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Object and Usefulness of Secretarial Audit
“Secretarial Audit of a company conducted by a
Practising Company Secretary on the same lines as
financial audit, conducted by Chartered Accountants,
seems to be the only answer to ensure that the
legislations, the immaculate framing of which is such
a Herculean task, are duly respected and obeyed.” -
Concept Paper on Secretarial Audit (2009)
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Object of Secretarial Audit Report
• To express an opinion, based on the
inspection of a company’s record and other
documents and information.
• To report to the company’s management as to
whether, and if so, to what extent, the
company has complied with the laws
comprising various statutes, rules, regulations,
etc.
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Beneficiaries of Secretarial Audit
• Company - assures the management that those
who are charged with the duty and responsibility
of compliance with the requirements of the law
are performing their duties timely, effectively and
efficiently
• People in-charge of the day-to-day management
of the company are not likely to be exposed to
penal or other liability (and consequential risk
and embarrassment) on account of noncompliance with law.
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Beneficiaries of Secretarial Audit
• Independent directors ensuring them that the
company has complied with the laws and,
therefore, they are not likely to be exposed to
action by law enforcement agencies for noncompliance by the company.
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Beneficiaries of Secretarial Audit
• Government - salutary effect of substantially
reducing the burden of the law-enforcement
authorities.
• SEBI, Stock Exchanges, Financial Institutions,
Banks, etc. - to gauge or measure the levels of
compliance and non-compliance by the
companies with whom they are concerned.
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Beneficiaries of Secretarial Audit
• Investors - comfort that the company has
been conducting its affairs in accordance with
laws and, therefore, their investment is safe
and being taken due care of.
• Unearth and check these practices and also
enable law-enforcing agencies take timely
corrective action by brining to book the guilty.
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SECRETARIAL AUDIT
(Section 204)
• For the first time a mandatory requirement for
Secretarial Audit has been specified in the Act.
• SA is literally applicable on set of companies,
which are as follows1. Listed Companies
2. Every public company having a paid-up share
capital of fifty crore rupees or more; or
3. Every public company having a turnover of two
hundred fifty crore rupees or more.
ICSI’s Representation
The rule 9(1) could be amended as under to meet the
immediate needs:
“9. Secretarial Audit Report –
(1) For the purposes of subs-section 91) of section 204, the other
class of companies shall be as under –
(a) every company having a paid-up share capital of fifty crore rupees
or more; or
(b) every company having a turnover of two hundred crore rupees or
more; or
(c) every company having outstanding loans or borrowings from
banks or public financial institutions exceeding one hundred crore
rupees or more at any point of time during the preceding financial
year.”
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SECRETARIAL AUDIT
•
•
•
•
Secretarial Audit Report prepared by a PCS should be annexed to the Board’s
Report of specified companies.
The Board has to provide all assistance to the PCS to enable him to conduct such
Audit.
Any qualification/observation in the report needs to be explained in the Board’s
report.
To ensure compliance of the following Acts, Rules and Regulations thereto
• Companies Act, 2013
• Memorandum and Articles of Association of the Company;
• Securities and Exchange Board of India Act, 1992
• Reserve Bank of India Act, 1934
• Securities Contracts (Regulation) Act, 1956
• Depositories Act, 1996
• Foreign Exchange Management Act, 1999
• Competition Act, 2002
• Listing Agreement,
•
any other law specifically applicable to the Company
Powers and Duties of Auditor
Sec. 143(14)
• The PCS conducting Secretarial Audit shall
have same powers as a Statutory Auditor.
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Penal Provisions
• Besides the punishment of fine of minimum
Rs 1 lakh and maximum Rs 5 lakhs, under s.
204, s.143 is applicable as its sub-s.(14)
provides: The provisions of this section shall
mutatis mutandis apply to—
(b) the company secretary in practice
conducting secretarial audit under 15 section
204.
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Penal Provisions
(12) Notwithstanding anything contained in this
section, if an auditor of a company, in the
course of the performance of his duties as
auditor, has reason to believe that an offence
involving fraud is being or has been
committed against the company by officers or
employees of the company, he shall
immediately report the matter to the Central
Government within such time and in such
manner as may be prescribed.
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Penal Provisions
(15) If any auditor, cost accountant or company
secretary in practice do not comply with the
provisions of sub-section (12), he shall be
punishable with fine which shall not be less
than one lakh rupees but which may extend to
twenty-five lakh rupees.
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Secretarial Audit Report to be part of Board’s Report
Section 204 –
• The Secretarial Audit Report shall be annexed
with the Board’s Report
• Explanation to qualification or observation or
other remarks made by PCS
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Appointment of Secretarial Auditor
• The company acting through its Board of
Directors.
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