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Our in-house Company Secretaries will conduct a secretarial audit to ensure compliance with various laws, including the Companies Act, and other economic and corporate regulations applicable to your organization
Company Secretarial Audit – an Overview
A Company Secretarial Audit ensures that a company complies with statutory obligations and regulatory frameworks. It is conducted by a qualified Company Secretary in practice. It is mandatory for listed companies and public companies with paid-up capital above ₹50 crore or turnover exceeding ₹250 crore. The audit examines compliance with:
- The Companies Act, 2013
- SEBI regulations
- Other applicable laws and standards
The audit enhances transparency, accountability, and stakeholder confidence. It enforces compliance, ensures governance, and identifies risks.
Applicability of Company Secretarial Audit
As per Section 204 of the Companies Act, 2013, Company secretarial audit applies to all listed companies and specific public companies meeting the following thresholds:
- (a) companies with a paid-up share capital of ₹50 crores or more, or
- (b) companies with an annual turnover of ₹250 crores or more.
Section 204 mandates the submission of the Company secretarial audit Report in the prescribed format. According to Rule 9(2), the report must be in Form MR-3, issued exclusively by a Company Secretary in Practice.
Objectives of Company Secretarial Audit
The objectives of a Company Secretarial Audit are multi-dimensional, aimed at ensuring that an organization operates within the legal framework and follows sound governance practices. The audit not only verifies statutory and regulatory compliance but also enhances the effectiveness of corporate governance, thereby reducing legal and operational risks. This structured process supports the Board of Directors and management in adhering to key responsibilities and fulfilling stakeholder expectations.
1. Ensure Compliance with Corporate Laws and Regulations
A key objective is to verify compliance with multiple corporate laws including the Companies Act, 2013, SEBI Regulations, Secretarial Standards, and other applicable laws.
- Companies Act, 2013
- SEBI Regulations (for listed entities)
- Secretarial Standards (SS-1 & SS-2) issued by ICSI
- Other applicable corporate, environmental, labor, tax, and industry-specific laws
This audit ensures that the company has complied with all required provisions and maintained necessary filings, disclosures, and approvals.
2. Strengthen Corporate Governance Practices
The audit evaluates the governance structure of the company to ensure that statutory bodies and senior management comply with their roles. It promotes accountability and transparency within the organization.
- Accountability and transparency
- Adherence to best governance practices
- Proper functioning of board processes, general meetings, and disclosures
3. Risk Identification and Mitigation
The audit identifies potential compliance risks, regulatory gaps, and internal control weaknesses. Early detection enables timely corrective action and better risk management.
- Take corrective measures
- Avoid penalties or legal disputes
- Strengthen internal systems and documentation
This objective is crucial for risk management and legal assurance.
4. Verification of Records and Statutory Filings
It ensures accurate maintenance of records and timely filings with regulatory bodies, confirming the authenticity and reliability of corporate data.
- Statutory registers (Members, Directors, KMPs, Charges, etc.)
- Board and general meeting minutes
- Shareholder and securities records
- Timely and accurate ROC, SEBI, and tax filings
This also confirms the authenticity and reliability of corporate records.
5. Improve Stakeholder Confidence and Market Reputation
An effective secretarial audit builds confidence among key stakeholders by demonstrating legal and ethical corporate operations.
- Investors
- Regulators
- Financial institutions
- Employees
By demonstrating that the company operates ethically and legally, it improves corporate credibility and public trust.
6. Enhance Internal Controls and Operational Efficiency
The audit assesses and suggests improvements to internal processes, promoting better compliance and performance management.
- Workflow compliance
- Policy implementation
- Overall operational governance
This leads to better resource utilization and performance management.
7. Legal Due Diligence for Mergers, Acquisitions & Funding
Secretarial Audit serves as a vital tool in ensuring transparency and compliance during corporate transactions and fundraising.
- Due diligence reports for M&A
- Equity and debt funding
- Strategic partnerships
It assures external parties of the company’s regulatory standing and governance health.
8. Compliance Awareness Among Directors and Management
The audit nurtures a culture of compliance by educating and updating internal teams on regulatory responsibilities and consequences.
- Educating stakeholders about governance requirements
- Training internal teams on regulatory changes
- Creating awareness about the consequences of non-compliance
9. Support for Regulatory Inspections and Litigation Readiness
The audit prepares the company for any form of regulatory scrutiny or legal evaluation by maintaining organized and compliant documentation.
