The concept of secretarial audit was introduced by the Companies Act, 2013. It is a process to check compliances made by the Company under Corporate Law & other laws, rules, regulations, procedures etc. It is a mechanism to monitor compliance with the requirements of stated laws and processes. Periodic examination of work is necessary to point out errors & mistakes and to make a robust compliance mechanism system in an organization. This is done through the secretarial audit report.
Secretarial audit lays the foundation for good governance which helps the company to go the extra mile to achieve stability in business.
Companies with an effective secretarial audit programme have lesser chance of receiving penalties, both monetary and imprisonment.
It provides the Non-executive/ Independent Directors with the comfort that appropriate mechanisms and processes are in place.
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.
The Secretarial Auditor expresses an opinion as to whether there exist adequate systems and processes in the company commensurate with the size and operations of the company to monitor and ensure compliance with applicable laws, rules, regulations and guidelines. Secretarial Audit helps to detect the instances of non-compliance and facilitates taking corrective measures. It audits the adherence of good corporate practices by the company.
It is therefore an independent and objective assurance intended to add value and improve operations of the Company. It helps to accomplish the organisation‟s objectives by bringing a systematic, disciplined approach to evaluate and improve effectiveness of risk management, control, and governance processes.
Secretarial Audit thus provides necessary comfort to the management, regulators and the stakeholders, as to the statutory compliance, good governance and the existence of proper and adequate systems and processes.
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
instill 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.
Secretarial Audit facilitates monitoring compliances with the requirements of
law through a formal compliance management programme which can
produce positive results to the stakeholders of a company:
Secretarial Audit assures the promoters of a company that those incharge of its management are conducting its affairs in accordance with the requirements of laws and the owners‟ stake is not being exposed to unintended risk.
(b) Non-executive/Independent directors
Secretarial Audit provides comfort to the Non-executive/Independent Directors that appropriate mechanisms and processes are in place to ensure compliance with laws applicable to the company, thus mitigating any risk from a regulatory or governance perspective.
(c) Government authorities/regulators
It also facilitates reducing the burden of the regulators in ensuring compliances and they can take timely actions against the offenders.
Secretarial Audit helps the investors in taking informed investment decision, as it evaluates the company in terms of compliance and governance norms being followed by the company.
(e) Other Stakeholders
It is an effective due diligence exercise for the prospective investors or joint venture partners. Further Financial Institutions, Banks, Creditors and Consumers can measure the law abiding nature of company management.
(f) Benefits to the company itself
— Companies that go the extra mile with their compliance programs lay the foundation for good governance.
— Companies with an effective compliance management programme have lesser chance of receiving penalties, both monetary and by way of imprisonment.
— Companies that imbibe business and personal ethics and an effective compliance management programme within their work culture often enjoy employee and customer loyalty and public respect for their brand, which can translate into better market capitalization and shareholder returns.
- Recognition for the company as a good corporate citizen. The Secretarial Audit provides an in-built mechanism for enhancing corporate compliance generally and help restore the confidence of investors in the capital market through greater transparency in corporate functioning.
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]
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
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)]
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.
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.
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).
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.
Filingenie did an exceptional job in understanding our requirements and executed our company formation including all the legal aspects in a very professional and articulate manner. We were very satisfied with their professional demeanour, as they were extremely well planned and supported it with appropriate supervision and guidance.
Filingenie has demonstrated they are a professional, dedicated and customer focused.
Your company made it very easy for me to go and it saved me a lot of time and frustration.