Applicability of Secretarial Audit

Secretarial audit as an independent and transparent process saves the organization from getting caught in legal complications by keeping a watchful eye on the compliance of rules, regulations, and laws in the organization.  It also creates a strong sense of trust among the beneficiaries of the organization by bringing out the clean image of the organization. The issue of the relevance of secretarial audits has been discussed in this article.

Table of content:

1. What is meant by a Secretarial audit?
2. Who is Secretarial Auditor?
3. How is the secretarial auditor appointed?
4. What is the importance of a secretarial audit report?
5. What are the essential facts in preparing a secretarial audit report?
6. What documents are required for a secretarial audit?
7. On what statutory basis is the secretarial audit done?
8. For which companies are mandatory secretarial audits?
9. What is the applicability of a secretarial audit?
10. What is the penalty for making mistake in Secretarial Audit?
11. Conclusion

1. What is meant by a Secretarial audit?

The secretarial audit is a process under which it is seen whether all the currently applicable laws, regulations, prescribed procedures, and records are being properly maintained in the organization or not.  For this especially an independent professional is appointed, which is known as a secretarial auditor who prepares the secretarial audit report. 

2. Who is the Secretarial Auditor?

The secretarial auditor is primarily a company secretary appointed by the company under the company’s (meeting of the board and its powers) rules, 2014. Which performs the work of secretarial audit as per rule 24A of the Securities and Exchange Board of India.

3. How is the secretarial auditor appointed?

Every company names a person or company as the secretarial auditor at its first general meeting, and that person or company serves as the secretarial auditor for a term of five consecutive years after that. After five years, a secretarial auditor may be reappointed if approved at the annual general meeting.

4. What is the importance of a secretarial audit report?

The spirit of trust is strengthened among various stakeholders of the organization such as management, regulators, shareholders, and other stakeholders through secretarial audit reports.  Through this secretarial audit report, the statutory and regulatory flaws of the organization are rectified in time by getting information about the shortcomings in compliance with the rules of the organization.  In such a situation, the organization has a special advantage in risk management.

5. What are the essential facts in preparing a secretarial audit report?

The following essential facts must be taken care of in preparing the secretarial audit report:
1. In reality, a business secretary must prepare it.
2. Only members of the Institute of Company Secretaries of India who have a valid certificate of practice for conducting secretarial audits can conduct a secretarial audit and prepare secretarial audit reports for the company.
3. It shall be prepared in form M-3R annexed with Board's report

6. What documents are required for a secretarial audit?

Charter documents, statutory register, minutes and notices of general meetings, previous years’ audit reports, annual performance report, statement of CSR amount, SAST disclosure, statement of code of conduct received from directors’ statements, for secretarial audit in any organization Bank account details, etc. Documents are needed by the secretarial auditor.

7. On what statutory basis is the secretarial audit done?

The secretarial audit is based on the provisions and guidelines of some Acts.  Like the Companies Act 2014 and the rules made thereunder, the Depositories Act, 1996 and the laws made thereunder, the rules made under the Foreign Exchange Management Act 1999, regulations and guidelines prescribed under the Securities and Exchange Board of India Act,1992, Institute of company secretaries Standards of India issued from time to time.

8. For which companies are it mandatory for secretarial audits?

The mandatory provisions relating to the applicability of secretarial audit are explained below:
Every listed company

1. Every public company having paid-up share capital above RS 50 crore
2. Turnover below RS 250 crore If any one of the criteria meets then also secretarial audit is mandatory.
3. The secretarial audit has not been made mandatory for private companies and small public companies. 4. These companies may adopt secretarial audit practices for ensuring compliance and avoiding the risk associated with noncompliance.

9. What is the applicability of secretarial audits?

1. Secretarial audit checks the compliance of rules and regulations by the organization.  Due to this the organization remains very vigilant in terms of legal aspects and the organization remains in a legally secure position.

2. Various stakeholders of the organization like promoters, executive directors, company regulators, government authorities, investors, financial institutions, etc. get credible information about the organization, which gives them confidence in the organization and in terms of the growth of the organization able to take necessary decisions.

3. Secretarial audit works on the principle of 'prevention is better than cure which helps in the orderly running of the organization.

4. Secretarial audit helps in managing the risk in the context of the organization by timely spotting the shortcomings of the organization.  Due to this, the interests of the personnel working in the organization, company management, and investors are protected.

5. Secretarial audit helps in managing risk as well as control and formulation of plans in the organization.

6. Secretarial audit brings out a better image of the organization, which encourages investors to invest in the organization.  Better investment helps in the growth of the organization.

7. Secretarial audit examines the legal compliance of the organization, which helps the top management and the board of directors to focus on the company's business and formulate future strategies.

8. Strong secretarial audit saves the organization from getting into any legal confusion as the secretarial auditor keeps a watchful eye on the compliance of the legal aspects.  This saves the resources and time of the higher-level management of the company.

9. Secretarial audit creates the status of compliance with level secretarial standards.  This brings transparency and fairness to the activities of the organization.

10. Secretarial audit stands out as a systematic mechanism for the legal and regulatory aspects of any organization.

11. Secretarial audit is a reliable source for anybody, or an entrepreneur looking to buy or acquire a company.

12. Secretarial audit protects the organization from coming under the purview of legal action and fines etc.  This ensures the optimum utilization of the organization's resources.

10. What is the penalty for making mistake in a secretarial audit?

The secretarial auditor must discharge his duties and responsibilities with utmost care and caution based on prescribed standards.  If any mistake is found in the secretarial audit, then the secretarial auditor can be fined from a minimum of one lakh rupees to a maximum of 5 lakh rupees.  If the company or the officers of the company are also found to be at fault, they are not able to follow the prescribed standard in terms of secretarial audit, then they may also have to pay a fine.

11. Conclusion:

The secretarial audit is an independent process for any organization, which is reliable due to being based on level standards.  This process is extremely helpful in the orderly, well-planned, smooth running of the organization.  The secretarial audit is also a systematic and disciplinary approach in the context of risk management and control for the organization.