- Regulatory inquiries or inspections (from MCA, SEBI, etc.)
- Internal or statutory investigations
- Legal scrutiny and court proceedings
10. Facilitates Long-Term Sustainability and Ethical Growth
By upholding ethical standards and governance practices, the audit supports responsible business growth and CSR obligations.
- Sustainable business practices
- Corporate social responsibility (CSR) compliance
- Long-term value creation for all stakeholders
Scope of Company Secretarial Audit
The Objectives of Secretarial Audit go far beyond simple compliance checks—they are designed to ensure that every company, including a public company, private company, or listed company, adheres to applicable laws and follows sound corporate governance practices. Under Section 204 of the Companies Act, 2013, it is mandatory for certain companies to conduct this audit, which must be carried out by a Practising Company Secretary (PCS).
The audit findings are a critical input in the Board’s Report, guiding corporate decision-making and compliance strategy.
1. Ensure Compliance with Company Law and Applicable Laws
The primary objective is to verify compliance with various laws and regulations applicable to the company.
- Companies Act, 2013
- Company Law provisions and Secretarial Standards
- Regulations under the Foreign Exchange Management Act, SEBI Act, Exchange Board of India Act, Securities Contracts (Regulation) Act, and Depositories Act
- Other applicable laws, environmental laws, and general laws
This includes compliance in areas such as Foreign Direct Investment, Overseas Direct Investment, Issue of Capital, and filings with government authorities. The audit confirms that officers of the company and directors fulfill their legal duties, as reflected in the Board Report and annual report.
2. Assess Corporate Governance Practices
Secretarial Audit evaluates the company’s governance structure and corporate behavior.
- Functions of the Board of Directors, Executive Directors, and board committees
- Compliance with Remuneration of Managerial Personnel rules
- Operation of board meetings, and adherence to Secretarial Standards (SS-1 and SS-2)
- Implementation of schemes such as Employee Stock Purchase Plans
The goal is to strengthen corporate governance and ensure responsible behavior by the officers of the company.
3. Identify and Mitigate Compliance Risk
The audit helps identify compliance risks, lapses, and procedural issues.
- Addresses false statements or inaccurate filings
- Ensures readiness for regulatory scrutiny
- Protects companies with outstanding loans from public financial institutions
This enhances the company’s effectiveness of risk management and shields it from potential legal actions.
4. Verify Statutory Records and Registers
The audit ensures proper documentation and form filing as per Company Law.
- Statutory registers for Equity Shares, directors, related parties, and loans
- Proper filing of forms such as e-form MGT, and disclosures under Buyback of Securities, Substantial Acquisition of Shares
- Documentation in such form as required by the Companies Act
5. Define the Scope of Secretarial Audit and Ensure Strategic Alignment
The audit ensures that compliance scope is aligned with regulatory expectations and industry practices.
- Evaluating compliance with sector-specific laws for the insurance company, Banking Industry, or companies with foreign investment
- Ensuring compliance with the Listing of Debt Securities guidelines
- Enhancing overall corporate compliance management
The audit ensures that the internal practices are in sync with external regulatory frameworks.
6. Strengthen Board Oversight and Risk Management
Secretarial Audit supports the Board in fulfilling oversight and risk management roles.
- Monitoring governance in unlisted subsidiaries or joint ventures
- Ensuring responsible financial practices involving External Commercial Borrowings
- Improving oversight of day-to-day compliance obligations
7. Enhance Disclosure in Annual Report and Board’s Report
The audit validates the accuracy and timeliness of disclosures made in statutory reports.
- Board’s Report
- Annual Report
- Filings with Registrar of Companies, Securities and Exchange Board of India, and other regulators
It also validates conformity with Disclosure Requirements under Company Law.
8. Monitor Appointment of Secretarial Auditor
The audit ensures proper appointment and review of the secretarial auditor.
- Appointment of an eligible Practising Company Secretary with a valid certificate of practice
- The appointment process follows regulatory norms
- Performance reviews and possible reappointment are handled transparently
This process is part of the larger process of secretarial audit, carried out annually.
9. Build Confidence Among Stakeholders
The audit enhances transparency and accountability, boosting trust across all stakeholder groups.
- Increase credibility among investors, regulators, and financial institutions
- Prevent non-compliance that may lead to reputational damage
- Strengthen stakeholder trust by ensuring transparency in operations
10. Realize the Benefits of Secretarial Audit
Secretarial Audit offers strategic, operational, and legal advantages.
