What is a Secretarial Audit and when is it required?

A Secretarial Audit is a method to keep in check the compliances of an establishment to the rules, laws, notifications, regulations, maintenance of books, procedures, records, etc. prevailing at the audit time. The rules and regulations of the companies are very complicated and ever-growing. The responsibilities of the promoters, directors, and managerial authorities are also very crucial and complex. Keeping this in mind, it is essential that a practicing company secretary be appointed for Audit.

Overview of Secretarial Audit

An audit is not always about the examination of financial records and accounts of an establishment. In general, it means an accurate inspection and substantiation of the data, efficiency, records, process, etc. of the company. A Secretarial Audit is a method to keep in check the compliances of an establishment to the rules, laws, notifications, regulations, maintenance of books, procedures, records, etc. prevailing at the audit time. The rules and regulations of the companies are very complicated and ever-growing. The responsibilities of the promoters, directors, and managerial authorities are also very crucial and complex. Keeping this in mind, a practicing company secretary must be appointed for Audit.

Each and every company in India has to follow the rules and regulations prescribed under the Companies Act of 2013. Hence, the periodical audit illustrates exact information regarding applicable law on the establishment and the extent to which it has acted according to such provisions of law.

Eligibility to Conduct the Secretarial Audit

A secretarial audit can be conducted by a member of the Institute of Company Secretaries of India (ICSI), who has acquired a practicing certificate. The Practicing Company Secretary (PCS) must furnish the official secretarial audit report to the establishment.

Section 204 (4) of the Companies Act of 2013 with the penal consequences and punishment of the default made in accordance with the audit. Under this section's scope, any officer of the company or the company secretary in practice has been covered.

The audit is part of the legal compliance reporting system. The audit report is helpful for the company's director and the Government of India to conjure up the compliance status of the establishment.

Scope of Secretarial Audit

A secretarial auditor has to check the following compliances under the provisions of the following laws:

Applicability of Secretarial Audit

The Companies Act of 2013 under section 204 (1) regulates the audit's procedure, applicability, and scope. Hence, an audit is mandatory for the following categories of companies:

• All listed companies

• Unlisted public companies that have a turnover of more than INR 250 crore.

• Unlisted public companies that have a paid-up share capital of more than INR 50 crore.

• Private companies that are a subsidiary company of an unlisted public company having:

1. Paid-up capital of more than INR 50 crore.

2. Turnover of more than INR 250 crore.

Advantages of Secretarial Audit

An audit is needed availing the following benefits:

• To make sure that the effective method is in place to keep an eye on the compliances and non-compliance by a company.

• To secure the trust of the employees, shareholders, creditors, management, and directors in the company's functioning.

• The audit makes sure that the legal procedures are intact so that the management can focus on the essential matters.

• By conducting periodical audits, an establishment enjoys the benefit of growing goodwill among investors.

• By conducting periodical audits, the investors interested in investing in the company get a fair idea regarding the level of compliance the establishment does to make sure that the investor's money is in safe hands.

Application of Secretarial Audit

• For Listed Companies

As per the Securities Exchange Board of India (SEBI) provisions, all the listed companies need to get audited by a qualified practicing company secretary or charted accountant.

Audit deals with the reconciliation of all the shares held in NSDL, CSDL, and in physical form with the issued, admitted, and listed capitals of the establishments.

Apart from the audit, the Securities Exchange Board of India has also predetermined for the establishments to provide a quarterly audit report with stock exchanges where the respective shares are listed. If there are any discrepancies are found, they must be notified to the SEBI and depositories immediately.

• For Unlisted Public Companies

Every unlisted public company must conduct a secretarial audit, only if any notice is received from the Registrar of Companies (ROC) or any other concerned authority.

An audit states that compliance with all the relevant provisions of the Companies Act of 2013 or Companies Act of 1956, Securities Exchange Board of India, and other concerned acts.

• Central Public Sector Undertaking

The Ministry of Heavy Industries and Public Enterprises has stated guiding principles on Corporate Governance for Central Public Sector Enterprises. These guiding principles have been put together by keeping in mind the responsibilities that public sectors have toward the general public. The appropriate implementation of these guiding principles can protect the rights and interests of shareholders.

• Stockbrokers Audit

Securities Exchange Board of India (SEBI) has ordered to conduct a full internal audit on a half-yearly basis through the practicing company secretary or charted accountant and management and cost accountant who is in practice.

• For Private Company

Audit for a private company is conducted on an annual basis, and the complete audit report must be submitted with the Registrar of Companies (RoC); the audit must be conducted by a certified charted accountant or by a practicing company secretary. The charted accountant and practicing company secretary should have acquired a practicing certificate number and should eligible to conduct the audit.

Conclusion

An audit is not always about the examination of financial records and accounts of an establishment. In general, it means an accurate inspection and substantiation of the data, efficiency, records, process, etc. of the company. A Secretarial Audit is a method to keep in check the compliances of an establishment to the rules, laws, notifications, regulations, maintenance of books, procedures, records, etc. prevailing at the audit time. The rules and regulations of the companies are very complicated and ever-growing.