by law
enforcing agencies and other persons as well.
Section
204 says that:
(1) A secretarial audit
report given by a company secretary
in practice in Form MR-3 shall be annexed with Board’s report made in terms of section 134(3) by:
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Rule
9: Secretarial Audit Report.
(1)
For the purposes of section 204(1), the other class of companies shall be as
under:-
(a)
Every public company having a paid-up share capital of Rs. 50 crore or more; or
(b)
Every public company having a turnover of Rs. 250 crore or more; or
(c)
Every company having outstanding loans or borrowings from banks or public
financial institutions of Rs. 100 Cr. or more.
(Insert
by Companies
(Appointment and Remuneration of Managerial Personnel) Amendment Rules, 2020 dated 3rd
January, 2020 and Amendment effective from on or after 1st April, 2020)
(2)
The format of the Secretarial Audit Report shall be in Form
No. MR.3.
Explanation:-
It
is hereby clarified that the paid up share capital, turnover, or outstanding
loans or borrowings as the case may be, existing on the last date of latest
audited financial statement shall be taken into account.
(2) It shall be the duty of the company to give all assistance
and facilities to the company secretary in practice, for
auditing the secretarial and related records of the company.
(3) The Board of Directors shall explain in full any qualification or
observation or other remarks
made by the company secretary in practice in his Secretarial audit report in Board Report made in terms of sub-section
(3) of section 134.
Punishment
for Contravention:
(4) If a company or any
officer of the company or the company secretary in practice contravenes the
provisions of this section:
The
company, every officer of the company or the company secretary in practice,
who is in default, shall be punishable with fine which shall not be less than 1 lakh rupees but which may extend to 5 lakh rupees
How
to Appointment of Secretarial Auditor?
Following the steps to appoint the secretarial Auditor:
· Appoint and fix the remuneration of the Secretarial Auditor in Board Meeting.
· Intimate the appointment to the Auditor
· File certified a true copy of Resolution passed in Board Meeting with ROC in form MGT – 14.
Secretarial
Audit – The process
1.
Initial
discussions
In this phase the auditor gathers relevant information about the Company in order
to obtain a general overview of operations.
2.
Identifying
scope and objectives
Secretarial
Auditor discusses the scope and objectives of the examination, in a formal meeting
with the management and gathers information on important processes, evaluates
existing controls, and plans the audit steps.
3.
Obtaining
of a formal engagement letter
A
formal engagement letter from the Management shall be issued to the Auditor.
This letter communicates the scope and objectives of the audit. PCS shall then
forward a preliminary checklist to the Company that will help the auditor learn
more about the company under audit.
4.
Meeting
with teams/persons involved
The opening meeting should include senior management and any administrative staff
who may be involved in the audit.
5.
Planning
of Audit
This program outlines the fieldwork necessary to achieve the audit objectives. The
PCS shall use a variety of tools and techniques to gather and analyze
information about the Company's operations. The review of controls helps the
auditor determine the areas of highest risk and design tests to be performed in
the fieldwork section.
6.
Preparation of Working Papers
Working papers are a vital tool in the
audit profession. They are the support of the audit opinion. They connect the
management's records and financials to the auditor's opinion. They are
comprehensive and serve many functions.
7.
Observations/Discussions
The detailed commentary describing the
findings and recommended solutions shall be summarised and presented for
initial discussions with the management for its insights.
8.
Summary of Audit findings and
subsequent discussions
Upon completion of the fieldwork, the
auditor to summarize the audit findings, conclusions, and recommendations
necessary in the form of the audit report.
9.
Secretarial Audit Report
The auditor shall prepare the final
report based on the fieldwork and working papers to present the audit findings
and discuss recommendations for improvements if any. The final report shall be
provided with or without qualifications.
10.
Follow up
Finally, as part of the Secretarial Audit's
self-evaluation program, the PCS may request the Company to list the actions
taken by the Company to resolve the audit report findings.
Scope of Secretarial Audit
- Companies Act, 2013 and the rules made thereunder;
- Securities
Contracts (Regulation) Act, 1956 (‘SCRA’), and the rules
made thereunder;
- Depositories
Act, 1996, and the rules made thereunder;
- Foreign
Exchange Management Act, 1999 and the rules and
regulations made thereunder.
- Regulations and Guidelines
prescribed under the Securities and Exchange Board of India Act, 1992
(‘SEBI Act’)
- Compliance of secretarial standards issued by
the Institute of Company Secretaries of India;
- Monitor and ensure
compliance with general laws like labour
laws, competition law, and environmental laws and also check
compliance of Income Tax, Customs, GST.
Format of MR-3
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The information contained herein is not
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