- Full legal compliance with various laws
- Strengthening of internal systems
- Protection of statutory auditors and company officers
- Insights for operational improvements
- Better preparation for M&A, IPOs, and funding
These benefits reinforce Secretarial Audit as an effective tool for both compliance and business growth.
Appointment and Responsibilities of a Company Secretary
The appointment of a Company Secretary plays a pivotal role in ensuring every company, especially a public company, private company, or listed company, complies with applicable Company Law provisions. Company Secretaries are essential to maintaining statutory registers, managing shareholder communications, and facilitating sound corporate governance practices.
The appointment of a Company Secretary plays a pivotal role in ensuring every company, especially a public company, private company, or listed company, complies with applicable Company Law provisions. Company Secretaries are essential to maintaining statutory registers, managing shareholder communications, and facilitating sound corporate governance practices.
Who Conducts the Secretarial Audit?
The Secretarial Audit, mandated under Section 204 of the Companies Act, 2013, must be conducted by a Practising Company Secretary (PCS)—a professional member of the Institute of Company Secretaries of India (ICSI) holding a valid Certificate of Practice (COP). Only such an independent professional is authorized to carry out the audit and issue the report in Form MR-3.
Eligibility Criteria for the Secretarial Auditor
To be eligible for the Appointment of Secretarial Auditor, the following conditions must be met:
- The auditor must be a member of ICSI.
- Must hold a valid Certificate of Practice issued by ICSI.
- Must not be disqualified under the Companies Act, 2013.
- Must give written consent to act as the Secretarial Auditor.
- A formal engagement letter outlining the Scope of Secretarial Audit, timeline, and deliverables must be issued.
- The appointment is approved by the Board of Directors via a board resolution.
Appointment Process of Secretarial Auditor
The process of appointing a Secretarial Auditor is governed by the Companies Act, 2013 and includes the following steps:
1. Board Resolution
The Board of Directors passes a resolution under Section 204 appointing the Secretarial Auditor, confirming the audit requirement based on the company’s status (e.g., whether it is a listed company, public company, or has a paid-up share capital of ₹50 crore rupees or more).
2. Consent and Confirmation
The proposed auditor must provide written consent and confirm eligibility under Company Law provisions.
3. Defining the Scope
The company and the auditor agree on the process of secretarial audit, including timelines, documentation requirements, and audit expectations.
Mandatory Appointment of Company Secretary
Under Company Law, the appointment of a full-time Company Secretary is mandatory for certain types of companies.
- Public companies having a paid-up share capital of ₹10 crore rupees or more
- All listed companies, where the Company Secretary is designated as Key Managerial Personnel (KMP)
Even private companies engaged in significant regulatory activities or with specific sectoral obligations are advised to appoint a qualified secretary for compliance purposes.
Duties and Responsibilities of the Secretarial Auditor
The role of the Secretarial Auditor extends beyond documentation and into strategic legal oversight. The core duties include:
- Compliance Checks: Evaluate compliance with Company Law, SEBI Regulations, Foreign Exchange Management Act, Securities Contracts Act, and other applicable laws.
- Governance Review: Examine the functioning of the Board of Directors, Executive Directors, and board committees.
- Record Maintenance: Ensure accurate upkeep of statutory registers, minutes, resolutions, and disclosures.
- Filing and Documentation: Verify timely filings with Registrar of Companies, SEBI, and other government authorities.
- Reporting: Prepare the Secretarial Audit Report (Form MR-3), highlighting non-compliance, if any.
- Confidentiality: Maintain confidentiality of internal records, sensitive data, and audit findings.
- Recommendations: Provide guidance on improving governance processes, legal compliance, and internal systems.
- Board Advisory: Offer insights to the board regarding gaps in compliance and recommend remedial actions.
The company must provide full access to records, policies, agreements, and the management team to enable a comprehensive and accurate audit.
Step-by-Step Process of Company Secretarial Audit
The process of Secretarial Audit involves a structured and methodical review of a company’s adherence to Company Law, regulatory requirements, and internal governance frameworks. The audit is conducted by a Practising Company Secretary (PCS) in accordance with Section 204 of the Companies Act, 2013 and concludes with the submission of a Secretarial Audit Report in Form MR-3.
