Secretarial Audit & Secretarial Auditor Appointment Under Companies Act 2013
Secretarial Audit under Companies Act 2013
Applicability:
Under the Companies Act, 2013, every listed company and every public company having a paid-up share capital of Rs. 50 crore or more, or turnover of Rs. 250 crore or more, are required to conduct a secretarial audit. This is mandated under Section 204 of the Companies Act, 2013.
Applicability to Private Company Subsidiary of a Public Company:
Section 204 is not applicable to a private company which is a subsidiary of a public company. However, it's common practice for such private subsidiaries to voluntarily conduct secretarial audits for better corporate governance and compliance.
Objectives of Secretarial Audit:
Compliance Check: To ensure compliance with the provisions of the Companies Act and other applicable laws.
Risk Mitigation: Identify any non-compliance or irregularities and take corrective actions to mitigate risks.
Enhanced Corporate Governance: Ensure adherence to ethical practices and corporate governance standards.
Stakeholder Confidence: Maintain stakeholder trust and confidence by ensuring transparency and accountability.
Purpose of Secretarial Audit:
The primary purpose of secretarial audit is to provide an independent assurance to the management and stakeholders regarding the compliance of statutory and regulatory requirements. It also helps in identifying areas of improvement in corporate governance practices.
Secretarial Audit Report:
The secretarial audit report is prepared by the secretarial auditor appointed by the company. It includes:
Overview of Audit: Introduction and scope of the audit conducted.
Compliance Status: Assessment of compliance with applicable laws, rules, regulations, and guidelines.
Observations and Findings: Identification of non-compliances, irregularities, and areas of improvement.
Recommendations: Suggestions for corrective actions and measures to enhance compliance and corporate governance.
Confirmation: Statement of the auditor confirming the accuracy and fairness of the report.
Secretarial Audit Report and Company Secretary in Practice:
The secretarial audit report is typically prepared by a practicing company secretary who is duly qualified and appointed as the secretarial auditor. This ensures independence and expertise in assessing the compliance and governance aspects of the company.
Scope of Secretarial Audit:
The scope of secretarial audit encompasses various aspects including but not limited to:
Corporate Governance: Compliance with board procedures, disclosures, and ethical standards.
Legal Compliance: Adherence to Companies Act, SEBI regulations, and other applicable laws.
Statutory Filings: Timely filing of necessary forms, returns, and reports with regulatory authorities.
Shareholder Relations: Compliance with shareholder rights, meetings, and resolutions.
Contractual Obligations: Fulfillment of contractual obligations and agreements.
Appointment of Secretarial Auditor:
The Board of Directors appoints a practicing company secretary as the secretarial auditor. The auditor must be independent and have the requisite expertise to conduct the audit effectively.
ICSI Auditing Standards:
The Institute of Company Secretaries of India (ICSI) issues auditing standards and guidelines to be followed by practicing company secretaries while conducting secretarial audits. These standards ensure uniformity, quality, and professionalism in the audit process.
Process of Secretarial Audit:
Planning: Understanding the business operations, legal framework, and scope of the audit.
Fieldwork: Gathering evidence, conducting interviews, and reviewing documents to assess compliance.
Analysis: Evaluating findings, identifying areas of non-compliance, and assessing their impact.
Reporting: Preparing the secretarial audit report with observations, recommendations, and confirmations.
Follow-up: Communicating the report to the management, addressing queries, and monitoring implementation of recommendations.
Duty of the Board:
The Board of Directors is responsible for ensuring the appointment of a qualified secretarial auditor, providing necessary access to information and resources, and taking prompt actions based on the audit findings to rectify any non-compliances or deficiencies.
Penalty:
Non-compliance with the provisions related to secretarial audit may attract penalties as prescribed under the Companies Act, 2013. Penalties could include fines, disqualification of directors, or other regulatory actions.
Benefits of Secretarial Audit:
Compliance Assurance: Ensures compliance with statutory and regulatory requirements, reducing legal risks.
Enhanced Governance: Improves corporate governance practices and transparency, enhancing stakeholder confidence.
Risk Management: Identifies and mitigates potential risks associated with non-compliance or irregularities.
Operational Efficiency: Streamlines processes and procedures, leading to better operational efficiency.
Legal Protection: Provides legal protection to directors and officers by demonstrating due diligence in compliance matters.
Reputation Management: Safeguards the company's reputation and goodwill by maintaining high standards of compliance and ethics.