Here is a detailed outline of the step-by-step process of Company Secretarial Audit:
Step 1: Initial Consultation and Scope Definition
The audit begins with a consultation between the Secretarial Auditor and the company’s management. This stage includes:
- Identifying the nature and size of the company (e.g., private company, public company, listed entity)
- Understanding the company’s governance structure and Board of Directors
- Determining the audit’s objectives based on Secretarial Audit Applicability
- Defining the Scope of Secretarial Audit, including regulatory focus areas such as compliance with the Companies Act, 2013, SEBI Act, Foreign Exchange Management Act, and Securities Contracts (Regulation) Act
Step 2: Documentation Review
The auditor reviews all relevant corporate and legal documentation, including:
- Statutory registers (e.g., Register of Members, Directors, Charges)
- Board meeting notices, agendas, and minutes
- Incorporation documents (e.g., Certificate of Incorporation, Memorandum & Articles of Association)
- Shareholding patterns and Equity Shares transactions
- Corporate filings with the Registrar of Companies, SEBI, and other government authorities
This phase ensures accuracy, completeness, and adherence to applicable laws.
Step 3: Audit Execution and Compliance Verification
A thorough audit is conducted to evaluate the company’s compliance with:
- Company Law, including remuneration of managerial personnel, disclosures, and resolutions
- SEBI regulations and other provisions under the Exchange Board of India Act
- Industry-specific regulations such as those applicable to the insurance company, banking industry, or entities involved in foreign investment
This step helps identify:
- Gaps in compliance
- False statements or errors in filings
- Deficiencies in governance processes
- Non-compliance with Secretarial Standards
Step 4: Preparation of Secretarial Audit Report (Form MR-3)
The Secretarial Audit Report is prepared in Form MR-3, which includes:
- Observations on the company’s regulatory compliance
- Details of non-compliances, if any, including incorrect disclosures or delays in filings
- Assessment of compliance with statutory auditors’ requirements and financial records
- Recommendations for corrective actions to align with legal and procedural expectations
The findings also assist in strengthening internal audit mechanisms and ensuring compliance in future financial years.
Step 5: Presentation to Board of Directors and Regulatory Filing
The final audit report is:
- Submitted to the Board of Directors for their review and documentation in the Board’s Report
- Used by the management to develop a compliance roadmap for the upcoming financial year
- Shared with regulatory bodies (e.g., SEBI, Registrar of Companies) if required under specific laws
- Incorporated into the company’s annual report for stakeholder reference
Where necessary, appropriate actions are taken by the company to rectify deviations or improve internal controls.
Documents Required for Company Secretarial Audit
To conduct a thorough company secretarial audit, companies must provide the following records and documents:
Incorporation Documents:
- Certificate of Incorporation
- Memorandum & Articles of Association
Board and Meetings:
- Notices, agendas, and minutes of:
1. Board meetings
2. General meetings
3. Committee meetings - Attendance registers
Registers and Records:
- Register of Members
- Register of Directors & Key Managerial Personnel (KMP)
- Register of Charges
- Register of Contracts/Related Party Transactions
- Register of Loans, Guarantees, Securities, and Investments
- Share Transfer/Transmission Register
Shareholding and Securities:
- Shareholding pattern
- Share allotment, transfer, buyback records
- Dividend payment records
Compliance Filings:
- Annual return (MGT-7, MGT-9)
- Financial statements (AOC-4)
- ROC filings (DIR-12, CHG-1, etc.)
- SEBI filings (for listed companies)
Director and KMP Disclosures:
- DIR-8 (non-disqualification of directors)
- MBP-1 (director’s interest disclosure)
- Declarations under Section 149 (for independent directors)
Legal and Regulatory Compliance:
- Compliance certificates (corporate governance, CSR)
- Licenses and approvals
- Notices from regulators (ROC, SEBI, etc.)
- Proof of compliance with labor and environmental laws
Financial and Tax Records:
- Audited financial statements
- Tax returns and assessments (Income Tax, GST, etc.)
- CSR expenditure records (if applicable)
Policies and Codes:
- Code of Conduct for directors
- Whistleblower policy
- Insider Trading policy (for listed companies)
- Other company policies (e.g., risk management, sexual harassment)
Other Documents:
- Agreements, contracts, and MOUs
- Borrowing, loan, and guarantee details
- Records of legal proceedings/penalties
Benefits of Company Secretarial Audit
A company secretarial audit ensures compliance with legal and regulatory requirements, enhancing corporate governance. It helps identify potential risks, improves operational efficiency, and protects against legal liabilities. Here are 7 major benefits of secretariat audit:
- Legal Risk Management: A company secretarial audit can identify potential legal risks and address them in advance, reducing the risk of receiving penalties or facing legal actions for non-compliance with statutory regulations
- Compliance Assurance: An audit ensures the company’s adherence to many corporate legislations, including the Companies Act, securities regulations, and others, hence eliminating legal risks experienced due to non-compliance
- Increases Stakeholder trust: Boosting the credibility of the company before investors, regulators, and the public with increased confidence in the governance and operations of the company
- Improved Corporate Governance: The company secretarial audit confirms that the company’s policies and practices are consistent with industry standards and legal requirements
- Risk Identification: It identifies weaknesses in internal controls, compliance processes, and operational procedures, allowing timely rectification and better risk management
- Stronger Goodwill and Reputation: Continuous compliance with legal norms strengthens the company’s market reputation and increases closer relationships with stakeholders, therefore creating more business opportunities
- Operational Efficiency: The audit finds inefficiencies in operations and hence gives the chance to improve operations that would ensure efficient use of resources and smoother running of the business.
Company Secretarial Audit Checklist
- Confirm filing of annual returns, financial statements, and board resolutions
- Verify proper appointment of directors, board meetings, and financial reporting
- Verify required board members (independent, women directors) and proper meeting documentation
- Ensure necessary committees (Audit, Nomination) are in place
- Assess board governance practices
- SEBI Regulations like timely disclosures and reporting for listed companies
- Tax Compliance like timely filing of income tax and GST returns
- Adherence to employee welfare, provident fund, and statutory benefits
- AGM & EGM Compliance by following correct procedures for conducting meetings and passing resolutions
- Environmental & Industry-Specific Compliance to relevant environmental laws and industry regulations
- Ensure all contracts and agreements meet legal requirements
- Proper documentation of meetings, transactions, and resolutions
- Ensure compliance with related-party transaction rules
Clauses and Legal Framework Section 204 of the Companies Act, 2013
Section 204 of the Companies Act, 2013 provides for Company secretarial audit. It is specifically made mandatory for some classes of companies such as listed companies, public companies having paid-up share capital and the turnover exceeding certain limits, and to be prescribed by the government.
Key Points of Section 205: Functions of Company Secretary
Company Secretary’s Functions:
- Compliance Reporting: Reports to the Board on compliance with the Companies Act, rules, and other applicable laws and regulations
- Secretarial Standards: Ensures the company complies with secretarial standards as issued by the Institute of Company Secretaries of India (ICSI) and approved by the Central Government
- Other Duties: Performs other duties as may be prescribed.
Explanation of Secretarial Standards:
- Secretarial standards refer to the standards issued by ICSI under Section 3 of the Company Secretaries Act, 1980, and approved by the Central Government
Non-Impact on Other Roles:
- The provisions of Sections 204 and 205 do not affect the duties of the Board of Directors, Chairperson, Managing Director, or Whole-Time Director under the Companies Act or any other applicable law.
SEBI Compliance:
The Securities and Exchange Board of India (SEBI) has laid out several guidelines and circulars regarding company secretarial audit and Compliance Audits for listed companies and their subsidiaries.
- SEBI Circulars: SEBI has issued specific circulars related to company secretarial audit reports and secretarial compliance reports that listed companies must follow. For example, a circular issued on 8th February 2019 specified the requirements for maintaining regulatory compliance, and for submission of the audit report to SEBI, ensuring entities adhere to securities laws.
- Deadline for Compliance: Companies are required to submit their secretarial compliance reports by 31st March each year, in compliance with SEBI’s regulations.
- Applicability to Subsidiaries and Banks: SEBI’s circulars also extend to the subsidiaries of listed companies, banks, and other entities involved in public trading. These entities must ensure they are meeting the required compliance standards set forth by the regulatory authorities.
- Audit Scope and Guidelines: SEBI’s guidelines outline the specific aspects of compliance audits that must be reported in the company secretarial audit report, including adherence to listing agreements, corporate governance norms, and compliance with the securities laws.
- Regulatory Oversight: SEBI plays a key role in ensuring the audit and compliance processes are rigorous. Companies must comply with SEBI’s requirements for company secretarial audits, especially for publicly traded entities, to ensure transparency and investor protection.
Deliverables of Company Secretarial Audit
The company secretarial audit Report is a document that provides an overview of the company’s compliance with legal and regulatory requirements. It includes the following content:
- Compliance Status: A detailed assessment of the company’s compliance with applicable laws, including the Companies Act, SEBI regulations, tax laws, labor laws, and other sector-specific rules. This section highlights whether the company has met its statutory obligations and filed necessary documents on time.
- Identified Risks: The report identifies any potential legal, operational, or governance risks that could impact the company. These could include areas where compliance is lacking, or where the company is exposed to penalties or legal challenges due to non-compliance.
- Recommendations: Based on the findings, the audit report provides recommendations for addressing compliance gaps, improving internal controls, and mitigating identified risks. These recommendations may cover areas such as updating legal documents, improving governance practices, or revising processes to ensure timely compliance.
- Areas for Improvement: This section highlights specific areas where the company’s governance practices or internal controls need strengthening. It may include suggestions for better management of shareholder meetings, board documentation, or legal filings to ensure full compliance.
Post-Audit Follow-Up
After the audit report is delivered, the company should take the following steps to address the recommendations:
- Addressing Recommendations: The company must prioritise and implement the recommendations provided in the audit report. This could involve revising corporate governance practices, filing overdue documents, or taking corrective actions in response to identified risks
- Action Plan: The company should create an action plan for addressing the issues highlighted in the report. This plan should include timelines, responsible parties, and necessary resources to ensure that corrective actions are implemented effectively
Penalties for Non-Compliance with Company Secretarial Audit
Failure to comply with the company secretarial audit requirements under Section 204 of the Companies Act, 2013 can lead to significant penalties and legal consequences for companies and their officers. Some of the key penalties include:
| Type of Non-compliance | Penalty Details | Rate/Amount |
|---|---|---|
| Penalties for the Company | Failure to conduct company secretarial audit as required. | Up to ₹2,00,000; increases to ₹5,00,000 for continued default. |
| Penalties for Directors & Officers | Directors, officers, and responsible individuals for non-compliance. | Up to ₹1,00,000; increases to ₹5,00,000 for continued violations. |
| Imprisonment & Additional Penalties | Willful default or fraud may lead to additional penalties or imprisonment under the Companies Act. | Varies based on the severity of the offense. |
| Penalty for Secretarial Auditors | Failure to perform duties diligently or providing incorrect reports. | Liability for damages and penalties. |
| Violation & Default | Non-compliance with Section 204 can result in penalties or criminal charges. | Criminal prosecution in cases of fraud or willful violation. |
Importance of Company Secretarial Audit in Corporate Governance
Company secretarial audits play a critical role in enhancing corporate transparency. By evaluating a company’s adherence to legal, regulatory, and internal governance frameworks, these audits ensure that the organisation operates transparently and in compliance with all relevant laws.
- Trust with Stakeholders: A thorough company secretarial audit demonstrates a company’s commitment to following established corporate governance practices, ensuring that the business is trustworthy and transparent. This builds confidence among stakeholders, such as investors, customers, employees, and regulators, knowing that the company is adhering to laws and maintaining high governance standard.
- Public Perception: Transparent operations, highlighted through secretarial audits, help improve a company’s reputation in the market. By demonstrating a strong compliance culture, companies attract investors and other partners who value ethical business practices.
- Legal and Regulatory Compliance: Regular company secretarial audits help companies stay on top of their legal obligations, ensuring they meet filing deadlines, maintain proper documentation, and comply with all applicable rules and regulations. This creates a positive image and minimises legal risks.
Accountability and Risk Management
Company secretarial audits also play an essential role in holding companies accountable and ensuring that their internal governance structures are robust and compliant with regulatory standards. Here’s how they contribute to better accountability and risk management:
- Internal Governance Oversight: A company secretarial audit examines the company’s governance practices, focusing on the board’s activities, internal control systems, and compliance with corporate laws. By identifying weaknesses in these areas, it ensures that the company’s internal structures are functioning as they should, with proper checks and balances in place.
- Identification of Risks: Through the audit process, potential risks related to legal non-compliance, operational inefficiencies, or governance failures can be identified early. By addressing these risks proactively, companies can avoid penalties, legal disputes, and reputational damage.
- Holding Management Accountable: The audit ensures that the management is adhering to their legal obligations and corporate responsibilities. This accountability ensures that the management team acts in the best interest of the shareholders, employees, and other stakeholders.
- Continuous Improvement: Company secretarial audits not only highlight non-compliance but also suggest areas for improvement. By continuously monitoring and addressing compliance gaps, the company can strengthen its governance practices over time, reducing future risks and enhancing overall operational efficiency.
Secretarial Audit FAQ’s
Can CA do a company Secretarial Audit?
No, a Chartered Accountant (CA) cannot conduct a company secretarial audit, as it requires specific expertise in corporate laws and governance. Only a Practicing Company Secretary (PCS), with the necessary qualifications and experience, is authorised by the Companies Act, 2013 to conduct a company secretarial audit, ensuring compliance with legal regulations.
When does an LLP need to appoint a PCS for a company secretarial Audit?
An LLP (Limited Liability Partnership) does not require a company secretarial audit unless specifically mandated under any regulation or by the Ministry of Corporate Affairs (MCA). However, for certain sectors, the LLP might be required to appoint a Practicing Company Secretary (PCS) for compliance purposes, depending on the nature and scale of operations.
What is the legal basis for conducting a company Secretarial Audit?
The legal basis for conducting a company secretarial audit is primarily provided under Section 204 of the Companies Act, 2013. It mandates companies, particularly listed companies or those meeting specific criteria, to conduct an audit to ensure adherence to corporate laws and other statutory requirements, improving governance and transparency.
Can a Company Secretarial Auditor be reappointed for consecutive years?
Yes, a company secretarial auditor can be reappointed for consecutive years, provided that the company follows proper procedures and complies with the Companies Act, 2013. However, it is important to periodically evaluate the auditor’s performance and ensure they remain objective in their duties, as required by corporate governance norms.
What is the role of the Company Secretarial Auditor in ensuring SEBI compliance?
The company secretarial auditor plays a crucial role in ensuring SEBI compliance by verifying that the company adheres to SEBI regulations, particularly for listed companies. This includes reviewing financial disclosures, corporate governance practices, and timely filing of reports, ensuring that the company operates within the regulatory framework established by SEBI.
Is the Company Secretarial Audit report publicly available?
The company secretarial audit report is not publicly available but is submitted to the Board of Directors and may be shared with shareholders during AGMs (Annual General Meetings). In listed companies, parts of the audit report related to governance and compliance might be disclosed through annual filings to SEBI and the Registrar of Companies (RoC).
How does a Company secretarial audit help with risk management?
A company secretarial audit helps with risk management by identifying compliance gaps, internal governance weaknesses, and regulatory risks. By pinpointing areas of non-compliance or potential vulnerabilities, the auditor can recommend corrective actions, allowing the company to mitigate legal, financial, and operational risks before they escalate.
What are the typical challenges faced during a Company Secretarial Audit?
Typical challenges in a company secretarial audit include dealing with incomplete or poorly maintained records, non-compliance with statutory filings, inadequate internal controls, and frequent changes in regulations. Ensuring proper documentation, timely filings, and understanding complex legal frameworks often presents hurdles during the audit process.
Can Company Secretarial Audit findings affect a company’s stock market performance?
Yes, company secretarial audit findings can significantly affect a company’s stock market performance. If the audit uncovers serious compliance issues or governance lapses, it may lead to a loss of investor confidence, regulatory penalties, and negative market perception, which could impact the company’s stock value and overall reputation.
What is the difference between a Company Secretarial Audit and a compliance certificate?
A company secretarial audit is a comprehensive review of a company’s adherence to legal, regulatory, and governance standards, while a Compliance Certificate is a statement issued by the company secretary confirming that the company has complied with specific statutory provisions, often focusing on a narrower range of legal obligations.
What is the difference between statutory audit and secretarial auditor?
A statutory audit is conducted by a Chartered Accountant (CA) to evaluate a company’s financial statements and ensure compliance with accounting standards, while a Secretarial Audit focuses on a company’s adherence to corporate laws, governance practices, and regulatory requirements, typically carried out by a Company Secretary (CS).
Are there any penalties for auditors who fail to conduct Secretarial Audits properly?
Yes, penalties may be imposed on secretarial auditors who fail to conduct audits properly. If an auditor fails to adhere to their responsibilities or issues a false or inadequate report, they could face fines, penalties, or even legal action under the Companies Act, 2013, depending on the severity of the non-compliance.
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